External causes for Enron to collapse Essay

1) DeregulationDeregulation of the U.S. energy industry made likely Enrons emergence as a major corporation, but also ultimately may possess contributed to its collapse. The phoner successfully seized the opportunity created by deregulation to create a new business as a market maker in natural gas and other commodities. Enron successfully influenced policymakers to exempt the come with from various regulatory rules, for example in the field of energy derivatives. This allowed Enron to enter various art markets with well-nigh no government oversight. Arguably, regulation might have prevented Enron from taking some of the risks and making some of the mistakes which it did. maculation deregulation may initially have helped Enron, by allowing it to create and enter new markets, it later scathe the company by removing the very restraints that might have kept it from becoming fatally overextended.2) Lax regulatory follow upmentArguably, government regulatory agencies failed to exe rcise 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 Exchange Commission (SEC), the Federal Energy Regulatory Commission (FERC), and the Commodities Futures avocation Commission (CFEC).3) Weak and ambiguous accounting standardsHindsight makes it fairly clear that the accounting standards promulgated by the fiscal Accounting Standards Board (FASB) were too weak and too ambiguous with respect to the complex trading proceeding and financial structures that Enron established and operated. Two areas stand out as ones of particular concern. First, the rules apparently permitted the widespread single-valued function of market-to-market (MTM) accounting in areas for which it was not originally intended. Second, the 3 percent rule for outside ownership of SPEs was arguably too low to maintain genuine independence. An underlying issue was that corporate 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 need of independence on the part of the companys canvassors and law firms working for the companyA place external issue was conflict 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 internal 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 profitable consulting and inside accounting work for its client. Moreover, relations between the two 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 picky Purpose Entities (SPEs) too closely, since Enron was a major client of the firm.5) Inadequate campaign finance and lobbyist rules.Enron made spacious legal use of various techniques of political influence, including engaging the services of lobbyists, making ample contributions to political campaigns, curiously using 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 baptistry can be made that external stakeholdersespecially large institutional investors such as premium and mutual fundsfailed to exercise due diligence. These institutional investors were happy to make handsome returns on their extensive investments in Enron in the late 1990s, but failed to become actively involved in corporate plaque at the company until it wastoo late .