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Interpretation of the Enron Story - Essay Example

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Summary
McLean and Elkind stated in chapter 15 that "all that mattered was that the stock was going up." How is this simple statement indicative of Enron's complex management strategy Please support your answer with examples.
Critics have identified the complicated management approach as one of the culprits that caused the firm's collapse…
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Interpretation of the Enron Story
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Considering the unpredictable circumstances and calculated risks, Enron was successful on paper. This was reflected in the financial reports suggesting the extent of growth in the financial capability of the company. Specifically, the level of stocks reported by the company has skyrocketed. The information provided by the Enron 10-K annual report suggests that it was only in 1997 that the company experience a decline. The growth, however, can overcome such deficit. The best years of the company was observed from 1998 to 2000.

Based on the information, the stock performance of Enron illustrated a positive growth of 37%, 56%, and 87% positive growth during the years mentioned in succession. Positive growth was also recorded from 1993-1995 which showed increase in stock ranging from 5%-25% (Healy and Palepu, 2003). The growth in stock is generally perceived as an advantage for the company. Increasing the stocks means that more investors become willing to invest in Enron. This will improve the financial resources of the company because the market capital also expands.

Accordingly, this performance was fuelled by the intricate schemes of Enron in managing its operations. By 1995 accountants at Arthur Andersen knew Enron was a high-risk client who pushed them to do things they weren't comfortable doing. James Hecker wrote a parody to that effect in 1995. Discuss and analyze this parody and how it applies to Enron Accounting and Arthur Anderson. James Hecker was a partner of Enron based in Houston. Hecker became known for the parody of the Eagle's song Hotel California.

Hecker made an analogy of the song as the likely situation that is observed between Andersen and Enron. Although the parody was written in 1995, it became an immediate source of reasoning for investigating Andersen for the Enron debacle. It has to be noted that Hecker also testified against Andersen further strengthening the evidences against the trouble auditing firm. According to Hecker, Andersen had knowledge on the nature of Enron's operations. The company even branded Enron as a high risked firm that is willing to do all means required to achieve its goals.

Moreover, Hecker described the relationship of the Andersen employees to Enron. In the exact words, Hecker said: "Managers in the doorway, thinking out of the box. And I was thinking to myself, I'll bust by butt and then I'll bust my rocks (Schepp, 2002)." This satire showed how generously the employees of Andersen working for Enron were compensated and provided with great incentives. Moreover, Hecker described Enron as a lovely face and a fragile place. Basically, Hecker has knowledge on the true status of the company.

Physically, Enron appears to be growing as it's financial reports suggest growth. On the other hand, Hecker had a premonition that the company was troubled inside. Hecker even mentioned in the satire that the managers will soon bring their alibis to court. Precisely, Hecker highlighted the events that will happen years later.Enron's malfeasance led to the creation of the Sarbanes-Oxley Act. Please briefly describe the law and discuss its implications. Do you think it will eliminate future "Enron Like" scandals As U.S. witnessed the biggest corporate downfall in Enron, several policy makers have exerted efforts to prevent such from happening again.

In response to the situation, the Sarbanes-Oxley Act was passed to emphasise management accountability. The Act

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