The film Enron: The Smartest Guys in the Room was a great film loaded with examples of unethical behavior with Enron being an unethical corporate culture. The film portrays the rise and fall of Enron, one of the most corrupted corporations this country has seen. Enron had started off as a promising energy company with a vision to do good which quickly turned sour when top executives torn the company down while stealing millions of dollars from people. A reason for the downfall of Enron was the deregulation of electrical power markets which fueled the greed of Enron’s officials. They were the ones that transformed Enron from a traditional energy company into an energy broker. As I was watching the film, the first example of unethical behavior I noticed was the scandal involving the oil markets. This scandal occurred early in Enron’s history with a couple of traders placing bets on the oil markets. This assisted in consistent profits for the company. They would then divert the money to offshore accounts with phony books. When this scandal was made public, Ken Lay (Kenny boy) denied having any knowledge of the corruption. It was obvious that Lay was lying through his teeth about the traders gambling away Enron’s reserves. This was difficult for me to watch as I am very familiar with the Lay story. Lay is a brother of Beta Theta Pi, the same fraternity I belong too. While our brothers are all held to very high standards when it comes to integrity and trust, Ken Lay did not live by these values. He had been president of his respective chapter and it just goes to show you that anyone can be corrupted. Enron then began using an accounting scandal known as mark-to-market accounting which allowed Enron to predict potential profits rig... ... middle of paper ... ...ow being sold for “pennies”. People like Skilling and Lay had temporarily managed to escape with everyone’s money. Due to the Enron scandal, we now have laws such as the Sarbanes-Oxley Act in place to keep a similar event from reoccurring. As a result of SOX, top executives now had to individually certify the accuracy of financial data. It also increased the penalties for financial fraud. So what did we learn from Enron? Every company has duties to all of its stakeholders, not just to its shareholders. At Enron, executives made decisions that were both unethical and illegal. For a business to prosper, it all starts at the top. A strong leader has the vision and capability to get the company to where everyone wants to go. They must be able to provide the basis for people to achieve this goal. This will result in a healthy company culture which Enron did not have.
On the surface, the motives behind decisions and events leading to Enron’s downfall appear simple enough: individual and collective greed born in an atmosphere of market euphoria and corporate arrogance. Hardly anyone—the company, its employees, analysts or individual investors—wanted to believe the company was too good to be true. So, for a while, hardly anyone did. Many kept on buying the stock, the corporate mantra and the dream. In the meantime, the company made many high-risk deals, some of which were outside the company’s typical asset risk control process. Many went sour in the early months of 2001 as Enron’s stock price and debt rating imploded because of loss of investor and creditor trust. Methods the company used to disclose its complicated financial dealings were all wrong and downright deceptive. The company’s lack of accuracy in reporting its financial affairs, followed by financial restatements disclosing billions of dollars of omitted liabilities and losses, contributed to its downfall. The whole affair happened under the watchful eye of Arthur Andersen LLP, which kept a whole floor of auditors assigned at Enron year-round.
The Enron Corporation was founded in 1985 out of Houston Texas and was one of the world 's major electricity, natural gas, communications, and pulp and paper companies that employed over 20,000 employees. This paper will address some of the ethical issues that plagued Enron and eventually led to its fall.
The CFO, Andrew Fastow, systematically falsified there earnings by moving company losses off book and only reporting earnings, which led to Enron’s bankruptcy. Any safeguards or mechanisms that were in place to catch unethical behavior were thrown out the window when the corporate culture became a situation where every person was looking out for their own best interests. There were a select few employees that tried to get in front of the unethical accounting practices, but they were pushed aside and silenced. The corporate culture at Enron became a place where if an employee would not make unethical decisions then they would be terminated and the next person that would make those unethical decisions would replace them. Enron executives had no conscience or they would have cared for the people they ended up hurting. At one time, Enron probably was a growing company that had potential to make a difference, but because their lack of social responsibility and their excessive greed the company became known for the negative affects it had on society rather than the potential positive ones it could have had. Enron’s coercive power created fear amongst the employees, which created a corporate culture that drove everyone to make unethical decisions and eventually led to the downfall and bankruptcy of
...ns and the company’s fair-value accounting resulting in restatements of merchant investments based on faulty numbers. Additional violations included Enron’s accounting for stock issued to SPE’s, inadequate disclosure of related party transactions, and conflicts of interest and their cost to stockholders. These violations of GAAP and GAAs standards ultimately lead to the demise of a once mighty company (Benston, The Quality of Corporate Financial Statements and Their Auditors before and after Enron). The importance of consistently keeping up with accounting principles and producing accurate numbers for a company’s are exemplified through Enron’s story. The company faced an unfortunate fate that could have easily been avoided through more efficient and effective management, proper accounting methods, and a higher standard of morals and ethics within the workplace.
Many organizations have been destroyed or heavily damaged financially and took a hit in terms of reputation, for example, Enron. The word Ethics is derived from a Greek word called Ethos, meaning “The character or values particular to a specific person, people, culture or movement” (The American Heritage Dictionary, 2007, p. 295). Ethics has always played and will continue to play a huge role within the corporate world. Ethics is one of the important topics that are debated at lengths without reaching a conclusion, since there isn’t a right or wrong answer. It’s basically depends on how each individual perceives a particular situation. Over the past few years we have seen very poor unethical business practices by companies like Enron, which has affected many stakeholders. Poor unethical practices affect the society in many ways; employees lose their job, investors lose their money, and the country’s economy gets affected. This leads to people start losing confidence in the economy and the organizations that are being run by the so-called “educated” top executives that had one goal in their minds, personal gain. When Enron entered the scene in the mid-1980s, it was little more than a stodgy energy distribution system. Ten years later, it was a multi-billion dollar corporation, considered the poster child of the “new economy” for its willingness to use technology and the Internet in managing energy. Fifteen years later, the company is filing for bankruptcy on the heels of a massive financial collapse, likely the largest in corporate America’s history. As this paper is being written, the scope of Enron collapse is still being researched, poked and prodded. It will take years to determine what, exactly; the impact of the demise of this energy giant will be both on the industry and the
The three main crooks Chairman Ken Lay, CEO Jeff Skilling, and CFO Andrew Fastow, are as off the rack as they come. Fastow was skimming from Enron by ripping off the con artists who showed him how to steal, by hiding Enron debt in dummy corporations, and getting rich off of it. Opportunity theory is ever present because since this scam was done once without penalty, it was done plenty of more times with ease. Skilling however, was the typical amoral nerd, with delusions of grandeur, who wanted to mess around with others because he was ridiculed as a kid, implementing an absurd rank and yank policy that led to employees grading each other, with the lowest graded people being fired. Structural humiliation played a direct role in shaping Skilling's thoughts and future actions. This did not mean the worst employees were fired, only the least popular, or those who were not afraid to tell the truth. Thus, the corrupt culture of Enron was born. At one point, in an inter...
Investors and the media once considered Enron to be the company of the future. The company had detailed code of ethics and powerful front men like Kenneth Lay, who is the son of a Baptist minister and whose own son was studying to enter the ministry (Flynt 1). Unfortunately the Enron board waived the company’s own ethic code requirements to allow the company’s Chief Financial Officer to serve as a general partner for the partnership that Enron was using as a conduit for much of its business. They also allowed discrepancies of millions of dollars. It was not until whistleblower Sherron S. Watkins stepped forward that the deceit began to unravel. Enron finally declared bankruptcy on December 2, 2001, leaving employees with out jobs or money.
In the movie Wall Street, Gordon Gekko stated, “Greed, for lack of a better word, is good. Greed is right, greed works. Greed clarifies, cuts through, and captures the essence of the evolutionary spirit. Greed, in all of its forms: greed for life, for money, for love, knowledge, has marked the upward surge of mankind” (Mali, 2013, para. 8). This quote accurately identifies the motivation behind the actions of Bernie Madoff and Enron. Both Madoff and Enron were greedy in conducting business. Both violated corporate ethical issues as they acted fraudulently to steal money from clients and shareholders. Bernie Madoff was a once famous stockbroker, investment advisor, and financier prior to committing fraud and running the largest financial scheme in American history. He gained people’s trust by his reputation and the contents of his resume. Ultimately, his Ponzi scheme scammed hundreds and thousands of dollars out of the pockets of his clients. Enron, a natural gas company, hid a debt of billions from failed projects and deals. The company was able to continue to operate due to loopholes and poor financial reporting. Both of these cases are examples of ethical irresponsibility. They are prime examples of why having a code of ethics is just not enough. Companies must create a culture that instills a strong sense of ethics and integrity and eliminates anyone who threatens or violates this established culture.
Enron was in trouble because of something that almost every major corporation during this time was guilty of. They inflated their profits. Things weren't looking good for them at the end of the 2001-year, so they made a common move and they restated their profits for the past four years. If this had worked to their like they could have gotten away with hiding millions of dollars in debt. That completely admitted that they had inflated their profits by hiding debt in confusing partner agreements. Enron could not deal with their debt so they did the only thing that was left to do, they filed for chapter 11 bankruptcy. This went down as one of the largest companies to file for bankruptcy in the history of the United States. In just three months their share price dropped from $95 to below $1.
Unethical accounting practices involving Enron date back to 1987. Enron’s use of creative accounting involved moving profits from one period to another to manipulate earnings. Anderson, Enron’s auditor, investigated and reported these unusual transactions to Enron’s audit committee, but failed to discuss the illegality of the acts (Girioux, 2008). Enron decided the act was immaterial and Anderson went along with their decision. At this point, the auditor’s should have reevaluated their risk assessment of Enron’s internal controls in light of how this matter was handled and the risks Enron was willing to take The history of unethical accounting practic...
Enron had rose to the top by engaging in energy projects worldwide and speculating in oil and gas futures on the world’s commodities markets. They also provided financial support to some presidential candidates and members of the U.S. Congress. However, Enron had a secret. The corporation had created partnerships located in off-shore
It revealed that the firm’s success was due to an elaborate scam ranging from shady dealings to concealed debts. (Enron scandal at-a-glance, 2002). The year of 2001 was pivotal in revealing the depth of this deception. In August that year the company’s CEO Jeffery Skilling announced his departure, having been CEO for six months. The unexpected resignation was followed by many stakeholders selling large amounts of Enron stocks as the price continuously dropped. It reached a point where it was selling less than a dollar from a peak price of $90 per share. (Folger, 2011) Following the month of October saw Enron report a loss of $618 million, its first quarterly loss in four years. (The rise and fall of Enron: a brief history, 2006. The SEC opens a formal investigation into Enron’s dealings so they can get an insight into the activities that took place that resulted in the company making the abnormal loss. All attempt to sell the shares of the company ceased as there was too much debt in the company that had not been disclosed. in December, Enron filing for bankruptcy protection with $38 million in outstanding debt (Folger,
Through an organizational culture that focused on financial greed for self, illegal accounting practices, conflicts of interest partnerships, illegal business dealings, fraud, negligence, and massive corruption at all levels, the Enron scandal help to create new laws and regulations with stiff penalties if violated (Ferrell, et al, 2013). The federal government implemented the Sarbanes Oxley Act (SOX) (Ferrell, et al, 2013).
"This is why the market keeps going down every day - investors don't know who to trust," said Brett Trueman, an accounting professor from the University of California-Berkeley's Haas School of Business. As these things come out, it just continues to build up"(CBS MarketWatch, Hancock). The memories of the Frauds at Enron and WorldCom still haunt many investors. There have been many accounting scandals in the United States history. The Enron and the WorldCom accounting fraud affected thousands of people and it caused many changes in the rules and regulation of the corporate world. There are many similarities and differences between the two scandals and many rules and regulations have been created in order to prevent frauds like these. Enron Scandal occurred before WorldCom and despite the devastating affect of the Enron Scandal, new rules and regulations were not created in time to prevent the WorldCom Scandal. Accounting scandals like these has changed the corporate world in many ways and people are more cautious about investing because their faith had been shaken by the devastating effects of these scandals. People lost everything they had and all their life-savings. When looking at the accounting scandals in depth, it is unbelievable how much to the extent the accounting standards were broken.
Enron was on the of the most successful and innovative companies throughout the 1990s. In October of 2001, Enron admitted that its income had been vastly overstated; and its equity value was actually a couple of billion dollars less than was stated on its income statement (The Fall of Enron, 2016). Enron was forced to declare bankruptcy on December 2, 2001. The primary reasons behind the scandal at Enron was the negligence of Enron’s auditing group Arthur Andersen who helped the company to continually perpetrate the fraud (The Fall of Enron, 2016). The Enron collapse had a huge effect on present accounting regulations and rules.