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Ethical issues in the rise and fall of enron
Description of the ethical issues in Enron collapse
Ethical issues in the rise and fall of enron
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Analysis of the Enron’s Collapse
The Enron scandal reveals the darkest side of the business world. Within twenty-four days, the seventh-largest company on the Fortune 500 went bankrupt. Millions of people lost their properties and jobs because of the horrifying acts that Kenneth Lay, Jeffrey Skilling, and Andrew Fastow committed. Enron’s toxic culture, both the internal and external regulation failures, and conflicts of interest between the two roles played by Arthur Andersen are the causes of the Enron’s collapse.
The Salient Facts and Key Ethical Issues of the Enron Scandal Before stepping into the ethical analysis of the Enron scandal, there are four major salient facts that we should know. First, Kenneth Lay founded Enron, an American
First, Enron manipulated their earnings and hid their losses by using this accounting policy. In the Enron movie, Skilling came out an idea that could book the profits (Gibney, 2005). His action reveals that he allows the firm to cook the books by manipulating the earnings that do not exist and hiding the losses that do exist. These two acts are the reasons why the Enron’s debt load developed. Also, the Enron’s executives forced analysts to give positive ratings in order to maintain a positive growth of Enron’s stocks. Moreover, Enron executives lied to the public about the stock value of Enron. In the Enron movie, Lay claims that “the business is doing great” (Gibney, 2005) while Enron is not. According to Kant’s deontological ethics theory, it is never right to lie, steal, or cheat (Hartman & Desjardins, p.141,
By looking at the Enron scandal, there are three major financial-related reformations that have been addressed by the SOX. First, “SOX forbids auditors of public firms from providing to their audit clients most non-audit consulting services” (Prentice, p.9, 2010). This reformation prevents Anderson’s wrongdoing from happening. Second, SOX restricts “off-balance sheet reporting, use of special purpose entities, and pro forma reporting” (Prentice, p.10, 2010). The new rule fixed the fundamental problem raised in the Enron’s scandal, which is the use of “Mark-to-market” accounting policy. Third, “SOX reforms stock analyst practices, primarily by minimizing, in several ways, the motivations they had to falsely praise the stocks of companies whose investment banking business their employers sought” (Prentice, p.10, 2010). This reform prevents stock analysts from giving good ratings
In 1985, after federal deregulation of natural gas pipelines, Enron was born from the merger of Houston Natural Gas and InterNorth, a Nebraska pipeline company. In the process of the merger, Enron incurred a lot of debt and, as the result of deregulation, no longer had exclusive rights to its pipelines. In order to survive, the company had to come up with a new and innovative business strategy to generate profits and cash flow. Kenneth Lay, CEO, hired McKinsey & Co. to assist in developing Enron’s business strategy. It assigned Jeffrey Skilling to the task. Skilling, who had a background in banking and asset and liability management, proposed a revolutionary solution to Enron’s credit, cash, and profit worries in the gas pipeline business: create a “gas bank” in which Enron would buy gas from a network of suppliers and sell it to a network of consumers, contractually guaranteeing both the supply and the price, charging fees for the transactions and assuming the associated risks. Thanks to the young consultant, the company created both a new product and a new paradigm for the industry—the energy derivative. Lay was so impressed with Skilling’s ...
The Enron scandal is one of the biggest scandals to take place in in American history. Enron was once one of the biggest companys in the world. It was the 6th largest energy company in the world. Due to Enron’s downfall investors of the company lost nearly 70 billion dollars. This was all due to many illegal activities done by Eron's employees. One of these employees was Andrew Fastow, the chief financial officer of the Enron corporation had a lot to do with the collapse of the Enron company.
The Enron Corporation was committed to pushing the legal limit as far as possible. Many individuals only seeking to promote their own well-being over any legal or ethical boundaries did this. This was not only isolated with the Enron Corporation, as Arthur Andersen the outside accounting firm and Vinson & Elkins Enron’s law firm were also participants. The key players that led to the collapse of Enron was the founder Kenneth Lay, his successor
Enron’s management style was apparent from the early years of the organization. In 1987, traders in New York manipulated transactions so it would appear as though volume was higher. Falsified transactions significantly increased the traders’ bonus pay out. A truly virtuous manager would deal with unethical behavior by swiftly dismissing those involved. Sadly, Chairman Kenneth Lay and his management team chose to keep the traders on payroll because “said the company needed the revenue” (Fowler, 2002). This event may have been the earliest indication of unethical behavior within the organization.
Many organizations have been destroyed or heavily damaged financially and took a hit in terms of reputation, for example, Enron. The word Ethics is derived from a Greek word called Ethos, meaning “The character or values particular to a specific person, people, culture or movement” (The American Heritage Dictionary, 2007, p. 295). Ethics has always played and will continue to play a huge role within the corporate world. Ethics is one of the important topics that are debated at lengths without reaching a conclusion, since there isn’t a right or wrong answer. It’s basically depends on how each individual perceives a particular situation. Over the past few years we have seen very poor unethical business practices by companies like Enron, which has affected many stakeholders. Poor unethical practices affect the society in many ways; employees lose their job, investors lose their money, and the country’s economy gets affected. This leads to people start losing confidence in the economy and the organizations that are being run by the so-called “educated” top executives that had one goal in their minds, personal gain. When Enron entered the scene in the mid-1980s, it was little more than a stodgy energy distribution system. Ten years later, it was a multi-billion dollar corporation, considered the poster child of the “new economy” for its willingness to use technology and the Internet in managing energy. Fifteen years later, the company is filing for bankruptcy on the heels of a massive financial collapse, likely the largest in corporate America’s history. As this paper is being written, the scope of Enron collapse is still being researched, poked and prodded. It will take years to determine what, exactly; the impact of the demise of this energy giant will be both on the industry and the
The three main crooks Chairman Ken Lay, CEO Jeff Skilling, and CFO Andrew Fastow, are as off the rack as they come. Fastow was skimming from Enron by ripping off the con artists who showed him how to steal, by hiding Enron debt in dummy corporations, and getting rich off of it. Opportunity theory is ever present because since this scam was done once without penalty, it was done plenty of more times with ease. Skilling however, was the typical amoral nerd, with delusions of grandeur, who wanted to mess around with others because he was ridiculed as a kid, implementing an absurd rank and yank policy that led to employees grading each other, with the lowest graded people being fired. Structural humiliation played a direct role in shaping Skilling's thoughts and future actions. This did not mean the worst employees were fired, only the least popular, or those who were not afraid to tell the truth. Thus, the corrupt culture of Enron was born. At one point, in an inter...
middle of paper ... ... They had complete disregard for ethical standards that they should have looked towards when making their decisions. They allowed greed, and notoriety, to take over their basic perceptions of what is right, and what is wrong. So in conclusion, I have provided my analysis of ethical behavior that surrounded the financial events of Bernie Madoff, and the events that surrounded Enron.
Investors and the media once considered Enron to be the company of the future. The company had detailed code of ethics and powerful front men like Kenneth Lay, who is the son of a Baptist minister and whose own son was studying to enter the ministry (Flynt 1). Unfortunately the Enron board waived the company’s own ethic code requirements to allow the company’s Chief Financial Officer to serve as a general partner for the partnership that Enron was using as a conduit for much of its business. They also allowed discrepancies of millions of dollars. It was not until whistleblower Sherron S. Watkins stepped forward that the deceit began to unravel. Enron finally declared bankruptcy on December 2, 2001, leaving employees with out jobs or money.
Enron Corporation started back in 1985. It was created as a merger of Houston Natural Gas and Omaha based InterNorth as a interstate pipeline company (CbcNews). Kenneth Lay was the former chief executive officer of Houston natural gas merged his company with another natural gas line company, Omaha Based InterNorth. During the time of the merger there were many arguments amongst the two companies and in the end Ken Lay the former C...
Enron Corporation was based in Houston, Texas and participated in the wholesale exchange of American energy and commodities (ex. electricity and natural gas). Enron found itself in the middle of a very public accounting fraud scandal in the early 2000s. The corruption of Enron’s CFO and top executives bring to question their ethics and ethical culture of the company. Additionally, examining Enron ethics, their organization culture, will help to determine how their criminal acts could have been prevented.
Unethical accounting practices involving Enron date back to 1987. Enron’s use of creative accounting involved moving profits from one period to another to manipulate earnings. Anderson, Enron’s auditor, investigated and reported these unusual transactions to Enron’s audit committee, but failed to discuss the illegality of the acts (Girioux, 2008). Enron decided the act was immaterial and Anderson went along with their decision. At this point, the auditor’s should have reevaluated their risk assessment of Enron’s internal controls in light of how this matter was handled and the risks Enron was willing to take The history of unethical accounting practic...
The end of 2001 and the start of 2002 saw the end of a period of magnified share prices and booming businesses. All speculations of misrepresentation came to light and those firms which once seem unconquerable were now filing for bankruptcy. Within this essay, I shall discuss the corporate governance mechanisms and failures which led to the Enron scandal resulting in global corporate governance reforms being encouraged.
Enron was on the of the most successful and innovative companies throughout the 1990s. In October of 2001, Enron admitted that its income had been vastly overstated; and its equity value was actually a couple of billion dollars less than was stated on its income statement (The Fall of Enron, 2016). Enron was forced to declare bankruptcy on December 2, 2001. The primary reasons behind the scandal at Enron was the negligence of Enron’s auditing group Arthur Andersen who helped the company to continually perpetrate the fraud (The Fall of Enron, 2016). The Enron collapse had a huge effect on present accounting regulations and rules.
The SOX is to restore confidence and reassurance to the American people and notice to corporate America, unethical business practices will not be tolerated (Ferrell, et al, 2013). All key players in an organization such as the top executives, lawyers, accountants, banks, board of directors, and employees all have an obligation to do the right thing and report any wrong-doings (Ferrell, et al,
Enron had rose to the top by engaging in energy projects worldwide and speculating in oil and gas futures on the world’s commodities markets. They also provided financial support to some presidential candidates and members of the U.S. Congress. However, Enron had a secret. The corporation had created partnerships located in off-shore