Case Analysis

Some argue Enron’s record-breaking bankruptcy and eventual demise was the result of a lack of ethical corporate behavior attributed, more generally, to capitalism’s inability to check the unmitigated growth of corporate greed. Others believe Enron’s collapse can be traced back to questionable accounting practices such as mark-to-market accounting and the utilization of Special Purpose Entities (SPE’s) to hide financial debt. In other instances, people point toward Enron’s mismanagement of risk and overextension of capital resources, coupled with the stark philosophical differences in management that existed between company leaders, as the primary reasons why the company went bankrupt. Yet, despite these various analyses of why things went wrong, the story of Enron’s rise and fall continues to mystify the general public as well as generate continued interest in what actually happened.
The Fall of Enron
In a way, Enron went bankrupt for the same general reason that all companies go bankrupt: they invested in projects that proved too risky and, in turn, they were unable to keep up with the debt obligations of the firm (Niskanen, 2005, p. 2). This does little, however, to explain the specific reasons why Enron became the largest company to file for bankruptcy in U.S. history. Although many will point to Enron’s abuse of accounting and disclosure policies such as mark-to-market accounting, utilization of SPE’s to hide debt, and using inadequately capitalized subsidiaries and SPE’s for “hedges” to reduce earnings volatility as the primary causes for bankruptcy, these abuses were merely symptomatic of a larger problem at Enron: identity crisis. What eventually brought Enron to its knees was the incompatibility of two competing ideological systems relating to how Enron was to operate as a company and make its money.
Prior to the resignation of Richard Kinder in 1996, Enron’s President and COO, a contentious struggle for control was taking place within the upper tier of