...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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...Examining a Business Failure: The Downfall of Enron Team D: LDR/531 2012 Eric Heard In December of 2001, Enron was forced to file for bankruptcy after an investigation of their finances. This investigation uncovered a history of conspiracy, money laundering, and inside trading that led to one of the largest fraud scandals in history (Cernusca, 2011). As a result, businesses should examine exactly where this powerhouse faltered. The areas to be studied specifically are organizational structure, leadership, and management (Yuki, 2010). Once this is complete, business should learn from Enron's mistakes and be careful not repeat history. Organizational Structure's Part of the Enron Failure When looking at an organization, the structure which is defined as “how job tasks are formally divided, grouped, and coordinated” is important to fully understand the organization and how it can be an asset or in the case of Enron a failure (Robbins & Judge, 2011, p. 493). Since the fall of Enron people have studied the company to see what caused the failure. Due to Enron’s failure we have new legislation to help prevent some of the issues from happening again in other companies from the Sarbanes Oxley Act (SOX). One of the reasons for the act was the way Enron’s upper management ran the company. One key element to organizational structure is Centralization and Decentralization decision-making. This key aspect could be argued as the main...
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...The Fall of Enron is a perfect example of management failure. Enron started off as a merger between Houston Natural Gas and Inter-North. A few years after the merger, Enron started changing the strategy and structure of the organization. Enron went from a raw materials management company to a company selling energy commodities. Enron proceeded to change from an energy company to a risk management firm that traded everything from commodities to derivatives. Enron failed for many reasons, ranging from organizational leadership, conflict of interest, and the off-book financials, which created an ethical disaster for the organization. Various organizational behavior lessons have learned from Enron’s fall from grace. The following paper will discuss some of the reasons for Enron’s internal combustion. Enron’s unethical organizational behavior was the main reason for allowing various illegal actions to take place, which killed the organization in the end. Organizational behavior is a field of study that investigates the impact that individuals, groups, and structure have on behavior within organizations, for the purpose of applying such knowledge toward improving an organization’s effectiveness ("Enron 101," 2002, p. 41). In the demise of Enron the leaders were producing behaviors contingent on demands, constraints, and choices that affected the behavior of the organization. In Enron’s situation the demands were for the company to be successful, which affected...
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...failure of Enron? Briefly explain two key factors. Greed was the first individual factor that one can blame for the failure of Enron. As the greed of gain has no time or limit to its capaciousness, the executives did massive fraud and insider trading in order to get more profit because of their egoism, self-interest. As a result, their irresponsible behaviour led the company into bankruptcy with numerous executives charged with criminal acts. The failure of leadership was also one of the individual factors that contributed to the collapse of Enron. The actions of Enron’s leadership did not match the company’s expressed vision and mission as well as it values. If Enron leaders like Kenneth Lay and Jeffrey Skilling had also adopted strategic leadership, they could have also become able to bring a strategic change as required throughout its worse period. There were many top executives engaged in many unethical behaviours like making a false financial statements, misleading statement and frauds,etc as a result of slippery slope. Andrew Fastow (CFO), Jeffrey Skilling (CEO), and Kenneth Lay (auditor) are among the most notable top-level executives implicated in the collapse of Enron. In fact, the board of directors should have prevented all of the unethical behaviours from happening. 2. What were the organisational factors that contributed to the failure of Enron? Briefly explain two key factors. The first organisational factors that contributed to the failure of Enron was the...
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...Case 1 ENRON: WHAT CAUSED THE ETHICAL COLLAPSE? case summary | Kenneth Lay, former chairman and chief executive officer (CEO) of Enron Corp., claimed to be a moral and ethical leader and exhorted Enron’s officers and employees to be highly ethical in their decisions and actions. In addition, the Enron Code of Ethics specified that “An employee shall not conduct himself or herself in a manner which directly or indirectly would be detrimental to the best interests of the Company or in a manner which would bring to the employee financial gain separately derived as a direct consequence of his or her employment with the Company.” Enron’s ethics code was based on the values of respect, integrity, communication, and excellence. Given this code of conduct and Ken Lay’s professed commitment to business ethics, one wonders how Enron could have collapsed so dramatically? The answer to this question seems to be rooted in a combination of the failure of top leadership, a corporate culture that supported unethical behavior, and the complicity of the investment banking community. The failure of Enron’s top leadership was evident in the activities of Andrew Fastow, Jeff Skilling, and Ken Lay, all of whom faced multiple counts of criminal activity with respect to their decisions and actions at Enron. Included among these criminal charges were money laundering, wire fraud, securities fraud, conspiracy, making false statements on financial reports, and insider trading. Some of the activities...
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...09/06/2015 Research Paper – Enron and Ethics in Financial Reporting Table of Contents Cover Page – Page 1 Table of Contents – Page 2 Introduction – Page 3 Statement of Problem – Pages 4-5 Analysis of Problem – Pages 5-6 Conclusion – Pages 6-7 References – Page 8 Introduction A major scandal that still resonates in financial markets today was Enron’s bankruptcy. The business environment of the time included a deregulated energy market (specifically in California) that allowed Enron to inflate their stock prices and offer their commodities at a premium. Additionally, there was little oversight for off balance-sheet transactions. This allowed Enron officials to hide losses in offshore captives with the help of Andrew Fastow. This and other creative accounting practices allowed Enron to report huge profits while in reality Enron was not legitimately profitable. Enron also inflated revenue numbers by buying and selling the same commodities over and over, reporting each transaction at full value (Forbes). In turn, this inflated stock prices of the company beyond what was reasonable. Statement of Problem The decline of Enron began in 2001 with Jeff Skilling being named CEO. During this time, a vice president of Enron voiced her concerns regarding the unethical business practices of the company and described the company as an “Elaborate Hoax” (NY Times). Former CEO Mr. Lay, meanwhile, had been telling investors that the now decreased stock of Enron was an “incredible bargain”...
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...cheating. This caused a culture of deception. Employees were measured on their abilities to cheat. In such an environment, the people who never cheated were regarded as odd. For example, Margaret Ceconi, an employee with Enron Energy Service, once wrote a memo about the truth of accounting issues of Enron; she was later counseled on employee morale * Because of competition in workplace between employees. Competition environment can cause mistakes and cheating because employees don't tend to cooperative and less communicated with each other. They become selfish. Even they don't ask questions for each other because asking the question was regarded as a weak. Then, they will not share resources or information with each other because of competition. So in Enron, no persons asking questions and no one want to answer questions. Because of this working environment, few employees at Enron actually understood their jobs. As a result, they just tried to hide errors and made their work look good. In addition, they ignored the errors and cheatings of others. They never mentioned their doubts about others’ works. Because they thought if others were not actually wrong, the person who mentioned questions would be laugh at. So employees at Enron were quie * Enron emphasized too much on the financial goals. The person who can achieve the budget numbers would...
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...Enron Committed Suicide Name Leadership/LDR 531 April 11, 2011 Instructor Enron was considered the major player in energy and considered as one of the most successful companies until it collapsed in 2001. Failure of this company did not only affect the employees and stakeholders, but also it had a negative impact on the United States economy. Public scrutiny of Enron’s failure, through legal battles, revealed how the toxic organization leadership and culture were two of the major reasons the world’s top energy company collapsed. In this paper, the subject to be examined is how Enron’s organizational structure, culture, and the major contributors contributed to its failure. Enron’s Failure “Originally a gas pipeline company, it metamorphosed into the world's largest trader in gas, electricity, water, and all sorts of post-modern commodities such as bandwidth” (Gutman, 2002, p. 1). It appeared that Enron was one of the most successful companies in the United States. Share prices were doing well in the stock market, and the share value consistently grew, making them very attractive. The company’s growth was perceived as genuine until the company suddenly collapsed, leading to a disclosure of a scandal that involved the top leadership of the company. The scandal that led to the failure of Enron did not happen overnight. The failure was rooted in the company’s unethical leadership (Weidlich & Calkins, 2006). Enron’s fast rise to the largest energy management...
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...Effect of unethical article ACC 291 June 27, 2013 Julio Medina The unethical behavior of Enron Corporation The unethical habits and behavior's in accounting would be deceptive under financial analysis such as gainings, misuses of fundings, overstating the value of corporate assets or underreporting the existence of liabilities, overdoing revenue as well as understanding expenses. Another unethical systems would be securities fraud, manipulation of the financial markets and bribery. Enron is one of the greatest example that impact the unethical behavior. Enron corporation was an American energy company was formed from the merger of Houston Natural Gas including the inter north a Nebraska pipeline company. Enron employed around 21,000 people and was one of the worlds leading natural gas, pulp, electricity, and communications companies. Enron reported financial situations of were the company constant of institutionalized systematic planning accounting fraud having rumors of corruption to secure contracts in central America. Enron's ethics of coding was created on respect, integrity, communication, and excellence. These values were described as follows. Respect. We treat others as we would like to be treated ourselves. We do not tolerate abusive or disrespectful treatment. Ruthlessness, callousness and arrogance don’t belong here. Integrity. We work with customers and prospects openly, honestly and sincerely. When we say we will do something, we will do it; when we say we...
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...January 13, 2015 Instructor Ashram Chooniedass Ethic Business Paper Enron started out in 1985 as a merger between InterNorth and Houston Gas Company, the company’s innovation leads to huge success. By 2000 Enron announce revenue of one hundred million dollars in profit. This huge increase was due to the trading energy sector of the company, shortly after it announced that Enron had become the sixth largest energy company in the world. In 1996 Jeffery Skilling became the new CEO while In 2001 Kenneth Lay held the title of chairman of the board. Skilling made it very clear that his focus is on revenue and profit increase margin and had no interest in Enron’s cash flow (Houston Chronicle, 2002). Skilling created a competitive atmosphere driven by huge bonuses, under his leadership the human resources department provided cheat sheet to recruiters to hire individuals who portray the image of sharp-dressing extrovert. They focus on graduates from Harvard, Yale, Princeton, Rice, Northwestern, and other leading universities. (Houston Chronicle, 2002). Unethical behavior such a falsifying transaction to boost volume was done by traders frequently, hide huge losses from shareholders, they encourage employees to buy stocks and discourage them from reporting poor accounting practices. Enron issue had brought a lot of businesses down due to the unethical actions that took place in that organization. Enron, an energy firm in Texas, it was a company of high demands and a success to...
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...By definition, an ethical dilemma is a situation that will often involve an apparent conflict between moral imperatives, in which to obey one would result in transgressing another. When one combines this definition with the many problems employees and management face on a daily basis, you are bound to have plenty of examples for many different kinds of businesses, regardless of what the business is or the line of work. This internal conflict that people experience can cause many issues in today’s workplace, and in the next few paragraphs I will explain how, why, and produce some examples. One of the most popular examples of an ethical dilemma is the story of the man whose family is starving and he steals a loaf of bread for his family’s survival. At its core, this example covers all the bases: conflicting imperatives with regards to a need for food and breaking the law by stealing the food. There can be arguments made on both sides with no clear decision on what the right thing to do would be. When translated into today’s work environment, employed persons have conflicting thoughts and feelings every day because they face problems at work but also in their personal lives as well. Anytime one has two completely different sets of problems their chances for an ethical dilemma will rise. According to Puja Lalwani, who writes articles for buzzle.com, “A lot of people believe that there is no room for ethics in the workplace. In a world of fierce competition where everyone...
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...Enron Summary In the documentary Enron: The Smartest Guys in the Room, we get an in-depth look into how greed and the lust for power led to the rise and ultimate downfall of Enron. Starting in 1985 as a merger of two oil companies, Enron experienced astronomical growth behind the leadership of its CEO, Ken Lay, and executives Jeff Skilling and Andy Fastow. However, this growth did not come from hard work alone, as the film details some of the underhanded tactics used by Enron to become one of the largest companies in America. Lay, Skilling, and Fastow created an environment where all that mattered was the bottom line, meaning that anything was in the realm of possibility (no matter how despicable) as long as it brought hefty returns for the company. There were many lessons to be learned from Enron. First off, we learn a great deal about the psyche, and how certain primal urges can cause us humans to do things that would at first glance seem appalling. Also, the importance of company culture and corporate ethics is revealed throughout this film. There was a great deal of negative energy permeating throughout Enron that made it nearly impossible for them to sustain their upward trajectory. By no means should Enron’s leadership be let off the hook for what they did, but it is important to understand what motivated them to act in such a way. Early in the film, we get a little background information on the company’s leaders. Lay grew up in poverty and learned the value of hard...
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...business world in regards to finance. This paper will focus on two of the more well-known ethical issues that occurred in the late 1990s and early 2000s, Enron Corporation and WorldCom. This paper will focus on the factors that led to the demise of the corporations, as well as the violations that occurred within the accounting practices, and the specific ethical violations in strategic financial planning. To summarize, the largest contributing factor to the demise of Enron Corporation and WorldCom was simply corporate governance failure (Stanford GSB Staff, 2016). The smaller factors that led to the governance failure were such things as increases in executive compensation and stock options, jumps to incentives to manage earnings, and major shifts in the structure of auditing firms. These changes directly led to the loss of money and public confidence. These reason can be classified as nothing other than management greed. This can be validated by the statistical increases in worker compensation which rose forty-two percent in the 1990s as well as corporate profits rose eighty-eight percent, the standard and poor index increased two hundred and forty-eight percent, as well as CEO compensation rose four hundred and sixty-three percent during this timeframe (Stanford GSB Staff, 2016). This lead to an increase in corporations, such as Enron Corporation and WorldCom, to have to continually restate earnings to attempt to correct inconsistencies in reporting earnings (Stanford GSB Staff,...
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...Enron as an ethical dilemma can only be described as a travesty. The violations of ethical code and moral obligation ceased to exist while the company was alive. A tremendous contributor to the scandal is Arthur Anderson, who was Enron’s outside auditor since 1985. Arthur Anderson was able to hide major losses from Enron. Many projects that had failed through Enron seemingly went unnoticed as they were covered up by Anderson. Not only was this illegal, but it was ethically wrong of Anderson and Enron to do. Most of what Enron did violated business legality. The decision to break these laws is surrounded by the unethical approach the company took in order to maintain company power. The categorical imperative of the energy giant is that in order to maintain power, we as a company must hide our losses. This is one of Immanuel Kant’s theories that focuses on imperatives and what human beings deem as necessity, and what actions must occur in order to reach ones goal. So in this case it is clear what Enron deemed as necessity. Next, I will talk about the utilitarian theory and how it relates to the ethical dilemma at Enron. Utilitarian is the theory in which we as people attempt to minimize the harm in our decision making process while also maximizing the good. In the case of Enron, executives, on the surface, may have acted in a utilitarian manner, but ultimately created more harm than good. The deeper levels of unethical behavior and illegal activity would show that Enron was...
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...recent years has evolved drastically and greater accountability and consequences have been issued to corporations. In the United States authorities made many headlines with companies who practiced fraudulent activities, such as Enron, to serve as a warning to those who dare break rules in the future. The Organization Enron, According to (Eichenwald, 2006), was a U.S. energy-trading and utilities company that housed one of the largest accounting frauds in history. The company was based in Houston, Texas. Enron employed about 20,000 people and was the world’s largest natural gas, electricity, communications and pulp and paper company. As reported by Fortune.com, Enron had revenues of nearly $101 billion during year 2000. Fortune also named Enron “America’s Most Innovative Company” for six consecutive years. Accounting Ethical Breach Enron’s downfall, and the imprisonment of several of its leadership group, was one of the most shocking and widely reported ethics violations of all time as stated by (Silverstein, 2013). It not only bankrupted the company but also destroyed Arthur Anderson, one of the largest audit firms in the world. The Securities and Exchange Commission (SEC) announced in 2001 that it was investigating the accounting practices of Enron after several years of questions raised...
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