The Use Off-Balance-Sheet Financing in Enron Corporation - Assignment Example

ENRON Enron was a promising company; all it had to do to remain successful was keep ethical, keep its balance sheets accountable and transparent, andbe honest to its investors. Enron was a company with a great deal of strength in integration and market development, but this company had the sort of retrenchment and financial opacity weaknesses that led to its ultimate downfall and scandalized position in the market. Enron was called out on corruption and its leaders have been indicted for fraudulent financial statements and business practices.

The company folded by 2001 (Byrne, 2002). It folded, but in its prime was considered to be an innovative company and industry leader. This shows the economic nature of many American lobbying practices, in which money is brought to Washington by companies rather than interest being brought from Washington to companies. Enron’s officers went beyond the scope of authority through off balance sheet financing. After the very public fall of Enron, new accountability measures became the stuff of extreme media, public, and political scrutiny.

Byrnes article looks at issues of internal financial controls and transparency from the perspective that change-positive businesses of the present, in the current atmosphere of shaken investor confidence in the wake of a rash of corporate scandals not just limited to Enron, must heed new accountability standards as a way of regaining a general sense of shareholder wellness. Specifically, it is important to look at off-balance-sheet finances, several examples of which, including synthetic leases and special purpose entities, have been called into question through misuse by companies like Enron, and which are subject to new scrutiny under various new regulatory measures.

Regarding Enron having to be responsible and not give excuses, this is something I believe in. If I mess something up, I don’t give anyone excuses, because who wants to hear them? I really doubt though that anyone is going to trust a company associated with Enron after a major downfall like that, unless it is a big enough company that it can handle it. Basically what the ethical breach was at Enron was that the company paid out over fifty million dollars in bonuses to its executives before going bankrupt and letting thousands of lower level employees go without any similar recompensation, and after keeping two separate sets of books.

The company was accused of using off-balance-sheet financing to hide the fact that it was going bankrupt from shareholders and investors. What people mainly don’t realize about Enron, since it has been demonized in the mass media, was that before the downfall, it was very successful in terms of organizational structure. The target market of Enron changed drastically due to progressive industry deregulation and heightened opportunities for companies with a risk-positive attitude towards change.

In essence, the target market preferred by the organization overall was the recently-deregulated market. The threat of new entries into the industry in this market was lessened by the amount of capital required, as well as the hesitation and risk-averse behavior of many of Enron’s established competitors. Enron engaged in a new sort of relationship with buyers who were seen to have more bargaining power than ever, and made this situation work for the company by facilitating agreements that were individualized and tailored to different sets of customer demands.

The power of government became less in the oil, natural gas, and electricity industries in which Enron operated (Weiss, 2001). Enron was also able to take advantage of the lessening of government regulation in other countries in South Asia and Europe, even going so far in some cases as to become an agent of governmental change as a reflection of organizational structure. However, despite this dynamism, Enron was called out on corruption and its leaders have been indicted for fraudulent financial statements and business practices, showing a basically ethically dysfunctional organizational environment in the accounting and transparency of information in the abovementioned organization.

Accountability has become a corporate watchword, in part because of Enron’s fall. The main individuals involved in the Enron scandal are Kenneth Lay and Jeffrey Skilling. Kenneth Lay is more publicly associated with the case although his name is often mentioend beside Skilling’s, because Lay is the individual who founded the company in the first place, while Skilling was its CEO. “Enron founder Ken Lay and former chief executive Jeffrey Skilling have suffered another setback in their efforts to have their trial at the end of the month dismissed.

US District Judge Sim Lake, who will be hearing the fraud and conspiracy case, threw out allegations of misconduct by prosecutors. The pairs lawyers have been arguing for months that prosecutors have hampered their defence efforts by intimidating key witnesses” (Enron, 2006). Also involved by proxy are the other Enron executives who got payoffs before the company went bankrupt, and the lower level employees who didn’t see any of this finance coming \ their way. These officers went above and beyond the law, and their motivation remains a mystery.

Perhaps it was greed, or perhaps it was a circumstance in which what initially was a tool used to protect the investor, became a weapon to be used against them. In any case, Enron’s fall gives us many lessons for the challenge of the future. REFERENCE Byrne, J. (2002). No Excuses for Enron’s Board. Business Week. Weiss, Steven (2001). The Fall of a Giant: Enron’s Campaign Contributions and Lobbying. Open Secrets, 6(31). Enron judge says trial must go ahead (2006). Evening Standard.