'Enron-The Smartest Guys in the Room paper Essay\r'

'Answer the following principals base on the film Enron: The Smartest Guys in the way (2005).\r\n1. (a) depict the ownership structure at Enron. (b) How did the ownership structure contribute to the Enron indignation? (15 points) When Enron became a publicly traded association, the employees and executives had more inducing to manipulate earnings and financials. With the shift in structure, there were more external stakeholders to satisfy, which caused the high society to focus on short-term results, rather than long-term interests. The comp any went as further as to trade all sorts of things, including brave out and broadband, in order to gain certify from investors. Enron got a lot of that support. Investment chamfers launch rough $25 million distributively into the company. With high stakes and image on the line, Enron manipulated earnings to drive caudex prices up done mark-to-market accounting to please its stakeholders.\r\n2.(a) Describe the following three le aders: visual sense set down, Jeff Skilling, and Andy Fastow. (b) How did EACH leader contribute to the stain? (20 points) stack Lay was a real ambitious man. He was the son of a poor Baptist preacher. Because of Lay’s basal roots, Lay prepareed several jobs as a kid. He always dreamed about being a businessman atomic number 53 day and qualification huge wealth for himself. Lay believed he could live with a better life with more wealth. He also believed in disposal deregulation. Lay had a PhD in economics. He aggressively pushed for deregulation of energy markets in Washington. His intent was to liberate businessmen from disposal activity’s hold. He took advantage of government let energy prices float with the market, and started Enron Corporation through a few mergers. Jeffrey Skilling, former chief operating officer of Enron, was said to be â€Å"incandescently brilliant” by many a nonher(prenominal) at Enron. In reality, he was a risky, danger -seeking gambler. Skilling had a Darwinian celestial horizon and strongly believed in the idea of â€Å" natural selection of the fittest”. He implemented a classify cal conduct the Performance Review Committee. The committee was problematical in the â€Å"rank and yank” system, in which the bottom 15 percent of the company got fired each year. This in conclusion led to numerous unethical actions and turning a stratagem look to fraud because of employees’ design for job security.\r\nSkilling was a former nerd, and went on to change himself. He was very esteem at Enron. When he got Lasik surgery, everyone else did too. Skilling was trustworthy for making energy into a tradable entity and for his advocacy of mark-to-market accounting, which was the briny tool for Enron’s earnings manipulation. Fastow was a very greedy man. He served as CFO of Enron. He was responsible for fluxnel numerous companies that bustnered with Enron. He mainly worked to plough up the financial fantasy cut that Lay and Skilling had created. He was hired to begin with age 30 by Skilling to bring together Enron. He always idolized Skilling and cherished to please him. He ended up hiding about $30 trillion in debt through his companies. In addition, he skimmed off many of the deals he made, using Enron sprouts as collateral. Fastow did not have a strong moral compass, and would routine to the greed of the investment banks. He would wish investment banks accounts for their silence. unitary analyst, John Olsen, started to question the firm, and weeks later, was fired by the investment bank because Fastow paid off the bank with double Enron accounts.\r\n3.(a) Describe the organizational culture at Enron. (b) How did the organizational culture contribute to the Enron dirt? (15 points) The culture at Enron was very cut-throat and alter with greed. Money drove the company and its employees. In fact, even the elevators had displays of the pack pr ices. The company was overtaken by hubris as well. Everyone was on the bandwagonâ€the accounting firm, investors, executives, and employees. The immaculate company thought it was changing the world. Everyone was blind by arrogance, greed, and bills. Enron was always portrayed as a super power in the market. It was said that is person wanted to be part of the market, they had to go through Enron. In addition, many employees, including Skilling, were former nerds and had something to prove. There was a very macho culture at Enron. Skilling would organize dangerous, macho trips for employees and big clients. The stories from these adventures became legend. One man almost died from a flipped Jeep. Stories ilk that were legendary in the office. The culture ultimately led Enron to dirt because of the ideas it had put into concourse’s headsâ€that money drove everything and money was king.\r\n4.(a) Describe the performance concern/ revenge system at Enron. (b) How did t he performance management/reward system contribute to the Enron turd? (20 points) The reward systems were big. The executives and employees were all fans of the â€Å"pump and crap” system in which the employees drove the stock prices up, and would them sell the stocks off. The company was consumed by stock prices, as stocks were a large part of the compensation structure at Enron. up to now the elevators had stock prices posted, so people could be reminded daily that there was more money to be made. The cash bonuses were extravagant too. In fact, a 25-year-old made a $5 million bonus. Executives were given multi million long horse bonuses. In addition, to prevent anyone from raising any flags, Enron played on the greed of the after-school(prenominal) accounting firm, Arthur Anderson, as well as natural law firms. In fact, in 2001, Arthur Anderson got $1 million a week to hold off things quiet and go along with everything. The law firm was paid off handsomely as well. Analysts at investment banks would neer really look into things because of greed as well. Because of all the bonuses, outsiders morose a blind eye, as did employees, which ultimately gave way to the scandal that ensued.\r\n5.(a) Describe the regulatory/oversight weaknesses for Enron. (b) How did the regulatory/oversight weaknesses contribute to the Enron scandal? (15 points) Enron seek to take advantage of the low level of government regulation and the hyper capitalism created by the reigning consumer culture of the time. The company was run by a group of agile individuals who recognized they could take advantage of the government failure of low regulation. Early on while works for Enron, Lay founded many friends within Congress, including the friendship of George H.W. pubic hair and George W. Bush. The government helped in pork barrel enactment for the company, granting it even more power. In addition, Bush senior helped secure millions of subsidies for Enron and helped promo te Ken Lay as ambassador of deregulation at large. In addition, even energy- precise regulators turned a blind eye. Pat Wood, chasten of FERC, was recommended by Lay as chair, and would work with Enron in lack of government intervention.\r\n flush the power lays in California were working with Enron at one point. Enron could call someone at a power plant and cause rolling blackouts in separate of California, driving energy prices up. With support from the government and very low regulation and intervention, Enron had a clean path to scandal. 6.Describe three (3) specific ways, which are directly related to the in a higher place factors, that Enron-like scandals could be prevented in the future. (15 points)\r\n1. Publically-traded companies should have a strong board of directors that oversees the company and does not have investment in the company. cupidity drove Enron to do what it did, but a board of directors who has no stake in the company would be more clinical and ethical in decision-making for the company.\r\n2. There should be less compensation tied to stock performance, as that was a large incentive for fraud at Enron. People’s earnings were tied too well-nigh to stock.\r\n3. Analysts should be help more responsible for their actions. The investment banks they worked for got sued, but who’s to put the analysts who turned a blind eye ever got punished? They made the banks split up of money, so they probably kept their jobs and got a slap on the wrist. More issue in the public eye would warn these actions in the future.\r\n'