BUSINESS TRANSFORMATION AND ORGANISATIONAL

TURNAROUND
ASSIGNMENT - 3

AZAD KUMAR B - 21
SUJAN CHHETRI B - 79

GROUP 4
NIKHIL YADAV B - 48
ANKIT KANDARI B - 12
KESHAV KULKARNI B - 41
ADNAN KHAN B - 08
MIHIR KHOT B - 38
OVERVIEW Industry
Energy

✓ Enron was formed in July 1985. Headquarters

✓ Enron was formed in July 1985 and Enron Corporation Houston, US
is an energy trading, natural gas, and electric utilities
Employee
✓ By 1989 it had begun trading natural gas
22,000 (2000) (App.)
commodities.
✓ In 1994 it began trading electricity. Revenue

$101 Billion (2000)

✓ In 1999 the company launched Enron Online
✓ By 2001, executing on-line trades worth about $2.5 Bankruptcy
billion a day. December 2, 2001
 COMPANY TRACTION
✓ Its revenue in the year 2000 was more than $100 Energy Trading
billion and named as “America’s most innovative Increase in sales between 1996
+57%
companies for six consecutive years by Fortune. and 2000

✓ Enron was listed as the 7th largest company in the

United States. Natural Gas
The company controlled more
50
+25% than 25% of the “over the
counter” energy-trading market
40

30

Electric Utilities
20
Enron shares hit a 52-week high of
$84.47
10 $84.87 per share in the last week
of 2000
0
1996 1997 1998 1999 2000
Downfall The Fall of Enron
mid-2000 Enron was praised for its innovative business model; the company was
US $ 90.75 named "America's Most Innovative Company" by Fortune magazine every
year between 1996 and 2001. Enron's stock price reached a high of US$90.75
per share in mid-2000.

After it was revealed that the company had been engaging in accounting
fraud - had, in fact, been hiding billions of dollars in debt via various
accounting loopholes - the company's shareholders filed a $40 billion lawsuit.
US $ <1$
Nov. 2001 Enron's stock price plunged to less than $1 per share by the end of
November 2001. On December 2, 2001, Enron filed for bankruptcy. At the
Stock Price Downfall
time, Enron's meteoric fall marked the largest corporate bankruptcy in US
history.
WHAT IS C orporate
G o v e r n a n c e

01 It is a system of rules, policies, and practices

It is a system of direction and control that dictates

02 how a board of directors governs and oversees a
company.

It includes principles of transparency, accountability,

03 and security
Organizational Framework for Corporate Governance

Subsidiary Risk
Regulation
Companies Management

Role of
Board of Ethics
Institutional
Directors
Investors

Audit Stakeholders Executive

Committee Relationship Renumeration
Committee
Robert Belfer Norman P. Blake Jr. Ronnie C. Chan

Wendy Gramm Ken L. Harrison Robert K. Jaedicke John H. Duncan

Jerome J. Meyer Charles A. Lemaistre John Mendelsohn

Paulo V. Pereira Frank Savage Jeffery K. Skilling Kenneth Lay

Rebecca Mark Jason Paxton
Jusbasche

Andrew Fastow Kenneth Lay Jeffery K. Skilling

Presence /absence of committees required under clause 49 of
Listing Agreement

Presence Absence

Board Committee
Nomination and
Risk Management Renumeration Committee
Committee

Financial Audit – Shareholders’

Power Committee Relationship Committee

Corporate audit and

compliance committee
 Committee required by Clause 49

Shareholders’ Relationship
05 Committee

04 Risk Management Committee

Nomination and Renumeration

03 Committee

02 Audit Committee

01 Board Committee
The role of statutory auditor (Audit Firm) in perpetuating the
financial fraud
Enron's accounting firm, Arthur Andersen, was accused of applying reckless standards in
01 its audits because of a conflict of interest over the significant consulting fees generated by
Enron.

02 They were accused of overlooking money that had not been represented in the books.

03 Enron hired numerous Certified Public Accountants (CPAs)

04 Capitalizing on loopholes found in Generally Accepted Accounting Principles (GAAP)

The role of statutory auditor (Audit Firm) in perpetuating the
financial fraud

Andersen's auditors were pressured by Enron's management to defer recognizing the

05 charges from the special purpose entities as its credit risks became known

06 Revelations concerning Andersen's overall performance led to the break-up of the firm

The Powers Committee (appointed by Enron's board to look into the firm's accounting in
07 October 2001)
 The Origin of Fraud

1 Due to increased competition, the company’s profits shrank rapidly

Under pressure from shareholders, company executives began to rely

2 on dubious accounting practices, like “mark-to-market accounting,”
to hide the troubles.

It allowed them to write unrealized future gains from trading contracts

3 into current income statements, which gives the illusion of higher
current profits.

The troubled operations of the company were transferred to special purpose

4 entities (SPEs).
 Bankruptcy

In February 2001 Jeffery K.

Mid-2001 many analysts
Skilling took over as Enron’s
began to dig into the details
chief executive officer, In August,
of Enron’s publicly released
however, he abruptly resigned,
financial statements.
and Kenneth L. Lay resumed the
CEO role.

In October the company

After that the company’s stock
announced a $638million loss
price fall from $90 per share in
for the third quarter and take
mid-2000 to less than $1 in
a $1.2billion reduction in
January2002.
shareholder equity.
Changes and Developments Post Facto Kumar Mangalam Birla report

Mandatory Recommendation
Any and all information vis-a-vis investments Committee for remuneration to be set up.
by Shareholders should be shared with them.

Analysis reports covering market opportunities, 3 independent directors to be included in

threats, risks, outlook, industry structure, etc. Audit committee; one to have accounting and
should be ready for external reviews. financial knowledge.

The Director cannot be a chairman of more than Board of directors to should have an optimum
5 committees or a member of more than 10 combination of Executive and Non Executive
committees across all companies. Directors.

At least 4 meetings to be held annually, with a To be applied to listed companies with paid
maximum gap of 4 months between any two up share capital of Rs 3 crore and above.
meetings to review capital budgets, operational
plans, etc.
 Non - Mandatory Recommendation
Several recommendations were made by the committee with reference to the following:

The role of the Chairman New ventures

Remuneration Committee of the board Corporate restructuring

The sale of whole or a substantial part Postal ballot covering critical matters
of the undertaking like alteration in memorandum

Issuing of Capital
 Development of Regulatory Framework
Clause 49: The auditing body was given special importance and many suggestions were made

Report of the Consultative Group of Directors of Banks - The Reserve Bank established the Corporate
Governance of Directors of Banks and Financial Institutions to examine the supervisory role of bank boards
of directors.

Report of the Committee (Naresh Chandra) on Corporate Audit and Governance Committee - The
Committee was given the responsibility of analysing and suggesting reforms in many areas.
Report of the Advisory Group on Corporate Governance - The advisory committee, the Standing
Committee on Worldwide Financial Standards and Code, attempted to compare India's corporate
governance to international best practises.

SEBI Report on Corporate Governance (Narayan Murthy) - SEBI formed a committee to evaluate the role of
independent directors and connected parties in order to strengthen governance standards.

Report of Committee on Regulation of Private Companies and Partnerships (Naresh Chandra Committee
II) - There was a need to update the rules since a large number of private sector enterprises entered the
picture.
THANK YOU