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Why Did Enron Collapse

Internal considerations have become a very important part of a company's strategy in the past few years. A corporation's strategy must be written so that a corporation is seen as a good corporate citizen. .
             One example of how this can go wrong is when Enron was made a choice to use questionable bookkeeping methods in order to show a huge profit for people in higher levels of management with huge bonuses while at the same time hiding an enormous amount of debt. Tom Fowler of the Houston Chronicle Enron reported the following example about how an Enron employee profited from the misstating of finances; "The partnerships called LJM1 and LJM2, which were formed using Enron equity and outside capital as a way to hedge against the risks involved in some of the company's new lines of business, such as Internet broadband trading and water. They were also designed to help the company grow quickly without adding too much debt to its books or diluting the value of the company's stock. This was accomplished by former CFO Andy Fastow's performing dual roles as Enron CFO and managing director of the entities. Fastow's position was a cause for concern for Wall Street because it would put him on both sides of some of the deals, representing both the buyers and sellers simultaneously. Enron said it was careful to assure there were no conflicts of interest, but under pressure from investors Fastow resigned from those partnerships last summer. But before his resignation he had earned as much as $30 million through his role with the partnerships, while a number of other Enron employees also invested in them personally." As you can see Fastow's actions provide us with an example of how internal considerations were compromised and transformed Enron's corporate strategy to one that was more concerned with personal gain than the welfare of the corporation and its investors.
             It is understood that corporate management has a daunting task of developing a corporate strategy where they are able to make a profit for stock holders but also be a good corporate citizen.


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