The Enron Company was one of the largest companies that sold electricity and natural gas. They were also involved in the distribution of energy and risk management and financial services to many people worldwide. This company gained wealth due to its initiative marketing and endorsement of power and communications services and risk management offshoots. The company became very successful and seemed indestructible. Everything seemed rosy until they filed for bankruptcy in 2001.
With all this success and rapid expansion the company had to borrow money. This was in a bid to cover up their excess debts. The debts would have made the stock value dip and they could not take that chance. So they opted to hide their debts in ‘partner’ corporations. With this information under wraps Enron kept looking better because of their unethical and illegal accounting practices. They also began favoring potential large investors with insider information while ignoring the smaller investors. Other industry peers began questioning how the company made so much money time and again.
While all this was going on the company’s CEO was secretly selling his stock. By October 2001, they could no longer hide the illegal practices in the company. They announced a loss of $ 638 million dollars. The stock price took a dive until it was worth nothing. Then came in the creditors claiming their debts be paid before the company shut its doors. Since they could not repay its debts, the company was forced to file for bankruptcy. Besides the financial department, the operations management department also had a role to play in the collapse. The company’s values and principles were not followed since most employees were in it to also get rich.
If the management had supervised whether the company’s ethic were being followed they would have escaped bankruptcy. The Enron bankruptcy was one of the largest ever since it affected people all over the world. This led to the government scrutiny on large corporations to protect people’s interests and ensure this does not happen again.
Mercy Maranga writes content on Finance and Debt Management. Visit her site here for more information on Finance and how to effectively Manage your debts.
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