Management Organization

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.

The Sarbanes-Oxley Act of 2002 (SOX), also known as the Public Company Accounting Reform and Investor Protection Act and the Auditing Accountability and Responsibility Act, was signed into law on July 30, 2002, by President George W. Bush as a direct response to the corporate financial scandals of Enron, WorldCom, and Tyco International (Arens & Elders, 2006; King & Case, 2014;Rezaee & Crumbley, 2007). Fraudulent financial activities and substantial audit failures like those of Arthur Andersen and Ernst and Young had destroyed public trust and investor confidence in the accounting profession. The debilitating consequences of these perpetrators and their crimes summoned a massive effort by the government and the accounting profession to fight all forms of corruption through regulatory, legal, auditing, and accounting changes.

Between the years 2000 and 2002 there were over a dozen corporate scandals involving unethical corporate governance practices. The allegations ranged from faulty revenue reporting and falsifying financial records, to the shredding and destruction of financial documents (Patsuris, 2002). Most notably, are the cases involving Enron and Arthur Andersen. The allegations of the Enron scandal went public in October 2001. They included, hiding debt and boosting profits to the tune of more than one billion dollars. They were also accused of bribing foreign governments to win contacts and manipulating both the California and Texas power markets (Patsuris, 2002). Following these allegations, Arthur Andersen was investigated for, allegedly,

The Sarbanes-Oxley Act was devised and designed to protect shareholders, as well as the public, from errors in corporate accounting and fraudulent business practices. All publicly traded companies, no matter their size, are required to comply with the terms of the Act. The Act was not only created to regulate corporate business practices, but also was created with the intention to help gain back the public’s trust in large, publicly traded corporations. The Act helps the Security Exchange Commission (SEC) in regulating companies and making sure these

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.

Sarbanes-Oxley Act was a game changer for corporations all across the United States. Prior to Sarbanes-Oxley Act, big name companies such as Enron, Kmart and Tyco were more inclined to have fraudulent activities happen internally. Having all these issues arise during the last decades, Congress was anxious to act and create Sarbanes-Oxley Act with the intentions to protect investors and have strict reforms to deter internal financial frauds from occurring again. Although, this reform has had a great amount of success in achieving its goals, it also has some holes that were not well though out, when it comes to the entirety of it. The main problem with Sarbanes-Oxley is the cost it has on smaller companies, which shifted the power from the investors and into the auditors. (Prince, 2005)

The Sarbanes-Oxley Act was passes in 2002 in response to a handful of large corporate scandals that occurred between the years 2000 to 2002, resulting in the losses of billions of dollars by investors. Enron, Worldcom and Tyco are probably the most well known companies that were involved in these scandals, but there were a number of other companies guilty of such things as well. The Sarbanes-Oxley Act was passed as a way to crackdown on corporations by setting new and improved standards that all United States’ public companies and accounting firms were and are required to abide by. It also works to hold top level executives accountable for the company, and if fraudulent behaviors are discovered then the executives could find themselves in hot water. The punishments for such fraudulence could be as serious as 20 years jail time. (Sarbanes-Oxley Act, 2014). The primary motivation for the act was to prevent future scandals from happening, or at least, make it much more difficult for them to happen. The act was also passed largely to protect the people—the shareholders—from corporations, their executives, and their boards of directors. Critics tend to argue that the act is to complicated, and costs to much to abide by, leading to the United States losing its “competitive edge” in the global marketplace (Sarbanes-Oxley Act, 2014). The Sarbanes-Oxley act, like most things, has its pros and cons. It is costly; studies have shown that this act has cost companies millions of

The Sarbanes-Oxley Act was signed into law on July 30, 2002, by President George W. Bush; it was a congressional regulatory response to the enormously damaging corporate scandals at WorldCom, the Arthur Anderson accounting group and most notoriously, Enron. Because of the damage done not only to the reputations of those corporations and to the American corporate community but also to the stockholders and people who lost life savings (people who lost 401-K investments in the scandal), Congress had to take action to try and avoid scandals like these in the future. Hence, the Sarbanes-Oxley Act was created and passed into law. Will it deter future criminal activity vis-à-vis corporate financial reporting? There is no guarantee that the Act will prevent future corruption, but this paper asserts that the Sarbanes-Oxley Act is a step in the right direction.

SNOP is the Systematized Nomenclature of Pathology. Published by the American College of Pathologists, it has been “useful in classifying pathological specimens” (McWay, 2008). Although SNOP was commonly used in pathology departments, it has gradually lost favor because focus was placed on standardized nomenclatures by accrediting agencies (McWay, 2008).

Following these series of failures, SOX was enacted to restore investor’s confidence which was rattled and to prevent accounting frauds in the future with improved corporate governance and accountability which all public companies must comply. SOX was named after Senator Paul Sarbanes and Representative Michael G. Oxley, who were the main drafters of the Act. It was approved by the House of Representatives and signed into law by the President George W. Bush on July 30, 2003. Lack of ethics and integrity seem to be the key factors that caused accounting fraud. SOX revised the framework for the public accounting and auditing profession, provided guidance for better corporate governance and created regulations to define how public companies are to comply with the law. Although many have questioned whether SOX is actually effective to prevent frauds like Enron and WorldCom in future, it is considered to be the most extensive legislation related to publicly- traded companies and external independent auditors since the 1930s. President Bush called it “the most far reaching reforms of American Business Practices since the time of Franklin Roosevelt” (BUMILLER, 2002). The purpose of this paper is to determine whether or not Sarbanes Oxley’s regulations will be effective in preventing another financial statement fraud like Enron and WorldCom.

The Sarbanes Oxley Act came to existence after numerous scandals on financial misappropriation and inaccurate accounting records. The nature of scandals made it clear there are possible measure that could be used to prevent future occurrence of financial scandals. And the existence and effectiveness of Sarbanes Oxley has caused

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

With Enron, the responsibility and blame started with Enron’s executives, Kenneth Lay, Jeffrey Skilling, and Andrew Fastow. Their goal was to make Enron into the world’s greatest company. To make this goal a reality, they created a company culture that encouraged “rule breaking” and went so far as to “discourage employees from reporting and investigating ethical lapses and questionable business dealings” (Knapp, 2010, p. 14). They insisted the employees use aggressive and illegal

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

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?