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Enron Failure: Greed or Poor Business Decisions

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Read the following document, "The Rise and Fall of Enron" at http://www.sjsu.edu/faculty/watkins/enron.htm. In your opinion, was this a case of greed or just bad business decisions leading to an illegal cover-up?

This article concludes with this:

"In 2004 the top executives of Enron, Kenneth Lay and Jeff Skilling, were indicted. They were tried and convicted in 2006. They are yet to be sentenced in 2006, but the public was expecting sentences to involve terms of years in prison. Before imprisonment could be imposed Kenneth Lay, at age 64, died.

Some people, even ones that should know better, assert that greed was behind the collapse of Enron. Here are two dictionary definitions of the word greed:
- An excessive desire to acquire or possess more than what one needs or deserves, especially with respect to material wealth. (Webster's Unabridged Dictionary)
- An excessive, inordinate, rapacious desire, esp. for wealth. (Random House Unabridged)

First of all these definitions are defective, but more importantly the assertion that greed per se was behind the collapse ignores the obvious point that Enron collapsed because it was losing money and had been doing so for a long time. Enron lost money because its management made some disastrous decisions. Typically these disastrous decisions were from over-and-unjustified confidence in their ability to manage. They went into risky fields where they had no experience and failed, failed miserably. They developed an expertise in disguising and covering up these failures, but ultimately these financial failures showed up on the bottom line. The relevant failings of the Enron management was mismanagement, their crimes had to do with violating rules and not with greed according to the dictionary definitions. However, the dictionary definitions are defective because what people have in mind in the use of the term greed is an inordinate desire for wealth leading to a violation of moral or legal rules. No one classifies the Beatles as being greedy even though they made a lot of money and consciously put forth effort to do so. Ivan Boesky made a lot less money than the Beatles but he was classified as being greedy because he violated the rules. The salaries and stock options received by the Enron management were set by the board of directors of the corporation. They may have been high, particularly in relation to the quality of the management performance, but they were not what produced the collapse of Enron. The illegal acts were carried out to stave off collapse rather than what caused the collapse. The collapse came as a result of management errors, management errors that were driven by unjustified overconfidence."

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Solution Preview

You are right in stating that the major cause of Enron scandal was bad business decisions followed by illegal cover up. However, it needs to be noted that the top executives made those cover up in order to protect their personal interests in the form of preventing fall in stock ...

Solution Summary

Discusses whether Enron's failure was due to greed or poor business decisions of its top management.