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Case Study: Enron Assignment
Student’s Name
Institution Affiliation
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Case Study: Enron Assignment
Introduction
Two big gas pipeline companies united to become Enron in 1985. This company
provided services in the fields of communications, energy, and natural gas to both wholesale and
retail consumers. Customers around the nation received this natural gas through Enron-owned
pipelines. Enron's chairman, Ken Lay, CEO Jeffery Skilling, and chief financial officer Andrew
Fastow worked tirelessly together over the life of the company to turn it into a $150 billion
energy company. The business evolved over time and garnered notoriety on Wall Street as they
rose to the top of the trade industry. At the time, Enron was listed as the seventh-largest company
on the Fortune 500. Sadly, Enron was not performing as well as it was depicted. Enron declared
bankruptcy in 2001, surprising everyone with its abrupt decline from opulence (Kedia &
Philippon, 2016). This company's rise and fall can be attributed to a variety of factors, and it is
today regarded as the most severe case of CEO greed in recent memory. In this case study, we'll
look at Enron's bankruptcy and the factors that contributed to it. This article will examine the
corporate culture of Enron as well as the responsibilities of the chairman and employees, and
explore their effects on the company's bankruptcy.
Enron’s ethical culture contributed to its bankruptcy.
One of the main causes of Enron's demise and bankruptcy was its corporate culture. It has
been discovered that successful leaders are adept at using very efficient and knowledgeable
approaches to accomplish common aims and objectives. This was not the situation facing Enron
when the business was first founded. The demands for higher management grew more arrogant
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and inconsistent as the business began to expand and succeed (Kedia & Philippon, 2016). Mr.
Lay, the chairperson, did not succeed in his efforts to increase his financial advantages. He put in
place a coercive authority to accomplish this so he could mold the business culture. Where the
power was most obvious was in the "rank and yank" personnel program evaluation procedure,
which allowed individuals to be deliberately maligned out of the company if they were placed in
the worst 20% of performers. The expression "Rank and Yank" refers to the method by which
the corporation compares its employees to one another and fires those that fall at the bottom of
the ranking. In order to motivate them to work even harder, Mr. Lay sought out the top
executives to work for him. He was successful in forcing the business out of business rather than
making it great.
Together, the company's accountants, financiers, and accountants made sure that Enron's
vices materialized. The company's attorneys, Vinson & Elkins, displayed the individual opinion
letters that backed the legitimacy of the business operations (Ferrell, 2015). Without the letters,
Enron would not have been able to monitor the business's transactions. The leaders of Enron
were put in jeopardy because Merrill Lynch, one of the company's top financial partners, made
internal hiring and firing decisions that were governed by the suggestive and dictating conditions
(Ferrell, 2013).
Evaluation and Implications of Enron’s Unethical Behavior
Enron's unethical behavior forced the corporation to file for bankruptcy. When CEO
Kenneth Lay refused to issue stock in Enron in 2001, the company's financial problems became
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apparent. The company's downfall became official when it was reduced to junk status.
Professionals were among those who lost their jobs and had their whole pension accounts
destroyed as a result of the incident. Senior firm officials were arrested and sentenced to prison
for a variety of fraud-related offenses. While Skilling was given a 24-year, four-month life term,
Fastow was given a six-year prison term. Lay died before the semester was over (Hosseini &
Mahesh, 2016). The criminal background check is focusing on Enron and its biggest errors,
which contributed to the collapse of the business. If Enron's leadership is successful in gaining
the ultimate guarantees against financial underpinnings and pushing banks that assisted the
business in developing complex arrangements that enabled it to maximize income and mask
guilt, the incentives available to loan administrators may generate.
Another unethical behavior in the organization was higher wages and poor hiring
systems. Importantly, high wages and poor hiring practices attracted and encouraged affected
Enron representatives. Additionally, they were concerned that they would be asked to quit the
company if they didn't perform well enough. This resulted in bad business practices like partners
pushing one another in multiple directions rather than working together to resolve a problem or
finish the contract. As a consequence, everyone connected to Enron suffered greatly from the
board model's presentation. Most participants in this survey wanted to know how much money
drove their motivation and how much more they could achieve if they knew their earning
potential. It also shows how easy it is for anyone to participate in dishonest and illegal activities,
as well as how ready people are to take advantage of any chance to make money (Abdel-Khalik,
2019). The corporation provided the illusion that its resources were sound and expanding when it
employed an imprint to-showcase bookkeeping structure and a distribution of multiple special-
purpose elements (SPEs), but in actuality, it was experiencing huge losses and participating in
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corporate crime (Hosseini & Mahesh, 2016). Data manipulation, misrepresenting the company's
profits to the financial expert, and providing false information about the company's prospects for
market expansion amounted to unethical actions. Enron's stock value began to decline as
consumers became aware that other businesses, groups, or individuals were participating in
illegal actions.
Recommended Plan of Action
A classic example of how unethical activity may get out of hand and become
unsustainable is Enron. Awful things take place when a lie grows to such a size that it takes on a
life of its own and the supporting evidence is made public. Laws must be put in place as a result
of Enron's conduct to guarantee that the level of outrage and the financial model won't happen
again. Tragically, it never becomes an issue of if something similar will occur again, as
precedent has shown. Act immediately or never. At the same time, Arthur Andersen and other
Enron executives placed the safety of financial institutions at risk (Abdel-Khalik, 2019). A
representative of Enron, Arthur Andersen, paid them to fire the workers after a financial
counselor spoke to them about Enron shares.
Another recommendation is that companies should adopt a strong code of behavior after
analyzing the factors that led to Enron's demise. The organization leaves no tolerance for errors
that could endanger its continued survival by implementing tight standards. Additionally, the
business needs to create a number of policies that will aid in safeguarding its continued
existence. This makes it simple for management to efficiently run the business and comprehend
the environment in which it operates.
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A company also needs reliable and efficient auditing principles that will help it avoid
losses. Enron employed the "trade method of calculation," which allowed it to report the
company's financial performance based on the probable profits produced by its activities without
taking into account the expenditures that were received (Abdel-Khalik, 2019). Even worse,
Enron appeared profitable and well-balanced since the business hid its derivatives obligations
from its debt obligations. Businesses can develop a sense of clarity in their claims, which
increases investor and public confidence, if they are able to maintain accurate and occasionally
reliable bookkeeping processes.
Conclusion
The Enron crisis was a complete failure because of unethical managerial techniques. The
inadequacy of protocols for safeguarding the integrity of financial markets, their sophistication,
and, most crucially, the unanimity and excessive materialistic desires of the association's key
members all contributed to the firm's demise. The company's demise was a result of unethical
management practices such as fraudulent accountancy and obligation evasion. A few of the
important leadership categories and human resource management lost were examiners, the board,
investors/lenders, experts, and authorities. The demise of Enron was the result of a well-planned
business blackmail campaign (Boettcher et al., 2014). It is clear from the collapse of Enron that a
comprehensive review of the moral implications of American business and culture is necessary.
Through unethical and unscrupulous strategic maneuvers, the organization that had previously
occupied the commodities sector was decimated. Fraud damages the globe $2.9 trillion annually.
The cost of fraud is inversely correlated with the level of responsibility of the culprit. With the
exception of established police investigations into bribery charges, public records, and forensic
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investigations, the majority of acts are carried out in private, making it difficult to evaluate true
deception in the public or commercial sectors.
References
Abdel-Khalik, A. R. (2019). How Enron used accounting for prepaid commodity swaps to delay
bankruptcy for one decade: The shadowy relationships with big banks. Journal of
Accounting, Auditing & Finance, 34(2), 309-328.
Boettcher, J., Cavanagh, G., & Xu, M. (2014). Ethical Issues that arise in bankruptcy. Business
and Society Review, 119(4), 473-496.
Hosseini, S. B., & Mahesh, R. (2016). The lesson from Enron case-moral and managerial
responsibilities. International Journal of Current Research, 8(8), 37451-37460.
Ferrell, O. &. (2013). Business Ethics: Ethical Decision Making and Cases (9th ed.). Mason, OH:
South-Western/Cengage Learning.
Ferrell, O. &. (2015). Business Ethics: Ethical Decision Making and Cases (10th ed.). Stamford,
CT: Cengage Learning.
Kedia, S., & Philippon. T. (2016). "Enron's Final Accounting." Stern Business. Web. April 20,
