In: Economics
list three reasons Enron failed.
The first reason is simple: people do what they know and refrain from acts that call for punishment. Skilling required only the cleverest, most experienced people working for him. He worked them out in the best MBA schools and questioned the top corporations vying for them. While the work was hard and the hours long, Enron committed to providing the luxurious amenities that kept its employees working hard. There were no limits on these bonuses which further forced Enron employees. Skilling set up a cut-throat environment that only cared about profit, fostering an unhealthy workplace that was tolerant of executive wrongdoing. Even Enron's executives were forced to keep up with the rise of the late 1990s. They knew this type of growth wasn't sustainable, but never the less continued the same practices. These executives were rewarded for successful growth and realized that if it did not proceed, they would be punished by credit agencies and trading partners. Inevitably, this line of thought led to significant corner cuts during the exercise of highly questionable and deceptive practice. This corner cutting then plunged the firm into massive debt without a reliable back-up option
The second reason states that not every organization has the same moral standards Enron 's risk manual promoted the notion that earnings reported were simply what the accountant wrote down, rather than a strong and accurate plan for continuous growth. The firm fostered the philosophy of capturing corporate and personal wealth by cutting corners and creating fake accounting records. There was a culture of risk management and wealth growth techniques that looked to accounting records as an easy scapegoat to unprofitable ventures. This line of thinking quickly led to the use of non-traditional and illegal accounting practices, and then to the collapse when the records were fraudulently made. This created a structure in which the company depended on money which was never in fact theirs. Greed caused both the corporation to collapse by developing a system where nobody actually looked out for the company's good. The hunger fuelled executives to make decisions in their own personal interest, at the company's sacrifice that led to the collapse of the Enron. The ongoing chase for more money set Enron apart from other more ethical businesses and it became apparent where their priorities had been.
The third reason states individuals and organisations are not similar. Enron workers Jim Alexander and Sherron Watkins also told Lay that they would get into trouble for the breach in ethics. Lay ignored these messages and continued to do business as usual, and even denied that accounting, trading, or reserves had problems. Both Alexander and Watkins tried to converse with top executives and let them know that things were being noticed, but Enron 's culture was to look the other way and keep working.By ignoring the warning signs, Lay ended up dooming the company to fail due to ignored malpractice and unchallenged criminal activity that the public soon realized. The organization clearly had a different mindset in this example than the two persons who had concerns. They tried to do the right thing but the attitude of the company was completely different.