Corporate Governance :Satyam Vs Enron
Corporate Governance though you can find much on this issue on every other website as this being the hottest topic in 2009 Gd's, and have come in almost every GD from IIFT,IIMs,IITs...As
predicted it was a very important issue but I would present a question why is Satyam compared with Enron? The similarities and the dissimilarities.
Considering the fact that you are aware of the definitions mentioned in the previous article
....Read Previous Article on Corporate Governance (the Satyam Issue)
THE ENRON CASE
Enron was 7th largest company in the Fortune 500 With an annual revenue of $ 100 billion, Enron eclipsed
traditional giants like IBM and AT&T..In the early 1990s the Congress of the United States of
America passed legislation deregulating the sale of electricity. It had done the same for
natural gas some years earlier. The resulting energy markets made it possible for
companies like Enron to thrive.But the problem started when the company’s global
investments — including Dabhol in India — often proved disastrous failures and Enron
reported a big losses ...Read more
Enron:Background
Enron was born in July 1985 when Houston Natural Gas merged with Omaha-based Inter-North.
Kenneth Lay, an energy economist became chairman and chief executive. As the energy markets,
and in particular the electrical power markets were deregulated, Enron’s business expanded into
brokering and trading electricity and other energy commodities.The deregulation of these markets was a key Enron strategy as it invested time and money in lobbying Congress and state legislatures for access to what traditionally had been publicly provided utility markets. Some of Enron’s top executives became frequently named corporate political patrons of the Republican Party. Enron needed the federal government to allow it to sell energy and other commodities. According to the Center for Responsive Politics, between 1989 and 2001, Enron contributed nearly $6 million to federal parties and candidates. Since enron was one of the first companies to trade on internet it boasted about the value of products that it bought and sold online – a mind-boggling $880bn in just two years but there wasn't any proof of these operations were profitable.At
about this time, it is believed that Enron began to use sophisticated accounting techniques to keep
its share price high, raise investment against it own assets and stock and maintain the impression
of a highly successful company. Enron's 2000 annual report reported global revenues of $100bn.
Income had raised by 40% in three years.
Enron:The Collapse
20 Feb, 2001:A Fortune story calls Enron a highly impenetrable Co. that is piling on debt while keeping the
Wall Street in dark.On 14 Aug, 2001:Jeff Skilling resigned as chief executive, citing personal reasons. Kenneth Lay became chief executive once again.12 Oct, 2001:Arthur Anderson legal counsel instructs workers who audit Enron’s books to destroy all but the most basic documents.16 Oct, 2001:Enron reports a third quarter loss of $618 million.24 Oct 2001:CFO Andrew Fastow who ran some of the controversial SPE’s is replaced.8 Nov 2001:The company took the highly unusual move of restating its profits for the past four years. It admitted accounting errors, inflating income by $586 million since 1997. It effectively admitted
that it had inflated its profits by concealing debts in the complicated partnership arrangements.
2Dec,2001:Enron filed for Chapter 11 bankruptcy protection and on the same day hit Dynegy Corp. with a
$10 billion breach-of-contract lawsuit.12 Dec 2001:Anderson CEO Jo Berardino testifies that his firm discovered possible illegal acts committed by Enron. 9 Jan 2002:U.S. Justice department launches criminal investigation.Hence within three months Enron had gone from being a company claiming assets worth almost£62bn to bankruptcy. Its share price collapsed from about $95 to below $1.
Enron:Satyam Similarity
While there are a lot of similarity ranging from bribing government officials
to get their favours they both were involved in showing independent
companies which were actually controlled by the management
or were simply on paper as their customers on their balance sheets.
The companies were guilty of impropriety, opacity, and creative accounting.
The true assets and liabilities of Enron and Satyam
were opaque to investors. The clash of interests between the company and
its managers, some of whom made millions even as the company lost similar
with the Satyam case where most of the directors sold out their stocks before
Raju's Confession.Enron admitted that, thanks to creative accounting, profits
since 1997 had been overstated by 20 per cent ($586 million) whereas Satyam($7000 crores).Like Enron, Saytam perpetrated a balance-sheet scam with the support of supposedly world-class auditors(Arthur Andersen for Enron,PWC for Satyam).
Enron:Satyam Difference
Aparat from the difference that Enron collapsed and Satyam did not probably because Enron was a loss-making company that hid its losses until they could be hidden no more. But Satyam is profitable. Even while confessing to cooking the books, promoter Ramalinga Raju said that Satyam’s profits in the last quarter were not Rs 649 crore but Rs 61 crore. The lower figure, representing a very low operating margin of 3%, is nevertheless a substantial profit, and is a perfectly good basis for survival.Enron had lost major projects and its assests had declined but Satyam services top global customers profitably represents a potential asset of great value, to the nation no less than shareholders.
predicted it was a very important issue but I would present a question why is Satyam compared with Enron? The similarities and the dissimilarities.
Considering the fact that you are aware of the definitions mentioned in the previous article
....Read Previous Article on Corporate Governance (the Satyam Issue)
THE ENRON CASE
Enron was 7th largest company in the Fortune 500 With an annual revenue of $ 100 billion, Enron eclipsed
traditional giants like IBM and AT&T..In the early 1990s the Congress of the United States of
America passed legislation deregulating the sale of electricity. It had done the same for
natural gas some years earlier. The resulting energy markets made it possible for
companies like Enron to thrive.But the problem started when the company’s global
investments — including Dabhol in India — often proved disastrous failures and Enron
reported a big losses ...Read more
Enron:Background
Enron was born in July 1985 when Houston Natural Gas merged with Omaha-based Inter-North.
Kenneth Lay, an energy economist became chairman and chief executive. As the energy markets,
and in particular the electrical power markets were deregulated, Enron’s business expanded into
brokering and trading electricity and other energy commodities.The deregulation of these markets was a key Enron strategy as it invested time and money in lobbying Congress and state legislatures for access to what traditionally had been publicly provided utility markets. Some of Enron’s top executives became frequently named corporate political patrons of the Republican Party. Enron needed the federal government to allow it to sell energy and other commodities. According to the Center for Responsive Politics, between 1989 and 2001, Enron contributed nearly $6 million to federal parties and candidates. Since enron was one of the first companies to trade on internet it boasted about the value of products that it bought and sold online – a mind-boggling $880bn in just two years but there wasn't any proof of these operations were profitable.At
about this time, it is believed that Enron began to use sophisticated accounting techniques to keep
its share price high, raise investment against it own assets and stock and maintain the impression
of a highly successful company. Enron's 2000 annual report reported global revenues of $100bn.
Income had raised by 40% in three years.
Enron:The Collapse
20 Feb, 2001:A Fortune story calls Enron a highly impenetrable Co. that is piling on debt while keeping the
Wall Street in dark.On 14 Aug, 2001:Jeff Skilling resigned as chief executive, citing personal reasons. Kenneth Lay became chief executive once again.12 Oct, 2001:Arthur Anderson legal counsel instructs workers who audit Enron’s books to destroy all but the most basic documents.16 Oct, 2001:Enron reports a third quarter loss of $618 million.24 Oct 2001:CFO Andrew Fastow who ran some of the controversial SPE’s is replaced.8 Nov 2001:The company took the highly unusual move of restating its profits for the past four years. It admitted accounting errors, inflating income by $586 million since 1997. It effectively admitted
that it had inflated its profits by concealing debts in the complicated partnership arrangements.
2Dec,2001:Enron filed for Chapter 11 bankruptcy protection and on the same day hit Dynegy Corp. with a
$10 billion breach-of-contract lawsuit.12 Dec 2001:Anderson CEO Jo Berardino testifies that his firm discovered possible illegal acts committed by Enron. 9 Jan 2002:U.S. Justice department launches criminal investigation.Hence within three months Enron had gone from being a company claiming assets worth almost£62bn to bankruptcy. Its share price collapsed from about $95 to below $1.
Enron:Satyam Similarity
While there are a lot of similarity ranging from bribing government officials
to get their favours they both were involved in showing independent
companies which were actually controlled by the management
or were simply on paper as their customers on their balance sheets.
The companies were guilty of impropriety, opacity, and creative accounting.
The true assets and liabilities of Enron and Satyam
were opaque to investors. The clash of interests between the company and
its managers, some of whom made millions even as the company lost similar
with the Satyam case where most of the directors sold out their stocks before
Raju's Confession.Enron admitted that, thanks to creative accounting, profits
since 1997 had been overstated by 20 per cent ($586 million) whereas Satyam($7000 crores).Like Enron, Saytam perpetrated a balance-sheet scam with the support of supposedly world-class auditors(Arthur Andersen for Enron,PWC for Satyam).
Enron:Satyam Difference
Aparat from the difference that Enron collapsed and Satyam did not probably because Enron was a loss-making company that hid its losses until they could be hidden no more. But Satyam is profitable. Even while confessing to cooking the books, promoter Ramalinga Raju said that Satyam’s profits in the last quarter were not Rs 649 crore but Rs 61 crore. The lower figure, representing a very low operating margin of 3%, is nevertheless a substantial profit, and is a perfectly good basis for survival.Enron had lost major projects and its assests had declined but Satyam services top global customers profitably represents a potential asset of great value, to the nation no less than shareholders.
