Case9_Enron - Case 9 The Collapse of Enron TEACHING NOTE...

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Case 9: The Collapse of Enron TEACHING NOTE FOR: THE COLLAPSE OF ENRON 1 This case illustrates the following themes and concepts discussed in the chapters listed: Theme/Concept Chapter Stakeholders 1 Conflict of interest 4 Corporate culture and ethical climates 5 Accounting ethics 5 Ethical safeguards 5 Government regulation and deregulation 8 Business as a political participant 9 Political action tactics 9 High-technology business 13 Stockholder rights 14 Corporate governance 14 Executive compensation and stock options 14 Government protection of stockholder interests 14 Whistle-blowing 16 TEACHING TIP: VIDEO “Enron: The Smartest Guys in the Room” may be used with this case. This 110-minute documentary by Alex Gibney is available for sale in DVD format from various commercial sources. Amazon.com describes the film this way: “Based on the best- selling book of the same name by Fortune reporters Bethany McLean and Peter Elkind, a multidimensional study of one of the biggest business scandals in American history. The chronicle takes a look at one of the greatest corporate disasters in history, in which top executives from the 7th largest company in this country walked away with over one billion dollars, leaving investors and employees with nothing. The film features insider accounts and rare corporate audio and video tapes that reveal colossal personal excesses of the Enron hierarchy and the utter moral vacuum that posed as corporate philosophy. The human drama that unfolds within Enron's walls resembles a Greek tragedy and produces a domino effect that could shape the face of our economy and ethical code for years to come.” Discussion Questions: 1. Who were the key stakeholders involved in, or affected by, the collapse of Enron? How and to what degree were they hurt or helped by the actions of Enron management? 1 Copyright ©2006 by the author. All rights reserved. Case 9-1
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Case 9: The Collapse of Enron 2. Considering all aspects of the case, what factor or factors do you believe most contributed to the collapse of Enron? 3. What steps should be taken now by corporate managers, stakeholders, and policy makers to prevent a similar event from occurring in the future? Discussion Questions and Answers: 1. Who were the key stakeholders involved in, or affected by, the collapse of Enron? How and to what degree were they hurt or helped by the actions of Enron management? Stakeholders are those people and groups that affect, or are affected by, an organization’s decisions, policies, and operations. Many stakeholders, both market and nonmarket, were affected by the collapse of Enron. Stockholders initially reaped tremendous gains from their investments in Enron stock, as the company’s price rose much faster than market averages during the late 1990s. In 2001, as the stock price collapsed, investors lost $70 billion in market value. Both individual and institutional shareholders were hurt. Particularly devastated were Enron employees whose 401(k) retirement plans were heavily invested in their company’s stock.
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