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 energy company, to take advantage of energy deregulation within the country creating “commercial opportunities for the more farsighted energy companies” in 1985 (Hamilton, p.295, 2008). Second, Lay hired Jeffrey Skilling to establish a trading mechanism between buyers and sellers of natural gas through contractual arrangement called the “gas bank” in 1989 (Hamilton, p.295, 2008). Third, Skilling hired Andrew Fastow to partner with LJM, a company created by Fastow, and Chewco, a company that created in “the purpose of acquiring the California Public Employees Retirement Scheme’s (CalPERS) interest in an earlier joint venture with Enron called the Joint Energy Development Investment (JEDI)”, to do some “off balance sheet” transactions, which are also called the special purpose entity (SPE) transactions, in 1990 (Hamilton, p.308, 2008). Fourth, the U.S. Security and Exchange Commission (SEC) granted Enron to use the Volumetric Production Payments (VPPs), a “mark-to-market” accounting policy, for co...
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... work-papers for seven years after completing the audit” (Prentice, p.11, 2010). This provision prevents document destruction when it is needed for a federal investigation, like the one happened in the Enron scandal. Second, SOX punishes “those who wrongfully retaliate against whistleblowers” (Prentice, p.11, 2010). This act protects and enforces the whistleblower to do the right thing, like Sherron Watkins. Third, SOX “places limited responsibilities on attorneys for public companies to report” fraudulent corporate activity (Prentice, p.12, 2010). This protection ensures that attorney has the right to speak out.
To conclude, the Enron’s collapse reveals that toxic culture will result to a significant consequence. With a good internal and external regulation both the board and management firm, toxic culture can be prevented. Conflicts of interest can then be avoided.
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