Enron And The Enron Scandal

Enron began as a pipeline company in Houston in 1985. It profited by promising to deliver so many cubic feet to a particular utility or business on a particular day at a market price.

The story of Enron is truly remarkable. As a company it merely controlled the electricity, natural gas and communications sectors of the world. It reported (key word, reported) revenues over one hundred billion US dollars and was presented America’s Most Innovative Company by Fortune magazine for six sequential years. But, with power comes greed and Enron from its inception employed people who set their eyes upon money, prestige, power or a combination of the three. The gluttony took over sectors which the company could not operate proficiently nor successfully.

Enron took on the role of a ‘gas bank’ and started operations in 1989, where, it bought gas from suppliers and sold it to consumers, profiting from a fee charged for carrying out the transaction. The company flourished under the business model which impressed Lay, who then created a new division called Enron Finance Corp in 1990 and assigned Skilling to take charge of operations. Enron Finance Corp. soon dominated the market with more contacts and contracts with regard to suppliers and consumers compared to any of its competitors.

The Enron corporation was an amalgamation of Houston Natural Gas and Internorth two of the largest natural gas suppliers in the United States. It was built upon the company 's ability to convince congress to deregulate the sale of natural gas through supplying electrical pieces at market prices. This allowed Enron to begin to sell power at higher prices therefore driving their revenue up. The company also began to spread its grasp out of natural gas and into a myriad of other power sources across the globe including water, pulp and paper plants. This was all done through a massive series of loopholes and massive amounts of money being funneled into Congress to lobby against regulations of such activities.

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

The use of insider information is illegal in the United States. Insider information is stock related information that can be obtained many ways to gain large, abnormal gains in the stock market. A popular way to gather inside information is from direct employees of the company. Information on stocks can either be illegal or legal. If the information is publicized for all current or future investors to use, then it isn't illegal. Illegal information becomes unlawful when it becomes privatized from the public, and to be only used by investors in the stock market. The action of using insider information isn’t considered illegal until the information is used in a stock market located in the United States, most commonly the New York Stock

Enron was a business conglomerate during the 1990s, formed by the merger of smaller oil and energy companies. Houston executives Kenneth Lay (Chairman), Jeffrey Skilling (chief executive officer (CEO) and Andrew Fastow (chief financial officer (CFO) parlayed their new mega-company into a favorite Wall Street company, bragging of record profits with negligible losses. During the 1990s, the three senior executives changed Enron from a traditional gas and electricity company into a $150 billion energy corporation. For instance, from 1998 to 2000 only, Enron’s returns rose from approximately $31 billion to over $100 billion, making the company to be the seventh biggest conglomerate of the Fortune 500. Unidentified to nearly everybody, this picture was the result of one of the largest swindles in financial history (Ferrell, Fraedrich & Ferrell, 2013).

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

One popular event that took place in our economy was the Enron Scandal, which happened in late 2000 and lasted into the following year. Those who were involved in this incident directly such as CEO’s Ken Lay and Jeff Skilling thought what they were doing was not wrong and that they were able to get away with making millions falsely (Seabury, 2008). However, this was a serious crisis situation and many people were affected through the process as well as their money. Enron was valuing themselves at a higher price than what they truly were worth, and nothing was matching up (“The Fall of Enron”). Enron was able to make it appear that they were having many new business ventures with imaginary companies or companies where it just did not work out for them, adding value to their company, and hiding all of their mistakes (Keller, 2002). Not only this, but their main goal was getting into the energy business and having it become de-regulated which subsequently had the state of California suffering an energy crisis due to their greediness (Seabury, 2008). Overall, the underlying causation of their downfall and crisis was their greed. These people behind the Enron name were money hungry and as long as the pay checks were coming to them, they did not care about the employees who would be losing their jobs, the people who had to endure the power outages in California, nor the people who’s money they manipulated and eventually lost. Enron was also favored by the government since they had

In light of the recent scandals that rose around big multinationals such as Enron and WorldCom, it has become evident that reform in the traditional corporate operations and objectives was to be encompassed in the organisations corporate strategies. Indeed throughout the years, companies main objectives were defined primarily as being economic objectives, Multinationals developed with sight of profit maximisations regardless to the other incentives, Friedman considered that to be the foundation for a well-managed company, it was further considered that the financing of any other sort of social corporate activities rather unnecessary. The expenses were regarded as expenditures for the owners and investors; this was a time where shareholders rights were regarded as conflicting with other constituents namely the employees, creditors, customers or the community in general. However this interpretation is seen as rather inadequate due to the nature of the amalgamated relation between both constituents. Stakeholders in modern corporate doctrine are considered as a core apparatus for the well functioning of a business. It is however often argued that the only way for a corporation to achieve better results and maximise its profits is to include other people in the process, individuals or organisations with direct or indirect interest in the well performance of the company, that is the reason why modern regulations and codes include a number of stakeholders other than the

Accounting is a necessary and vital part of maintaining any business, it is needed to file taxes, know how much one has in assets and liabilities, and indicate to investors whether the company would be a profitable undertaking. However, sometimes the accounting goes horribly wrong when people, even those who seem to be moral and uncorrubtable, fudge the numbers. By inflating books, they can get away with billions of dollars in fraud and make nice bonuses for themselves. However, these acts of greed affect not only the fraudulent person, but their families, coworkers, and other businesses. There are several ways massive accounting fraud has taken place in companies, from increasing depreciation, to not reporting debt, to right-out making up numbers to report. These frauds have been detected in multiple ways as well whistleblowers, internal audits, and even the fraudulent people themselves. The effect of these scandals have taken a heavy toll on businesses financially and on people involved emotionally.

Enron fires 20,000 employees and billions of investors’ money is gone almost overnight. Enron, an American energy, commodities and services company based out of Houston, Texas files for chapter 11 bankruptcy in 2001. Founded in 1985, Enron merged with Houston’s Natural Gas and InterNorth, which all were relatively regional companies in the United States (Forbes, 2013). They purchased large quantities of natural gas at a discounted rate then distributed it though its own pipeline system to wholesale customers like power companies (Forbes, 2013). Because of their witty business decisions, Enron helped transform the natural gas market and all the while, capturing huge profits for themselves. Over time, Enron had inflated its earnings by hiding debts and losses in subsidiary partnerships like energy trading, power generation, water, and retail electricity.

email to Kenneth Lay, warning him that Enron would “implode in a wave of accounting scandals ”. CEO Jeffrey Skilling suddenly resigns, two months after the memo was sent to Lay. Enron, with the help of the Andersen Accounting firm, would lose control of their illegal attempt to conceal the debt and losses of the company. Ultimately, Enron would become bankrupt. This scandal is the one of America’s largest investigations into a firm’s illegal accounting practices and attempt to conceal it from the shareholders and credit lenders. Organizations and Officers Involved To unmask the Enron scandal and find out what really happened, several organizations and officers of Enron are working together. Among the organizations responsible for unfolding the Enron scandal are the United States Congress, US Department of Justice, IRS, Securities and Exchange Commission, and the United States penal system. Congress is now responsible for combing through thousands of documents and scheduling hearings in the court system. The US Department of Justice is

Enron was an admired company prior to 2000 because at that time it surfaced as a frontrunner in the deregulated energy market, making it possible to sell energy at higher prices, thus significantly increasing its revenue. The company, through efficient management team, has built leading businesses in energy trading and international energy asset construction. The company has managed to maintain high return from its investments through ideal placement of resources by creating long term and fixed price contracts with clients that guaranteed stable

Enron lead the American energy, commodities, Enron Services was based in Houston, TX. During the turn of the 21st century Enron had an employee base of 20,000 people on payroll. Enron made profits by selling electricity, natural gas, communications, and pulp and paper. Enron’s revenues totaled over $101 billion in 2000. Due to Enron’s earning Fortune named Enron as the America Most Innovative Company. Enron was one of the biggest publicly traded companies and highly trusted by all investors. Enron earnings flourished during the start-up of the computer dotcom era in the 1990s. In November 1999, Enron build and launched EnronOnline site. This was the first ever web-based transaction system allowing buyers and sellers to buy, sell, and trade commodity products around the world. Enron peaked; $6 billion worth of commodities transacted through their EnronOnline website daily. EnronOnline allowed for Enron stocks to transact with participants in world energy markets. On their financial books Enron looked as they were doing extremely well and many investors sought out to buy Enron’s stocks. Enron net worth was about $70 billion, their shares traded for about $90 dollars each. Enron was known on Wall Street as a blue chip stock and was considered to be very stable and trustworthy. Enron was named the fifth largest company by Fortune 500. Enron lead the market in energy production, distribution, and trading.