...ENRON CASE STUDY Title of the Article: * The first article of critique, talks about the ethical cultures and values of Enron and how this values and credence contributed to the collapse of this once corporate giants (Li, 2010). * Enron failures, the who, the how, and the why, that contributed to malpractices of its business practices (Gudikunst, 2006). Purpose of Research: The purpose of the first article of research is to depict the ethical views and practices of Enron’s Executives. During the Enron scandal several executives were charged with criminal acts from money laundering to insider trading and fraud (Li, 2010). This article of research shows how morals and ethical values differ in the eyes of different individuals. Second article of research explicate, how each stakeholders in the Enron scandal played a huge role in the collapse of the once was energy giant company (Gudikunst, 2006). Dr. Gudikunst explains how each executive and external stakeholder mislead employees and vested stakeholders in believing the organization was financially buoyant in their day to day business practices, and the reasons for the misappropriation of investors capital. Final this article touches the legal aspect of accounting practices. Research Questions Understanding an organization’s ethical values or business core practices is the baseline in understanding any defects which took place during the Enron’s scandal. Some of the purpose research questions for the first...
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...Ethical Culture Project PART 1: Enron displayed all four cultural dimensions which are: high-risk taking, outcome orientation, aggressiveness, and low/no people orientation as a company. Kenny Lay, who was the CEO and Chairman from 1985-2002, displayed high-risk taking during the Vahalla scandal. He had two oil traders, Louis Borget and Tom Mastroeni that would make bets for Enron on whether the price of oil would rise or fall. This is a risky market because you can lose ten times your original investment, and it was hard to make the amount of money legitimately that they were at the time. Borget and Mastroeni were gambling with Enron’s money. Jeff Skilling organized high-risk company trips where he would plan dangerous activities that Enron employees would participate in. Andy Fastow, Enron’s chief financial officer, wanted to please his boss, Skilling, so he tried to increase Enron’s stock up even though they were 30 million dollars in debt. He got hundreds of special companies to prop up Enron’s stock by making Enron debt disappear. To outside investors it looked like cash was coming in, but Enron was hiding their debt in Fastow’s companies so investors couldn’t see it. Fastow was participating in outcome orientation, and Skilling encouraged him to do so. Skilling created a very aggressive company culture for Enron by implementing a performance review committee (PRC) that people were graded a one to a five and 10% people had to be a five and if they were they would be fired...
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...Lessons from the Enron Scandal On March 5, 2002, Kirk Hanson, executive director of the Markkula Center for Applied Ethics, was interviewed about Enron by Atsushi Nakayama, a reporter for the Japanese newspaper Nikkei. Their Q & A appears below: Nakayama: What do you think are the most important lessons to be learned from the Enron scandal? Hanson: The Enron scandal is the most significant corporate collapse in the United States since the failure of many savings and loan banks during the 1980s. This scandal demonstrates the need for significant reforms in accounting and corporate governance in the United States, as well as for a close look at the ethical quality of the culture of business generally and of business corporations in the United States. N: Why did this happen? H: There are many causes of the Enron collapse. Among them are the conflict of interest between the two roles played by Arthur Andersen, as auditor but also as consultant to Enron; the lack of attention shown by members of the Enron board of directors to the off-books financial entities with which Enron did business; and the lack of truthfulness by management about the health of the company and its business operations. In some ways, the culture of Enron was the primary cause of the collapse. The senior executives believed Enron had to be the best at everything it did and that they had to protect their reputations and their compensation as the most successful executives in the U.S. When some of their...
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...241 November 26, 2011 The Enron Accounting Fraud Scandal Enron was a Natural Gas Pipeline Company in Houston, Texas in 1985. It was formed as a result of merging of 2 natural gas Pipeline companies, Houston Natural Gas and the InterNorth. Enron was the epicenter of the life in Houston and was defined as the architectural rhythm of the Houston’s skyline. Enron was the innovator (market maker) in the energy trading business that provided a valuable service. Enron rise to 7th rank in the “Fortune 500” list of companies. There are many accounting scandals that have occurred throughout United States. Many scandals occur even without outsiders knowing anything that had occurred. Companies try their best to keep many of the accounting scandals quiet. There is political and business fraud happening and no one ever knows. Company’s wants to admit that there was a problem or that people within the company are not trust worthy. When executives in large corporations take scandals seriously, there is no way of keeping out of the spot light. Unfortunately, scandals are the tip of the iceberg. They represent visible failures and companies could really go down for such setbacks. Especially in Enron’s case during 2001, an accounting scandal could not be kept silent. It was one of the biggest accounting scandals in history and because of fraud, Enron suffered greatly. As the deregulation of electrical power markets were rising, Enron with the help of former chairman...
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...Scandal and Fraud in the Business World Diana Christina Lopez The University of Houston-Victoria Abstract These papers explore the scandal and fraud of two multibillion dollar companies who file for the largest bankruptcy in business history. In the case of both Enron and WorldCom, the causes of fraud surrounded the manipulation and misleading financial reports created by accountants. Enron was accused of lying about its profits and committing a range of inappropriate deals, including hiding the company’s debt so it would not show in the financial statements to the public. Enron was not the only company that made history for fraudulent events. WorldCom, the largest handler of long distance internet data filed for bankruptcy a year after Enron. Although Enron and WorldCom were scandals that shocked the world, they are learning examples of what can no longer be happen in corporations. Government leaders are also announcing major changes in the regulations of accounting and corporate governance to bring trust back into the financial market. Key terms: Enron, WorldCom, Sarbanes-Oxley Act, Accounting, Fraud, Scandal, Financial reports Scandal and Fraud in the Business World Over the past few years, all we heard and seen in the media is how multibillion dollar companies are filling for bankruptcy. Many wonder how companies with growing income can fall apart from one day to another. Who is to blame? Many experts blame the unethical practices by accountants. Accounting...
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...Enron Corporation was an American energy, commodities, and service company based in Houston, Texas. It was founded in 1985 as a merger between Houston Natural Gas and InterNorth. Enron eventually became one of the world’s largest electric, gas, and communications company. In 2000, the company’s annual revenue reached $100 billion. Enron was ranked as the seventh-largest company. Shortly after, Enron’s stock price would drop from $90 in August 2000 to $0.26 in November 2001. Enron was caught committing accounting fraud, now known as the Enron Scandal. The beginning of Enron’s fraud began in 1992 when Jeff Skilling, the president of Enron’s trading operations, convinced Federal regulators to allow Enron to use the “mark to market” accounting method. Mark to market is an accounting practice that involves recording the value of an asset to reflect its current market levels. Enron used mark to market accounting for contracts that had predictable future cash flow. “Use of this accounting method allowed Enron to take up front most of the anticipated profits on such contracts, and the requirements to write them down if their value diminished” (Enron- A Case Study, 2008). Enron could show significant profits and overstate its financial position. Enron had also misled the public into...
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...always found that to be very true. Power and responsibility can be explored through Phillip Zimbardo’s “The Lucifer Effect”, and how his work is related to two major financial scandals of the 21st century, which involve Enron and Bernard Madoff. In both scandals, there were people in a position of power who carried a surmounting level of responsibility, but used their power in very manipulative ways for their own personal gain. The high level executives of Enron and Bernard Madoff were on a rampant quest for money, which was the key driver that led to a lot of destruction. In doing so, both Enron and Madoff acted with major lack of responsibility. It is easy to make the assumption that the aforementioned individuals in both scandals are clearly the one’s that will be held responsible for the mess they made, but it is interesting to see how through their power they shed as much responsibility as they could on other people. Their power also had an effect on a greater scale involving their control over many people, which is relatable to Phillip Zimbardo’s work on human nature. The film, “Enron: The Smartest Men in Room”, shows how there was such a great lack of responsibility by the people involved because of their determination to make as much money as possible, whether it was legally or illegally, and did so with their position of power. The film portrays “responsibility” in a way that shows the abuse, or lack there of, responsibility starting with the President, CEO, and...
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...Alexis Isbell 11/1/2012 Case Project The Enron Scandal Near the turn of the 21st century, a seemingly large Dallas-based gas company sent a shockwave around the world in what would become known as the Enron scandal. The Enron scandal would cause many people to not only lose their jobs and their ways of life, but it would also cause people to become weary of these incredibly large companies. The Early Years (1985-early 1990’s) Enron was the brainchild of Kenneth Lay, when he brought about the merger of Houston Natural Gas and Omaha-based InterNorth. Enron Corporation created the first nationwide gas pipeline network in America, and would continue to grow throughout the 1990’s. In the early 90’s, after the United States government deregulated natural gas, Enron started growing into an extremely large company, whom employed over 21,000 workers. Enron would continue to grow into the nation’s seventh largest company. Enron’s profits skyrocketed through the roof once they were able to freely sell and buy natural gas in the United States. Enron would continue to grow into one America’s most profitable companies in the late 1990’s, but the argument could be made that is what possibly led to their drastic, and frankly embarrassing downfall. The Later Years (mid-late 1990’s – 2001) As previously stated, Enron would become one the nation’s most profitable companies in the late 1990’s. “Enron’s reported annual revenues grew from under $10 billion in the early 1990s...
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...Enron: Opportunity for Corruption It could be argued that the majority of Enron employees knew that something was not right with the company. So much money was being made yet there was no solid evidence on how that money was being made. The Enron financial scandal that swept the nation was the primary result of a company with too much free will. The purpose of this paper is to show with evidence from the Enron case how no government regulation on companies can lead to humans making unethical choices based on greed and ambition. Enron executives initially applied for and were granted deregulation by the government. This allowed Enron executives to portray financial statements in any way they pleased. Government deregulation allowed the opportunity for the executives to manipulate these statements in a way that made the company seem profitable and in good financial standing. These false and misconstrued financial statements fooled shareholders into further investing into the company. With this type of freedom to exercise their business in which they pleased, Enron employees were bound merely by their ethical values. Enron employees failed as ethical gatekeepers by not putting a stop to the unethical actions of fellow employees and by they themselves participating in this unethical behavior. As an employee of a company everyone has an ethical duty to perform their job and do it in an ethically acceptable way. Many Enron employees did not question the practices of the company...
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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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...| Enron | A Scandal born out of Greed and Lust for Power and Money | | | Abstract This is a brief summary of the leaders of a successful company that became so greedy in their thirst for power and money they ruined a corporation, along with other prominent corporations and companies, most of all many lives and affected the way business is conducted in this country today. These were not smart people as many would say, but they were greedy and selfish people. The major players of this scandal were able to sweep mounds of hidden debt under the rug. The minor players of this scandal were able to keep this facade running smoothly, and kept the public turning a blind eye. Because of this vicious scandal, punishment was handed out to persons and businesses and, new rules were put in place by government to try and prevent such a scandal from ever happening again. Enron A Scandal born out of Greed and Lust for Power and Money In 2001, the nation was astounded by the total and complete collapse of Enron, a multibillion dollar corporation. “Enron was once proclaimed to be one of the most innovative, fastest growing corporations in the United States.” (Steward, 2003) It was heralded by many as the future of energy and power. Leaders of the company turned Enron into what many people thought was the largest trader in natural gas, water and other forms of power. The impetus to start such a scandal was the deregulation of energy by the government. Just as 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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...significance to Enron. Kenneth Lay, the president of Enron hires a new CEO who is very energetic and a “dreamer” and joins Enron with one condition. That they utilized mark-to-market accounting, allowing the company to book potential profits on certain projects right after the deal are signed. Enron began a venture that could make $50 million in 10 years; it could claim the $50 million as current income. This gives Enron the ability to appear as a profitable company even if it isn’t. 2. Describe the Enron culture. Enron’s culture seems to be very competitive and all the employees had the same attitudes of their bosses. 3. What is Andy Fastow's significance to Enron? Andy Fastow’s was the Enron’s CFO. He helped the company by hiding the losses with a “Tom Ponzi’s scheme”. 4. What is Sherron Watkins significance to Enron? She was the Vice President at Enron. She is considered by many to be the whistleblower that helped to uncover the Enron scandal. She wrote a concerned internal email message to Enron CEO Kenneth Lay warning him that the in the financial reports didn’t make sense. 5. Why did Wall Street wait until the collapse of Enron to investigate the company? Was there a diffusion of responsibility whereby the executives at Enron told thmeselves that their behavior was okay because the bankers and the lawyers knew what they were doing? 6. In the Stanley Milgram experiment, why were 50% of the suspects willing to shock to the death? In what way does the Milgram's...
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...The Fall of Enron 1. Introduction Although Enron went bankrupt and disappeared ten years ago, the impacts it has made on the ethical standards never faded. It took Enron 16 years to go from about ten billion dollar assets to more than sixty-five billion dollar assets, and took twenty-four days to go bankrupt. (McLean & Elkind, 2004) Enron, which once ranked as the seventh-largest company on the Fortune 500 and ranked as the sixth-largest energy company in the world, on December 2, 2001, filed for bankruptcy protection in the biggest case of bankruptcy in the United States up to that point (Jennings, 2009, p. 285). By November 2001, the company’s stock, which once peaked at $90 US, was down to less than $1 US. It was a disaster for the thousands of employees and investors (Skilling v. United States, 2010). Employees lost their jobs and pensions, and investors lost billions of dollars. The Enron scandal is one that left a deep and ugly scar on the face of modern business. In this article, the facts of Enron’s case were reviewed and the major ethical issues involved in Enron’s scandal were analyzed. The rest of the paper is organized as follows. The second part is a brief summary of what has happened in Enron. The third part described the role of Arthur Andersen (AA) in the Enron scandal. In the following parts the culture of Enron, the important people involved in this case, and also the major ethical issues about this scandal were analyzed. At last, the conclusion...
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...Summary Enron Corporation is an energy trading, natural gas, and electric utilities company based in Houston, Texas. Formed in 1931, it was originally known as Northern Natural Gas Company. In 1985, Enron was formed by Kenneth Lay after the merger of Houston natural Gas Company and Inter North (Nebraska Pipeline Company). Fortune magazine named Enron “America’s most innovative company for 6 consecutive years. But all that came crashing down in a very bad scandal better known as the Enron Scandal, and it also led to the dissolution of Arthur Andersen, which was one of the five largest audit and accountancy partnerships in the world. Enron’s stock price went down to pennies from over $90. It is ever the most famous company in the world, but it also is one of companies which fell down too fast. The aim of this paper is to analyze how and why the Enron Scandal took place, how the energy giant suddenly collapsed and eventually filed for bankruptcy. I. Special Purpose Entities Enron created partnerships within their own organization which led to them creating new financial instruments, called SPE’s which was used to falsify the accounting. Enron used SPE’s such as LJM Cayman LP, LJM2 Co-Investment LP, and Raptor vehicles, which is designed in part to hedge an Enron investment in a bankrupt broadband company Rhythm NetConnections, to “increase leverage and ROA without having to report debt on its balance sheet” (Journal of Accountancy, 2002). Enron entered into a series of transactions...
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