Essay about Enron: Who was at fault?

1664 Words 7 Pages
Most of the world has heard of Enron, the American, mega-energy company that “cooked” their books (Gupta, Weirich & Turner, 2013) 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?
The story of Enron begins in 1985, with the merger of two pipeline companies, orchestrated by a man named Kenneth L. Lay (Zellner & Forest, 2001). In its 15 years of existence, Enron expanded its
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Based on these inflated numbers, Enron funded management bonuses as a percent of reported net income, subject to decrease if management failed to meet goals for earnings per share (EPS). By establishing this type of bonus plan, the board essentially put out the word that company success was based on growth in earnings and EPS was to be the first priority. Managers and employees were encouraged to concentrate on producing as much accounting profit as possible (Stewart, 2006). This way of thinking became an underlying issue to the failure of Enron. Numbers became the ultimate goal, which led to tunnel vision and lack of ethical standards and reporting among those on the inside.
While the unethical decisions made by key Enron executives aided in the downfall of the company, they are not the only parties at fault in one of the largest corporate fraud scandals in history (Hayes & Ariail, 2013). In the world of business, there are other internal controls in place to help insure that the rules are being adhered to. One of these controls is in the form of a company’s Board of Directors. One of the legal duties of board members is the duty of care. This requirement in and of itself means that board members have a legal obligation to ensure that company executives carry out their responsibilities in compliance with the law (Hartman, DesJardins & MacDonald, 2014). However, Enron’s Executives and Board of Directors were…

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