2. ⦿American energy, commodities, and services company
based in Houston, Texas.
⦿Employed approximately 20,000 staff.
⦿Claimed revenues of nearly $101 billion during 2000.
⦿Enron filed for bankruptcy protection in late 2001
⦿Attained its greatest value of $90 and to less than $1
per share at the end of 2001.
3.
4.
5. ⦿ More commonly known as rank and yank system.
⦿ A rating system used by companies to evaluate their
employees. The system requires the managers to evaluate
each individual, and rank them into one of three categories.
⦿ This system is widely-used, but remains controversial due
to the competition it creates, and also the reality that not all
employees will fit neatly into one of the categories and
might end up in a category that does not reflect their true
performance.
6. ⦿ Creates negative competitive spirit
between the employees.
⦿ They start working for the benefit of
themselves and not the company.
⦿ A certain percentage of employees
loose their jobs every year.
⦿ It makes employees more
competitive.
⦿ It is a transparent system for
evaluating employees.
DISADVANTAGES ADVANTAGES
7. ⦿In the case of Enron, the forced ranking distribution
scheme created negativity amongst employees as they
became more and more greedy.
⦿Traders no longer worked in the interest of the
company but worked for personal benefits.
8. ⦿The basic method to prevent this kind of employee
behavior, at micro and macro level will be simply to not
implement this scheme.
⦿Even if this scheme is implemented, company should
see that whether this scheme is positively motivating
the employees to perform better.
⦿A few companies that successfully use this scheme are
Microsoft and GE.
9.
10. ⦿There were huge issues with the way that the
organization did their auditing and accounting work.
⦿There was no transparency in their work.
⦿Also they did not prepare true and fair balance sheets
and cash flow statements.
11. ⦿ Enron sponsored a retirement plan – a “401(k)” – for its employees to which
they can contribute a portion of their pay on a tax-deferred basis.
⦿ As of December 31, 2000, 62% of the assets held in the corporation’s 401(k)
retirement plan consisted of Enron stock.
⦿ Many individual Enron employees held even larger percentages of Enron stock
in their 401(k) accounts.
⦿ Shares of Enron, which in January 2001 traded for more than $80/share, were
worth less than 70 cents in January 2002.
⦿ Consequently, the company’s bankruptcy has substantially reduced the value
of its employees’ retirement accounts.
⦿ The losses suffered by participants of the 401(k) plan have prompted questions
about the laws and regulations that govern these plans.
12. ⦿The board of directors had a major role to play in the
company’s destruction.
⦿They promoted unfair practices to fill their pockets,
instead of stopping them.
⦿This promoted corruption in the organization.
13. ⦿ Securities analysts employed by investment banks provide
research and make “buy,” “sell,” or “hold”
recommendations for the use of their sales staffs and their
investor clients.
⦿ Analyst support was crucial to Enron because it required
constant infusions of funding from the financial markets.
⦿ On November 29, 2001, after Enron’s stock had fallen 99%
from its high, and after rating agencies had downgraded its
debt to “junk bond” status, only 2 of 11 major firm analysts
rated its stock a “sell.”
14. ⦿Banking companies, notably Citigroup and J.P. Morgan
Chase, were involved in both the investment banking
and the commercial banking businesses with Enron.
⦿These companies suffered a lot due to Enron’s fall.
⦿They wanted to earn as much as possible.
⦿They totally disregarded the fact that there was no
transparency in the business.
15. ⦿These issues could have been easily prevented at
both, micro and macro levels.
⦿At a micro level, the companies can have people who
are committed to the company and want to work with
transparency and sincerity.
⦿At a macro level, the governing boards should promote
fair practices in the organization. They should design
policies that will make the organization more
transparent and less prone to scrutiny.
16.
17. A measure of the fair value of accounts that can change
over time, such as assets and liabilities. Mark to market
aims to provide a realistic appraisal of an institution's or
company's current financial situation.
The accounting act of recording the price or value of a
security, portfolio or account to reflect its current market
value rather than its book value.
When the net asset value (NAV) of a mutual fund is valued
based on the most current market valuation.
18. ⦿Enron used this scheme to appreciate their share
value.
⦿They showed profits that were only an assumption and
never existed in reality.
⦿This way they were able to window dress their share
value.
⦿They exploited the scheme.
19. ⦿Preventing the wrong use of such schemes is really
important so as to present a realistic picture of the
company.
⦿At a Micro level, the board of directors should have
forced the CFO, Andrew Fastow, to resign.
⦿At a Macro level, the government should have made
new policies so as to prevent companies from misusing
the mark to market accounting technique.
20. ⦿ Examine ethical climate and put safeguards in place.
⦿Don't just print, post and pray.
⦿Build a robust ethics infrastructure that is self-
sustaining.
⦿Publicly commit to being an ethical organization.
⦿Separate auditing from consulting functions.
21. ⦿ Talk with employees at all levels often.
⦿ Build ethical conduct into corporate systems.
⦿ Establish an Ethics Committee to constantly keep the
organization focused on the seven main provisions of the
Federal Sentencing Guidelines of 1991 in mind.
⦿ Live your corporate values.
⦿ Keep the lines of communications open.
