Strategic Purpose and Governance: An Analysis of the Enron Scandal

This report provides an in-depth analysis of the Enron scandal, focusing on its strategic purpose and the failures in corporate governance that led to the company's downfall. The report examines the misalignment between Enron's strategic objectives and its governance policies, highlighting the role of key stakeholders such as executive management, employees, shareholders, and affiliated third parties. It explores how conflicts of interest, lack of oversight, and misuse of financial instruments contributed to the scandal. The analysis includes a discussion of the implications of the alignment between strategy and governance, emphasizing the importance of consistent governance principles and the need for independent entities to monitor strategic execution. The report also addresses the impact on various stakeholders, including the economy, and suggests potential measures to prevent similar incidents in the future. This report provides a clear understanding of the Enron scandal and its implications for business strategy and corporate governance.

Running head: ASSIGNMENT ON STRATEGY PURPOSE
Assignment on strategy purpose
Name of the university
Name of the student
Author note

1ASSIGNMENT ON STRATEGY PURPOSE
Part 1
 The company law has been changing over the years and the primary drivers of the change
are the financial scandals. The corporate governance of the company was proved as the
failure. It has been assumed that the failure of the corporate governance of the company
was the result of the serious disagreement between the senior level of management and
the board during the time that led to the bankruptcy of the company. However, the article
by Simon Deakin argues that this was not the only reason for which the company, Enron
failed. Rather the failure of the management and the board of the company in taking the
responsibility of the risk which was inherent in the business plan (Deakin and
Konzelmann 2004). Particularly the uses of the forms related to the Special Purpose
Entities and structured finance. The company drastically misused these above mentioned
forms which were off-balance sheets of financing and their lack of willingness to correct
their primary misreporting in the accounts of the company. Simon Deakin marks this as
the main drivers that led to the destruction of the market confidence in Enron; the
disagreement of the interest between the board and the management causing the failure of
the company (Deakin and Konzelmann 2004.).
From the above analysis, it can be stated that the corporate governance of the
company should have been more of a role for Enron and other companies who are
progressive as well as aggressive kind of nature (McLean and Elkind 2013). The
company had a large number of directors outside the board which initially was
established as good practice, however, the outside directors had compromised with their

2ASSIGNMENT ON STRATEGY PURPOSE
independence. The result was that it created major conflicts of interest among the board
and the management.
 The scandal had a major influence on the key stakeholders of the company (Deakin and
Konzelmann 2004) The key stake holders who were involved in the process of
development of the strategy purpose are the executive management, employees of the
company, stockholders and the third parties that were affiliated with the organizations
such as Arthur Anderson which was the international accounting firm. The economy also
to a large extent affected by the fall of the company. Enron’s executive management
claimed that they did everything to protect the reputation of the company (Deakin and
Konzelmann 2004). The employees of junior as well as the senior level lost their job after
the scandal of the company. The employees not only lost their jobs they also had lost the
savings of the entire course of the employment in the company. The major negative
impact was on Arthur Anderson as it completely dissolute. It deserves mention that the
company secured its position in among the large five companies of accountancy and
audit. Undoubtedly, the shareholders of the company lost their whole investment because
the stock of the company completely plummeted. The collapse of such a huge company
rocked the economy as well.
The stakeholders had the possibilities to alleviate the issues which were hindered
in the strategic purpose of the company. Firstly, the government could have imposed
more strict rules and regulation in order to keep the company under control (Deakin and
Konzelmann 2004). The company Arthur Anderson could have been more aware of the
business policy of Enron in order avoid such scam.

3ASSIGNMENT ON STRATEGY PURPOSE
Part 2
Response to question 1
The strategic purpose and mission of the company was closely related with each other
(Tejeiro 2018). Enron’s purpose was to achieve short-term gain; its purpose was not to benefit
the shareholders or the stakeholders (Deakin and Konzelmann 2004). The management of the
company was very over confident due to the great success over the short time span. For some
time, it experienced steady improvement on their profit margin. The management of the
company failed to execute the governance policy successfully. The basic principles of the
accounting were not followed during the period, when the company started entering into a stream
of transactions. There was no independent entity in the company in order to monitor the strategic
purpose of the company as well as the governance execution. The company when started
achieving the expected profit the board, a lack of involvement of the management and the board
members were seen. They board members and management instead looking after the core
objectives of the organization, preferred to fulfill their own interest. When they reached the
increased share price of the board members hardly made any effort to monitor and control the
governance policies (Johnson et al. 2014). As a result of that, the holders realized that the
finance package of Enron became misleading and finally, the unfortunate and unexpected fall of
the company occurred and the bankruptcy could not be avoided.
Response to question 2
The main implication, this alignment between the strategy purpose and the governance
policy had before and after the scandal is that governance principles should be same for every

4ASSIGNMENT ON STRATEGY PURPOSE
company (Deakin and Konzelmann 2004). Even if the company is in the leading position in the
market, it cannot afford to breach the governance policies. Instead of looking after the fulfillment
of personal interest, the company, especially, the board members and the management should
have been more attentive to the governance policies (Tejeiro 2018). The conflict of interest was
created because there was a lack of communication between the management levels. The main
issue was that the board members, the employees and the non-executive directors differed. This
moved the board to state that they mislead the information about the strategic purpose of
execution (da Silveira 2013). The relation among the outside consultant and the stakeholders
should not have reached to the level, where manipulation was practiced by some stakeholders to
enforce the consultants to have a convincing impact of rise of the share price (Mattern 2015).
Finally, it deserves mention that there was no independent entity to look after the execution of
the governance and the strategic purpose, which can be one of the main reasons of the fall of the
company.

5ASSIGNMENT ON STRATEGY PURPOSE
References
da Silveira, A.D.M., 2013. The Enron scandal a decade later: lessons learned?.
Deakin, S. and Konzelmann, S.J., 2004. Learning from enron. Corporate Governance: An
International Review, 12(2), pp.134-142.
Johnson, G., Whittington, R., Scholes, K., Angwin, D. and Regnér, P. 2014 Exploring strategy
text & cases. 10th Ed. Harlow: Pearson.
Mattern, S., 2015. Mission control: A history of the urban dashboard. Places Journal.
McLean, B. and Elkind, P., 2013. The smartest guys in the room: The amazing rise and
scandalous fall of Enron. Penguin.
Tejeiro Koller, M.R., 2018. Business Strategies.
Tejeiro Koller, M.R., 2018. Strategic Analysis.