Name – Hitesh Gupta

Roll No – GMP-17-05
ETHICAL BEHAVIOR

Profile of Enron – The Rise and Fall

Part A:
Ans:
1. Enron was formed as a merger between Huston Natural and InterNorth Inc in 1985, Lay
became the CEO and hired Skilling, who was the McKinsey Partner. In 1992, Skilling devised
the “Mark to Marketing” accounting technique which helped him adjust the historical cost of the
asset to the current cost and the change in the cost is added to revenue. This technique was
approved by SEC in 1992. Because of this technique the revenue increased multiple fold which
cause the stock to increase from $10 to $80 per share.
2. Enron strike a deal with block buster in year 2000, to provide Video on Demand service. Enron again
took the estimated profits and inflated the current revenues/assets in this income statement and
balance sheet. But the deal could not be confirmed.
3. This was the beginning of the end for Enron. As the cash flows were not matching the revenues the
Enron was showing in financial statements. The investors and analysts became wary of the company’s
methods to report financials.
4. In 2001, Enron went into bankruptcy. Many people at the Wall Street lost their profits as the stock
went from $80 per share to $40 per share.
5. Lay died of a heart attack during prosecutions and Skilling was sentenced to 12 years of jail. Ethical
misconduct at the leadership level was the major reason for the downfall of the one of the F500
company.
6. Sure, the leadership Management (Lay & Skilling) was majorly responsible for the fall of
Enron. There was another party which was equally responsible for the fall of Enron and their
own fall. The auditing firm Author Anderson went out of the business because the firms that
were engaging the Author Anderson for the auditing purposes started hiring other auditing
firms as these firms lost trust in Author Anderson.

ENRON - RISE AND FALL

Enron went bank-
rupt

Exponential
Skilling introduced Growth from
MTM Accounting 1995 to 2000
Lay became CEO
and Skilling was
hired Analysts & In-
Merger of Huston vestors began to
Natural Gas & Inter wary about the fi-
North Inc. nancial health

1984 1986 1988 1990 1992 1994 1996 1998 2000 2002

End of Assignment
-------------------------------------------------------------------------------------------------------------------