The Main Reasons Behind The Enron Scandal

In 1985 The Enron Corporation came into existence after a successful merger between two gas pipeline companies. The company nurtured a very competitive culture, which encouraged employees to win at any means necessary. Enron’s culture led employees to “cast loyalty and ethics aside in favor of high performance” (Ferrell, p. 494). The executives of Enron covered up their increasing debt by using special purpose entities. Meanwhile, Enron continued to report increasing profits to their investors, which led to more investors giving Enron their money. There were many factors that aided Enron in their demise, but the largest was the greed of Enron’s executives, the auditors, and the attorneys. The corporate culture of Enron, their auditors bankers and attorneys and their Chief Financial Officer played vital roles in the fall of Enron.

Enron’s senior management placed their loyalty to solely themselves above everyone else with an interest to the company, for example foreign governments, employees, contractors, customers. When Enron was in financial crisis, employees were prohibited from selling the shares whilst the senior members most notably Mr. Lay was selling his shares, The sense of betrayal was greatly increased due to the loss of their retirement savings and loss of their jobs

Was Enron’s collapse due to a failure in the standard setting process? Why or why not?

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.

The Security Exchange Commission found that The Enron corporations CEO’s and executives hindered the company’s research methods by using information to reveal how the top leaders of the organization assisted and supported the unethical behaviors in the accounting and finance departments. These acts deteriorated the integrity of excellence professionals, associates, and employees who were associated with the Enron Corporation. On behalf of the entire organization, the Enron Corporation’s poor business practices gross standards that pertain to unethical behavior.

Whenever someone hears the word "Enron" today, they usually think of the transgressions committed by the top-level executives who successfully managed to destroy the company's reputation and achievements.

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

several actions that led to Enron’s bankruptcy. The issues were with the accounting method used as well as the negligence in the methodology of the company’s administration. Although once upon a time it was at its best, but gradually due to mismanagement, lack of sufficient business, improper business strategies and greed of the employees and the leadership all together became the reason for Enron’s bankruptcy. Under the section of Federal Bankruptcy Code, giant companies seek financial protection. Even it allows the company to protect itself from such threats, still all of the above were neglected by Enron Corporation.

Enron Corporation was an American energy trading company who committed the largest audit fraud alongside Arthur Andersen and filed for one of the largest bankruptcies in history in 2001 after producing false numbers and committing fraud for years (“Enron’s Questionable Transactions” page 93). Enron failed to run an ethical business in multiple aspects. The executives of the company abused their powers by having board members not properly oversee its employees. Enron committed accounting malpractice by producing false financial reports to hide the debt from failed projects and deals. Using a mark-to-market accounting method, Enron would create assets and claim the projected profit for the books immediately even if the company had not made any profit yet. In order to hide its failures, rather than reporting their loss, they would transfer the loss to an off-the-books account, ultimately leading the loss to go unreported. Along with Enron hiding losses and creating false profit for the

The first important factor in the Enron case advanced interests on share price. The second factor how the company was liberalized over the past 20 years along with the reduction of legal responsibility of investment banks and accounting firms. The third factor, which is the most important, was the immediate alteration of pay packages given to investment bankers, executives, and accountants (Barreveld, 2002). In this case, the factors mentioned above was a result of the culture implemented by the executive leaders whom were influenced by unethical behaviors they engaged in. One could agree that Enron was definitely reaping the bad seeds that the

In the late 1990 and 2000, Enron’s traders had great passion on prove themselves. The principle of “priority of profit” at any costs led to considerable agency problems for shareholders of Enron. Undoubtedly, company owners desired high return from investment. The “arrogant culture” could meet investors’ need of profit, although the “arrogant culture” achieved short-term profit by sacrificing company’s long-term stability and wellbeing. It exacerbated the agency problems which accumulated by principals neglecting agency monitoring mechanisms.

The Enron scandal was one of the most notorious bankruptcies of all time. Many people know about the energy titan’s downfall but less realize that it was also one of the biggest auditing blunders in American corporate history, leading to the dissolution of the Arthur Andersen LLP, which at the time was one of the five largest auditing and accountancy partnerships in the world. The most intriguing aspect of this case is that Andersen was eventually cleared by the United States Supreme Court, yet the company still failed to live on due to its tarnished reputation stemming from its unethical behaviors. The pressure to generate revenue for clients while simultaneously auditing their books became too large a burden for the firm and they eventually resorted to unethical means to achieve their objectives. The demise of the Andersen accounting firm shows the true importance of practicing good ethics and maintaining a good reputation amongst peers; the vitality of the business could depend on sustaining a clean image in the ever-changing business world.

All of the prior represents the business side of the downfall of Enron. That being said, businesses fail all of the time. The reason why Enron Corporation and its executives will always live in infamy is not because the company failed, but how and why the company failed. How, exactly, does a company worth about $70 million collapse in less than a month? It became clear that the company not only had financial problems, but ethical problems that started from the top of the company and trickled down. A key player in these problems was Jeffrey Skilling. He was a man brought to the company by Ken Lay himself. Skilling brought his own accounting concept to the company. It was called mark-to-market accounting. This concept allowed Enron to record potential profits the day a deal was signed. This meant that the company could report whatever they “thought” profits from the deal were going to be and count the number towards actual profits, even if no money actually came in. Mark-to-market accounting granted Enron the power to report major profits to the public, even if they were little or even negative. It became a major way

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?

Unfortunately, scandals like Enron are not isolated incidents and the last decade has offered Americans a disheartening perspective with comparable scandals like that of WorldCom and Tyco, Sunbeam, Global Crossing and many more. Companies have a concrete responsibility not just to their investors but to society as a whole to have practices which deter corporate greed and looting and which actively and effectively work to prevent such things from happening. This