Unethical Business Practice-a Case Study of the Downfall of Two Major Companies

One major scandal revealed in 2001 was Enron, a major energy company located in Houston, Texas (Auerbach, 2010, pp. 6). This organization collapsed because of their deceptive accounting practices and mismanagement. In 2001, Enron fraudulent practices became a public scandal, and because of these practices, shareholders lost $74 billion and thousands of employees (pp. 2). Unfortunately, investors lost their retirement accounts and because they lost many employees, it left many people unemployed. Essentially, Enron kept huge debts off their balance sheets. There were so many businesses and investors that were linked to Enron, and its bankruptcy was a major movement in Congress to make a legislative initiative towards the Sarbanes-Oxley Act of 2002.

Enron had the largest bankruptcy in America’s history and it happened in less than a year because of scandals and manipulation Enron displayed with California’s energy supply. A few years ago, Enron was the world’s 7th largest corporation, valued at 70 billion dollars. At that time, Enron’s business model was full of energy and power. Ken Lay and Jeff Skilling had raised Enron to stand on a culture of greed, lies, and fraud, coupled with an unregulated accounting system, which caused Enron to go down. Lies were being told by top management to the government, its employees and investors. There was a rise in Enron 's share price because of pyramid scheme; their strategy consisted of claiming so much money to easily get away with their tricky ways. They deceived their investors so they could keep investing their money in the company.

This now bankrupt company, misappropriated investments, pension funds, stock options and saving plans after deregulation and little oversight by the federal government. However, with deregulation an increasing competitive culture emerged as the CEO Jeffry Skilling motto to his organization was to “do it right, do it now, and do it better” this was the rally cried that pushed ambitious employees to engage in unethical behavior as Enron use deceptive “accounting methods to maintain its investment grade status” (Sims, & Brinkmann, 2003, pp.244-245). As Enron continued to flourish and received accolades from the business community this recognition drove executives to continue the façade of bending ethical guidelines before their public fall from

Arthur Andersen (AA) contributed to the Enron disaster when it has failed to the management by failing to have Enron establish and enforce its own internal control. There has been flaws to AA‘s internal control. There has been assumption that AA partners were too motivated by revenue recognition thus, overlooking several criteria when providing their services to Enron. Additionally, AA also recognised the retention of audit clients as vital and a loss of any clients would be disadvantaged to an auditor’s career. In AA internal control, the person who is able to make most of the decisions is the person who is most concerned about the revenue or losses of the client’s company.

On December of 2001, the nation’s seventh largest corporation valued at almost $70 billion dollars filed for bankruptcy. Illegal and fraudulent accounting procedures would led to the demise of the company. Over 20,000 people lost their jobs, and about $2 billion in pensions and retirement funds disappeared. Despite all this, Kenneth Lay, Jeffrey Skilling and Anthony Fastow profited greatly from Enron. These events resulted in the implementation of new legislation on the accuracy of financial reporting for public companies. The fall of Enron became known as the largest corporate bankruptcy in the United States at the time.

Former chair financial officer Andrew S. Fatsow pleaded to two counts of conspiracy. Fatsow was sentenced to six years in prison (WashingtonPost, 2006). Michael J. Kopper former top aide to Fatsow pleaded guilty to two counts of conspiracy and was sentenced to three years and one month in prison (WashingtonPost, 2006). Former chief accounting officer Richard A. Causey pleaded guilty to one count of securities fraud. Causey was sentenced to five and a half years in prison (WashingtonPost, 2006). Andrew Fatsow, Michael Kopper, Richard Causey all testified against Kenneth Lay and Jeffery Skilling. Enron founder and former chairman Kenneth Lay was convicted on ten counts of fraud, conspiracy, and false statements to banks. He died six weeks after

     One of the largest known corporation’s entities years ago was known as Enron. The downfall of Enron occurred because the organization failed to train his or her business executive’s how to investigate company information and operations. If Enron

The collapse of Enron left thousands of employees without jobs and demolished the retirement accounts of employees and investors alike. Enron, a company much like General Electric (GE) was ranked as one of the top ten on the Fortune 500 list in 2001 (according to Fortune 500 archive list) right before Enron filed for bankruptcy in October of that year. According to an article by (http://articles.chicagotribune.com/2002-01-27/news/0201270343_1_enron-stock-market-cautious-investors) Flynn McRobertshe, “At one time the seventh-largest company in the country, Enron was a popular pick for many investors--both individuals and large institutions such as pension and mutual funds.” No one expected a company of that size to be able collapse and conduct business like Enron did. To many it was hard to believe

Sherron Watkins, former Vice President of Enron, attempted to inform the accounting situation to Lay regarding an “elaborate accounting hoax,” before the company went bankrupt. However, instead of being rewarded, Watkins got demoted from top floors, an executive suite, to an older office. Her computer hard drive and work materials got confiscated and she also got a warning to be fired. Enron and Lay did not fix the problem but rather concealed more accounting inaccuracies which eventually led to the loss of 4,500 jobs, loss of $ 60 billion shareholders’ investments and the loss of employees’ pension

The company Enron was formed in 1985 after two natural gas companies, Houston Natural Gas and InterNorth merged together. Kenneth Lay, former chief executive officer of Houston Natural Gas was named CEO of Enron and a year later, Lay was assigned to the chairman of Enron. A few years later, Enron launched a website to allow customers to buy stock for Enron, making it the largest business site in the world. The growth of Enron was rapid; it was even named seventh largest company on the Fortune 500 list; however things began to fall apart in 2001. (News, 2006). In the third quarter of that same year, Enron posted an enormous loss of over $600 million in four years. This is one of the reasons why one of the top executive resigned even though he had only after six months on the job. Their stock prices fell dramatically. Eventually, Enron filed for bankruptcy protection. This caused many investors to lose money they had invested in the company and employees to lose their jobs and their investments, including their retirement funds. The filing of bankruptcy and the resignation of one of the top executives, also led to an investigation by the U.S. Securities and Exchange Committee, which proved to be one of the biggest scandals in U.S. history. (News, 2006). All former senior executives stood trial for their illegal practices.

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.

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

Enron and Arthur Anderson were both giants in their own industry. Enron, a Texas based company in the energy trading business, was expanding rapidly in both domestic and global markets. Arthur Anderson, LLC. (Anderson), based out of Chicago, was well established as one of the big five accounting firms. But the means by which they achieved this status became questionable and eventually contributed to their demise. Enron used what if often referred to as “creative” accounting methods, this resulted in them posting record breaking earnings. Anderson, who earned substantial audit and consultation fees from Enron, failed to comply with the auditing standards required in their line of work. Investigations and reports have resulted in finger

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?

The case of Enron Corporation and Andersen, LLP can be noted as one of the most infamous fraud scandals in US history. Investors lost millions of dollars and ruined the public’s trust. Enron was once the seventh largest public company in the United States and Andersen LLP was the world’s largest and most respected business organizations. Enron’s stock prices soared to approximately $100 to less than $10 in 2001. How did these two big giants fall into oblivion and what could have been done to avoid the disaster of these companies?