The paper 'Corporate Collapse: Enron Corporation" is a good example of a management case study. Corporations are formed with a motive to generate profits. This objective can be attained only if corporations adhere to good corporate governance practices. Failure to do so might lead to redundancy and pressures to the firms to declare bankruptcy. This leads to massive job losses and is great harm to the community that relies on such corporations. Corporate collapse can also be attributed to the difficult times experienced by corporations. Companies often encounter difficult times and how they go about them determines whether they can survive or not.
Some firms may undergo formal rescue procedures before regaining health while others may end up in liquidation. The fact that volumes of books and journal articles on corporate failure exist indicates that corporate collapse is not a new phenomenon. Collapse can occur due to many factors and may or may not be predicted. Hamilton and Micklethwait (2006) discussed in detail why firms fail. In their discussion, the authors identified six categories of the main causes of failure as (1) poor strategic decisions, (2) overexpansion and ill-judged acquisitions, (3) dominant CEOs, (4) greed, hubris and the desire for power, (5) failure of internal regulations at all levels from the top downwards, and (6) ineffectual or ineffective boards. This paper focuses on Enron, a giant firm in the United States, which collapsed due to a number of reasons that fall under some of the categories identified by Hamilton and Micklethwait (2006).
The paper discusses in detail the particular cases that led to Enron’ s collapse, with a particular focus on failure in corporate governance.
It begins with a prelude on the collapse. The collapse of Enron Enron Corporation was a giant firm that was once ranked among the top Fortune 500 Companies. It collapsed in 2001 due to a huge burden of debt that had been hidden through an intricate scheme of off-balance-sheet transactions between partners as well as the loss of investor confidence. So intricate were the details of the collapse as the company’ s financial reports earlier indicated that it was making profits, in what Hamilton and Micklethwait (2006) term as “ paper profits, cash losses” (p. 33).
The energy firm was thus forced to declare bankruptcy, causing it to lay off many of its employees, making them lose their retirement benefits that had been invested in the form of Enron Stock. In addition, the company’ s shareholders incurred a lot of losses as its stock price plummeted. The scandal surrounding the company led to a global loss of confidence in corporate integrity that still continues to affect the current market. Thus, there was a need for stricter scrutiny of companies, through the enactment of legislation such as the Sarbanes-Oxley Act of 2002 (Ferrell, Fraedrich & Ferrell, 2006). The collapse of Enron needs no introduction - it is a giant corporation that went down in a matter of weeks.
But while it is important to focus on the factors that contributed to the collapse, it is also worthwhile to evaluate the company’ s entire story, as its collapse was preceded by a glamorous success. As noted by Fox (2003), “ the fall of Enron would not be possible were it not for the preceding rise, and the company’ s missteps – both intentional and unintentional - were not possible had it not enjoyed successes early on” (p.
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