Why Enron Failed So Miserably

Kenneth lay, the founder of Enron, did not start his life as a deceiving criminal. He was born in Missouri in 1942. He went to school at the university of Missouri where he got a master’s degree in economics. After serving briefly in the us navy he got into the Gas business starting a career working for Exxon predecessor Humble Oil & Refining. He quickly moved up the ladder and found himself as president and CEO of Houston Natural Gas Co in 1981. Four years later his company merged with InterNorth, a pipeline company from Nebraska, and Enron was born. Kenneth Lay was made CEO of Enron not long after the merger. (1)

Enron, a once thriving Houston-based energy titan, is now reduced to a cautionary adage among Americans to what massive failure corporate greed could lead to. At its core however Enron’s ethical and moral behavior was sound and seemed to be aligned with industry competitors. In an opening statement to the Enron Code of Ethics issued in July 2000, Lay wrote: “As officers and employees of Enron Corp., its subsidiaries, and its affiliated companies, we are responsible

The question became ultimately who was responsible for Enron’s downfall? Rather, was Enron the work of a few bad men or the dark face of the American dream and crony capitalism? The two men deemed the smartest in the room were Ken Lay and Jeff Skilling. Ken Lay came from humble means, the son of a preacher he aspired early on to become something greater. An Economics PHD, Lay was a pioneer for deregulation, especially in the natural gas and energy industries. Skilling, infamous for his belief in social Darwinism was known for his immense self-belief in his intelligence.

At the beginning of Enron’s existence, ethics and integrity were important to the company. They had a code of ethics and mentioned integrity as one of their principles of human rights. That began to change when Ken Lay hired Jeff Skilling to be put in charge, who in turn hired Andrew Fastow. Skilling and Fastow were only concerned about

With a brief overview of Enron given, the unethical tactics that took place amongst the leadership in Enron is important for discussion. At the head of all the unethical tactics lay Kenneth Lay, CEO of Enron, who is the most recent and visible cases of alleged CEO failure to act accountable and responsible (Ferrell & Ferrell, 2010). According to Ferrell and Ferrell (2010), no other high-ranking executive has had as much of an impact on the scrutiny of business ethics in America than Ken Lay, making Enron the ultimate example of corporate wrongdoing. Of the employees involved, there were 22 that were indicted or convicted; to show how deep the wrongdoings went, there were 130 unindicted co-conspirators that worked for Ken Lay (Ferrell & Ferrell, 2010). This goes to show the influence, though negative, he had down the line. Culture plays a big part in organizations, and ethical rule bending was a part of the midlevel management corporate culture at Enron (Ferrell & Ferrell, 2010). Enron has been described as having a culture of arrogance,

There are a number of beliefs that led to the fall of Enron. Some say it is the lack of ethical corporate behavior that led to Enron’s bankruptcy. Some say, it was due to the management’s inability to update themselves consistently with capital related information during its corporate gluttony. Some blame their accounting practices such as the mark- to- market that led to their downfall. Others pointed out on mismanagement of their risks as well as stretching out of their capital reserves as well as the various forms of management that were applied by the various company leaders were among the primary reasons to as why the company was led to bankruptcy as well as moral responsibility. (Prebble, 2010). ). Despite this various analysis

Although Enron has their own code of ethics, which listed out their policies highly focusing on honesty, respectfulness, and generation of the benefit for stakeholders as a whole, Enron management actions were only complied with a certain level of ethics philosophy that led to poor approaches to handle behavioral and moral circumstances (Paine 1994; Petrick and Quinn 2000). According to utilitarian theories with solely concentrating on “social consequences” - generating the best outcomes for affected people as a whole, Enron’s executive actions were recognized as being unethical because they failed to yield the greatest benefit of all other stakeholders while playing the critical role of a linkage between employees, shareholders, suppliers and customers (Petrick and Scherer, 2003). Particularly, their top management focused on their own interests that derived from other’s expenses by feeding hunger with greediness, bribing government under political donation and making series of unethical actions that caused the uncured

Enron failed largely due to the unethical practices of its executives (Johnson, 2003) Primary motivators is known to have been greed amongst managers and their subordinates, most of whom seemed to have been in a race to receive larger

At some point, Enron executives use the deregulation of Californian energy market to raise the price of electricity, getting other company to join in action and make skyhigh profits. At the end, all these illegal, unethical actions they had done snowballed and they could not stop because once they could not hide their debts, and government institutes started to suspect, they are left with nothing to protect themselves. They took a high risk road to profit, followed a strategy of ‘win at all cost’ so it will later come back at them. Throughout company’s history, its culture had been an unethical one, with staffs from executives to accountants to associated firms having joined in their strategies and performed underhand actions. The environment was set for them to success in their scams because they brought in people and company having the same mind set. As for personal values, they executives only cared about themselves and whoever on their side. The financial executive, like Fastow even stole money from the company for himself and it was 40 million dollars. They pocketed millions of dollars so they did not pay much attention to what would happen to their employees once this scam was taken out of the dark. After Enron bankrupted, their employees had nothing in return, not even pension money and shareholders, with the stock price of the company being lower than a sing dollar, lost everything. In conclusion, what happened at

Enron was the model for rapid growth in the 1990’s but part of the culture and ethics of Enron was disturbing. Falsified documents, cutthroat competitiveness among employees and accounting schemes that hid the truth of the company’s indebtedness were just a few examples of the lack of business ethics within the organization. Perhaps a more virtuous management team could have saved Enron from collapse.

Enron managed the business did not obey the law. Enron made some criminal cases in finance and business to get the high profit and hide the debt. Some of the executives of Enron deceived the investors to buy the stock of Enron because the stock price will rise. Enron also made fake financial reports to cheat the shareholders, analysts and customers. Enron is dishonest to do the business. Kenneth Lay failed to do his duty as the chairman of Enron to manage his subordinates to let them destroyed the operation of

The first is the fact the Enron and its board of directors created a corporate culture that inspires innovation and creativity while totally ignored Ethics. It was not in the board of directors nor the corporate management top priorities, so how it would be for those who report and commit day to day transactions. The absence of a corporate culture that motivates transparency, integrity and carouge to report was a major cause of Enron’s Scandal. For example, Enron hired several accountants who understood the accounting loopholes. They helped the company to maximize on the loopholes in the Generally Accepted Accounting Principles (GAAP). (Rapoport , Van Niel, & Dharan, 2009). The accountants did not write-off the losses from the special purposes entities but they only deferred the charges from them. This was also coupled by management focus on share prices, the second intrinsic variable, that will impact their allowances and compensation packages. The focus on meeting or exceeding external analysts made Enron’s management manipulate financial statements and take advantage of any loops in the system that helps in claiming unrealized profits. The company had to make more deals to illustrate the growth in its income. Jeffrey Skilling, the CEO, wanted to meet Wall Street projections and listed revenues from projects that losing. (Unerman & O'Dwyer, 2004). Such aggressive and fruadunet accounting allowed Enron to falsely be in the wealthiest 50 companies of the Fortune 500 companies and dramatically increase Enron’s revenues by over 700% (Benston & Hartgraves, 2002). Enron started using the mark-to-market accounting method to recognize income from long-term projects which is not the intent of SEC approved accounting method. Enron also introduced and recorded the present income from its estimated future value, although, the income is not guaranteed. (Benston & Hartgraves,

To understand the contributing factors leading to the ethical meltdown at Enron, one must first understand the cultural norms of the organization, because, organizational culture according to Al Saifi (2015) is the centerpiece in describing and implementing the organization’s goals. Cultures according to Johnson (2015) are a combination of things that one can see and things that one cannot see, but, are in the minds, and in the form of ideas, feelings, and belief (p. 381). When an individual joins an organization, they already have a set of principles that come along with them; but, the organizational culture in which they are going tends to have a significant effect on the actions and performance of these individuals (Al Saifi, 2015). Most of the individuals involved in the Enron case are described as people who would have done exceptionally under different circumstances or in other organizational cultures (A Conversation About the Documentary 'Enron: The Smartest Guys in the Room,' 2012). However, the culture of profit making at all cost, which is the dominant culture at Enron, transformed the actions of these employees, forcing them to act unethically. Upon my evaluation of the video "A Conversation About the Documentary 'Enron: The Smartest Guys in the Room,'" I was able to identify the following elements within the culture of Enron that contributed to the moral downfall of the organization; these are the elements of greed, arrogance, and superiority.

Kenneth Lay, was the CEO of Enron Corporation and helped to develop this firm in one of largest companies of America. But he a big part of the worth of the firm was based on shady accounting practices and not recorded losses in the financial statement. In 2001 many

Mentioning the name Enron to scholars and practitioners in accounting will always shift their thoughts to ethical accounting practices. This owes to the fact that the failure of organizations like Enron, WorldCom and Adelphia, led to changes in the standards of practice in accounting. Consequently, several authors completed studies on the collapse and demise of Enron. For instance, Moncarz et al., (2006), Cunningham and Harris (2006), and Dembiski et al., (2006) made publications on the topic in question. According to Moncarz et al., (2006) Enron’s failure represents the biggest company failure in the history of America. This is highlighted by the fact that Enron had revenue of US $101 billion and an estimated size of 21000 employees by 2000. However, Dembiski et al., (2006) reveals that the organization collapsed in 2001 owing to unethical accounting practices within the organization. This paper discusses how Enron led to increased emphasis on corporate codes of conduct by analyzing the