Case: 9 Enron

The top managers operated in a corrupted fashion They did not even try to produce a positive symbolic management within the organization. Thus, the failure of the company was also the reflection of their moral failing. As a matter of fact, not only there was an aggressive and arrogant culture, but managers were mainly driven by corruption, and greed. They had no space for ethics; their main goal was trading for financial gains. Managers at Enron did not focus on long term goals. Moreover, they did not take care of their shareholders. Executives had neither an open relationship nor a shared vision with their employees. Instead, they were only interested in enriching themselves; according to their philosophy any situation could bring profits, even though this might involve crossing ethical lines. Indeed, the culture of pride, arrogance and greed at Enron made executives look for whichever solution in order to get more and more profits. Because executives wanted to benefit themselves first, all the decisions they took in the board room were made on the only account of how they could earn more. For all the above-mentioned reasons, operational and financial controls were inadequate,

Enron’s demise was led by the arrogance and greed of senior executives. The belief was they had to be the best business leaders in the United States. Many also believe that there was a conflict of interest with the auditing firm because not only did they serve as the auditing firm, they also served as a consulting firm to Enron. This enabled them to fabricate financial statements by building assets and hiding debt from investors. The loss of the recorded $1.2 billion shareholders equity meant that many victims of this fraud lost their jobs and their retirement funds.

Enron started as a sound company that had a promising future in the oil and energy business. The companies CEO and CFO were charged on 35 different accounts of fraud, conspiracy, and insider trading that cleared most of its employee’s retirement pensions and billions of dollars for others (Unknown, 2016). It is impossible to account for every transaction that a company will produce, but the revamping of government

The Enron Conglomerate was established in 1985 from its command center located in Houston, Texas which is the seventh greatest income earning corporation in the U.S. The first scandal that Enron suffered from was from a merge they made with Valhalla which is a small oil trading corporation centered in New York. A group of traders maxed out its trading limits costing Enron millions of dollars. Kenneth Lay was the CEO of Enron but partnered with Louis Borget. He began manipulating the accounting books which made it seem as if the company was generating profits. However, Borget as well as Mastroeni were the only one who knew what the real figures were. Unbelievably in 1987, Enron’s internal accountant: David Woytek received a phone call from a bank in New York regarding several deposits being made to Mastroeni’s personal account. “When Mastroeni and Borget were being harassed to confess, they seemed to deny it and claimed they were only attempting to shift the profits rather than rob” (Barboza, David 2002). Either way this type of conspiratorial is illegal. Sadly research did not discover the truth to its entirety because auditors were fooled.

Many are probably familiar with what has become one of America’s horror stories. It is a story about the American dream and promise gone amuck. The conclusion of the story is one that has shaped the way businesses operate ever since. The documentary Enron: The Smartest Guys in the Room (Gibney, 2005) examines the ethical blunders of the natural gas/energy company Enron. Alex Gibney (2005), director and producer for the documentary, focuses on the role of three men who were credited as being key players in the downfall of the company. The three men were Chief Executive Officer (CEO) Jeff Skilling, Founder and Chairman Ken Lay, and Chief Financial Officer (CFO) Andy Fastow. Gibney (2005) proceeds to outline the gradually rise of Enron, the

Enron is viewed by many as the quintessential corrupt corporate juggernaut. Corporations are nothing more than a collection of people. If a corporation is corrupt than it must be filled with corrupt employs, and led by a front office devoid of moral standards, right? Perhaps this is not entirely true. Certainly an element of corruption was present in the case of Enron, the number of corrupt employees may not have been as encompassing as presumed. When asked to rate their level of honesty, most would respond that they are honest. In actuality, most people are not completely honest, and their level of dishonesty is correlated with their ability to rationalize the dishonesty and preserve their self- image as an honest and admirable person

Analysis of Enron: the Smartest Guys in the Room One of the greatest achievements of Enron: the Smartest Guys in the Room, is the documentary’s ability to so meticulously and cohesively deconstruct the corporation’s practices, from top to bottom, to illustrate even for the layman just how fundamentally illegal and reckless its leadership was. One of the reasons that the film’s title (which is based on and taken from the book of a very similar name) is so fitting, is that the sorts of business ventures that Enron pursued—be it their Blockbuster bandwidth scheme, their Dabhol power plant project, or their California energy price-gouging—required such immensely-detailed, calculated planning and maneuvering, that the notion that those at the top didn’t know

In 1985 Ken Lay took over a couple of big name gas pipeline companies that came together and thus the infamous Enron Corporation began. They offered a variety of services that were not limited to natural gas but also included electricity, communications, and many energy related services. Together, CEO Jeffrey Skilling, Chairman Ken Lay, and CFO Andrew Fastow were able to bring transformation to Enron. They created a multi-billion dollar Wall Street celebrity out of an electricity and gas company. There was an unusual growth spurt in Enron’s profit of about $69 billion from 1998 to 2000. This caught the attention of an anonymous

1 - What were the business risks Enron faced, and how did those risks increase the likelihood of material misstatements in Enron’s financial statements?

Andrew Fastow was the CFO and created the financial infrastructure for Enron. He, like Skilling, was hailed as one of the top executives in the country as evidenced by his Excellence in Capital Structure Management award presented to him by CFO Magazine. As the CFO of Enron, Fastow should have known better than to do what he did with the creation and operation of the SPEs. His brass was at such a high level that he even named several of them after his children. He, like Kenneth Lay, refused to take any accountability by refusing to testify before Congress in 2002.

Question 1 Summarize 1 one page how you would explain Enron’s ethical meltdown: Enron was an energy company founded by Kenneth Lay in 1985 through a merger of vast networks of natural gas lines. Enron specialized in wholesale, natural gas, and electricity, and made its money as a wholesaler between suppliers and customers rather than actually owning any. Enron in fact didn’t own any assets, which made their accounting procedures very unusual. The lack of accounting transparency at Enron allowed the company’s managers to make Enron’s financial performance better than it actually was. The organizational culture at Enron was to blame for it’s ethical meltdown. Enron’s accounting scheme slowly began to erode its ethical practices, which soon led the culture of Enron to become a more aggressive and misleading business practice. Enron reported profits from joint partnerships that were not yet attained in order to keep stock prices up (or make wall street happy). As this was happening employees began to notice the ethics in senior management (leadership) deteriorating, and soon after they to would follow in their footsteps. Senior management thought they were saving their company from financial ruin and though lying was ok if it meant saving the company. Investors would surely sell their stocks if they really knew the situation the

There was a vast number of ethical issues raised in the movie “Enron-the Smartest Guys in the Room” but the four I am going to focus on are listed below. Art Anderson, Ken Lay and all of the other executives did a number of unethical things which ultimately brought down Enron and affected thousands of employees and their futures. The bottom line was that each and every one of them acted out of greed for the almighty dollar.

Most of the world has heard of Enron, the American, mega-energy company that “cooked their books” ( ) and cost their investors billions of dollars in lost earnings and retirement funds. While much of the controversy surrounding the Enron scandal focused on the losses of investors, unethical practices of executives and questionable accounting tactics, there were many others within close proximity to the turmoil. It begs the question- who was really at fault and what has been done to prevent it from happening again?

I find that Enron is a company that could have been very capable of success. They had a skillful talent pool that is very capable of achieving success if done in the ethical way. I find that these executives should have counted things like investments in merchant assets like power plants and natural gas pipelines as being long term. It seems that Enron was using their skills to inflate their profits and the stock prices. In 2000 and in 1999, Enron made sold approximately $632 million and $192 million but counted no gains or losses on these sales (Rankine, G., 2004). I find this to be another example of being deceitful in reporting their revenue in order to keep their business ratings, profits, and stock prices up.

The case of Enron Corporation and Andersen, LLP can be noted as one of the most infamous fraud scandals in US history. Investors lost millions of dollars and ruined the public’s trust. Enron was once the seventh largest public company in the United States and Andersen LLP was the world’s largest and most respected business organizations. Enron’s stock prices soared to approximately $100 to less than $10 in 2001. How did these two big giants fall into oblivion and what could have been done to avoid the disaster of these companies?