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THE FALL OF ENRON - Coggle Diagram
THE FALL OF ENRON
CASE
Enron is the poster child for shareholder wealth destruction and bad behavior. This case is a cautionary tale that allows us to understand the role that strategy, systems, improprieties, and internal and external governance played in Enron’s failure.
MY TAKE
What is Enron’s business model before and after 2000?
Before 2000 Enron was natural gas. 37,000 miles of pipleline.
Why were the company’s internal systems, incentives and check and balances unable to prevent its demise?
To what extent was Skilling responsible for Enron's rise and fall?
How much responsibility for the failure of Enron would you assign to its board of directors (“Internal” governance)? How much would you assign to institutions beyond the firm (“External” governance)?
TIMELINE
1985
Formed with Ken Lay as CEO who gave it the name Enron as a natural gas pipeline company quickly grew into a high revenue company in 15 years
1993
Enron largest seller of natural gas in north america. Gas trading contributes 316m to earnings before interest
1999
EnronOnline is created allowing users to buy, sell and trade commodity products with Enron on a global basis
2000 Q4 Trades had increased to 3,084 compared to 672 in 1999
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Late 2000 Enron sold 20 times its pipeline capacity and yet owned 5,000 fewer miles of pipeline than in 1985
Early 2000, Enron starts trading in bandwith signaling expansion from what it was known for (energy)
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Energy trading business
Initially
FERC required interstate pipeline firms to make long term cimmittments to purchase minimum gas volumes from wellhead produces at regulated prices that exceeded spot prices (at gas stations)
Pipelines passed these additional costs to customers through bundling gas and delivery services
After 1985
FERC new rules decoupled purchase and delivery of gas
Customers saved money by buying at spot prices which were lower than bundled prices
This transformed pipeline firms to gas transport companies
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