Ethical Case Of Enron

Enron was an energy trading and communications company located in Houston, Texas. During 1996-2001 Enron was given the name of America’s Most Innovative Company by Fortune magazine as it was the seventh-largest corporation in the US. The problem that led this company to bankruptcy was due to the fact that fraudulent accounting practices took place allowing Enron to overstate their earnings and tuck away their high debt liabilities in order to have a more appealing balance sheet (Forbes.com, 2002). Enron’s accounting team “cooked” the books to every meaning of the word so that their investors would not see anything wrong with the failing organization. This poorly structured company led people to jail time, unemployment, and caused retirement stocks to be dried up. Enron had a social responsibility to its stockholders and rather than being up front and honest about the failing company they hid every financial flaw in order to keep receiving money from its investors. By Enron not keeping a social

The word “fraud” was magnified in the business world around the end of 2001 and the beginning of 2002. No one had seen anything like it. Enron, one of the country’s largest energy companies, went bankrupt and took down with it Arthur Andersen, one of the five largest audit and accounting firms in the world. Enron was followed by other accounting scandals such as WorldCom, Tyco, Freddie Mac, and HealthSouth, yet Enron will always be remembered as one of the worst corporate accounting scandals of all time. Enron’s collapse was brought upon by the greed of its corporate hierarchy and how it preyed upon its faithful stockholders and employees who invested so much of their time and money into the company. Enron seemed to portray that the goal of corporate America was to drive up stock prices and get to the peak of the financial mountain by any means necessary. The “Conspiracy of Fools” is a tale of power, crony capitalism, and company greed that lead Enron down the dark road of corporate America.

The time frame is early 2002, and the news breaks worldwide. The collapse of corporate giants in America amidst fraud and stock manipulations surfaces. Enron, WorldCom, HealthSouth and later Adelphia are all suspected of the highest level of fraud, accounting manipulation, and unethical behavior. This is a dark time in history of Corporate America. The FBI and the CIA are doing investigations on all of these companies as it relates to unethical account practices, and fraud emerges. Investigations found that Enron, arguably the most well-known, had long shredding sessions of important documents and gross manipulation of stocks and bonds. This company alone caused one of the biggest economic

In 2001, Enron, the largest energy company in the U.S., collapsed after a vast creative-accounting scandal. Enron practiced a type of accounting called mark-to-market practice which it used to hide losses. Mark-to-market accounting it not illegal on its own but it was used improperly by Enron. The CFO and CEO of Enron were able to write off any losses to an off-the-book balance sheet and made the company appear financially healthy (Seabury, 2008). Investors lost $74 billion while thousands of employees lost their jobs and

As with much of Enron, their outward appearance did not match what was really going on inside the company. Enron ended up cultivating their own demise for bankruptcy by how they ran their company. This corrupt corporate culture was a place whose employees threw ethical responsibility to the wind if it meant financial gain. At Enron, the employees were motivated by a very “cut-throat” culture. If an employee didn’t perform well enough, they would simply be replaced by someone who could. “The company’s culture had profound effects on the ethics of its employees” (Sims, pg.243). Like a parent to their children, when the executives of a company pursue unethical financial means, it sets a certain tone for their employees and even the market of the company. As mentioned before, Enron had a very “cut-throat” attitude in regards to their employees. This also became one Enron’s main ethical falling points. According to the class text, “employees were rated every six months, with those ranked in the bottom 20 percent forced to leave” (Ferrell, 2017, pg. 287). This system which pits employees against each other rather than having them work together will create a workplace of dishonesty and a recipe of disaster for the company. This coupled with the objective of financial growth, creates a very dim opportunity for any ethical culture. “The entire cultural framework of Enron not only allowed unethical behavior to flourish,

It was 13 years ago that the announcement of bankruptcy by Enron Corporation, an American energy, commodities and service firm at the time, would unravel a scandal resulting in what is regarded as the most multifaceted white-collar crime FBI investigation conducted in history. High-ranking officials at the Houston-based company swindled investors and managed to further their own wealth through intricate, shifty accounting practices such as listing assets above their true value to increase cash inflows and earnings statements. This had the effect of making the company and its shares look more enticing than they really were to potential investors. Upon their declaration of negative net worth in December 2001, shareholders filed a $40 billion lawsuit against the company, citing a drop of shares from around $90 per share to around $1 per share within only a few months. In light of these events, officials at the Securities and Exchange Commission (SCE) were prompted to initiate further investigation to figure out how such a drastic loss occurred.

Enron was a publicly traded energy company formed in 1985 by Kenneth Lay when Internorth acquired Houston Natural Gas; the company, based in Houston Texas, Enron (originally entitled “EnterOn”, but was later subjected to abbreviation), worked specifically in power, natural gas, and paper and even ventured into various non-energy-based fields as they expanded, including: Internet bandwidth, risk management, and weather derivatives. Several years after the founding of the company, Enron hired a man by the name of Jeffrey Skilling, a former chemical and energy consultant, who, upon promotion, created a team of high-level administrative employees who, by using special purpose entities, lackluster reporting of finances, and unethical accounting practices, hid billions of dollars of debt from unsuccessful arrangements and ventures from stock holders and the U.S. Securities and Exchange Commission. Enron executives achieved this scheme by using a controversial accounting method entitled “mark-to-market accounting,” which in essence, assigns value to financial commodities based on their projected market values; mark-to-market accounting is the opposite of cost-based accounting which records the price of a commodity at the purchase price. As a result of this new method, Enron’s worth skyrocketed to over $70 billion at one time, only to collapse miserably several years later—ultimately costing thousands upon thousands of people their jobs, pensions, and retirements. Enron’s employees

Enron’s fraudulent financial practices lead to the Sarbanes Oxley Act of 2002. Mistakes made by the company and their leadership shocked the world and cost billions. Enron’s leadership could have taken steps to prevent or mitigate the repercussions of their actions. The act restored ethical and reliable financial practices to the market.The major provisions of the act made corporations responsibility for financial reports, and required internal and external audits. The Act changed the accounting regulatory environment. And although corporations incurred the additional expense of audit and new reporting standards, these changes restored consumer investing confidence, strengthening the corporations and the stock market overall. (Flanigan, 2002.)

Enron was named the most admired company for six years in a row, and it was widely considered one of the best companies to work for by Fortune magazine. Enron shocked the world, and it's stockholders when it was revealed at the end of 2001 that the company’s “reported financial condition was sustained substantially by institutionalized, systematic, and creatively planned accounting fraud”. (Enron, 2011, para. 1) Enron maximized it’s long-run profits for itself, but not within the limits of the law. Enron disregarded it’s social responsibility to it’s stackholders when the company only strive for it’s maximized profits, and didn’t strive

The tale of Enron presents a unique perspective on success. In the short span of 24 months, Enron transformed from being the top firm in its industry to one that filed for bankruptcy. The reflection about how the tides changed in such a short period uncovers many surprising truths. In its glory days Enron beamed billion dollar profits each quarter, however this success was all a part of an elaborate scheme. Behind the veil of smoke and mirrors was a series of deceptive and unethical accounting practices. For Jeff Skilling and Kenneth Lay it was always about outward perception and to them this revolved around the stock price. If the stock price kept rising, as far as they were concerned Enron was doing just fine. The case of Enron is the

This accounting system considers current market value for assets and liabilities rather than its book value. The market value for Enron’s stock, assets and liabilities were small but the management showed higher market value and huge profits, raising market share value and deceiving their investors, shareholders and other entities that had investments in Enron. Enron executives were highly qualified from business schools holding degrees from schools like Harvard and Stanford and with decades of experiences under their belt. But that didn’t stop them from making unethical decisions. They involved everybody surrounding them from energy traders to accounting firms. The public accounting firm “Arthur Anderson” who was performing audits and producing audited financial statements was also involved in the series of fraud by signing off on Enron’s unreliable financial statements and taking million dollars a week from Enron. The law firm Vincent and Akins roughly made one million dollars a week as well by guaranteeing the business operations and frauds as being ethical for Enron. They knew what they were doing but money had blind folded them. The profits showed in the audited financial statements were deceiving which led stock holders and others investors attract to invest more in the company. Executives made Special-purpose entities [subsidiary entities to Enron] to

Even the small profits reported by Enron in 2000 were eventually determined to be only a illusion by court-appointed bankruptcy examiner Neal Batson. Batson’s report reveals that over 95% of the reported profits in these two years were attributed to Enron’s misuse of MTM and other accounting techniques. But while financial analysts could not be expected to know that the company illegally manipulated the earnings, the reported profit margins in 2000 were so low and were declining so steadily that they should have merited ample skepticism from analysts about the company’s profits.

One Merrill Lynch analyst began to question the numbers and profits that were being produced by Enron and eventually he was fired. Enron invested a lot of money with Merrill Lynch and they didn’t want Enron to stop investing so Merrill Lynch got rid of the employee who question Enron, when in reality they should have listened to him. Merrill Lynch’s decision not to listen to him showed other employees that they better keep quiet with their opinions or their jobs would be on the line. If they listened to him they might have lost the deal with Enron, but in the end they lost it anyway and lost millions along with it. Merrill Lynch’s main focus should have been their employees and their investors, not solely Enron. They should have stuck to their code of conduct and followed their values.

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.

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?