Enron was the rising star of Wall Street. Its rise was meteoric and its fall was even more spectacular. Started in 1985 as a pipeline company in Houston, TX but under the tutelage of Chairman Kennith Lay and Chief Executive Officer Jeff Skilling soon grew to be a power house of energy trading and eventually expanded to include broad band technology, paper products, weather and other unrelated businesses. In 2001 the rising star was in trouble. Stories of mismanagement and poor accounting principles started to circulate and public confidence crumbled. One might ask why, what brought about Enron's collapse? The down and dirty answer is poor management, corrupt upper management, and conventional business and accounting practices were responsible for the fantastic rise and fall of the energy giant. This statement describes the root cause of the downfall but far more detail is needed to really understand the whole story.
Enron started as a pipeline distributor of fuel in Houston TX. After deregulation of electrical power markets Enron expanded into an energy broker, trading electricity and other commodities. The company soon became the "middle man" or the broker between the wholesaler and the retailer. But instead of just getting the wholesaler and retailer together to make a purchase, Enron entered the contract between the two, effectively purchasing the product and reselling it at a profit. As the push for profit increased so did the creative ways to develop income. Acquisitions were made into new areas of business and partnerships were developed that, though legal, were questionable from an accounting aspect as well as providing a conflict of interest.
THE ENRON CULTURE.
The environment of an organization does not necessarily define how business is done on a daily business but a culture such as the one instilled at Enron by Ken Lay could have been an important factor in the final demise of the organization.