Enron Scandal A Security Professional's Term Paper

Excerpt from Term Paper :

Later in the year, this same task force, including Cheney, recommended Enron as a company that was upstanding and endorses its many proposals. This further complicated the Enron image giving it further clout to conduct business in an unethical manner. By the end of this year, many of Enron's top executives, including Skilling, begin selling off their shares of company stock. This occurs before it is revealed to shareholders that Enron had a $618 million dollar loss in the fiscal year. This behavior, to a senior security specialist, represents severely unethical and corrupt decision making and helps to show prior knowledge of the Enron scandal involving Fastow's shell companies and the manipulation of the energy markets in their favor.

Within the company itself, it would have been rather clear to the security professional working there that the senior management knew things were amiss. A security professional could have been tipped off by Arthur Anderson's request to destroy all audit material, which represents a severe violation of a company's internal controls for dealing with audits as well as the chain of command (Open Secrets, 2002). Even if senior management ordered the destruction of such records, it would have been a huge red flag for anyone involved with the company who was concerned about the potential for further unethical behavior. Also, by destroying the audit materials, the company was alluding to the fact that there was something to hide within these materials (NewsMax, 2002). This is to say that if Arthur Anderson felt it necessary to destroy these materials, certainly there was something even greater to be hidden than the unethical destruction of records in this manner.

A Possible Course of Action

As senior security professional at Enron, it would have been very difficult to know exactly who to notify and when. If information was presented that the company was engaging in illegal and unethical business behavior, the first group of people that should be notified are the authorities. This would include the SEC as well as the Attorney General. Since Enron was such a large company, with ties to so many industries and wielded such a huge economic footprint, it would be impossible to separate the company's actions from the effects they had on the energy markets as well as the derivatives that the company had been brokering to help cover their losses. A recommendation would be made to freeze the assets of top executives in order for a full investigation to be conducted into the company and its dealings as well as its compensation plans for these individuals. This would be part of the federal law enforcement action as well. Local law enforcement would also need to be notified in the event that turning Enron in to the SEC and Attorney General caused company employees, executives, or shareholders to become unruly or to flee the situation (Ortmeier, P.J., 2005). The local law enforcement entities would need to be present in this scenario.

Immediately after notifying the proper authorities, it would be important to brief the company's executives on exactly what had been said and the recommended actions they should take in order to be prepared for a federal inquiry. At this point, a security professional could expect to lose their position, given the fact that the senior management at Enron contributed to the culture of corruption. As a senior security professional, the ethical conduct of a company comes before any individual within that company or any other interest.


Even acting as the senior security professional at Enron, it would have likely been difficult to be the initial whistleblower given the fact that the company was worth so much money and the future and fortunes of so many stock holders, senior executives, and employees were at stake (Ortmeier, P.J., 2005). The path of least resistance is often taken in these circumstances not because it is the right thing to do, but because the person that "rocks the boat" so to speak is often punished. The culture of corruption that permeated Enron, specifically at the highest levels of management and security would have created a very harsh environment for anyone, even with credible information, to turn the company in to the SEC or invite any scrutiny relative to the unethical practices that Enron was involved in. This type of situation is witnessed relatively often, as those with the most to lose from a whistle blower acting on their own feelings or ethical concerns, typically insulate themselves rather well from the potential for any such fallout or exposure.

Certainly the pressures involved in exposing a scandal on the scale of the Enron debacle would be enormous. It would be much easier, from a personal stress standpoint for a person to go along with the program and continue to reap the rewards of keeping their mouth shut. It is often very difficult to know how and when to report the unethical behavior, and in what order. Certainly any person reporting a company like Enron for fraud would have to understand the multi-level response that would be garnered given the size of the corporation and the magnitude of the unethical behavior. In other words, it would be difficult to know whereto start as a whistleblower.

Also, a genuine feeling of being overwhelmed would accompany any attempt to notify the shareholders. This could come from the fact that it would be difficult to decide how and when to notify millions of people and the ramifications of such a notification are enormous. The shareholders would lose millions, and the quality, clarity, and decisiveness of the notice would certainly dictate how much and when the shareholders would find out about the breaches in ethics as well as lose large sums of money. Whistle blowers would also have to understand that they would be subject to the terms of the investigation as well, and would need to prepare themselves accordingly. This part of the fallout alone would be enough to scare many people away from reporting any wrongdoing or unethical behavior.


The Enron scandal changed the face of U.S. regulatory agencies and laws. The debacle even prompted the U.S. public to become weary of the political connections that companies can use to wield influence both at home and abroad. The internal security and ethics structures in place to help ensure that Enron was operating within the laws and ethical considerations of the business world obviously failed, but the failure came from many different causes, all stemming from the company's ability to exert political and financial influence as well as the fact that the whistleblowers were afraid of financial and physical retribution. The culture of corruption that existed at Enron extended well into the upper strata of its executive officers, all the way to the CEO and CFO. The company that was called in to help aid Enron in covering up its tax liabilities and company losses, Arthur Anderson, is also partially responsible for the cover-up and resulting scandal (Open Secrets, 2002). By being complicit in the matter, Arthur Anderson bears responsibility for covering up the audit materials and other tax-related information.

Certainly there will be companies in the future that take after Enron, always looking to make a quick profit. Unfortunately for the regulators, their regulations and new laws typically seem to come as an answer to an already existing problem. Certainly the role of the security specialist, with inside knowledge and the ability to influence and change the course of the company's corporate structure of accountability, responsibility, and environment; has as much if not more power in shaping the inner workings and business deals of the companies of tomorrow.


NewsMax Wires. (2002). "Enron: A Pattern of Abuses?" Retrieved March 4, 2011, from http://archive.newsmax.com/archives/articles/2002/3/21/60605.shtml.

Open Secrets.org. (2002). Enron and Andersen. Washington, DC: The Center for Responsive

Politics. Retrieved October 27, 2005, from http://www.opensecrets.org/news/enron

Ortmeier, P.J. (2005). Security management: An introduction (2nd

ed.). Upper Saddle River, NJ: Pearson Prentice Hall.

University of Cincinnati College of Law. (2004). Securities lawyer's deskbook: The Sarbanes-

Oxley Act of 2002. Cincinnati, OH: University of Cincinnati College of Law. Retrieved October 27, 2005, from http://www.law.uc.edu/CCL/SOact/toc.html

What Really Happened.com. (2002).…

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