Enron was one of the major energy corporation in America before it went bankrupt. A contributing reason to Enron’s failure was a lack of ethical management. Enron scandal proves that the company infringed the transparency, dignity and responsibility ethical principles of the Global Business Standard Codex (Paine et al. 2005). Effective management practices help businesses manage risk by reducing the likelihood of breaching the misconduct, but ethical dilemmas cause illegal or immoral activities. The case of Enron involved both illegal and unethical activities which created unethical practices between employees (Petrick & Scherer 2003). Management practices of Enron failed to comply with the dignity ethical principles because the working environment …show more content…
Which shows that transparency principle of GBSC failed at the corporation level. Transparency principle involves truthfulness, deception and disclosure (Paine et al 2005). Truthfulness – dishonest to suppliers/partners; Deception – false marketing and advertising to customers/ competitors; Disclosure – failed to provide unbiased information to investors and employees. Enron restricted “the flow of negative information to continue inflate the stock value and failed to maintain openness to signs of problems” ( Seeger & Ulmer 2003). Enron plotted with auditor Arthur Anderson kept debt off its balance sheet to hide the true condition of the company. Their loans were treated as “income from partnerships and not as liabilities” (Sims & Brinkmann 2003). In fact, Enron scandal seems to have been a foreseeable failure (Gordan N 2002). “Enron CEO Jeffrey K. Skilling and exEnron CFO Andrew S. Fastow created and implemented business ideas that led to major problems” (Fusaro and Miller 2002), which could not be legally or ethically secure, resulting in their collapse (Petrick & Scherer 2003). In this way, they generated wealth for investors and themselves. This creates the ethical dilemma of whether or not to disclose this
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 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
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.
Enron was a Houston based energy, commodities and services company. When people hear the name Enron they automatically associate their name with one of the biggest accounting and ethical scandals known to date. The documentary, “Enron: The Smartest Guys in the Room,” provides an in depth examination of Enron and the Enron scandal. The film does a wonderful job of depicting the downfall of Enron and how the corporate culture and ethics were key to Enron’s fall. As the movie suggests, Enron is “not a story about numbers, it is a story about people.”
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.
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.
2. The challenges faced were those of a changing workforce, competitiveness, and globalization, as well as ethics and social responsibility. While many companies were downsizing in the mid-1980s, Enron continued to grow and expand despite their lofty goals. They ventured out into foreign markets to be more competitive. The workforce also became more diverse and the characteristics changed. Employees during Enron’s tenor were less devoted to long-term career prospects; instead they were more interested in financial gain at any cost. Ethics seemed to be a secondary thought for most people during Enron’s time. To meet these challenges Enron executives had to make working for their company more attractive and lucrative.
When put in an ethical situations, people use different reasoning’s’ and perspectives to resolve their problems to their advantage. There was nobody validating what was going on. This brings the ethical conflict of Andy Fastow into play; one of the key problems within Enron. Andy Fastow was the man keeping Enron 's “successful” business appearance. While the company was $30 billion in debt, Fastow manipulated the books to make it look like they were still making profits. Fastow might have not been the one to begin the fraudulent activities, but he did it in order to please his bosses. He created two partnerships called LJM1 and LJM2; with the plan of buying Enron’s poorly performing stock to improve their financial statements. Additionally, Fastow went in front of the board of directors to exempt himself to run the two companies as well as Enron, aka conflict of interest. According to the documentation, Fastow allegedly collected $30 million in management fees while defrauding his own
Most of the world has heard of Enron, the American, mega-energy company that “cooked” their books (Gupta, Weirich & Turner, 2013) 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?
“When a company called Enron… ascends to the number seven spot on the Fortune 500 and then collapses in weeks into a smoking ruin, its stock worth pennies, its CEO, a confidante of presidents, more or less evaporated, there must be lessons in there somewhere.” - Daniel Henninger.
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.
The Enron Corporation was an American energy company that provided natural gas, electricity, and communications to its customers both wholesale and retail globally and in the northwestern United States (Ferrell, et al, 2013). Top executives, prestigious law firms, trusted accounting firms, the largest banks in the finance industry, the board of directors, and other high powered people, all played a part in the biggest most popular scandal that shook the faith of the American people in big business and the stock market with the demise of one of the top Fortune 500 companies that made billions of dollars through illegal and unethical gains (Ferrell, et al, 2013). Many shareholders, employees, and investors lost their entire life savings, investments,
In the 1990’s after the United States Congress approved legislation that deregulated the sale of natural gas, Enron was able to sell energy at much higher prices and to gain higher revenues. This is when Enron’s engagement in criminal activity is considered to have begun. While most companies’ activities regarding commercial business are regulated and watched over by the government, deregulated companies “are not subject to government mandating and oversight; as a result, the executives of ENRON were able to misrepresent their respective earnings reports and stock activity in a fraudulent manner” (Finance Law) by misrepresenting their earnings therefore falsely inflating the prices of their sto...
... 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 GAA 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 operations is 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.
The Enron case is very intriguing case of corporate corruption and greed. As we review some of the company’s facts and history along with other areas of the corporation, we can see that this case is filled with great examples of business ethics put to the