The fall of Enron has forced many businesses to rethink their strategies on reporting their finances. Additionally, due to the variety of issues that created the problems at Enron, the government has increased its efforts to police financial accounts of large businesses in the United States. These changes are extremely important to the success of our organization and we must be able to learn from the mistakes made by Enron.
The reasons for the downfall of Enron are many, and include high-risk investments, hiding information to decrease their debts and posting false profit reports. Over a four-year period, Enron had entered into risky investments, and did not disclose millions of dollars in debt. In October of 2001 it was revealed that Enron amassed a debt of over 1 billion dollars that had been kept hidden from the public. Many of these investments had made millions for the Enron executives, while driving the company's finances down. It was later revealed that tax officials and other auditing personnel had been bribed by Enron officials to maintain these false statements, and receive tax breaks. By December 2001, Enron had filed for chapter 11 bankruptcy, costing nearly 4,000 employees their jobs. This scandal also cost those employees much of their retirement income, because the majority of their 401K retirement savings was in Enron stock, which had plummeted during this time.
The first problem that could have been avoided is the fact that the upper management in Enron worked for themselves rather than the company. If the company had a good management team that worked to make the company money and keep it successful, these problems may not have occurred. By having qualified managers, financial officers and board members, who are there to improve the organization, the massive problems at Enron could have been averted. A second, related problem was the high-risk investments made by the managers.
