Enron was a giant corporation and is even said by some to have been the largest company in the world. It however depended on external credit sources to finance its daily operations. Enron finally came crushing down when it got to a point where they were unable to pay their creditors and they were caught up in their wild borrowing spree. With no forthcoming offers of mergers from its competitors, and with the government not offering aid, they were finally forced into bankruptcy.
Enron’s structure was similar to that of a pyramid scheme. In an article titled, Enron Scandal Explanation, Analysis, and History, the author says that in the classic pyramid scheme, fraudsters have to please their clients by paying off unrealistic rates of returns on victims’ investments. After some time, when they can no longer find ‘foolish’ people for them to lie to, money needed for running the operation stops streaming in. This is what leads to their collapse, and this is kind of the same thing that happened to Enron.
They were entirely dependent on external funding and found themselves in debt. It got to a point where they now had to borrow money to pay off their initial debts, an action that plunged them even further in the sea of debt, and eventually, there was no way out. They were in too deep with no way out. In order for them to have avoided such activities, they should have looked for a way to generate their own money to sustain them as a company instead of borrowing to such damning levels.
They should have looked for income generating projects to help in generating their own money for the running of the company. Another thing that they could have done would have been to create a corporate culture that would steer the organization towards success. According to Schuler, (2002)”the attention we pay to corporate culture pays dividends in creating sustainable growth and profit”. It is Enron’s failure to do this that eventually led to its downfall.
In terms of its structure also, one of the main factors that would have been considered would have been to employ an experienced person to run the operations of the company, because success in a company begins from the top. It is also said that, “a well tended garden is never choked by weeds. ” It is said that the CEO of Enron Kenneth Lay, was well learned in Economics and even had a PhD, but he knew nothing about the running of an organization, especially one as elaborate as Enron. Things would have probably turned out differently if the person at the helm of the company, had experience in such operations.