Enron Case : An American Energy Company

During the year 2000, Enron was exceeding all expectations, its stock was through the roof, and the company seemed to be on top of the world. The next year Enron declared bankruptcy. So how did a company rise and fall so quickly? The key in analysing this question lies in Enron’s organizational culture, which is defined as “a shared meaning held by members distinguishing an organization” (Robbins and Judge, Essentials of Organizational Behavior, 269). During its prime, Enron appeared to be a successful and innovative company, but in reality was a company rooted in an organizational culture of corruption and greed. The five culture dimensions of stability, risk taking and innovation, attention to detail, outcome orientation, and aggressiveness are key to understanding how unethical behavior became such a problem at Enron.

I would go a step further to say that it seems like the author has taken the metaphors a bit too seriously and would agree with Mark’s comment in ‘Lawyers in the Perfect Storm3’ that ‘’her insistence on comparison of the Enron scandal to the tragicomedy of human errors in the sinking of the Titanic underestimates the importance of the systemic failures that allowed the malign leadership of Enron to produce such an enormous disaster.’’ Nevertheless, she develops her further argument well as she explores the inextricable link between Character and Leadership. She elaborates on the inevitable failure of character in Enron leaders to resist illegal deals when the supervisors of those leaders were also engaging in side deals (pg 209). Her close attention to the underlying conflict of human traits and situations, aggravated by the magnitude of profits offered by the Enron culture justifies her statement, ‘why it must have taken significant strength of character to resist getting on that gravy train’ (pg 210).

The Enron scandal has far-reaching political and financial implications. In just 15 years, Enron grew from nowhere to be America's seventh largest company, employing 21,000 staff in more than 40 countries. But the firm's success turned out to have involved an elaborate scam. Enron lied about its profits and stands accused of a range of shady dealings, including concealing debts so they didn't show up in the company's accounts. As the depth of the deception unfolded, investors and creditors retreated, forcing the firm into Chapter 11 bankruptcy in December. More than six months after a criminal inquiry was announced, the guilty parties have still not been brought to justice.

In October 2001, Enron Corporation which was one of the world major energy, commodities and service companies with claimed revenues of nearly 111 billion dollars during 2000 collapsed under the weight of massive fraud in that it has become largest bankruptcy recognition in the US economy. Enron’s earning report was extremely skewed that losses were not represented in their entirety, prompting more and more wishing to participate in what seemed like a profitable company. After collapse of Enron, Auditor independence has become a social issue that weather auditor has to be independent or not. In addition, while auditing must consider matters objectively with dispassion, there were still doubts whether it implemented well. Further, there has been much speculation about the need for the mandatory rotation of auditors or audit firm rotation to warn false accounting between audit firm and client. By examining Enron case, this essay will discuss about advantages and drawbacks of the mandatory rotation of

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).

Enron was incorporated as an energy company in 1985. Headquartered in Houston, Texas, Enron was the world’s largest energy company by the end of 2001, responsible for 25% of the world’s contracts for energy trading. Enron was a strong company, holding a steady position in Fortune’s 100 best companies to work for and a sign in the company’s lobby that read “WORLD’S LEADING COMPANY”. Being an employee of Enron definitely had its perks as well. “Employees at Enron’s headquarters had access to an on-site health club, subsidized Starbucks coffee, concierge service that included massages, and car washes, all for free. Those employees with Enron Broadband received free Palm Pilots, free cell phones, and free wireless laptops” (Jennings 233). It appeared as though the company had everything going for them, but it wouldn’t be long before the company took a turn for the worse. In late 2001, “a week following credit agencies’ downgrading of its debt to ‘junk’ grade, Enron filed for bankruptcy,” the largest recorded bankruptcy in the United States ($62 billion) at that time (Jennings 233).

Rule based accounting standards are difference from principle based standards in that rule based standards are just that – rules. For instance, the Internal Revenue code is rule based. There are things you can do and things you can’t. When rules are broken,

Enron company was created in 1985 out of Texas. The company was in the business of natural-gas pipelines. Eventually they merged with InterNorth and their business shifted towards other natural gas productions. They began to trade natural gas and electricity, which resulted in their biggest growth driver for their company. Enron was not only top in the country, but in the world they were known for their business’s success. In the year of 2000 they hit number seven on the fortune 500 list. At this point, Enron was also the sixth largest energy company in the world. But, the company quickly became the largest bankruptcy in the United States history. Humble beginnings of this company were not so humbling to the auditors and investigators soon after they uncovered their overstated financial statements.

December 31, 2001 will forever be etched in history as the day that one of the biggest white collar scandals came to an end. Electric and natural gas giant Enron was found to have been defrauding its investors out of billions of dollars in order to increase its stock prices, and fatten the pockets of high executives particularly Chairman and CEO Kenneth Lay, President and COO Jeffrey Skilling, and CFO Andrew Fastow. Thousands of employees were laid-off and lost their 401(k); those already retired lost funding from their pension.1 In this paper I will demonstrate that the Enron corporation was operating on a foundation of fraud, corruption, greed, and immorality; I will also reflect on the legal and financial consequences surrounding the scandal.

Enron scandal spiralled out of controlled by actions perpetuated by the indirect knowledge or direct actions of Lay, Jeffrey Skilling, Andrew Fastow, and other executives. Also, the inability for this action to be detected by gatekeepers, which includes Auditors, Credit rating companies, Financial Analysts, can also be attributed to their collapse. Also, the involvement of banks and the press who awarded numerous awards amongst which is most innovative company and described them a “new business model”. Further, Enron six million dollars contribution to Federal politician candidates and parties cannot be ignored in this scandal. Although no concrete prove can be attested to bribery, it is my opinion that politician had a

The Enron case is well known for being the largest corporate bankruptcy in American history. Thousands of people world-wide lost billions of dollars, lost life savings, and lost their jobs. Due to the vast corruption, greed and the blatant disregard for integrity from the very top of Enron leadership, world markets crumbled and investor confidence in corporate America was severely damaged (Chandra, 2003.)

Enron was the largest company for energy and natural gas made possible through the merging of Houston Natural Gas and InterNorth based in Omaha. The merger made Enron the largest energy trader in the country and the seventh largest in the world. The company advanced into new fields of business by launching a broadband service unit and Enron online, where people can go to trade commodities. Enron rose quickly to become one of America’s most valuable company. It had a peak of $100 billion in revenue and it was taking the market by storm. The company had many major projects and had plans to expand into foreign countries. With the much celebrated success, Enron would have a greater fall than its rise because of mismanagement and poor accounting practices. The company was known for hiring the smartest individuals in the country, but that did not prevent the company from its embarrassing collapse. Enron collapsed with millions of dollars of pension funds and about 5600 people were unemployed. The company that was thought to be performing in the eyes of the public was actually in deep trouble behind the curtains. The big question many people ask is what caused Enron’s collapse? The truth of the matter is that, Enron’s collapse was not caused by just one thing, it was caused by many things such as theft, lies, poor accounting practices, lack of auditing, political factors, and conspiracy. This is what Enron represented about a decade after the merger, this is how the company became

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

Expanding its business by utilizing its energy-trading model, Enron’s top executives fooled major financial institutions and accounting firms by hiding its losses from these new ventures within its financial statements. In the beginning, Enron was revolutionary in the gas pipeline industry, because it took advantage of the deregulated environment. As a result, Enron could ensure their customers, gas suppliers, consistent gas prices through hedging (Healy and Palepu 2). Enron’s success with this energy-trading model built its trustworthiness in the energy industry and beyond. Obviously, Enron proved its ability to successfully turn a profit with earnings of $979 million in 2000, which further instilled cognitive-based trust within its stakeholders (Healy and Palepu 1). Establishing itself as a progressive corporation, Enron sought to unload its heavy assets, such as pipelines, for lighter assets in the realm of the digital age. Furthermore, Enron management attracted the best employees to work for them by offering extremely generous salaries and bonuses. Another benefit of being an Enron employee was that Enron maintained a non-bureaucratic environment through committee-based employee performance evaluations (Healy and Palepu 4). Overall, Enron’s financial strength, cutting-edge ideas, and high-performing workforce established cognitive-based trust within its stakeholders.

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?