ENRON DOWNFALL AND ITS EFFECT ON EMPLOYEES

PRESENTED BY Dilmini Udugampola Harsha Mudunkotuwa Dirrel Fernando Sarath Vidanagamage Chakrapani Piyasena Niroshan Fernando Aruna Gangodawila

ENRON
Based Texas USA Commence business 1985 Involve Electricity, Natural gas, Communications, Pulp and Paper Employees- approximately 20,000 staff Turn over US$ 101 Billion in 2001 Pioneer Successful energy trading strategy
26/08/2012 Harsha Mudunkotuwa

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Harsha Mudunkotuwa

ENRON SCANDAL
Enron scandal was a high level accounting fraud. In 1992 Jeff Skilling then president of Enron convinced federal regulators to permit to use an accounting method known as Mark to Market. Special purpose entities (SPE) were used to establish Enron credit rating at highest level. They make sure to keep share prices high SPE deals were so complex.(Raptors) When Enron stock began to decline the raptors began to decline as well. On August 2001 Enron CEO Jeff Skilling resigned due to family issues.
26/08/2012 Dilmini Udugampola

UNETHICAL & ETHICAL MEMBERS

Sherron Watkins, VICE CFO Whistle Blower

Right: Jeff Skilling, CEO Left: Ken Lay, CEO Both were heavily involved and benefitted from the corrupt activity at Enron.
26/08/2012 Dilmini Udugampola

Unethical behaviours of Senior Management

Enron Board failed to safeguard shareholders interest The board may have been misled by management and in some cases by the Auditor The board waiving the code of ethics to allow personal transactions for their senior management. Board approved company loans to the CEO which he could repay with company stocks($81M) a practice that amounts to undisclosed stock sales Director compensation was higher than in comparable listed companies Private consultancy services provided by board members to management Board endorsement to carry out internal audits by their external auditors Enron engaged in large scale gift giving that resulted in many potential conflicts of interest. Overall a misconception of Enrons Social Responsibility that resulted in excessive and sometimes unethical donations Chakrapani Piyasena

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Unethical practises of stakeholders

Arthur Andersen Enrons external auditors handle the internal audit. Professional analyst who failed to forecast disaster Employees of Banks which involved in SPEs were also had interest on shares.

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Niroshan Fernando

IMPACT OF THE SCANDAL

Global loss of confidence in corporate integrity. Significant change in accounting industry. The Sarbanes-oxley act was implemented. Collapse of Electricity trading market Investor losses amounted to billions of dollars.
26/08/2012 Aruna Gangodawila

Impact on employees from Enron scandal

Loss of employment to the entire work force 4000 odd employees struggling to find jobs One senior executive committed suicide Many retirees were forced to return to work in a bleak job market as their heavy retirement portfolios were wiped off Employees were deceived about the firms actual financial condition and deprived of the freedom to diversify their retirement portfolios; they had to stand by helplessly while their retirement savings evaporated at the same time that top managers cashed in on their lucrative stock options

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Dirrel Fernando

Conclusion
Enron was a massive failure,because of its size, complexity and inability to control and to protect the integrity of capital markets

and due to the massive greed and collusion of key participants.

As a result Management , auditors , analysts , creditors/bankers , and regulators failed. The intersection of multiple failures sent a signal of structural problems. Suddenly, the consequence of deceptive financial data resulting from structural failure in the capital markets was not merely a hypothetical possibility. The speed with which the system responded indicates the

importance of fairly presented financial information.

26/08/2012 Sarath Vidanagamage