Rise and Fall of Enron Term Paper

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Rise and Fall of Enron

The meteoric rise and fall of Enron is one of the most notorious tales in the history of corporate America. Enron was the seventh-largest company in the United States in 2000 and 'Fortune' magazine had declared it as America's "most innovative company" for six straight years; its share price had climbed from $10 a share in 1991 to over $90 a share in August 2000 while its revenue jumped to more than $100 billion. ("Rise and Fall of an Energy Giant") No one could have predicted that before the end of the following year the "rising star" of corporate America would be filing for bankruptcy, shaking investor confidence to the core and signalling the end of the longest bull-run in the American stock exchange's history. The ramifications of the dramatic collapse still reverberate in global financial and energy markets as well the U.S. courts, where a number of former Enron managers face serious criminal charges. This fairy tale rise and ignominious fall of Enron is the subject of this paper.

The Rise

The Pipeline and Energy Company:

Enron Corporation was formed as a result of a 1985 merger of Houston Natural Gas (HNG) and InterNorth -- a Nebraska-based gas pipeline company. Kenneth Lay, CEO of HNG, became Enron's first CEO and proceeded to make it the first nationwide natural gas pipeline. Enron soon became involved in the transmission and distribution of electricity in addition to gas in the U.S. As well as the development, construction, and operation of power plants and pipelines worldwide. Its profits were, however, modest as in those days, energy was a government-sanctioned monopoly.

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(Lindstorm)

Taking Advantage of Deregulation: Things began to change as the gas and electricity sectors were deregulated by the early 1990s. Kenneth Lay decided to take advantage of the deregulation and hired Jeffery Skilling a young consultant with a banking and liability management background, in 1990 -- making him the CEO of a new division in Enron -- the Enron Finance Corp. The duo proceeded to transform Enron from a 'boringly predictable' and regulated Gas Company into one of the largest energy traders in the U.S. that would eventually dominate the trading of energy contracts and financial instruments known as derivatives.

Trading Becomes the Mantra: As Enron's revenues sky-rocketed in its initial forays into wholesale buying and selling of gas and electricity, Skilling was emboldened to extend the trading concept into almost any commodity that could be traded, i.e., futures contracts in coal, paper, steel, water and even weather. Taking advantage of the growing use of the Internet, Enron started Enron Online (EOL) in October 1999 -- an electronic commodities trading Web site that was hugely successful almost overnight. Skilling hired the brightest talent from the top MBA schools and turned them into high-flying traders with incentives to "eat what they killed." (Thomas, para on "The Best, the Brightest ... ")

... And Fall

While the company grew rapidly through the 1990s, "some of the worst manifestations of its culture -- obsessions with bonuses, the stock price and exotic accounting -- were also growing, and out of control." (Fowler, "Enron's Implosion ... ") Enron did make huge profits for a short….....

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