Enron : The Conspiracy Of Fools Essay

Greg Whalley, (former Enron President and Chief Operation Officer) had six to eight conversations last fall with the Treasury’s Department Peter Fisher, including one in which he asked Fisher to call Enron’s lenders as they decided whether to extend credit to the company.

Ray Bowen, a Citigroup banker at the time and now Enron's chief financial officer, once asked Mr. [Andrew Fastow] about a batch of complex equations that filled a whiteboard in the conference room next to the Mr. Fastow's office. "You can't tell me you understand those equations," Mr. Bowen commented to Mr. Fastow. Mr. Fastow replied: "I pulled them out of a book to intimidate people."

The thing I liked most about this documentary was the fact that it focused on the guys at the top, the self-proclaimed "smartest men in the room", the so-called geniuses who knew the energy business so much better than the rest of the industry. And what a piece of work these men were.

Enron’s ride is quite a phenomenon: from a regional gas pipeline trader to the largest energy trader in the world, and then back down the hill into bankruptcy and disgrace. As a matter of fact, it took Enron 16 years to go from about $10 billion of assets to $65 billion of assets, and 24 days to go bankruptcy. Enron is also one of the most celebrated business ethics cases in the century. There are so many things that went wrong within the organization, from all personal (prescriptive and psychological approaches), managerial (group norms, reward system, etc.), and organizational (world-class culture) perspectives. This paper will focus on the business ethics issues at Enron that were raised from the documentation Enron: The Smartest Guys

The mission of the Financial Accounting Standards Board (FASB) is to establish and improve standards of financial accounting and reporting for the guidance and education of the public. Accounting standards assist analysts, potential investors, and corporate figures in determining and comparing the financial performance of a corporation. In recent years, a wave of accounting scandals broke, and a number of companies admitted to following fraudulent accounting procedures to defer attention from the company’s financial performance. Enron Corporation, a natural gas provider, led the pack with dubious accounting practices, a series of off-balance sheet transactions, and a series of investigations that ultimately led to beginning of accounting

They decentralize their operation into few sub division and fake corporations, so Enron can hide tremendous derivative losses that would affect its growth, if the losses is disclosed. Public traded corporations have to show their financial statements clear to the public, but Enron's finances were a edited transactions between itself and its sub division that use to cover up its true financial state. In another words, all the lost and debt were cover up by subsidiary companies, but the assets are still stated (Nicholson, 2015).

1.     Ken Lay served as CEO and chairman and Jeffrey Skilling also served as CEO. They both were responsible for planning, organizing, controlling and leading the company. They set goals for the company and organized how they would be achieved. Kay’s role was as the figurehead and the leader. He also served as the spokesperson for the company and made many of the decision on the future of the company. As CEO’s they both possessed effective communication skills, where decisive, which was evidenced by their vision for the company and refusal to admit wrong even at the end, and visionary. Throughout Lay’s tenor the company continued to grow and prosper at a fast

Enron went from modestly outperforming the Standard & Poor’s 500 in the early 1990’s to drastically outperforming it in 1999 and 2000. In 1999 and 2000, Enron stock increased 56 percent and 87 percent, respectively; compared with to only a 20 percent increase and 10 percent decline for the index during the same years (Healy and Palepu, 3 2003). While these increases were originally attributed to innovation (being rated the most innovative company in America by Fortune), it was later found that the stock increases were due to severe financial statement manipulation. Ultimately, Enron stock fell to under $1.00 by the end of 2001 and entered into bankruptcy on December 2, 2001 (Healy and Palepu, 3 2003) and Enron’s former chairman and CEO Kenneth Lay and former CEO and COO Jeffrey Skilling were sentenced to prison for lying to Wall Street and investors about their crumbling finances (Johnson, 2006).

Frauds and financial scandals in the business world were before an Enron’s case and will be after it. That’s in human nature. But a chain of events lead to an enormous shock on the Wall Street and went down in history as one of the biggest business scandals. For a long time sequence of events was a basis for articles and books, documental films and analytic researches. Specialties were retold and discussed by analytics. It was real human tragedy.

In society, there have always been differing characteristics such as failure and fraud that have been linked through time. However, although failure and fraud are connected in several various ways, one tends to come before the other. Generally failure is the absence of achieving success and fraud is committing an unlawful act that is driven by failure or to result in failure. Failure has driven fraud for countless reasons either for financial prosperity or personal supremacy. In many cases the direction of failure and fraud is mainly subjected to the individual’s personal objective. Conversely, there have been many situations in which corporations too big to fail have succumbed to failure and fraud due to a destructive corporate objective. In 2001, Enron, the seventh largest company in the U.S participated in fraudulent activity. The fraudulent activity committed by Enron was the beginning of an inevitable ripple of failure in the company’s future. Although Enron performed the major scandal, the auditing agency Arthur Andersen was highly responsible for their negligence and their participation in the deception of the financial investors. The general public didn 't easily predict the downfall of Enron because it was one of the most thriving establishments in the corporate world. In many cases, companies as substantial as Enron are sometimes used as a measurement to gauge how the economy is preforming in the current market. The financial fraud

     Enron was established in 1930 as Northern Natural Gas Company and joined with three other companies to undertake this industry. The four companies eventually began to break apart between 1941 and 1947 as a result of a public stock offering. In 1979, Northern Natural Gas was placed under new management when it was bought by InterNorth Inc. In 1985, Kenneth Lay, CEO of Houston Natural Gas Company devised a transaction for InterNorth to purchase Houston Natural Gas. Lay was named CEO of the new company and changed InterNorth's name to Enron Corporation. This newly developed company originally was involved in distributing gas and electricity throughout the United States, and operation of power plants and pipelines

It should boggle the mind just how this was able to happen, given how Enron had been known to have an especially skilled and knowledgeable audit committee. According to Lublin (2002), the committee included such figures as a former accounting professor and dean, presidents and chairmen of both government-owned and private institutions, and was notable for its overall greater competence compared to what one could normally expect from an audit committee. In theory, then, Enron’s audit committee should have been able to prevent or at the very least head off the scandal.

Enron Corporation was an energy company founded in Omaha, Nebraska. The corporation chose Houston, Texas to home its headquarters and staffed about 20,000 people. It was one of the largest natural gas and electricity providers in the United States, and even the world. In the 1990’s, Enron was widely considered a highly innovative, financially booming company, with shares trading at about $90 at their highest points. Little did the public know, the success of the company was a gigantic lie, and possibly the largest example of white-collar crime in the history of business.

Enron was once a very large and powerful company that was admirable to many but now it is the focus of many examples on what not to do in business. The poor corporate governance system in place at Enron not only caused the company to fail but it also ruined many people’s lives. People had the idea I their head that Enron was too big to fail but that kind of assumption should never be made about a company. Enron is an example of a company that appears to be following all the rules from the outside but a deeper look reveals all that they had been doing wrong.

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?