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Enron collapsed very quickly in November 2001, and its failure should have been a warning to serious dysfunctions in the entire corporate and financial system, but this did not happen. Its executives admitted that they had falsified its records going back for at least five years, although in reality they had been doing so since the 1980s. When the company filed Chapter 11 bankruptcy it laid off over 20,000 workers and at least $24 billion in pension assets, stocks and mutual funds also vanished (McLean and Elkind 2003). In addition, the Arthur Anderson accounting firm that had been complicit in covering up the fraud and embezzlement at Enron for many years, also went out of business. This catastrophe also demonstrated that Wall Street banks, stock analysts and ratings agencies had either been deceived or allowed themselves to be deceived by Enron when they continually painted a positive picture…
Anand, S. (2011). Essentials of the Dodd-Frank Act. NY: John Wiley.
Enron -- The Smartest Guys in the Room (2005). Starring John Beard and Jim Chanos. Directed by Alex Gibney.
Gap Inc. 2007/2008 Social Responsibility Report.
Enron (Movie) analysis
The Smartest Guys in the oom-Enron
The film is pitched around the America's seventh largest corporation that was in charge of distributing electricity and natural gas. The company was worth over 70 billion dollars in assets built over years with over 22,000 employees, it became bankrupt within 24 days. The employees lost their jobs and medical insurance, 1.2 billion in retirement benefits while the retirees lost 2 billion dollars in pension funds. The company collapsed so fast in a scandal of complicated transactions and accounting practices that shocked the corporate America. Before its bankruptcy, it was viewed by many as the new business model and the future of energy and power in America, voted six consecutive years by Fortune magazine as the most innovative company in America.
The film reveals how unethical the executives were by walking away with billions of dollars and leaving investors and pensioners…
James Bone, (2009). Corporate compliance Insights .The conflicts of interest in Financial Services. Retrieved April6 2012 from. http://www.corporatecomplianceinsights.com/conflicts-of-interests-financial-services-enron-economy/
Kliot Jason (Producer), & Motamed Susan (Director). 2005. The Amazing Rise and Fall of Enron, Magnolia pictures. United States of America: An HDNet Films Production}.
Socialist worker, (2002). The fall of the house of Enron. Retrieved April6, 2012 from.
If I was a legislator, I will be doing this act and I will not be swayed or affected by friends and lobbyists alike.
Response to Ji Woo Chai: Indeed, the Sarbanes-Oxley Act was able to put in place controls and measures to prevent the reoccurrence of the Enron scandal. However, there has to be more done because of what occurred before and during the financial crisis. Thus, there may be a need to amend the SOX Act or ratify a new law altogether.
Response to Diana Rakadzhieva1: I agree, no matter how many laws or control mechanisms are put in place, there will still be people who will try to find ways of getting away with things. The new laws and technologies will of course make it more difficult for these nefarious groups and individuals to do their misdeeds. In due time though, they will stop at nothing from…
Lehrer, Jim. Corporate Crackdown: Enron. PBS Newshour. 2006. 29 Jul. 2011. .
THE PEOPLE EHIND THE RISE AND FALL OF ENRON
Kenneth Lay being one of the pioneers of Enron from its establishment in 1986, had lead the way of Enron's emergence as one of the leading company in the U.S. And eventually to its collapse and declaration of bankruptcy on December 2001. Kenneth Lay held the position as the CEO and chairman of Enron from 1986 to January 23, 2002. Lay is regarded directly to Enron's over all corporate history. One of the noted businessmen in Houston, Lay closely monitored the development of Enron from a startup company to billion dollar energy giant in the late 90's.
Kenneth Lay with his flaring tactics have influenced different sectors of the government in the interest of Enron which only have lead to more outrage among consumers.
Enron and its chief executive officer, Kenneth Lay, have been remarkably successful in lobbying the executive branch,…
Broughton, Philip Delves. Enron cocktail of cash, sex and fast living (2002)
Hanson, Kirk. Lessons from the Enron Scandal
SCU (2006). http://www.scu.edu/ethics/publications/ethicalperspectives/enronlessons.html
Enron hid most of its debts by establishing several LLPs, with some of them being secretly ran by Andrew Fastow, CFO at Enron. y counting only the gains and losses of the companies, but not having to report the LLPs on its financial sheet, Enron's financial position seemed very good. Consolidating the statements would have defeated the purpose of Fastow because the goal was to dump debt, not to report it.
This would have made Enron look less profitable. There was no need to consolidate the two statements to count the LLP loses as well as the gains because Enron executives made sure that an outside company had a three percent control of the LLPs. This was the minimum investment required to stop the reporting on the financial sheets of Enron.
The company wanted to reduce its debt to keep its investor ratings. The company could have issued more stocks,…
Akhigbe, a, Madura, J., and Martin, a.D.(2005, July 1). Accounting contagion: the case of Enron. Journal of Economics and Finance 29.2: 187-202. http://www.allbusiness.com/finance/3502611-1.html
Glassman, J.K. (2002, January 18) Diversify, diversify, diversify. Wall Street Journal [New York, N.Y.] Eastern edition: A10. http://www.opinionjournal.com/editorial/feature.html?id=95001750
Hamilton, S. (2004, June 4). Enron unravelled. European Business Forum. 66-71. http://www.accessmylibrary.com/coms2/summary_0286-3847472_ITM
Supanvanij, J. (2005). Does the composition of CEO compensation influence the firm's advertising budgeting? Journal of American Academy of Business, Cambridge 117-123.
Enron Scandal: Who was Responsible and Why?
ackground of Enron Scandal and Timeline of Events
Key Players in Enron Scandal
The Enron Scandal was the biggest accounting fraud in U.S., indeed worldwide, business history. The following paper gives a brief history of the events leading up to the scandal, a timeline for the events surrounding the uncovering of the scandal and the events following the public knowledge of the scandal. Key players in the run-up to the scandal are discussed, as are the people involved in the subsequent investigations.
ackground of Enron Scandal and Timeline for Events
The collapse of energy giant Enron is the largest bankruptcy and one of the most shocking failures in United States corporate history. In a little over 15 years, Enron grew into one of the U.S.'s largest companies. It embraced new technologies, established new methods of trading in energy and seemed to be a…
BBC (2002a). Enron Scandal at a glance.
A www.bbc.co.uk.(Accessed 5th August 2003).
BBC (2002b). Enron directors plead innocence.
A www.bbc.co.uk.(Accessed 5th August 2003).
The deregulation was forced through by legislators to whom Enron paid out massive contributions..." (Levy, 2005)
The fraud was primarily comprised of "cooking the books to make it look as if the company's finances were consistently rosy, so that share prices would steadily keep rising." (Levy, 2005) More than 30 individuals have received criminal charges since 2001 connected to their dealing with Enron which incidentally "was just one of several companies revealed to have been practicing this sort of fraud..." (Levy, 2005) it is interesting that most of these companies are known to have provided hefty contributions to "politicians of every stripe, but had particularly strong links to the Republicans and to ush." (Levy, 2005)
IV. Enron is iggest Political Scandal in History
Robert ryce states in the work entitled: "Pipe Dreams: Greed, Ego and the Death of Enron" that the Enron failure "was a mind-boggling event..." And that the…
Bryce, Robert (2004) Pipe Dreams: Greed, Ego and the Death of Enron. Public Affairs, 2004.
Herivel, Tara and Wright, Paul (2003) Prison Nation: The Warehousing of America's Poor. Routledge 2003.
Levy, Joel (2005) the Little Book of Conspiracies: 50 Reasons to Be Paranoid. Thunder's Mouth Press, 2005.
Waldman, Paul (2004) Fraud; the strategy behind the Bush lies and why the media didn't tell you. Sourcebooks Inc. 2004.
Enron Case Study
Enron was a company that started out small, but through some ethically unsound decisions, grew to control a large percentage of the energy market in America. In order to expand financially, Enron's executives skirted the law, creating several "independent" companies, called "special-purpose entities" (SPEs) into which they were able to hide many bad and devalued assets. In short, the executives used Enron money to create seemingly independent companies which purchased many of Enron's bad investments, clearing them off Enron's books and making the company seem more profitable than it really was. This was because although the bad assets were no longer associated with Enron, they were still owned by companies which were owned by Enron. Enron still owned all the bad assets, they just hid them in different books than the ones they showed to the public.
One of the major causes of fraud at Enron was…
Albrecht, W. (2005). Business Fraud (The Enron Problem). The American Institute of Certified Public Accountants (AICPA) Retrieved from http://www.scribd.com/doc/24385256/Business-Fraud-the-Enron-Problem .
Bentson, George and Al Hartgraves. (2002). Enron: what happened and what can we learn from it." Journal of Accounting and Public Policy, 21, 105-127. Retrieved from http://bbs.cenet.org.cn/uploadimages/200311294124115529.pdf.
Brooks, Leonard and Paul Dunn. (2004). Business and Professional Ethics for Directors, Executives, and Accountants. Mason, OH: Thomson/South-Western. Retrieved from http://books.google.com/books .
Fox, Loren. (2003). Enron the Rise and Fall. Hoboken, NJ: Wiley. Retrieved from
Disregarding its Ethical Code. Enron had its own set of Ethical Code, but it became redundant because the top managers at the company hardly paid any heed to it. he corporate culture at the company was focused on making "deals" and increasing Enron's share value, while the "outdated, theoretical concept of ethics and morality" was kept on the back-burner.
Enron's 'ethics' was personified by Kenneth Lay's exercising of his stock options and pocketing profits, even as he was promoting Enron shares as a bargain to employees. It was also reflected in the action of some Enron executives who pressurized a brokerage company (UBS PaineWebber) to take action against a broker who advised some Enron workers to sell their shares. Other Enron employees, down the line, were therefore more likely to follow the example of its top executives in looking after their own interests and driving up the share value by…
The rise in Enron's stock price coincided with an unprecedented bull-run on the Wall Street
The Sarbanes-Oxley Act, a comprehensive corporate reform package, was signed into law of the United States on July 29, 2002
Enron was at one time considered to be a highly successful energy firm based out of Houston, Texas. The company was initially formed from a merger of two prominent gas pipeline companies in 1985, and the company's scope then broadened to include the provision of products and services in the realms of electricity, natural gas, and communications. Enron's reach expanded beyond the United States to the international market, as the company dealt in the management and delivery of energy services and products to customers in both commercial business and industrial sectors throughout the world. The financial success of Enron was created mostly throughout the nineties, when the CEO and CFO at that time created Enron into a company that was worth $150 billion, making it the seventh largest company on the Fortune 500.
All of this perceived success, however, was later found to be fraudulent due to questionable accounting practices,…
Carson, T.L. (2003). Self-interest and business ethics: some lessons of the recent corporate scandals. Journal of Business Ethics, 43(4), 389-94.
Hasnas, J. (1998). The normative theories of business ethics: a guide for the perplexed. Business Ethics Quarterly, 8(1), 19-42.
Kulik, B.W. (2005). Agency theory, reasoning and culture at Enron: in search of a solution. Journal of Business Ethics, 59(4), 347-60.
Kulik, B.W., O'Fallon, M.J., Salimath, M.S. (2008). Do competitive environments lead to the rise and spread of unethical behavior? Parallels from Enron. Journal of Business Ethics, 83(4), 703-23.
Accordingly, arrogance is the only word to describe such a goof.
KPMG served as the independent audit firm of several of the largest sub-prime mortgage lenders. Identify the advantage and disadvantages of a heavy concentration of audit clients in one industry or sub-industry.
Citation: Danos, Paul. Eichenseher, John W. "Audit Industry Dynamics: Factors Affecting Changes in Client Industry Market Shares. Journal of Accounting Research." Institute of Professional Accounting. JSTOR.ORG. Vol. 20. No 2. Part II. Autumn 1982.
Full Citation (as posted in Jstor):
Audit Industry Dynamics: Factors Affecting Changes in Client-Industry Market Shares: Paul Danos and John W. Eichenseher. Journal of Accounting Research. Vol. 20, No. 2, Part II (Autumn 1982), pp. 604-616 (article consists of 13 pages). Published by: Blackwell Publishing on behalf of Accounting Research Center, Booth School of Business, University of Chicago
The advantages and disadvantages of a heavy concentration of audit clients in one…
The answer to the first question is that the executives at Enron committed accounting fraud. The company had grown rapidly to become one of the largest firms in the United States, theoretically building a business in energy trading. Even before the scandal broke, the company did not produce accurate financial statements, if it produced them at all. The company used a number of unorthodox techniques to create its financial statements, essentially distorting the statements so that they did not accurately reflect the company's business.
The three basic things that Enron did were to create special purpose entities to hide the company's debt; recording transactions improperly to make the company's revenues appear larger than they were; and adopted unusual techniques for accounting such as the use of mark-to-market accounting for non-financial projects. These different techniques made the company's revenue look larger than they were, and made Enron's debt look smaller.…
Lessons from Enron
Pride goes before the fall, so they say, and there is certainly a high degree of hubris present in "the smartest guys in the room." As it is pointed out early in the film by Amanda Martin-Brock, former executive at Enron, "The fatal flaw at Enron, if there was one, you say it was pride -- and then it was arrogance, intolerance, greed." Pride, intolerance, and greed may all be seen as characteristics demonstrated by Enron boss Kenneth Lay. From the beginning, when danger signs were revealed to be emanating from Enron traders Louis Bourget and Thomas Mastroeni, Lay decided to look the other way. Not only did he look the other way, however; he actually encouraged their "gambling": "Please keep making us millions," he stated. Here it was: pride -- the belief that he could control the chaos no matter what; intolerance -- unwillingness to…
Gibney, Alex, dir. Enron: The Smartest Guys in the Room. LA: Magnolia Pictures,
Take for instance their financing of political campaigns, which offered them access to political laws and regulations, made in their favour. However sponsorships of political parties are legal, the results Enron retrieved were immoral. Another dubious partnership was that with audit and accounting firm Arthur Andersen. The partnership was unethical but possible due to the lack of specific judiciary regulations and it was marked by numerous conflicts of interest.
Altering company records: Once an investigation was commenced, Enron and Andersen executives ordered the destruction of relevant and incriminating company records. This made investigators' work even more difficult and was aimed to conceal the truth form the public. These facts were proven by Enron employees and their low morality is undisputed.
2002, What Really Went Wrong With Enron? A Culture of Evil?, Santa Clara University, Markkula Centre for Applied Ethics, http://www.scu.edu/ethics/publications/ethicalperspectives/enronpanel.html, last accessed on January 4, 2008
2002, Lessons from…
2002, What Really Went Wrong With Enron? A Culture of Evil?, Santa Clara University, Markkula Centre for Applied Ethics, http://www.scu.edu/ethics/publications/ethicalperspectives/enronpanel.html , last accessed on January 4, 2008
2002, Lessons from the Enron Scandal, Santa Clara University, Markkula Centre for Applied Ethics, http://www.scu.edu/ethics/publications/ethicalperspectives/enronlessons.html , last accessed on January 4, 2008
Enron 101, MSNBC, http://msnbc.com/modules/enron/,last accessed on January 4, 2008
The result would mean a reduction of consulting income for AA as Enron would no longer be a customer. By whitewashing the audit, AA positioned itself to gain more lucrative consulting work from Enron.
The bounded ethicality came from a clear source. This type of relationship was common during that era, and all of the major accounting firms profited from it. Thus, there was strong incentive for auditors to compromise their ethics. This is not to say that it was stated outright that AA's auditing team should whitewashing their findings about Enron. What it means is that over the years auditing processes emerged that basically took the companies at face value, so that the audit procedure itself was not particularly rigorous. Moreover, auditing firms would be hesitant to use strong language in the wording of their report and they were in the habit of running their findings past the management…
Bazerman, M. & Tenbrunsel, A. (2011). On behavioral ethics. Harvard Magazine. Retrieved May 9, 2014 from http://harvardmagazine.com/2011/03/on-behavioral-ethics
Chugh, D., Bazerman, M. & Banaji, M. (2005). Bounded ethicality as a psychological barrier to recognizing conflict of interest. Harvard Business School. Retrieved May 9, 2014 from http://pages.stern.nyu.edu/~dchugh/articles/2005_CMU.pdf
Identify one of the examples of financial reporting misconduct associated with the Enron scandal
In the wake of the stratospheric success and subsequent fall of Enron, many were compelled to ask: how could this be possible, namely how could a firm which seemed so successful on the surface be so corrupt at its core? The answer, although not simple, can be boiled down to this: creative financial accounting. While Enron deployed many techniques to hide its falling profits, one of its most successful was the creation of "special purpose entities [or vehicles] -- subsidiaries that have a single purpose and that did not need to be included in Enron's balance sheet" and "were used to hide risky investment activities and financial losses" (Folger 2011).
It should be noted that not all SPV lack legitimacy, but rather that Enron used them for fraudulent, misleading, and therefore illegal purposes. "A corporation…
Folger, J. (2011). The Enron collapse: A look back. Investopedia. Retrieved from:
Special Purpose Vehicle/Entity - SPV/SP. (2014). Investopedia. Retrieved from:
From all facts and appearances, those Enron executives gave lip service to ethics, then went on their own way, making as much profit as they could while the company teetered on collapse.
One final example from Enron's "Code of Ethics" is titled "Twenty-Twenty Hindsight" which carries its own irony without delving into its points. Lay writes on page 10 that if any employees' security activities or transactions "become the subject of scrutiny," those transactions will be viewed "after-the-fact with the benefit of hindsight" (Lay, p. 10). And so, the section continues, "...before engaging in any transaction you should carefully consider how regulators and other might view your transaction in hindsight" (Lay, p. 10).
Looking Deeper into Ethical Standards and Conduct
Craig Edward Johnson is the author of the book Meeting the Ethical Challenges of Leadership: Casting Light on Shadow (Johnson, 2008). Anyone even remotely familiar with the Enron mess knows…
Bauman, Elisabeth. (2002). Not Business as Usual. Public Broadcasting Service. Retrieved March 9, 2009, at http://www.pbs.org.newshour/extra/features/jan-june02/enron.html.
Conroy, Stephen J., & Emerson, Tisha L.N. (2006). Changing Ethical Attitudes: The Case of the Enron and ImClone Scandals. Social Science Quarterly, 87(2), 396-401.
Jickling, Mark. (2002). The Enron Collapse: An Overview of Financial Issues. CRS Report
For Congress. Retrieved March 8, 2009, at http://fpc.state.gov/documents/organizations/9267.pdf .
Enron was a Texas based, low profile, gas pipeline Company that progressed from delivering energy to brokering energy futures. Exploiting de-regulation, it pioneered an innovative mark- to- market pricing strategy and started selling electricity in 1995, entering the European energy market in 1995. Enron broke new ground by buying, selling and hedging electricity against market risk just like shares and bonds.
In 1999 Enron entered the hi-tech, Internet bandwidth market buying and selling access to high speed broadband. Enron Online was the next cyberspace venture, a web-based commodity trading site. Enron now became an e-commerce company. Testimony to its success came from many quarters and Fortune magazine named Enron "America's Most Innovative Company" for six consecutive years from 1996 to 2001. Enron cultivated key figures in government and was especially close to the Republican Party. Enron's CEO, Ken Lay was on first name basis with President ush.
Within 15 years…
AFFAIRS, P.S. (2002). THE ROLE OF BOARD OF DIRECTORS IN ENRON'S COLLAPSE. United States Senate.
DAVID R. HERWITZ, M.J. (2006). ACCOUNTING FOR LAWYERS. New York: Foundation Press.
Eliza S. Moncarz, R.M. (2006). The Rise & Collapse of Enron: Financial Innovation, Errors & Lessons.
Profession, T.P. (2002). The Road to Reform.
In October 2001 the tables were turned again and Ken Lay returned as chief executive officer with Jeff Skilling having resigned in August. Shortly afterwards in 2002 investigations into corporate crimes and accountancy fraud were initiated on Enron leading to sharp share prices fall and the collapse of the Enron empire. (rief history of Enron Corporation - the biography of a corporate disaster)
The activities of Enron were not restricted to the U.S. And United Kingdom alone but rather it was spread all over the world. In Argentina Enron was involved in the development and laying of a pipeline system. In India Enron was to set up the largest power project in the history of the country at Dabhol Maharastra. This project later turned sour. Enron had interests in the energy sector in Guatemala, where it created and owned fifty percent of Puerto Quetzal Power Co. In the Phillipines Enron…
Chatterjee, Pratap. (2000) "Meet Enron, Bush's Biggest Contributor." The Progressive. Retrieved at http://www.progressive.org/pc0900.htm . Accessed on 11/29/2004
Chronology of Enron's Empire." Retrieved at http://www.corpwatch.org/article.php?id=2278Accessed on 11/29/2004
Ekbia, Hamid R. "How it Mediates Organizations: Enron and the California Energy Crisis." Retrieved at http://itment.cba.hawaii.edu:82/phpworkshop/jodi/ekbia/Ekbia-B.htm. Accessed on 11/29/2004
ENRON: Who's who" Retrieved at http://news.bbc.co.uk/hi/english/static/in_depth/business/2002/enron/2.stm . Accessed on 11/29/2004
They weighed the greed of the few against the good of the many and decided in selfish favor.
Without protection from this sort of corporate greed, American investors would be less inclined to invest at all. One can see the effects of just the one incidence of betrayal to investor confidence and the lack of funding in the energy sector following Enron's demise, to begin to appreciate what corporate scandal based on unethical dealings could have on investment. Investment dollars is the lifeblood to the American economy. Businesses would no longer receive the vital capital needed to grow and be competitive in today's hyper-competitive, increasingly globalized economy. Investment risks would take on a whole new meaning, evolving from risks associated with the business success to risks associated with whether or not the company is accurately reporting their financial positioning. This increase in risk would be unacceptable to most investors. Society…
Kranacher, M. "Financial Statement Complexity: A Breeding Ground for Fraud." CPA Journal 76(9) Sept 2006: p. 80. MasterFILE Premier. EBSCOHost. University of Phoenix, Phoenix, AZ. September 27, 2006 http://web.ebscohost.com .
On the Side of Angels." Provided - No further reference details given.
The first set of rules required in-house lawyers to report frauds to the organization's highest authorities. The second set provided exceptions to the general rule on legal confidentiality. oth sets were heatedly discussed for decades. Similar scandals since the 70s, which gave rise to similar heated debates, included the National Student Marketing securities fraud, the OPM commercial fraud, the Lincoln Savings & Loan and Allied Savings and Loans scandal of the 80s, and the CCI fraud in financial institutions in the 90s. And then Enron came (Lawry).
These debates centered on lawyers who tried to do their jobs right even if their clients did wrong (Lawry 2003). The debates necessarily veered into the very nature of the legal profession. Rule 1.13 of the 1983 Model Rules provides lawyers a number of options in cases of corporate irregularities or violations, which could bring harm to the organization. One of these was…
Boatright, J.R. (2003). Ethics for a post-Enron America. 7 pages. Phi Kappa Phi Forum. Phi Kappa Phi Journal: ProQuest Information and Learning Company
Canadian Broadcasting Corporation. (2007). The rise and fall of Enron: a brief history. 4 web pages. CBC News: CBC.ca. Retrieved on October 17, 2007 at http://www.cbc.ca/money/story/2006/05/25/enron-bkgr.html
Carroll, B. (2002). Post-Eron perspective on selected securities regulation issues. 3 pages. Attorney-CPA: American Association of Attorney-Certified Public Accountants
Clarke, R. (2002). The Enron effect. 2 pages. Healthcare Financial Management: Healthcare Financial Management Association
This caused the California Energy crisis to become worse by: encouraging traders to engage in actions that would directly increase the wholesale costs. Despite the fact, that there were more than enough supplies to deal with the situation. As a result, traders embraced the directives of Skilling and the company itself by overlooking the ethics of society and focusing on those of the organization. (Cline, 2011) ("usiness Ethics," n.d., pg. 22)
Clearly, a lack of morals and ethics at Enron contributed directly to the downfall of the company. The reason why, is because employees were pressured by managers to engage in actions that were considered to be unethical from the perspective of larger society. However, from the viewpoint of the culture of the organization, this was a part of helping the company to reach its different objectives. In the case of the California Energy crisis, these different factors played a…
Business Ethics. (n.d.)
Case Summary. (n.d.)
Cline, A. (2011). Ethics. About.com. Retrieved from: http://atheism.about.com/library/FAQs/phil/blfaq_phileth_catex.htm
Leopold, J. (2002). Enron Linked to California Blackouts. Market Watch. Retrieved from: http://www.marketwatch.com/story/enron-caused-california-blackouts-traders-say
Former Enron employees reported that important documents continued to be shredded despite federal subpoenas and court orders, which prohibited the practice. The employees' condition was so severe that the word "enron" was coined to mean getting victimized or wronged by the company or boss. An "enronian" came to mean an employee or investor who suffers from corporate scandal or corruption through no fault of his or her own. It means going to work on a particular day and getting informed by the manager that the company was out of business and that one's service was no longer needed. It meant receiving the bad news without warning and with no severance pay (Wikipedia, Cable News Network).
Displaced Enron employees stood to learn from their experience that working for a large and seemingly stable company, which promises a lot of incentives and benefits and offers security, is not an assurance that it…
1. Cable News Network. (2002). FBI Talks to Enron Employees. AOL Time Warner Company. http://www.search.yahoo.com/search?ei=UTF-8&p=Enron+employees&fr=slv1-&b=11
2. Hanson, E. (2002). Attorney General Orders Release of Ex-Enron Executive's Suicide Note. Houston Chronicle. http://www.chron.com/disp/story.mpl./special/enron/1361816.html
3. Wikipedia. (2006). Enron Corporation. Media Wiki. http://en.wikipedia.org/wiki/Enron
Analysis of Enron Scandal (2001)
Background of the Company
All through the course of the late 90s, Enron Corporation was widely acknowledged as one among the pioneering firms in the nation. The new-economy individualist seemed to ditch the mildewed, outdated factories with bulky physical assets, instead favoring e-commerce. While it constantly operated gas lines and constructed power plants, its popularity was owing to its distinctive trading businesses. In addition to the purchase and sale of electricity and gas futures, the organization developed entirely novel markets for peculiar "commodities" like Internet bandwidth, advertising broadcast time, and weather futures (Li, 2010).
Established in the year 1985, Enron featured among the top electricity, pulp and paper, natural gas, and communications corporations worldwide prior to declaring bankruptcy in the latter half of 2001. The company’s yearly revenues increased from roughly nine billion dollars in the year 1995 to more than one-hundred billion dollars five…
AFX News. (2006). Key players in Enron scandal. Retrieved from https://www.finanznachrichten.de/nachrichten-2006-08/6810532-key-players-in-enron-scandal-020.htm
Babu, J. (2017). What are some interesting facts about Enron? Retrieved from https://www.quora.com/What-are-some-interesting-facts-about-Enron
Ghosh, T. (2016). Enron Corporation: A case study. Retrieved from https://www.academia.edu/28328128/Enron_Corporation_A_Case_Study
Laws. (2017). Easy guide to understanding Enron scandal summary. Retrieved from https://finance.laws.com/enron-scandal-summary
Li, Y. ( 2010). The case analysis of the scandal of Enron. International Journal of Business and Management, 5(10), 37-41.
Enron could engage in their derivative trading strategy with no fear of government intervention because derivative trading was specifically exempted from government regulation. Due in part to a ruling by the Commodity Futures Trading Commission's (CFTC) chairwoman, Wendy Graham, derivatives remained free of regulatory oversight. Ms. Graham, wife of Texas senator Phil Graham, made this ruling 5 weeks before resigning as chairwoman of the CFTC and joining the Enron oard of Directors in 1993.
Derivative accounting is further complicated because there is no consistent way to fairly report their value and risk in a company's financial report. In 1998 Rule No. 133, "Accounting for Derivative Instruments and Hedging Activities" was developed by the Financial Accounting Standards oard (FAS), an independent agency that sets guidelines for corporate auditors. Rule 133 contains more than 800 pages, which further complicates its adoption and consistent interpretation by various companies. SFAS No. 133 was subsequently…
Dettmer, Jamie, and John Berlau. "Requiem for Enron: There's Enough Blame to Go around for the Collapse of the Energy Giant From Executives to Auditors to Financial Analysts to Congress." Insight on the News 7 Jan. 2002: 12+. Questia. 10 Mar. 2005 .
Folbre, Nancy. "Blowing the Whistle on Poverty Policy." Review of Social Economy 61.4 (2003): 479+. Questia. 10 Mar. 2005 .
Gup, Benton E., ed. Too Big to Fail: Policies and Practices in Government Bailouts / . Westport, CT: Praeger, 2003.
Hartgraves, Ai L., and George J. Benston. "The Evolving Accounting Standards for Special Purpose Entities and Consolidations." Accounting Horizons 16.3 (2002): 245+..
How long will others in positions of power or wanting to be in positions of power remember that the gains do not outweigh the losses? In the best case scenario, it would have been personally satisfying to know that anyone who knew of this situation and did not act at least had some type of community hours.
What would I have done in the case of Enron? It is easy to say with hindsight and personal self-confidence that I would have been a whistleblower, but I do not know if I would have had the personal strength to fight the leadership in this way. ather, I could see myself copping out by leaving the company for another job and hoping that Enron would get its due. Acting ethically is difficult when supposed "leaders," who have your present salary and future retirement in their hands condone certain behavior.
Gini, A. (2004). "Business, ethics, and leadership in a post Enron era. Journal of Leadership and Organizational Studies 11(1), 9-16.
Josephson, M..(1999). Character: Linchpin of Leadership. Executive Excellence 16(8), 13-14.
Knee, J.A. (October 26, 2003). House of gas: two teams of reporters review the rise and fall of Enron. New York Times Book Review
McLean, B., and Elkind, P. (2006). The guiltiest guys in the room. Fortune 153(11), 26.
Ethics and Leadership Failures: The Enron Case
Gibney's 2005 documentary film Enron: The Smartest Guys in the Room reveals some of the main ethical weaknesses in an unbridled neoliberal capitalist market system. Barely addressing environmental and social justice issues, the filmmakers instead choose to focus on organizational culture, leadership, and ethical decision making within the corporation. The film illustrates the core concepts of business ethics and shows how executives shape company values and behaviors. Disturbingly, the Enron case also shows how unethical corporate behavior is linked with unethical behavior in government.
Summarize in one paragraph how you would explain Enron's ethical meltdown
Enron's ethical meltdown is a result of two interrelated issues: unethical individuals making unethical decisions, and an organizational culture that enables unethical decisions to proliferate. The unethical decisions and behaviors mainly have to do with stock market manipulation and the falsifying of information related to the actual performance…
These acts of corporate rapaciousness make it clear how easily ordinary citizens can be hurt when executives try to make money 'creatively' by moving money rather than producing a product or fulfilling a real service. Enron is often mistakenly called an energy company, but it was really more of a speculative entity. This is another illuminating aspect of the documentary for those viewers who may only know about the Enron debacle through the popular media. The company existed only to show profits on its balance sheet, and to do so it tried 'every trick in the book' to keep its stock price high.
One of the most shocking revelations is how the Enron Company single-handedly created the California energy crisis: in case anyone is wondering why nothing has been said about the crisis since Enron folded, is because there never was a real crisis. The documentary has conclusive proof that…
Enron: The Smartest Guys in the Room." Directed by Alex Gibney. 2005.
One can not begin to trace the various lines and connections of the myriad of relationships, but the chart does fulfill the purpose of showing how much of a web this situation involved.
In the wake of the Enron scandal many questions have arisen centering on the strength of the U.S. Economy. Investors have questioned the accounting practices of many other firms; there has been significant fallout on the financial market; and considerable negative consequences in the market, the economy, the investment paradigm, and public confidence. All this contributed to a decline in the strength of the American economy, and certainly also had global repercussions.
The increased skepticism about accounting practices has forced many multi-national corporations all over the world to defend their financial statements. This loss of investor confidence has lead to significant changes in accounting standards and auditing practices. Corporate executives are now being required to be…
Bryce, Robert, (2002), Pipe Dreams: Greed, Ego, and the Death of Enron,
Public Affair Press.
Conroy, S. And T. Emerson. (2006). "Changing Ethical Attitudes: The Case of the Enron and ImClone Scandals." Social Science Quarterly.
Enron was one of the biggest business collapses, and one of the most egregious incidents during a period in the early 2000s when investor faith in the securities system was shaken by a series of scandals. The scandals varied in terms of their composition, but behind each of them was greed, the drive by senior management teams to defraud securities regulators and investors for their own gain. This paper will look at the Enron fraud in particular. This was probably the worst, for the bald-faced contempt that Enron management showed to securities regulators, and the biggest, as Enron was one of the stars of the stock market during its ride up, and crashed to worthlessness almost instantly.
As with most cases of stock market fraud, the key players were the senior executives. At Enron, the key players were Kenneth Lay, Jeffrey Skilling, Andrew Fastow and the accounting…
hen the mighty giant, Enron, fell, it fell hard and resulted in the largest bankruptcy in American history. orldwide focus then fell upon all who might have a possible answer for this event. Intense focus fell first upon Enron executives, and then, as the event evolved into what appears to be one of the most massive cases of corporate corruption ever known, others were brought into the spotlight.
According to a statement published on the Andersen website, the primary corporate auditors of Enron, the organization was founded in 1913, when "Arthur Andersen recruited the brightest students into his classes. Then, he turned them into 'thoroughly trained accountants' who were able to go beyond the obvious in their work by using unique methodologies to improve financial performance." It is, perhaps, those "unique methodologies" that took an unexpected turn at some point in the company's long and previously respected history,…
Andersen. "An 88-Year History of Looking Ahead." 2002. 2/5/02
Associated Press. "Former Enron Exec. Found Dead." Hays, Kristen. Jan. 25, 2002.
A.P. story picked up in Washington Post. 2/5/02.
That kind of behavior would be unacceptable today. Huge financial rewards accrued to him for being astute. Indirectly his success in the West focused more attention on the West and encouraged exploration and development by others. Astor retired from business as the richest person in the world, so he was very successful at monopolizing the fur trade. As many other wealthy people would follow his example, Astor became somewhat of a philanthropist in his later years. At least he showed some inclination toward social responsibility. Ironically the laws enacted to outlaw trusts have come to the forefront again with the battle between the Justice Department and Microsoft Corporation. In the same ironic way, ill Gates has emulated Astor through socially responsible acts such as supplying childhood illness vaccines to African countries.
It is interesting how the company operating in the more heavily regulated times is the company that exceeds all…
Altman, Daniel. "Enron Had More Than One Way to Disguise Rapid Rise in Debt." New York Times 17 Feb. 2002. http://www.nytimes.com/2002/02/17/business/17BANK.html .
Barrett, Ted. "Enron CEO warned about 'wave of accounting scandals'." CNN.com. 14 Jan. 2002. http://www.cnn.com/2002/LAW/01/14/enron.letter/
Norris, Floyd, David Barboza. "Lay Sold Shares for $100 Million." New York Times 16 Feb. 2002. http://www.nytimes.com/2002/02/16/business/16LAY.html .
Schwartz, John. "Explanations From One Former Enron Official, Silence From Another." New York Times 17 Feb. 2002. http://www.nytimes.com/2002/02/17/business/17UPDA.html .
party transactions reported on by Arthur Andersen & Co.
Related party transactions are essential transactions between closely related parties or individuals. Although not blatantly wrong in isolation, they can be particularly harmful if the practice is abused. The error with Enron's disclosure is that it was not clear enough. Investors, analysts and creditors could not properly ascertain the extent of the related party transactions at Enron. This was particularly true as the company did not want anyone to know about it. As a result the company was able to hid billions of dollars of off balance sheet debt from investors. This resulted in large, unknown exposures to investors. Arthur Anderson looked the other way in regards to informing investors about these exposures. They classified many of the entities that held the excessive amount of debt as special purpose entities. With the help of Arthur Anderson, Enron avoided consolidated the results…
In his book A Conspiracy of Fools, Kurt Eichenwald details the Enron implosion, how it came about and how the main players were. For several years there had been suspicions about Enron's behavior -- most notably the company's inability to produce financial statements. The term scandal is broadly used to describe what happened to Enron, but as Eichenwald notes Enron was more a broad conspiracy to commit fraud. The company was allowed to get away with it for so long because it had become a Wall Street and political darling, an example of the effectiveness and power of market capitalism.
Enron was a company that engaged, theoretically, in energy trading. The company's business model has been described as "only vaguely understood even by its own competitors" and this is part of what had led to the belated nature of its downfall. Enron was always a house of cards, but…
ENON & ETHICS
To say that the behavior and outlook at Enron was myopic would be putting it lightly. Indeed, to be myopic means to be short-sighted and intellectual about decisions made and the effects that will be rendered. Besides that, it is terrible leadership and only sets up a firm to fail. That is precisely what happened at Enron given that decision after decision was made that was immoral on its face and/or just did not keep the long-term effects in mind. In the end, this led to the complete evisceration and obliteration of the firm and it left many people penniless. Even so, the lessons that should be learned from Enron and what happened to that firm are many and they are lessons that should not be ignored or disregarded. Even if leaders have to go so far as to rattle through checklists and double-checks, missing important things…
Economist. (2012). The lessons from Enron. The Economist. Retrieved 3 December 2016, from http://www.economist.com/node/976011
Kadlec, D. (2016). Shhh...E.F. Hutton Is Talking Again. MONEY.com. Retrieved 3 December 2016, from http://time.com/money/3751675/ef-hutton-gateway/
KU. (2016). Chapter 13. Orienting Ideas in Leadership - Section 8. Ethical Leadership - Checklist - Community Tool Box. Ctb.ku.edu. Retrieved 3 December 2016, from http://ctb.ku.edu/en/table-of-contents/leadership/leadership-ideas/ethical-leadership/checklist
Maxwell, J. (1998). The 21 irrefutable laws of leadership (1st ed.). Nashville, Tenn.: Thomas Nelson Publishers.
Enron Virtue Ethics
The author of this report is to pick three virtues from a list and describe how they were or were not applied in a certain instances. The virtues that can be picked from are justice, fairness, integrity, courage, honor and truthfulness. For the three virtues that are chosen, there will be a definition of each one. After defining each virtue, there will be an application to the Enron case. Indeed, there was not a lot of virtue when it came to the Enron case. It started at the top with Lay, Skilling and Fastow and there were a lot of other people that were actively involved in the fraud and depravity that was under way. At the same time, the ethical malfeasance on the part of those three men and the others led to a lot of people being victimized before and after it all blew up…
BARRIONUEVO, A. (2006). Fastow Leaves Stand Insisting Lay and Skilling Knew - New York Times. Nytimes.com. Retrieved 26 October 2015, from http://www.nytimes.com/2006/03/14/business/businessspecial3/14enron.html
Business Insider. (2011). 10 YEARS LATER: What Happened To The Former Employees Of Enron? Business Insider. Retrieved 26 October 2015, from http://www.businessinsider.com/10-years-later-what-happened-to-the-former-employees-of-enron-2011-12
CNN. (2015). Enron Fast Facts - CNN.com. CNN. Retrieved 26 October 2015, from http://www.cnn.com/2013/07/02/us/enron-fast-facts/
Erb, M. (2011). Four Ways to Foster Fairness in the Workplace. Entrepreneur. Retrieved 26 October 2015, from http://www.entrepreneur.com/article/219505
Enron and isk Management
Enron is one company that did not practice good risk management following its reinvention of itself as a financial/energy trading giant. This paper will describe what happened to Enron and show how its problems could have been avoided using sound risk management regarding transparency and accountability.
Before Ken Lay gave Enron over to the new, "innovative" leaders Jeff Skilling and Andy Fastow, it had been a basic energy provider -- transparent and accountable. It had nothing to hide because it was doing nothing wrong and therefore it did not need opaque accounting practices. All that changed when Skilling came aboard and opened Lay's eyes to the "possibilities" afforded by mark-to-market accounting.
Enron's management team, led by Ken Lay, Jeff Skilling, and Andy Fastow, was a dynamic, powerful force, with a strategy that few understood but which, according to the books, appeared to be making everyone money…
Eichenwald, K. (2005). Conspiracy of Fools. NY: Broadway Books.
Elkind, P., McLean, B. (2013). Enron: the Smartest Guys in the Room. NY: Penguin.
The Enron/Arthur Andersen affair was perhaps the worst business and accounting scandal in the history of the United States. Indeed, Enron was engaging in a massive amount of malfeasance at all levels of the organization while Arthur Andersen, who was supposed to be an ethical and impartial third party, was at least partially in on the fraud. The circumstances were major as the power brokers for both firms paid dearly and many of the top Enron executives were convicted of crimes for their part in the fraud. Kenneth Lay only escaped sentencing because he died before the sentence could be announced. This report shall focus on some of the legal cases that happened in the aftermath of Enron including the obstruction of justice charges against Arthur Andersen and an appeal by Jeffrey Skilling, one of the convicted Enron executives. While the overall guilt of the parties involved were…
Abelson, Floyd. 'ENRON's COLLAPSE: THE AUDITOR; Audit Papers Usually Held For Years, Accountants Say'. Nytimes.com. N.p., 2015. Web. 21 Sept. 2015.
Carney, John. 'Why Jeff Skilling's Jail Sentence Got Downsized'. CNBC. N.p., 2013. Web. 21 Sept. 2015.
Grissom, Brandi. 'Errors In Judgment: The Consequences Of Prosecutorial Mistakes -- The Texas Tribune'. The Texas Tribune. N.p., 2015. Web. 21 Sept. 2015.
Mears, Bill. 'CNN.Com - Arthur Andersen Conviction Overturned - May 31, 2005'. Cnn.com. N.p., 2015. Web. 21 Sept. 2015.
Enron Corporation was the American company that specialized in supplying of energy.
Prior to its collapse in 2001, Enron was one of the most admired companies in the United States recording superior profits year by year, however, in 2001, series of the Enron questionable financial transactions were finally made opened when the company's stock price collapsed within one day. This study investigates several factors that led to the fall of Enron Corporation, the outcome of the investigation reveals that the top management did not promote culture of ethics within the organization. The paper reveals that the management was intoxicated with power manipulating information to their benefits. Moreover, top officials used power ruthlessly intimidating the subordinated. The company did not promote the culture of checks and balances by allowing only one entity performing both the functions of internal and external auditing. The study recommends that integration of ethical business is an…
ise and Fall of Enron
Enron grew to become one of United State's largest firms within a relatively short period of time. Having a global reach and employing approximately 25,000 employees at one time, the company was largely considered successful. However, this was not the case. In this text, I concern myself with the rise and fall of Enron. In so doing, I will explain amongst other things the history of Enron, the business it was involved in and the unethical behavior that led to its fall. Further, I will also take into consideration people implicated in the scandal and the legal actions that were taken against them.
Enron: An Overview
In basic terms, the 1985 merger between InterNorth and Huston Natural Gas informed the formation of Enron as we know it (Fernando, 2009). The merger which took place in Omaha, Nebraska was headed by Kenneth Lay who at the…
Fernando, A.C. (2009). Corporate Governance: Principles, Policies and Practices. Delhi: Pearson Education.
Sims, R.R. (2003). Ethics and Corporate Social Responsibility: Why Giants Fall. Westport, CT: Greenwood Publishing.
This news led to the downgrade of company debt which forced Enron to pay much more of their nearly one billion dollars in debt much sooner (Kaldec 2). Enron's stock was sent plummeting, forcing a Congressional investigation in December 2001. This investigation turned up the fact that Enron's partnerships were illegally kept off its books, and that Anderson had instructed employees to destroy much of the incriminating paperwork and records well before the investigation took place (Kaldec 1). The Securities and Exchange Commission also learned that documents were shredded shortly before its own investigation in 2002, and charges were brought against Anderson, Skilling, and Lay.
Billions of dollars were lost in the years that Ken Lay, the company's founder who oversaw the entire operation and the many of the partnerships it had created through Skilling. Under Lay and Skilling, the company operated under the radar of the SEC and its…
Kadlec, Daniel. "Enron: Who's Accountable?" Time. 2002. 30 Nov. 2009.
NPR Radio. "Fall of Enron." NPR. 2002. NPR.ORG News Specials. 30 Nov. 2009.
Ethically, the actions of Enron management were reprehensible. From a deontological perspective, they broke laws. From a consequentialist perspective, their actions resulted in significant financial losses for millions of people, job losses for thousands and a loss of public faith in the financial system.
The Enron scandal is perhaps the most egregious misuse of data in recent years. Data was manipulated and/or hidden from those whose job was to analyze the data. ide-ranging and catastrophic losses resulted from this misuse. Had the data been presented factually and honestly, the analysis that flowed from it would have benefited Enron's internal and external stakeholders. The company may have suffered in the short-term but would have been able to survive in the long-term.
Thomas, Cathy Booth. (2002). Called to Account. Time Magazine. Retrieved March 27, 2009 from http://www.time.com/time/business/article/0,8599,263006,00.html
Houston Chronicle: The Fall of Enron. (2001-2009). Houston Chronicle. Retrieved March 27, 2009…
Thomas, Cathy Booth. (2002). Called to Account. Time Magazine. Retrieved March 27, 2009 from http://www.time.com/time/business/article/0,8599,263006,00.html
Houston Chronicle: The Fall of Enron. (2001-2009). Houston Chronicle. Retrieved March 27, 2009 from http://www.chron.com/news/specials/enron/
Wee, Heesun. (2001). Enron in Perfect Hindsight. Business Week. Retrieved March 27, 2009 from http://www.businessweek.com/bwdaily/dnflash/dec2001/nf20011219_8118.htm
These blackouts were orchestrated as away to drive up the prices of energy. Tapes of conversations were released to the public and the employee's are on tape mocking the people of California after they were at the root cause of the problem for consumers (Johnston, 2004).
Buchholtz, a. & Carroll, a, (2008) Business and Society, 7th ed. Cengage Learning
Harvard Law eview, (2003), the good, the bad, and their corporate codes of ethics:
Enron, Sarbanes-Oxley and the problems with legislating morality, the Harvard
Law eview Association, 116(7) 2123-2141
Johnston, L. (2004, June 2). Enron tapes anger lawmakers - CBS Evening News
etrieved November 15, 2010, from http://www.cbsnews.com/stories/2004/06/02/eveningnews/main620795.shtml
Sims, ., & Brinkmann (2003) Enron ethics (or culture matters more than codes), Journal of business ethics 45(3)
Thomas, W., (2002) the rise and fall of Enron: when a company looks to good to be true, it usually is. New York: andom…
Barret, M., (2004), Enron and Andersen-what went wrong and why similar audit failures can happen again, Foundation press
Barrionuevo, a. (2006, May 25). Enron chiefs guilty of fraud and conspiracy, New
York Times. Retrieved November 15, 2010, from http://www.nytimes.com/2006/05/25/business/25cnd-enron.html
Hasnas, J. (2004/2005), the significant meaninglessness of Arthur Andersen LLP v.
Rise and Fall of Enron
The meteoric rise and fall of Enron is one of the most notorious tales in the history of corporate America. Enron was the seventh-largest company in the United States in 2000 and 'Fortune' magazine had declared it as America's "most innovative company" for six straight years; its share price had climbed from $10 a share in 1991 to over $90 a share in August 2000 while its revenue jumped to more than $100 billion. ("Rise and Fall of an Energy Giant") No one could have predicted that before the end of the following year the "rising star" of corporate America would be filing for bankruptcy, shaking investor confidence to the core and signalling the end of the longest bull-run in the American stock exchange's history. The ramifications of the dramatic collapse still reverberate in global financial and energy markets as well the U.S. courts, where…
Fowler, Tom. "Enron's implosion was anything but sudden." Houston Chronicle. June 30, 2004. http://www.chron.com/cs/CDA/ssistory.mpl/special/enron/2655409
Lindstrom, Diane. "Enron Scandal." Encarta Online Encyclopedia 2005. June 13, 2005. http://encarta.msn.com/encyclopedia_701610398/Enron_Scandal.html
'Rise and fall of an energy giant." BBC News. November 28, 2001. June 30, 2004. http://news.bbc.co.uk/1/hi/business/1681758.stm
Thomas, C. William. "The Rise and fall of Enron: when a company looks too good to be true, it usually is." Journal of Accountancy. (March / April 2002). June 13, 2005. http://www.aicpa.org/pubs/jofa/apr2002/thomas.htm
Collapse of Enron
Enron used to be one of the world's largest publicly traded companies. Its assets at various junctures were valued at anywhere between $30 billion and $40 billion: greater than the gross national product, for some years, of Malaysia. Enron's primary bread and butter used to be energy trading. Enron would purchase and then sell various forms of energy, and although it had many other related business, ranging far and wide from telecommunications to consulting services, most of their business concentrated on energy trading.
Enron's management was quite stable for many years. For example, it was major news when Mark Palmer was promoted to vice-president of public relations with primary responsibility for Enron's public relations departments worldwide. His job was to implement Enron's public relations strategies over all of its subsidiaries, like Azurix Corp., Enron's then new water company. He was promoted from within the corporation, and has…
Before Enron, Greed Helped Sink the Respectability of Accounting." Wall Street Journal, Mar 21, 2002. Ianthe Jeanne Dugan.
Leinster, Colin. "What Directors Can Learn from the Enron Fiasco: Interview with Lynn
Levitt, Arthur. "Testimony: The Committee on Governmental Affairs, United States Senate; Opening Statement." Jan 24, 2002.
SOC 205 – Society Law and Government 1
The Enron (Kenneth Lay and Jeffrey Skilling) Trial
Summary of the Trial
The Enron Trial dates as one of high profile case of corporate fraud in the US. Enron was founded in 1985 by Kenneth Lee Lay and was reported as the largest seller of Natural gas in North America by 2000. The American energy company recorded a spectacular rise with revenues increasing to over $100 billion in 2000 from $9 billion in 1995 and an increase of Enron’s stock prices recording a high of US$90.75 per share. Enron Corporation was ranked consistently as America's Most Innovative Company" between 1996 and 2001 by Fortune Magazine. The end of 2001 saw an unprecedented collapse of Enron’s stock price from US$90.75 per share to less than a dollar following an announced of $1billon loss in the first quarter of 2001 and resulting to declaration…
Particulars of Enron's Bankruptcy
There were a number of specific actions that led to Enron's bankruptcy. The majority of these pertain to a lack of accountability on the part of numerous people in key positions at this firm. The individual accountants at Arthur Andersen, the now defunct accounting firm that worked for this company, allowed Enron to utilize dubious accounting practices without trying to curtail them. Upper level management was guilty of allowing such accounting practices to take place, and of being too concerned with acquisition and spending to ensure the company was operating in accordance with the standards provided by the Securities Exchange Commission. Several fraudulent activities also contributed to Enron's bankruptcy. These include the insider trading that took place, the misrepresentation of the company as financially viable when it was on the verge of bankruptcy, and many others.
One of the primary accounting and auditing practices that eventually…
Cross, J.N., Krunkel, R.A. (n.d.). Andersen implosion over Enron: an analysis of the contagion effect on Fortune 500 firms. University of Wisconsin.
Emshwiller, J.R. (2001). Enron transaction with entity run by executive raises questions. The Wall Street Journal. Retrieved from http://faculty.msb.edu/bodurthj/teaching/ENRON/Enron%20Transaction%20With%20Entity%20Run%20by%20Executive%20Raises%20Questions.htm
They were rewarded excessively for high performance and punished excessively for poor performance. The management style fostered a tremendously competitive environment among employees through a "rank or yank" policy in which all employees were evaluated every six months and categorized into three performance ranges of whom everybody in the lowest ranking was subject to termination unless performance improved satisfactorily in the subsequent evaluation period
As in the case of cults, the Enron initiation phase was followed immediately by the indoctrination and conversion phase during which employees were simultaneously rewarded with excessive luxuries and also subjected to the intense pressure to surrender their psychological independence, conform to corporate values, and also to a highly competitive work environment. More specifically, the organizational culture at Enron continually promoted the notion that all of its employees were the best and most talented in the world. Yet, they were also subjected to a punitive culture…
Phillips, K. (2008). "Bad Money: Reckless Finance, Failed Politics, and the Global Crisis
of American Capitalism" New York: Viking.
Zimbardo, P. (2007). The Lucifer Effect: Understanding How Good People Turn Evil. New York: Random House.
Utility Ethics: Enron
Utility Ethics at Enron
Why utility ethics is a valid way of deciding right and wrong
Utility ethics are considered to be universal, growth-driven, and offer service to the organization with the only consideration of the right and the wrong. Utility ethics is a valid way of deciding the right and wrong because growth does not always mean that it is right. The same perspective does not apply to failing: failure to grow does not mean the bad. Ethics touches on the best and universally acceptable interactions between the resources, human resource and tools for growth and development within an organization. Utility ethics are universal, with no bias, and always poised for higher chances of growth within an organization. Moreover, utility ethics consider the result and not the immediate results. They are founded on the basis that the process has to be good to have a better…
Chandra, G. (2003). The Enron Implosion and Its Lessons. Journal of Management Research, 3(2), 98-111.
Free, C., Macintosh, N., & Stein, M. (2007). Management Controls the Organizational Fraud Triangle Of Leadership, Culture, and Control in Enron. Ivey Business Journal Online
Hamilton, B. (2012, June 7). Utility Test. Ethics Ops
Madsen, S., & Vance, C. (2009). Unlearned Lessons From The Past: An Insider's View Of Enron's Downfall. Corporate Governance, 9(2), 216-227.
Ethics and Financial Reporting
Role of ethics
In financial reporting, ethics assumes a key role. Shareholders must feel confident enough to trust a company with their money. Financial reporting is the representation of all information about a company's historical, current and projected health. In most cases, shareholders and investors depend on the financial statements available to make educated and informed decisions. o support entities maintain financial reporting and adhere to business regulations, shareholders tend to trust the current firms designed to supervise various aspects of the accounting field. he basic organizations include the Financial Accounting Standards Board (FASB), Securities and Exchange Committee (SEC) and the Public Company Accounting Oversight Board (PCAOB). In collaboration, these bodies guarantee financial reporting is reliable, available and fair to all investors.
he usefulness of ethics in financial reporting and business is to promote investor and public confidence in businesses. In the absence of a powerful…
To discuss ethics and financial reporting in a better way, we must look at some of the greatest scandals in a recent decade: the WorldCom and Enron. In the corporate world, Enron was a huge symbol of the widespread economic problem because its growth and collapse were unique. Formed in 19985, Enron was under the leadership of Ken Lay. In 1990, the company hired Andy Fastow and Jeffrey Skilling. In 2001, Enron was listed as one of Fortune's best admired firms, sending its stock prices up to at least $90 per share. Next was a $1 billion write-off that marked the onset of an SEC investigation. Soon, Enron was declared bankrupt, and the share price dropped to $26 per share. Enron was not alone so concerns could not dissipate quickly and confidence in capital markets plummeted. Before Enron, firms like Sunbeam and Waste Management acted as a warning of what happened to Enron. The closure of Enron led to constant disclosures. World.Com had been entangled in the practice of capitalizing expenses. On one hand, Enron was trying hard to outshine capital markets and accounting regulators while WorldCom was making accounting errors that even novice accounting learners would identify as inappropriate. For many, the most disturbing factor is the collaboration among top executives. Following these scandals, the then President Bush and Congress took a tough position in the version of the Sarbanes-Oxley Act
Causes of Financial Reporting Problems
A confluence of situations opened eyes to the issues. The bursting of the economic bubble significantly contributed to the realization of the abuses. When all things seemed bright, no one questioned the financial reports of corporations. The new economic could not last forever. Therefore, when the economy changed, investors started to pose tough questions. Companies could not answer many of these questions; there were only cover-ups and denials. The world of accounting is facing a challenging period. The reputation that it acquired over decades has been lost in a day. People thought that accountants were individuals of great integrity occupying interesting positions. In today's situation, their occupation has become even more interesting but at the expense of their reputation for integrity. The profession must fight to restore public trust and maintain their belief in the significance of accounting.
Satyam -- The Enron of India," involves its former chairman amalinga aju, who admitted to years of corporate fraud in 2009. At the heart of this fraud was the way in which aju handled the accounting reports of the company. An initial attempt to cover up the company's debt culminated in the necessity to fabricate an increasing amount of revenue. This ultimately culminated in 94% of the company's assets and cash being fabricated.
This type of corporate fraud is an unfortunately frequent occurrence in the world of business today. The problem involved in fraudulent activity is that it cannot continue perpetually. Even years of fraud will eventually, of necessity, be revealed when accountants or interested parties notice a discrepancy between what is reported and the cash flow that is in fact available. Furthermore, revealed corporate fraud tends to tarnish a company's reputation in the eyes of the public it serves…
Anonymous Employee (2011). Handling Corporate Fraud. Retrieved from: http://www.anonymousemployee.com/csssite/sidelinks/corporate_fraud.php
Kaplan, J.A. (2010, Jun. 10). Why Corporate Fraud is On the Rise. Forbes. Retrieved from: http://www.forbes.com/2010/06/10/corporate-fraud-executive-compensation-personal-finance-risk-list-2-10-kaplan.html
Lefcourt, D. (2011, Sep. 13). A Corporate Culture of Fraud. OpEdNews. Retrieved from: http://www.opednews.com/articles/A-Corporate-Culture-of-Fr-by-Dave-Lefcourt-110913-182.html
McArdle, J. (2011, Jan 13). U.S. Par Police Chief -- Fired for Whistle-Blowing in 2004 -- Is Reinstated. New York Times. Retrieved from: http://www.nytimes.com/gwire/2011/01/13/13greenwire-us-park-police-chief-fired-for-whistle-blowing-49802.html
Ethics and Specialized Knowledge
Enron's case summary
Enron is an interstate pipeline company that was founded in 1985 as a supplier of power utilities. In the 20th century, Enron had grown quickly, and due to increased competition in the global market, the company decided to diversify and use international investments that would help in keeping their market position. Enron's rapid expansion exceeded their funding abilities, and this resulted in the creation of a complex web of off-balance-sheet financing (Silverstein, 2013). It is clear that they ignored the dangers associated with their activities in bringing serious losses. Moreover, in 2001 is when the company overstated on its revenues and its liabilities became hidden from the public.
Additionally, their driving culture became reinforced by incentive schemes that promised and delivered rewards that were huge concerning their compensation packages (Silverstein, 2013). As such, their outstanding performance required them to portray the company as…
Marianne M. J. (2009). Business Ethic Case Study and Selected Readings (sixth Ed.). Salt Lake City, UT, U.S.A.: Southwestern Cengage Learning.
Silverstein, K. (2013, May 14). Enron, Ethics and Today's Corporate Values. Forbes. Retrieved from http://www.forbes.com/sites/kensilverstein/2013/05/14/enron-ethics-and-todays-corporate-values/#7a4cfc557688
This quotation shows how arbitrary MTM can be. Simply by terming Enron's cash shortage a sa minority interest as opposed to the proper term for it, debt, Enron was able to manipulate MTM to prevent such a sizeable loss from appearing on its balance sheet. Moreover, MTM's role in this transaction allowed Enron to repair its problem of a cash flow shortage since it credited $500 million via its sale of Treasury securities. The relative short duration in which Enron was able to take out a loan and repay it indicates how effective MTM was in providing Enron a favorable balance sheet, and in singled-handedly dancing around the reality of its shortages. Additionally, it also kept others (shareholders, stakeholders, not to mention its hard working employees) to know how tenuous an economic position the company was actually in.
In discussing Enron's MTM approach to accounting and the considerable role…
Batson, N. (2003). "Second interim report of Neal Batson, court appointed examiner." Enron Corp et al., v. Debtors.
Monks, R.G., Minnow, N. (2008). Corporate Governance. New Jersey: Blackwell Publishers. Retrieved from http://www.ragm.com/enron/accounting.html
Valdmanis, T. (2008). "Senate report blasts SEC's Enron oversight." USA Today. Retrieved from http://usatoday30.usatoday.com/money/industries/banking/2002-10-06-sec_x.htm
here are three primary factors that influence the company's current strategic, tactical, operational and contingency planning. he first factor is the increase in competitiveness within the industry in general. he rise in private and small scale CPA practices within the United States now makes almost all of Anderson's clients institutional in nature. Although this is sustainable at the current level, the concern is that Anderson will not be able to grow its organization at a grassroots level. he implication is that if small to midsized companies are now employing private companies and individual CPAs rather than large accounting corporations, then Anderson must compete exclusively with the other four major corporations for large-cap companies. his is a strategy concern that has influenced Anderson's current tactical decision making. As a result, it has jettisoned many subsidiary operations in order to focus on its core auditing and financial services offerings. his was represented…
There are three primary factors that influence the company's current strategic, tactical, operational and contingency planning. The first factor is the increase in competitiveness within the industry in general. The rise in private and small scale CPA practices within the United States now makes almost all of Anderson's clients institutional in nature. Although this is sustainable at the current level, the concern is that Anderson will not be able to grow its organization at a grassroots level. The implication is that if small to midsized companies are now employing private companies and individual CPAs rather than large accounting corporations, then Anderson must compete exclusively with the other four major corporations for large-cap companies. This is a strategy concern that has influenced Anderson's current tactical decision making. As a result, it has jettisoned many subsidiary operations in order to focus on its core auditing and financial services offerings. This was represented by the spin-off of Anderson Consulting in 2000 into Accenture, and the slow increase in focus on its core business development.
Another major factor that has influenced the company has been the increased complexity of financial legislation. This can be evidenced in several areas; the most prominent is the recent Sarbanes-Oxley Act. This act was passed in the wake of Enron in order to create greater accountability for public companies. As a result, it means that it is harder than ever to become public in the United States. This means that there is much more business for the major accounting companies, and Anderson has begun positioning itself as one of the key industry leaders in helping companies become public entities.
The final factor has been the increasing competitiveness for top notch financial talent on a global scale. The globalization market has changed significantly the market for accounting and financial services, the opening up of China have especially been important to the new reality of the global market. As a result, Anderson had changed its tactical decision to including the expansion into a transnational corporation; the only way to fully account for this change is to understand exactly what is necessary in order to develop strong international relationships with emerging talent. Anderson has already taken major steps in these endeavors as it changed its global outreach initiative by pushing for a more universal agenda towards rewarding clients from all sectors of its business development equally. Overall Anderson has engaged in many different processes that impacts its global outreach.
Merrill Lynch Barge Scenario
Case Summary -- Enron, a Texas-based energy company, was created in 1985 and had such phenomenal growth it was soon the seventh largest company in the U.S. until its bankruptcy in 2001. Enron was involved in a number of scandals, among which was the Nigerian Barge Case. Essentially, Enron attempted to sell interest in three power-generating barges off the coast of Nigeria, but was unsuccessful. By December of 1999, Merrill Lynch agreed to buy Enron's interest. Enron "loaned" ML 75% of the money, offering ML a guaranteed return of 15% on 7 million dollars ($1.05 million in 6 months). Essentially, the entire deal was a fraud, designed only to make Enron appear more profitable than it was. Most of the Enron promises were verbal, and the situation was never really a "sale," but a short-term leverage loan. Enron's objective, in fact, was to improve the way…
Virtue Ethics. (March 2012). Stanford Encyclopedia of Philosophy. Retrieved from: http://plato.stanford.edu/entries/ethics-virtue/
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Flood, M. (May 13, 2005). Judge Hands Out Prison Time in Enron Barge Scam. Chon.com. From the Houston Chronicle. Retrieved from: http://www.chron.com/business/enron / article/Judge-hands-out-prison-time-in-Enron-barge-scam-1942569.php
If this policy was in place at the time of the Enron scandal, Anderson may not have had any incentive to lie on behalf of Enron. Another extremely important rule that would have had an impact upon Enron is the rotation rule. The lead and concurrent audit partners cannot stay on a particular public company for more than five years, they must continually rotate. Had this rule been in place, Arthur Anderson himself who sat twenty years on Enron would not have had the opportunity to conduct deceit and destroy documentation.
The primary aspect of OX in application to preventing scandals such as Enron is provide much more repercussions for corporate finance abuse and more importantly, for greater responsibility for all parties involved in audits. The audit committee of all public companies are now required to overview all audits that are being conducted. In addition, CEOs and CFOs of public…
SOX would have had a major impact upon Enron because it provides many filters in which to catch corporate finance disclosure and duplicity. The creation of a public company accounting oversight board was the first major step of SOX. This board is designed to preventing auditing abuses. The board registers, oversees, investigates and disciplines all accounting firms that auditing public companies. As a result, it provided a level of supervision on accounting firms that was not there at the outset. In addition auditing standards were established across the board which put much more accountability in the hand of auditors and held them accountable to be checked by a national level committee. One of the key reasons that the Enron scandal occurred is because the accounting firm, Arthur Anderson, earned more from Enron in consulting services than in auditing. Therefore they were willing to compromise their integrity in order to preserve their consulting business. The new policy prohibits auditors from "contemporaneously" providing companies with both auditing and specific types of consulting services. If this policy was in place at the time of the Enron scandal, Anderson may not have had any incentive to lie on behalf of Enron. Another extremely important rule that would have had an impact upon Enron is the rotation rule. The lead and concurrent audit partners cannot stay on a particular public company for more than five years, they must continually rotate. Had this rule been in place, Arthur Anderson himself who sat twenty years on Enron would not have had the opportunity to conduct deceit and destroy documentation.
The primary aspect of SOX in application to preventing scandals such as Enron is provide much more repercussions for corporate finance abuse and more importantly, for greater responsibility for all parties involved in audits. The audit committee of all public companies are now required to overview all audits that are being conducted. In addition, CEOs and CFOs of public companies are required to personally certify accuracy for their financial reports. This holds them accountable and provides significant penalties for false certifications. These safeguards, if they were in place with Enron would have put much more reasonability and consequences upon the actions of the CEO and CFO, thus possibly deterring their actions. In general the criminal punishments associated with obstruction of justice and securities fraud. As a result, the deterrents in place may have well have deterred Enron, Anderson and all other parties involved to reconsider their actions.
The Role of Empirical Evidence in Evaluating the Wisdom of the Sarbanes-Oxley Act, 40 University of San Francisco Law Review 823-844 (2006) http://eprints.law.duke.edu/archive/00000840/" Public and Private Enforcement of the Securities Laws: Have Things Changed Since Enron?, 80 Notre Dame Law Review 893-907 (2005) (with Randall S. Thomas)
blow the whistle" on what you heard in the garden? If so, how will you blow the whistle? If you decide to blow the whistle, what are your reasons for doing so? Your discussion should reflect knowledge of what Boatright says about issues, problems and justifications for whistle-blowing. Also, in discussing the answers to these questions you should include the following: 1) you should evaluate real and potential conflicts of interests that confront you in your decision 2) you should explain how your reasoning is consistent or inconsistent with the three following moral theories: Kantian moral theory, utilitarian moral theory and virtue theory.
Our MBA is not really aware of what is going on; all he has is assumptions, guesses. He has no actual proof. In the first case, he has had suspicions of several transactions -- their accounting practices seem suspect - and he has pointed out…
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Hays, Kristin. "Prosecutor Questions Lay At Enron Trial." Business Week 27 Apr. 2006. 27 Apr. 2006
" hile there are factors like peer pressure and authority that come into play, some research claims to have isolated significant features of an individual's character that make them more likely to commit acts of fraud, bribery and falsification in the corporate context (27, 2009). For example, those people with "high levels of ambition were more likely to transgress moral codes, competitively stab colleagues in the back and make dubious decisions relating to asset-stripping, disinvestment, and so on" (27, 2009).
Trevino's (1986) work is relevant when it comes to understanding individuals and corruption. There are a couple questions regarding moral personality that come up: first of all, whether or not a person sees an event or issue as a moral problem; the second is how they decide to act in relation to that problem. Kohlberg's theory of cognitive moral development emphasizes the cognitive or reasoning aspect of moral-decision making (604,…
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(New Horizons in Management). Edward Elgar Publishers, 2009.
Fleming, Peter. & Zyglodopoulos, Stelios C. Charting Corporate Corruption: Agency,
4. If Enron shareholders had been fully aware of the LJM partnership agreement, do you believe they would have been willing to continue investing in Enron?
LJM was created by Fastow allegedly to buy poorly performing Enron assets, but in reality to hide debt and inflate profits of Enron in order to leverage its stock price. It is almost certain that Enron shareholders would have ceased to continue investing in Enron had they been aware of the full significance of LJM.
LJM, in its essence, entailed that Enron was far below that which it's displayed to the public and that likely its debts were more massive and its profits far less than those claimed. Investors, obviously, would not want to invest in a poorly performing company.
Even if Enron's profits were higher and debts lower than those that the company tried to conceal, the very fact that Enron was not…
Arping, H., & Sautner, B. (2010). "The Effect of Corporate Governance Regulation on Transparency: Evidence from the Sarbanes-Oxley Act of 2002." Papers.ssrn.com. http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1561619 . Retrieved 5/11/2012
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Fombrun, C. & Foss, C. 2004, 'Business ethics corporate response'. Corporate Reputation Review, 7, pp.284 -- 288
Healy, Paul M. & Krishna G. Palepu (Spring 2003). "The Fall of Enron" (PDF). Journal of Economic Perspectives 17 (2): 15.
People will say everybody else does this and gets away with it, could it be that wrong? It comes down to economics vs. ethics.
The difficult thing for me personally is that I do not know how I would have reacted in this situation. I would like to think that I would have tried to blow the whistle or at least try to talk with someone in authority about the problem. If this did not work, I would like to think that I would have quit and went someone place else that I believed were more ethical. However, until being in such a situation, I do not know exactly how I would have reacted. I may have bitched and complained with other employees in the lunchroom or over the phone at night. However, would I have gone the extra step? Would I have been brave enough? I am not sure.…