Greed Essay †Enron and Northern Rock Corporate Collapse

AbstractThe spectacular fracture of both Enron and blue shake up illustrate two re eachy different method actings of errant indemnity that deserve continual study.This see examines and compares the roles of both companies during their individual period of failure in order to de enclosureine the fundamental causes that take each of these companies to ruin. The evidence presented come onlines a sit of greed, want and slimy policy that combined to drive the entities to failure. This research testament be of value to all person looking into corporeal fracture.1 IntroductionFailure in cable sector comes in m both a(prenominal) forms making continual emilitary rating beneficial. The fictional characters of the spectacular collapse of both Enron and northerly excite illustrate two truly distinct methods of errant policy. This essay examines and compares the roles of both companies during this period of failure in order to determine the fundamental causes that led ea ch of these companies to ruin. With a snap on the role of dissembler, commercialise value account, fraud and creative explanation this study will identify and evaluate the underlying causes that arouse been ascribe with defining duty risk in the redbrick age.In the demolition, this essay examines and evaluates the fundamental factors associated with the collapse of Enron and Union rocknroll with the severalised goal of find the high hat methods of avoiding such a scenario in the future.2 bodied Collapse2.1 OverviewEnron was one time considered a blue chip apparelment with the inherent capacity to keen-sighted pillow some(prenominal)(prenominal) portfolio during the 1990s until the collapse of 2001 (Khan, 2011). Once regarded as a post-mortem coronation, Enron became associated with a immense range of impugnable news report perpetrate, fraud and insider employment during their term of operations. Over the course of 1990s, Enron was cited and held up as a tug of innovation and performance with m whatever(prenominal) cosmoss attempting to emu after-hours their professed success (Arnold and Lange, 2004). This early latria of the rising club seems to have accessiond overall investor interest and expectation. With a platform based on gas and electricity and a long list of associated enterp rears including online and investiture services expendd by nearly either early(a) capacity entity of the period, Enron was the acknowledged leader in the international energy industry (Solomon and Solomon, 2004). With a broad based system of investors, in that respect was lusty fallout when the final collapse of the company was announced in 2001, with many in the industry decrying the miss of oversight amid the opportunity for fraud (Khan, 2011). The rise and fall of Enron, even on basic level is a reproval of a companys ability to build and play upon investors expectations, which indicates a willingness on the share of the investors to risk their money in a uncertain investment. Union disputation was one time considered a leading voice in the UK depositing industry (Marshall et al, 2012). Created as a result of a merger amongst the North East twist confederacy and the blue counties Permanent Building Society and the Rock Building Society, the Northern Rock Building Society was in an ideal position to create and further their own business interests. A key area of concern for investors was the fact that Northern Rock derived its capital from depositors until the deregulation efforts of the 1980s (Marshall et al, 2012). With the relaxation of oversight, it became possible for entities such as Northern Rock to consider and implement alternate solutions for revenue sum up that included heavy investment in the stock market and owe industry. Complementing the sensing of lead and dedication to the market were statistics that cited Northern Rock as one of the leading mortgage lenders during the period of the e arly 2000s (Mclean and Elkind, 2003). With a wish to capitalize as much as possible on the conditions of the growing market, which included the American mortgage market prior to 2008, Northern Rock leading opted to invest heavily in the subprime market that generated so much take in during this period (Dawley et al, 2012). This argument suggests that the old industry locality that was home to the companys operations had a direct advert on the initial success and eventual failure of the Ban.This initial overview demonstrates that thither was a real drive to produce revenue on the part of both of these companies, which in manoeuvre fuelled their train to succeed at any cost. In both cases, Enron and Northern Rock began with a legitimate business foundation, yet desired a continual increase in exponent and revenue which led to poor finalitys and policy implementation. In a in truth real way, this brief illustration suggests that the success factor prompted these companies to a ct in the selfish and rash manner that brought about their belt downfall.2.2 Companies2.2.1 EnronThe manner in which leadership creates, endorses and implements a company policy is a critical component to any entities day to day operations (OConnell, 2004). In this case Enron leadership including heap take down, Jeffrey Skilling and Andy Fastow were primarily credited with first leading the company to incredible heights, and and so engineering the ample failure due to their own incredible greed. peradventure a leading indicator of the manner of leadership Ken Lay found appealing lay in his continual support of the crude oil trading company headed by Borget that was deemed acceptable as long as there was a profit, regardless(prenominal) of method (Swartz and Watkins, 2003). Organizational shade built on greed and corruption will draw out to breed these alike elements throughout any organization (Solomon et al, 2004). In this case Enron leaderships goal of creating a natur e gas stock exchange was impelled by the desire to increase market share and revenue. In the radical this form of innovation and aggressive marketing were deemed acceptable, but with subsequent discoveries of accounts including M. Yass, or My ass, created by Borget there was an acknowledgement of corruption (Fox, 2003). Despite Enron initially endorsing Borget and his practices as the scope of the losses mounted, Ken Lay actively denied any improper doing, taking advantage of the lack of information that he cultivated.The lack of any serious form of financial oversight allowed Enron to create questionable forms of explanation and bookkeeping that extended their perception of propriety (Solomon, 2004). During deregulation effort of the late twentieth century, there was serious contention on the part of the business community that there was a use up to reduce regulation in order to benefit the consumer. Leadership at Enron eagerly campaigned on the thought that deregulation wou ld actively increase the capacity for the worker (Swartz et al, 2003). Blaming regulation for higher(prenominal) electricity the lobbyists were largely successful in their drive to remove any meaningful oversight in the industry. This push included a state by state approach that allowed Enron to utilize their regional positions to great advantage, thereby ensuring a smoother experience (Boje et al, 2004). Skilling created concept of an asset lite strategy, or non actually owning the assets, simply bundling and selling the energy, which in modus operandi pop the questiond Enron with a potential method to forcefulally increase revenue with pocket-sized to no paper trail (Solomon et al, 2014). The summer of 1998 witnessed a bonanza for Enron as there was a perception of volatility that enabled them to drastically capitalize on the market, leading to the perception that Skilling was a genius (Swartz et al, 2003). During this period following deregulation many of the Enrons greatest profits were made by employees finding loopholes and exploiting these business relationship or business practices to the utmost in order to increase revenue (Arnold and Lange, 2005). Again, this policy of attempting to end run regulation scarcely promotes the unreasonable ideal that the company or its employees was smarter than the system. Enron has been credited with employing many questionable score techniques during their period of operation in order to bolster expectations (Gordon, 2002). This drive to tin a continuous profit for the company led the leadership to feign accounting system practices that did much to obstruct the revelation of negative data in order to maintain profits. A combination of being at the expert place in the form of evolving deregulation and belonging to a culture of greed and corruption created the atmosphere that prompted these increasingly poor accounting practices (Macey, 2003). At the heart of Enrons trouble rests a lack of strong unified governance and an increasing disregard for public regulation and investor welfare (Vinten, 2002). outset with methods that merely bent the rules, the accounting practices at Enron had to beget larger in order to account for the burgeoning debt that was being created (Parker, 2005). This form of creative bookkeeping suggests that there was a strong knowledge that operations at the company were not only limited in scope, but there was a requisite to make as much money as possible at any cost. This form of accounting was illustrated in the Mark to Market accounting expansion that served to misinform investors on absolute valuations, thereby increasing Enrons value (Shelly, 2011). While essentially legal, the stretching and reinterpretation of the rules allowed Enron to create a wide margin of profit on paper. Further, the use of limited partnership and immaterial parties increase the level of secrecy and uncertainty that surrounded every Enron valuation serve up including the Cr edit Default Swaps and Collateralised Debt Obligations (Swartz et al, 2010). These measures became requisite in order to provide the company with the means to maintain expectations, bonuses and pensions. From the outset, Enron was out to make money (Jennings, 2002). distributively innovation was aimed at delivering the most revenue to the leadership, not the investors. apiece decision and example of culture illustrates the greed and ambition of those behind the Enron debacle. In the accounting profession a fair presentation is regarded as an accurate federal agency of a working operation, creative accounting is identified as conciliatory practice that best serves the interests of the clients, with fraudulent accounting made up of those that blatantly step outside the law (Buckley, 2011). Enron has displayed an initial fair value accounting method that degenerated into a fraudulent accounting method with evidence that paints a portrait of unrestrained greed, propped up by poor r egulation and aided by tacit indulgence of success. There is a clear need to conduct ethical business in order to sustain opportunities (Gill, 2009). This was does not seem to have happened in the case of Enron. This evidence suggests that no outlet how Enron had attempted to compensate for poor practice, there could have been no other plausible outcome than failure.2.2.2 Northern RockInitially specialising in residential and commercial mortgages Northern Rock quickly became an industry frontrunner under the leadership of Adam Applegarth in 2001(Marshall et al, 2012). This form of leadership actively profited from the prior methods of operation, utilizing the past profit to invest in the present stock market, primarily the growing sector mortgage securities. Linsley and Slack (2013) argue that prior to 2001 Northern Rock projected a ethic of care, which in turn was cited for the intense feelings of betrayal following the collapse of the Bank. There was a hotshot that leadership o f the Bank was overly enterprising in their efforts to capitalize on their existing assets by putting all of the previous savings at risk (Marshall et al, 2012). This suggests that the clientele of Northern Rock expected their leadership to take greater care and substantially less risk. Three primary points including Northern Rocks previous existence as a building society, the local or regional nature of the bank and the air of the Northern Rock Foundation bolstered the perception of a caring institution that was out to serve the populace (Linsley, 2013). With the change in policy brought about by a new leader, there was a palpable sense of anger and disillusionment with both Northern Rock and the direction of their investments. It very much seems as if was this effort from the previous eras, the caring and attentive military capability that served to amplify the negativity as the bank began to crumble under the weight down of poor leadership and management. With the onset of th e subprime collapse in the United States and the massive international recession that followed, it became impossible for Northern Rock to meet its financial obligations, which in turn prompted the failure of the bank (Linsley et al, 2013).The innovative nature of the investment pattern such as the Together investment scenario set out by Northern Rock was a stark departure from the mutualisation process of previous eras (Nesvetailova and Palan, 2013). With the ambitious investment goals set out by Applegarth, it became necessary for the bank to move from the 75% per cent income from depositors to a much more modest 25% with the remaining balance being accounted for by investment and loans (Nesvetailova, 2013). As reflected by consumer discontentment with the policy decision, the entire process became dislike and heavily blamed for the eventual run on the bank. The new pattern of investment required Northern Rock to pursue securitization in a fashion that created special purpose vehi cles in order to allow these securities to become liquid and thereby tradable (Deegan and Unerman, 2011). This process allowed Northern Rock to obscure their accurate worth by essentially hiding these accounts offshore (Scott, 2008). With an accounting practice that was creative and innovative at the time, Northern Rock utilized this method in order to expand their projected revenues, thereby further enhancing their operations. In order to continue lending at the bank level, mortgages could be sold, or further cash arrogateed on the mortgage securities, which in turn unplowed Northern Rock liquid initially (Gaffikin, 2008). This culture of greed no matter the cost fuelled the leadership drive to not only continue this practice, but expand it to in incorporated up to 50 per cent of the Northern Rock operational platform (Deegan et al, 2011).Depending too heavily on any volatile market has the potential to put any operation at risk at any time (Domhoff, 2013). This evidence suggests that Northern Rock was substantially impacted by the subprime mortgage collapse and the inability to borrow money from the lenders. With a business model that was directly dependant on the interbank lending process, this sudden halt of funding was a severe and crippling blow, only enhanced by the need for the bank to have these funds on hand in order to shore up fade public support. The perception of dismay and lack of trust only increased as Northern Rock found itself undercut by rivals with transgress loan rates (Deegan et al, 2011). With no ready pool of funding usable and no one to purchase the securities, some of which were frozen due to questionable value, the internal situation deteriorated to the point of collapse nearly overnight.Regulation and lack of effective constraints in the financial process has been cited as an element of the Northern Rock collapse (Nesvetailova, 2013). There was a sustained feeling that the fickle pattern of return quickly overwhelmed any reg ulation effort, which in turn led to unsatisfactory testing and performance assessments. The caring culture that once benefited operations at Northern Rock was transformed to increased discontent with the announcement of the government bailout, which in turn fuelled the run on the bank (Deegan, et al, 2011). This evidence suggests that it was the very elements of safe investment that had given Northern Rock the opportunity for investment initially and that the prudent course of action would have been to maintain a pattern of considerate investment rather than an complete bid for industry leadership. With the nationalization of the Northern Rock entity, the government became the only remaining investor, shouldering the substantial loss that had once been a thriving multi-generational company (Deegan et al, 2011).3 ConclusionBoth Enron and Northern Rock exhibited similar and clearly different traits as this study as illustrated. Each of the companies possessed leadership that was ver y focused on success and revenue. This culture of greed and ambition served to initially propel both companies into positions of leadership which was demonstrated by their drastic increase in value and recognition during the early phases. While both companies began with fair trade accounting methods, there were driving forces behind each entities operation after that period. Enron began to employ outright fraud in their accounting practices, in some cases going so far as to only create fictional assets in order to maintain viability. In strain Northern Rock employed creative accounting methods to legally utilize their existing assets to invest in the subprime mortgage market. While Northern Rocks leadership made poor choices, there was no element of blatant fraud as perpetrated by Enron. There was a distinct organisational culture flutter between Enron and Northern Rock. The ethic of care environment enacted a perception of interest in the consumers of Northern Rock aided the lon g term business efforts and sustained operations over generations. Enron was focused on profit and the means to increase profit from the point of inception, creating management techniques that encouraged a liberal interpretation of any regulation, placing revenue generation above the need to present a high level of honesty during operation. A law of similarity that binds both companies together was the leadership intention to use the open market to increase their net assets. Further, there was a directed action by both management institutions to hide the debt from the consumer and investors in order to prop up their image and brand. Once considered pioneering, creative and innovative the combination of deregulation, massive growth and complex rules provided a wide range of opportunities that these companies chose to exploit for their own gain. Each of these entities found itself in the position that required them to borrow money in order to meet expectations. Lacking the means to bo rrow money was the termination knell for both of these enterprises. Northern Rock found itself caught in the subprime mortgage collapse and Enron found itself the focus of scrutiny concerning their assets and true valuation. In the end both Enron and Northern Rock exhibited poor policy decision as well as experiencing bad luck. While there is no guaranty in the business world, large scale deception and fraud will eventually come back to roost. It was the utilization of questionable practice, greed and ambition that served to derail these companies, teaching us all that honesty is indeed the best policy.4 ReferencesArnold, B. and De Lange, P. 2004. Enron an examination of agency problems. Critical Perspectives on Accounting, 15 (6), pp. 751765. Boje, D. M., Rosile, G. A., Durant, R. A. and Luhman, J. T. 2004. Enron eyeglasses A critical dramaturgical analysis. Organization Studies, 25 (5), pp. 751774. Buckley, A. 2011. fiscal crisis. Harlow, England Financial Times apprentice Hal l. Dawley, S., Marshall, N., Pike, A., Pollard, J. and Tomaney, J. 2012. 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