What brought on Enron's collapse?

Essay by ophof33University, Bachelor'sA+, January 2005

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What brought about Enron's collapse? An interesting question since I really did not know the answer to it. I thought the company went down for embezzling. After researching this for my paper, I was wonderfully surprised to discover what really brought about the collapse. It was not just one area or one department; it was many different divisions together.

Peter Behr and David Hilzenrath from the Washington Post quoted quite eloquently "Enron fell because of massive failures by its management, board and outside advisors as well as self-enrichment by some employees". This was exactly what I discovered to be true.

It really began when Jeffrey Skilling took over as Chief Executive Officer (CEO) back in February of 2001. Mr. Skilling waived all ethic rules of business when he allowed Andrew Fastow to head up particular persons or groups that bought and sold assets with the company, all while still working for Enron.

It was quoted in a report that described "Fastow as the primary creator of Enron's deceptive finances"1. But, it really wasn't just his ability to manipulate that led to the fall. Kenneth Lay, chairman of the board, and Mr. Skilling were often called inattentive. These top two executives, along with other board members, neglected to monitor Fastow's activities. All the while he earned a reported 30 million, often bumping up his sales so his commission would be larger.

Fastow wasn't the only one misrepresenting the figures; many sales personnel reportedly earned a 3% bonus on all transactions. They cleared the bonus when the sale was commissioned, not when the profits began to show. Naturally, this was a temptation by many to "bump up the numbers". Falling again on the top executives and board members for being unobservant and not stressing a more critical voice.

The accounting department played...