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Does the Enron collapse indicate a need for more "Regulation?"

Updated on June 5, 2011

The Enron collapse and Gov't regulation

This Hub is intended to stimulate students of business to think deeply about government regulation and the need for more of it or lack of need for more of it. I am not giving the reader a yes or no answer. My role, as a teacher, is to stimulate thinking.

In the case of the Enron collapse there is evidence available that indicate that more government regulation may not have necessarily prevented this adverse situation. My thinking about the value of regulation of big business would tend to cause me to error on the side of too much regulation that too little. From what we know about the rivalries that occur between corporations in the business world, and the resulting damages that occur when the competitions get out of hand, this helps us to see the value of some measure of regulation. Newton et al. (2010) noted that in the case of Enron it appears that their managers were very effective and productive using a business concept developed by one of their CEO’s named Skilling called “asset lite” (p. 162). This concept worked well for Enron as long as they limited themselves to the energy sector dealing with pipelines, coal, fossil fuels, or pulp and paper. Enron’s good fortune began to change when they took a position of managing with an “asset heavy” concept under the influence of Mark, R. (Newton et al., p. 163). Her idea of developing a “water rights trading market” of the company’s area of expertise in energy and her methods of manage did not adhere to an asset lite strategy. With hind-sight we can call this mismanagement, but any way one looks at it one finds it difficult to see how more government regulation could have changed the outcome of this collapse. Other factors also contributed to Enron’s failure but my understanding leads me to believe that poor strategic planning is the chief cause of this unfortunate dilemma. The article by Porter, M. & Kramer, M. (2006) has mentioned how every activity in a company’s value chain touches on the communities in which the firm operates, creating either positive or negative social consequences (p. 8). Enron’s executives failed to practice management in a manner that leads one to believe that they understood these principles. If Enron’s approach to management had taken under consideration “the link between competitive advantage and CSP” a more positive outcome could have been expected.

References

Newton, L., Englehart, E., & Pritchard, M. (2010). Taking sides: Clashing views in business ethics and society (11th ed). New York, McGraw Hill.

Porter, M., & Kramer, M. (2006). Strategy & society: The link between competitive advantage and corporate social responsibility. Harvard Business Review, 84(12), 78-92. Retrieved from http://web.ebscohost.com.libproxy.edmc.edu/ehost/

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