...The fall of Enron: Corporate Culture, Governance and Ethics Written By: Bilge-Kagan Ozturk 2007 Abstract This paper examines the critical importance of an ethically based corporate/organisational culture to ensuring company-wide ethical conduct. Testament to this topic I use the case of Enron and its ethical demise to successfully support my argument and highlight the need of top level management to be the main proponents of this culture to allow lower level employees to adopt a behaviour of moral reasoning. The body of the essay will highlight the importance of shaping an ethically based organisational culture, through a number of components, namely a company’s executive management team and its corporate governance system. I also briefly evaluate agency and stakeholder theories and how they relate to an organisational culture from an ethical perspective, and point out Enron’s culture was predominantly one of agency reasoning. Finally I provide a brief and direct conclusion to assert my argument that ethics needs to exist deep within an organisation’s culture and needs to be the key leading value of an organisation. A breakdown of ethics can eventually lead to the demise of a once very reputable and successful company. A great textbook example is of course, the fall of Enron – one of the biggest corporate bankruptcies in US history. Like most companies, Enron had a code of ethics in place and employees who were educated in the field of ethics, agency...
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...1. Historical background of the collapsed Enron corporation • How the corporate was founded and its growth • The corporate culture of the collapsed corporation. 2. What caused the collapse of Enron • How bonuses to the executives lead to their financial misreporting. • How greedy auditors colluded to misrepresent financial statements. 3. How collapse of Enron could have been prevented. • Did the relevant act negligently abetting in the corporate collapse. • How loopholes in financial laws can be exploited • How the investors were blinded by quick gains preventing them being cautious when investing. • How over speculation can lead to huge loses. 4. Lessons from the collapsed corporation. • Lesson that were taught to the policy makers and the investing public from the collapse. • Lessons that the collapse taught other corporations. 5. Conclusions and recommendations. 1. Historical background of the collapsed Enron corporation • How the corporate was founded and its growth • The corporate culture of the collapsed corporation. 2. What caused the collapse of Enron • How bonuses to the executives lead to their financial misreporting. • How greedy auditors colluded to misrepresent financial statements. 3. How collapse of Enron could have been prevented. • Did the relevant act negligently abetting in the corporate collapse. • How loopholes in financial laws can be exploited • How the investors...
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...Enron Sharon R. Duncombe Professor Jamila Harris Business Law I – LEG 100 May 2, 2010 1) Describe how Enron could have been structured differently to avoid such activities. One of the reasons why the corporate governance system failed at Enron was because of the lack of good communication between the Board of Directors (BOD) and Top Management in Enron’s affairs. Various committees of the BOD were not doing your job, by not overseeing effectively the action’s of the company. “A good example is that the BOD was not aware of Michael Kopper’s involvement in Chewco even though he participated in a conference call with the members of the Executive Committee of the BOD.” This just shows the lack of effective internal controls, or it might just show you there was no such thing as internal controls. Many transactions were not approved by top management because of the lack of communication. Top management was lacking a lot of characteristics of a good management team such as not properly implementing and operating effective internal controls. There are many things, which could have been done to prevent the failure of the corporate governance of Enron. The BOD deals a lot with top management, we are sure that they knew something was going on, and they claim not enough information was being shared with them. One of their jobs is overseeing the functioning of the corporation and its management; with effective internal controls a BOD that is complaining of not enough...
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...Introduction: Widely known as the champion of the energy industry, Enron is suddenly faced with a corporate crisis in the form of a scandal. This scandal involves not only Enron’s accounting practices but also its corporate governance and culture (Lawrence & Weber, 2008). This report will recommend some potential strategies for Enron to move forward from the scandal. To do this, we must incorporate stakeholder theory, which “argues that corporations serve a broad public purpose; to create value for society” (Lawrence & Weber, 2014, p 6.). This means that Enron must take responsibility for the scandal it created and take actions to regain its stakeholders’ confidence. To accomplish this, we will first identify and analyze Enron’s primary stakeholders, and then point out the key problems along with possible solutions. Finally, we will end the analysis with the best solutions that Enron should enact. Primary Stakeholders: The three most salient stakeholders are Enron’s shareholders, employees, and the government. We choose these three based on their interests, power, relevance, likelihood to form coalitions, and also due to the legitimacy and urgency of their claims. The first important stakeholder is none other than Enron’s shareholders. The owners of Enron invested their money relying on Enron’s false financial statements, only to lose billions of dollars. They are likely to form coalitions and engage in shareholder activism. In fact, they have the legal power to...
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...Professor Young March 5, 2011 Enron was an old line energy company, owning electric power production facilities and natural gas pipelines. It engaged in several acquisitions during the late 1980s and the 1990s that dramatically increased its size. Its acquisitions included power companies in the U.S. and abroad, as well as investments in various energy and technology companies. In the 1990s, Enron reorganized itself as an energy trading company, whose primary form of business was to trade in various energy vehicles, including contracts to provide electric power in the future at pre-determined prices and similar contracts to deliver natural gas, water rights, wind power systems, broad band transmission systems, insurance, and other products. 1. Describe how Enron could have been structured differently to avoid such action. Enron, like most public companies was required by law to describe its party transaction to shareholders and the members of the investing public in several different disclosure documents. Overall, Enron failed to disclose facts that were important for understanding the substance of the transaction. Although they did disclose that there were large transactions that the CFA had interest. Enron did not give the CFO’s actual or expected benefits from these transactions or provide complete financial statements. The organizational structure could have been different by not changing the original structure. When Enron decided to change its structure by...
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...Enron the Fallen Tiffany Califf Professor: Karina Arzumanova LEG100014VA016-1116-001Business Law I July 24, 2011 Describe how Enron could have been structured differently to avoid such activities. Enron’s leaders had the work ethic of only fighting for themselves and if others got hurt it was no big deal hurting. Enron had that it’s a dog-eat-dog thinking. This type of thinking would, in the end, be the demise of Enron. Enron focused on short-term gains. The accounting tactics of Enron were degraded by no small terms. Enron was full of demoralized people throughout several departments with growing their personal finances their ultimate goal. They projected many years of financial growth when it didn’t exist and hid finances of millions when it was suitable. To avoid these acts, Enron would need to overhaul their aspect on the importance of their financial recordings and the senior executives would feel the consequence of seeking action for long term boom of the company instead of the quick buck. I believe that Enron was absolutely aware of their poor judgment. If Enron was serious about avoiding illegal acts, they would have make statements that were truthful of material fact, and would have not omitted material facts necessary to make the statements that were made. They needed to focus on the culture of their business. They should have paid notice to the values and how well they had been adopted by the board, leadership, and all levels of employees. Enron needed...
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...also wrote in an introductory statement to the revised Enron Code of Ethics that they (officers and employees of Enron Corp.) were responsible for conducting the business affairs of the companies in accordance with all applicable laws and in a moral and honest manner. Lay mentioned that the Enron enjoyed a reputation for being fair and honest and that the company was highly respected. Jeff Skilling, on the other hand, implemented a very rigorous and threatening evaluation process for all Enron employees. Known as the “rank and yank” – this process was aimed at getting rid of the lowest ranking employees – probably an attempt to get rid of all the bad apples. But this too backfired when employees intentionally ranked peers lower to enhance their own position and ranking. So with leaders like these, who harboured only “good intentions” for the company… Enron was sure to be headed for success. Along with Enron’s ethic codes based on respect, integrity, communication and excellence; Enron looked like an excellent corporate citizen, with all the corporate social responsibility (CSR) and business ethics tools and status symbols in place. A company heralded as a paragon of corporate responsibility and ethics – successful, driven, focused, philanthropic and environmentally responsible. Enron appeared to represent the best 21st century organisation had to offer, economically and ethically. With all this in mind, reasonably, Enron employees should have had no doubt regarding the ethical...
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...task Enron: How the Failure of Leadership, Culture, and Unethical Behavior Brought a Giant to its Knees Background A company with humble beginnings, Enron began as a merger of two Houston pipeline companies in 1985. Although Enron faced a number of financially difficult years, the deregulation of the electrical power markets took effect in 1988, and the company redefined its business from "energy delivery" to "energy broker." Enron quickly changed from a surviving company to a thriving one. Deregulation allowed Enron to become a matchmaker in the power industry, bringing buyers and sellers together. Enron profited from the exchanges, generating revenue from the difference between the buying and selling prices. Deregulation allowed Enron to be creative—for the first time, a company that had been required to operate within the lines could innovate and test limits. Over time, Enron's contracts became increasingly diverse and significantly more complex. Customers could insure themselves against all sorts of eventualities—such as a rise or fall in interest rates, a change in the weather, or a customer's inability to pay. By the end, the volume of such financial contracts far outstripped the volume of contracts to deliver actual commodities, and Enron was employing a small army of Ph.D.s in mathematics, physics, and economics to help manage its risk. As Enron's products and services evolved, so did the company's culture. In this newly deregulated and innovative forum, Enron embraced...
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...wrote in an introductory statement to the revised Enron Code of Ethics that they (officers and employees of Enron Corp.) were responsible for conducting the business affairs of the companies in accordance with all applicable laws and in a moral and honest manner. Lay mentioned that the Enron enjoyed a reputation for being fair and honest and that the company was highly respected. Jeff Skilling, on the other hand, implemented a very rigorous and threatening evaluation process for all Enron employees. Known as the “rank and yank†– this process was aimed at getting rid of the lowest ranking employees – probably an attempt to get rid of all the bad apples. But this too backfired when employees intentionally ranked peers lower to enhance their own position and ranking. So with leaders like these, who harboured only “good intentions†for the company… Enron was sure to be headed for success. Along with Enron’s ethic codes based on respect, integrity, communication and excellence; Enron looked like an excellent corporate citizen, with all the corporate social responsibility (CSR) and business ethics tools and status symbols in place. A company heralded as a paragon of corporate responsibility and ethics – successful, driven, focused, philanthropic and environmentally responsible. Enron appeared to represent the best 21st century organisation had to offer, economically and ethically. With all this in mind, reasonably, Enron employees should have had no doubt regarding...
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...anything about Enron? What factors perpetuated the Enron myth? Why were the warnings ignored? Wall Street analyst did not want to believe that Enron was doing anything illegal, because of the amount of money they knew they could make. In the film, analysts blamed Enron for giving them false information. The false information kept Enron looking profitable, so it was recommended to investors. Also analysts were tricked or “bought” into overlooking the great hole Enron and anyone else participating in the corruption was digging. Enron was portrayed as an innovative company and was featured on covers of magazines a few times. They were put on a pedestal that was so high that no one could see that the company was failing and committing fraud. Enron used a different accounting method that allowed them to report potential profits, not actual profits. A company will always look good if it is reporting potential profits, because the potentials are limitless. No one wanted to neither admit nor believe that there was something seriously wrong at Enron. Greed was such a big player and no one wanted to lose money. There were many big players involved in the corruption, so they would do whatever it took to hide the truth. At the end, companies just pointed the finger at Enron and claimed innocence. 2. Describe the Enron corporate culture. Explain how the following reinforced the Enron corporate culture and the notion of “survival of the fittest?” The corporate culture in Enron was greed...
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...Business Failure: ENRON LDR 531 Organizational Leadership December 5, 2011 . Examining a Business Failure Effective managers and leaders contribute to the organizational success of an organization. Companies lacking strong managerial leaders failing to enforce the ethical code of conduct of an organization are prone to organizational failure. Yukl (2006), states, “One viewpoint is that leadership occurs only when people are influenced to do what is ethical and beneficial for the organization and themselves” (p. 4-5). The notorious Enron scandal created a historic impact to the organizational culture and processes of businesses in the United States. The following paragraphs will address organizational behavior theories, which could have predicted Enron’s failure. Furthermore, a comparison of management, leadership, and organizational structures is scrutinized to determine the influence each had on Enron’s failure. Who was ENRON? Enron was founded in 1985 when Kenneth Lay merged Houston Natural Gas and InterNorth creating Enron (CBCNews, 2006). In the early 1990s Kenneth Lay commenced the sale of electricity at reasonable prices. However, Congress deregulated sales of natural gas. As a result, Enron’s earnings increased and became the largest retailer of natural gas. To expand, Enron diversified and incorporated gas pipelines, pulp and paper, broadband services, water, and electricity plants. Furthermore, the deregulation allowed Enron executives full control...
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...Enron Case Study Seven years after the fact, the story of the meteoric rise and subsequent fall of the Enron Corporation continues to capture the imagination of the general public. What really happened with Enron? Outside of those associated with the corporate world, either through business or education, relatively few people seem to have a complete sense of the myriad people, places, and events making up the sixteen years of Enron’s existence as an American energy company. Some argue Enron’s record-breaking bankruptcy and eventual demise was the result of a lack of ethical corporate behavior attributed, more generally, to capitalism’s inability to check the unmitigated growth of corporate greed. Others believe Enron’s collapse can be traced back to questionable accounting practices such as mark-to-market accounting and the utilization of Special Purpose Entities (SPE’s) to hide financial debt. In other instances, people point toward Enron’s mismanagement of risk and overextension of capital resources, coupled with the stark philosophical differences in management that existed between company leaders, as the primary reasons why the company went bankrupt. Yet, despite these various analyses of why things went wrong, the story of Enron’s rise and fall continues to mystify the general public as well as generate continued interest in what actually happened. The broad purpose of this paper is to investigate the Enron scandal from variety perspectives. The paper begins with a narrative...
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...Enron: Smartest Guys in the Room Introduction: Enron’s Culture of Greed Enron is considered the most infamous and notorious corporate scandal of the twenty first century, many consider it the worst in the history of the United States (U.S.). The looting of Enron by its executives, the fraud, cover-ups, greed and arrogance precipitated its fall. Shareholders, including many Enron employees, trusting the leadership, filled their 401K portfolios with Enron stock losing $62 billion. In this paper I will give you an overview of the highs and lows of America’s premier energy company, Enron. The political and economic conditions that led to the crash caused by the lack of ethics and morally bankrupt top executives will be discussed. The corporate culture of three other businesses, my former employers, will be discussed to give a greater understanding of corrupt corporate cultures and how easy it is to buy into those lies. Although these businesses are different, they share one thing, greed. To give a greater understanding of corrupt corporate cultures and how easy it is to buy into those lies. Whether its energy, university enrollment, piano/organ chain, or national wallpaper company; unethical, immoral behavior is possible. Executive Team Corruption Ken Lay became the CEO of the newly formed Enron after the merger between Houston Natural Gas (HNG) and InterNorth in 1986. Lay hired Jeffery Skilling, a consultant with McKinsey & Co. in 1990...
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...How did the corporate culture of Enron contribute to its bankruptcy? The corporate Culture at Enron could have contributed to its bankruptcy in many ways. Its corporate culture supported unethical behavior without question for as long as the behavior resulted in monetary gain for the company. It was describe as having a culture of arrogance that led people to believe that they could handle increasingly greater risk without encountering any danger. Its culture did little to promote the values of respect and integrity it instead rewarded ‘innovation’ and punished employees deemed week. The performance evaluation process for employees that was dubbed “rank and yank” utilized peer evaluations, and each of the company’s divisions was forced to fire the lowest ranking employees. This created cut-throat competition not only against Enron’s external competitors but also within the organization. It pitched employees against each other. The internal rivalry created in turn contributed to less communication between operations for fears of being fired. The “survival for the fittest” atmosphere reached the point where illegal activity was deemed necessary to stay on top of the game. Enron’s compensation plans also seemed less concerned with generating profits for shareholders than with enriching officer wealth. Its culture encouraged flaunting the rules and even breaking them. Each Enron division and business unit was kept separate from the others and as a result very few people in the...
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...GHASTLY: HOW TOXIC ORGANIZATIONAL CULTURES POISON COMPANIES THE RISE AND FALL OF ENRON, WORLDCOM, HEALTHSOUTH, AND TYCO INTERNATIONAL David R. Lease, Norwich University Abstract This paper presents an analytical and comparative study of four recent corporate scandals involving organizations that had previously been recognized as both ethically and organizationally sound. Based on these case studies, the following issues are discussed: (1) The role of leader behavior and organizational/leadership styles in shaping the corporate organizational culture of an organization, and (2) The extent to which this culture renders the organization and its members (including the top executives) prone to ethical misbehavior. The four companies selected for this case analysis are: Enron Corporation, WorldCom, Inc., Tyco International, Ltd., and HealthSouth Corporation. Each case is considered individually. The basic elements in the scandal are outlined and the principal aspects of each organization’s corporate culture discussed, with special emphasis on the influence of leadership styles and leadership behavior/practices on organizational culture. The four cases are then compared and contrasted in the light of the existing evidence on the relation between corporate culture and ethical misbehavior. PRELUDE “We were doing something special. Magical. It wasn’t a job – it was a mission. We were changing the world. We were doing God’s work.” – Jeffrey Skilling, former Enron COO, President and CEO in the...
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