Question 1: Who were the key stakeholders involved in, or affected by, the collapse of Enron? How and to what degree were they hurt or helped by the actions of Enron management? Answer: Enron’s board was made up of 17 members. Out of 17, 15 were outsiders and only 2 were insiders. These two key stakeholders were insiders of Enron named Kenneth L. Lay (Enron CEO) and Jeffrey Skilling (President & Enron COO). They were helped my Enron management in lot many ways. Company gave huge compensations to these executives like Skilling held 5% stake in retail energy unit, which was almost equal to $100 worth of stock in 1998.
Company often used to lend money to its top executives and later these leans weren’t recovered if the terms of their contracts were fulfilled.
In 2001, each director of company was extraordinarily compensated. Each executive received $381,000 in total compensation. But later, after Enron scandal, these stakeholders were hurt a lot also. Shareholders and Mutual fund investors lost around $70 billion in market value.
Two major banks called J.P. Morgan Chase and Citigroup were the one who faced major write downs on bad loans. Not only did Enron Creditors, shareholders and bondholders lose out, confidence also fell across the market, as investors questioned the integrity of the financial statements of other companies in which they held stock.
Question 2: Considering all aspects of the case, what factor or factors do you believe most contributed to the collapse of Enron? In your answer, please consider both external and internal factors.