Enron's Strategic Choices and Leadership: A Critical Evaluation

Running head: HUMAN RESOURCE MANAGEMENT
Human Resource Management
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Introduction:
The essay gives an overview of the human resource management from the purview of
Enron Corp. The company represents one of the largest corporations of America formed in the
year 1985 followed by a merger between the InterNorth Inc based in Omaha and Houston
Natural Gas Co. The company is also the first in the history of America to experience a major
collapse. The essay puts forward a critical evaluation of Enron’s strategic choices that influenced
the company in the longer term. The essay also puts forward the missing link in the leadership
that led to Enron’s debacle. The essay also provides necessary recommendations that could have
helped Kenneth Lay in determining the profitability of Enron.
Discussion:
Critical Evaluation of Strategic Choices Adopted by Enron and the Impact on Long term
Sustainability
Enron Corp. was the first pipeline network of natural gas across the nation. With time, the
business focus of the firm had a shifted from regulated transportation of the natural gas to the
unregulated trading markets for energy. The principle for this shift was to make more money in
the selling and buying of the financial contracts mostly linked to the energy assets than the actual
ownership of the physical assets. Until late in the year 2001, almost all the observers including
the professionals of Wall Street considered the transformation of the company as outstanding
success. Between, the year 1990 and 2001, the company reported an increase in annual revenues
from $10 billion to $ 139 billion that placed Enron at the fifth position on Fortune 500
(Eichenwald and Brick 2012). According to Markham (2015), the problem of the company was
not due the core operations related to energy but the strategic choice of other ventures like the

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investment in high tech communication and internet business. This happened since Enron
believed that internet could bring in unlimited opportunities. This motivated the company to not
only purchase the online marketers and the service provider but also construct a communication
network through optic fiber and create market for the trading the capacities of broadband
communications. The company entered the market during the peak thereby paying higher prices
and taking on heavier debts for financing the purchase. However, during the year 2000 when the
dot com crashed, revenues of the company from the investments evaporated leaving aside the
debt. The accountability for huge amount of debt affected the long-term sustainability of the
organization.
McLean and Elkind (2013) put forward that the company’s long-term sustainability was
under question when Enron recorded huge losses in some foreign operations. This resulted due to
the company’s strategic choice in making huge investments in the public utilities of South
America, UK, India with the hope of earning profit in the newly formed deregulated markets.
The sharp price rise anticipated by Enron was blocked by the local politics. Although, the energy
trading business of Enron made money but it was less profitable and extensive compared to the
claims made in the financial report. Energy trading of energy did not produce enough flow of
cash to aid Enron in withstanding the major loss incurred due to the dot crash and investment in
the foreign portfolios.
According to Feldmann and Read (2013), the strategic choice of Enron for using special
purpose vehicles in order to hide debt also had an impact on the organization long-term stability.
Andrew Fastow, the chief financial officer of Enron put forward a plan for portray the greater
shape of Enron despite the loss of money experienced by many subsidiaries. Thus, Fastow along
with others arranged for a scheme of using special purpose vehicles for hiding the details off

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balance sheet. It is also known as the special purpose entities (SPEs) for hiding toxic assets and
debts from the creditors and the investors. The sole aim of the SPVs lay in hiding the accounting
realities instead of the operating results. The transaction between Enron and SPV occurred when
some of Enron’s rapid rising stock was transferred to SPV in return of note or cash. The SPV
then used the stock for hedging an asset listed in the balance sheet of Enron that in turn
guaranteed the value of SPV in reducing counterparty risk. The stock price that the company
believed to appreciate eventually declined. This led to the decline in the value of SPV thereby
forcing the guarantees of Enron in taking effect. The ability of SPV in hedging the falling share
prices of Enron was compromised, as SPVs remained entirely capitalized with the stocks of
Enron.
Baker and Hayes (2015) stated that the case of Enron turned into one of the remarkable
financial scandal due to the company’s response in dealing with the problems. Instead of
disclosing the actual condition to the public investors, Enron made the strategic choice of
falsifying all its accounts. The accounting statements of the firm put across a message that the
losses were not taking place at Enron but other independent entities responsible for absorbing the
losses. These were actually a plot entirely created and controlled by the management of Enron.
Besides, the company also disguised bank loans as the trades related to energy derivates for
concealing the level of indebtedness that affected the long-term stability of the organization.
The financial report put forward in the year 2000 portrayed accounting fictions and the
disappearance of close to 80 percent of profits (Benston and Hartgraves 2012). This led to the
quick collapse of a large corporation like Enron along with job loss, investor wealth loss and loss
of market confidence that suggested existence of serious flaws in the securities regulation system