ANSWER KEY CASE SUMMARY-THE ENRON COLLAPSE - THE ENRON COLLAPSE ANSWER KEY CASE SUMMARY 1 Brief Background and Context Enron is one of the most famous

ANSWER KEY CASE SUMMARY-THE ENRON COLLAPSE - THE ENRON...

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THE ENRON COLLAPSE ANSWER KEY CASE SUMMARY 1. Brief Background and Context Enron is one of the most famous bankruptcy cases in US corporate history on how it can go all so wrong. The Enron case is one of the most often taught and discussed cases when deliberating about ethics in business. Enron came from relatively humble origins. Houston Natural Gas, under the leadership of Ken Lay, merged with InterNorth, a gas line pipeline company, to form Enron. The combined company grew to become the largest natural gas pipeline system in the US. Ken Lay, Chairman and CEO, was a huge proponent of energy deregulation. He hired Jay Skilling, Partner in charge of Energy practice at McKinsey to head up Enron Finance and form a “gas bank” that enabled funding for small gas producers in exchange for selling their natural gas to Enron and route through their pipeline network. Enron began to expand overseas it its drive to become a true global player. Significant investments were made in Latin America, India (Dabhol) and the UK (water utility). Enron also ramped up its trading activities. Andy Fastow was hired to develop Enron’s funding business and to manage capital and debt. Enron was quite highly leveraged and needed to be proactive about its financial profile. Skilling got promoted to President and COO (and later to CEO) and he appointed Fastow to become CFO. Enron continued to simultaneously pursue to competing strategies: physical assets and trading assets, both of which required a lot of capital. Real pressure was on trying to preserve investment grade ratings while not diluting the shareholders. Enron turned to off balance-sheet structured finance techniques and “mark-to-market” accounting to handle this financial tension. Enron continued to expand quickly and broaden its trading strategies. The lack of management integrity and the resulting impact on corporate culture was ultimately the downfall of Enron. 2.Who are the key players involved in the case?

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