The Discursive Management of Financial Risk Scandals - Case Study Example

Enron Case Study Number Enron Case Study Hamilton (2003) d that Enron was established in the mid-1980s by Kenneth Lay after the merger of Houston Natural Gas with InterNorth. The hiring of Jeffrey Skilling as the finance boss led to the transformation of the organization’s culture. Part of the changes brought by the executive were exploiting accounting loopholes, filing inaccurate financial reports and using special purpose entities (SPE) to conceal the company’s heavy debts running into billions of dollars.

Hamilton proposes that the company’s financial department and other key managers not only misinformed the company’s board of directors and auditors on high-risk financial reporting practices, but also urged the entire management to disregard ethical leadership. Hamilton (2003) attributed Enron’s failure to a culture of conceit that led the society in general and economists in specific to buy the idea that it had the capacity to handle complex corporate risks in a successful manner. As such, Enron’s corporate culture was less concerned about advancing the ethics of respect and honesty.

These important values were overlooked in a systematic process which saw the firm shift its focus to the doctrine of subsidiarity and maximization of profits at any cost. By keeping each Enron division autonomous from the others, Hamilton (2003) noted that the financial manipulators and their closest internal associates only were aware of the bigger picture of Enron’s financial position. I agree with Hamilton on the reasons for Enron’s downfall. This is especially true considering that overreliance on decentralization by a large company in an environment where there are inadequate operational and pecuniary controls is normally associated with failure.

In addition, the seemingly diverted, hands-off company board including the chairman was a recipe for financial failure, as they could not initiate adequate checks and balances on the executive managers such as Skilling (Ailon, 2012). As a consequence, the accounting staffs, auditors, and company lawyers equally failed in their mandates. Eventually, the company’s complex financial records became so confusing to the public, the shareholders and even the spin-doctors, hence the failure. In spite of Enron’s dramatic move to formally admit bankruptcy in 2001, the failure did not occur by accident.

According to Temple (2014), there were several presuppositions to the event including a business culture that spawned greed and scam while maintaining cosmetic value rather than real value. Following the merger, the company’s assets tremendously expanded to an extent that it was ranked seventh among the top-ten American companies in terms of revenue. Managing the massive assets usually does not want any form of risky investments and misrepresentation of financial statements as Enron did before its collapse.

Conclusion Enron’s failure was due to risky investment moves, decentralization and manipulation of financial reports. These practices were arguably triggered by an immensely competitive business culture that compensated short-term profitable gains irrespective of their impacts on the long-term gains. The complex financial management culture and amoral practices which were inherent in it such as using accounting controls to misrepresent revenue and costs to show favorable performance clearly heralded the collapse.

The fiasco can also be attributed to the ineptness of the company’s board. The chairman and other board members failed to ensure executive accountability, especially in the wake of Mr. Skilling’s risky corporate practices.ReferencesAilon, G., (2012).The Discursive Management of Financial Risk Scandals: The Case of Wall Street Journal Commentaries on LTCM and Enron. Qualitative Sociology, 35(3), 251- 270.Hamilton, S., (2003). Values and the Virtuous Manager: The Enron Collapse. Lausanne: International Institute for Management Development.

Temple, C., (2014).The REAL Cause of Enron’s Collapse. Retrieved from http://nationalinvestor.com/241/real-cause-enrons-collapse/