External causes for Enron to collapse Essay

1) DeregulationDeregulation of the U.S. energy industry made contingent Enrons emergence as a major corporation, but withal ultimately may devour contributed to its collapse. The social club successfully seized the opportunity seduced by deregulation to create a new business as a market maker in natural gas and other commodities. Enron successfully influenced policymakers to exempt the company from various regulative rules, for example in the scope of energy derivatives. This allowed Enron to enter various commerce markets with virtually no organisation oversight. Arguably, regulation might have prevented Enron from taking about of the perils and making some of the mistakes which it did. While deregulation may initially have helped Enron, by allowing it to create and enter new markets, it newr hurt the company by removing the precise restraints that might have kept it from becoming fatally overextended.2) Lax regulatory imposementArguably, government regulatory agencies failed to exercise sufficient oversight or to enforce the rules that were on the books. Regulatory bodies that failed to enforce the rules governing Enrons actions included the Securities and commutation delegation (SEC), the Federal Energy Regulatory Commission (FERC), and the Commodities Futures Trading Commission (CFEC).3) Weak and ambiguous accounting standardsHindsight makes it fairly clear that the accounting standards promulgate by the Financial Accounting Standards Board (FASB) were likewise weak and too ambiguous with respect to the complex trading transactions and financial structures that Enron establish and operated. Two areas stand out as ones of particular concern. First, the rules apparently permitted the widespread use of market-to-market (MTM) accounting in areas for which it was non originally intended. Second, the 3 part rule for outside ownership of SPEs was arguably too low to bind genuine independence. An underlying issue was that corporeal practice ( e.g., sophisticated online trading of complex financial derivatives) had outpaced the work of the rules makers,leading to the application of rules in situations for which they were not originally designed.4) A lack of independence on the part of the companys auditors and virtue of nature firms working for the companyA key immaterial issue was engagement of interest on the part of accounting and law firms working for Enron. Arthur Andersen, the companys accounting firm, arguably had a conflict of interest in that Arthur Andersen provided both external audit services and inherent consulting for Enron. If Arthur Andersen were to challenge the propriety of Enrons financial statements in its annual audit, it ran the risk of jeopardizing its lucrative consulting and inside accounting work for its client. Moreover, relations between the twain firms were unusually close, possibly undermining Arthur Andersens objectivity and independence. Similarly, Vinson & Elkins, Enrons outside law firm, was seemingly under pressure not to question the legality of the additional Purpose Entities (SPEs) too closely, since Enron was a major client of the firm.5) Inadequate fight down finance and lobbyist rules.Enron made extensive legal use of various techniques of semipolitical influence, including engaging the services of lobbyists, making extensive contributions to political campaigns, particularly development soft money, and hiring former government officials. One of the external causes, then, may have been campaign finance and other rules that permitted such legal exercise of corporate influence in policymaking.6) Weak stakeholder oversight.A case can be made that external stakeholdersespecially large institutional investors such as pension and mutual fundsfailed to exercise due diligence. These institutional investors were intelligent to make handsome returns on their extensive investments in Enron in the late 1990s, but failed to become actively involved in corporate giving medication at the company until it wastoo late.