Junior employees were some of the main stakeholders in Enron. The collapse of the company made them lose their jobs, source of income, and retirement benefits. They thought their jobs were secure, yet senior managers betrayed their trust by engaging in fraudulent actions. This weakened the firm’s financial stability. Some of them had long term loans and mortgages to pay, which became difficult after they had lost their jobs.
The firm’s investors were also affected by Enron’s collapse. The firm’s managers had given them false hopes that they were investing in a highly profitable company yet this was not true. Managers used SPE’s to siphon funds out of the firm to other ventures that were not related to its mission in the industry. Therefore, the collapse of the firm caused a lot of distress to these investors, some of whom had invested their life savings in the company.
The government allowed the firm to engage in economic activities that were not related to its core mission. The government’s decision to deregulate the industry encouraged Enron’s managers to engage in dishonest practices, which resulted in the firm’s collapse. Financial regulators should have scrutinised the firm’s activities more, to establish the firm’s true financial situation. Securities regulators failed to protect investors’ stocks from being plundered by the firm’s managers.
Senior managers were able to take advantage of loopholes in the law to commit fraud. External stakeholders such as Credit Suisse and Deutsche Bank made it possible for Enron’s executives to siphon out funds without following proper procedures. They did not raise the alarm when they found out that financial information provided by these executives was false. They also failed to scrutinise the firm’s financial records to establish whether they were accurate.
The case study reveals why senior managers need to observe proper ethics in their dealings. Enron’s executives were driven by their own personal interests, which made them lose focus of what they needed to do to make the firm perform well in the industry. It examines how Enron’s managers diverged from the firm’s goals and objectives which resulted in its collapse.
The case study shows dangers that result from financial malpractices in different business organisations. The case study also reveals the level of influence managers wield in their firms; they determine whether a firm succeeds or fails in the market. The decisions they make should be beneficial to the firm to enable it attain its long term goals and objectives. Enron’s organisational practices lacked honesty, integrity and accountability which led to the firm’s collapse.
The case study also reveals the importance of government regulation, as it helps to safeguard investors’ interests. The decision to deregulate the energy industry made it possible for Enron to start engaging in economic activities that were not related to its mission. Therefore, investors were duped into buying the firm’s stocks by dishonest managers.
This shows business firms need to strengthen their accountability systems to enable all stakeholders to scrutinise their financial dealings. Managers need to respect the authority vested in them to ensure their activities do not threaten the stability of their firms. They need to respect codes of ethics that govern their professions to safeguard their firms’ assets and reputation. The case study shows why business firms need to assess risks related to their operations to enable them make sound decisions.