How did the corporate culture of Enron contribute to its bankruptcy?
The corporate culture of Enron contribute to its bankruptcy in many ways. To begin with
Enron’s corporate culture tolerated unethical behavior without doubt for as long as it ensured in
financial gain. Enron top manager took many risk such as cheating on balance sheets, lying to
customers, doing corrupt acts, fraudulent practices and provided false information about the
company. In the process they got greedy only worried about immediate gain, personal
satisfaction, even non-material goal such as money and sex and overt statements about a strong
desire for economic. According to Knottnerus, Ulsperger, Cummins & Osteen (2006) an editorial
from the Washington Post in 2002 explains: “it seemed likely that Enron had taken too much
risk; that it had hidden this risk from shareholders by parking it in secret partnerships; and that
senior executives had urged investors to buy stock even when they themselves were selling out . .
. Enron’s executives apparently used the secret partnerships not just to hide risk but also to steal
money”. Ferrell, Fraedrich &Ferrell (2013) mention that, Enron’s corporate culture rewarded
“innovation and punished employees deemed week” instead of promoting employees with values
of respect and integrity. It was also known as the “rank and yank” system created a fierce
environment where employees competed against rivals in the company and outside the company
plus it was “where the bottom 20 percent of employees were forced out” this behavior lead to
numerous unethical decision being made go unnoticed (Fraedrich &Ferrell, 2013). They
motivated there worker with bonuses that cover over hundred percent of their salaries. They also
had perks such as laundry and car washing services, free wireless laptops, in-home health club
and doctor’s office, spent big amounts of money traveling to pursuit customers. This lead to all
the big rivals inside the company. But in the end employees were deceived about the firm's actual
financial condition and deprived of the freedom to diversify their retirement portfolios; they had
to stand by helplessly while their retirement savings evaporated at the same time that top
managers cashed in on their lucrative stock options (Petrick, 2003) In an article by Brendan
O'Conne11 (2004) entitle “Enron. Con: “He that Filches from me my good name…makes me
poor indeed” explains, that Enron corporate culture was a deal-making”, bonus oriented culture
dominates that resulted in actions that aggressively push the boundaries of legal, social and
ethical behavior. This environment is exacerbated by corporate management’s laser-like focus on
appeasing the financial markets through shallow goals such as achieving analyst’ earnings
benchmarks”. Every single one of Enron division and business unit was kept isolated from the
others and as a result actual a small amount of people in the organization had the viewpoint of
the company’s operations. All these aspects of the corporate culture at Enron contributed
separately to its ultimate bankruptcy.
In what ways did Enron’s bankers, auditors and attorneys contribute to Enron’s demise?
The bankers, auditors, and attorneys contributed to Enron’s demise in their own way because
they took sides with Enron’s management instead of acting fair and professionally. Therefore,
let’s begin with the banker Merrill Lynch. He aided Enron to sell Nigerian Barges as a result
making Enron record about $12 million in earnings and in doing so Enron meet its earning goals
at the end of 1999 which was a shame. Merrill Lynch stated that the transaction was not lawful
and appropriate but it clearly shows that they violated its responsibility to investor who entrusted
this asset management company to use their money cautiously, in a manner dependable with
their financial goals. Merrill Lynch also assisted Enron in falsely maneuvering its income
statement by entering into a deal that Enron would buy Lynch in 6 months’ time with a
guaranteed fifteen percent rate of return. Next Merrill Lynch dissatisfied Enron executives after
they replaced a research analyst after his coverage of Enron. This coverage would have saved
Enron from demise if Merrill Lynch would have triumphed upon Enron to apply it. Then since
Enron threaten to not include Lynch in an upcoming $750 million stock offering for revenge he
gave into their threats which lead to the replacement analyst was reported to have upgraded his
report on Enron’s stock rating. All of Merrill Lynch involvement was unethical and
unprofessional.
Secondly, the auditors which were Arthur Andersen had also contribute to Enron demise too.
They were responsible for ensuring accuracy of Enron’s financial statements and internal
bookkeeping. Potential investors used Andersen’s reports to judge Enron’s financial reliability
and future potential before deciding whether to invest. Furthermore, the investors anticipated that
Andersen’s certification of accuracy and application of proper accounting procedures would be
independent and without any conflict of interest. However this was not the case because
Andersen deceived all investors that replying on the reports. Andersen showed a conflict of
interest because they was a major business partner of Enron even some of their executives
accepted jobs from Enron. However Andersen neglected to ask Enron to clarify their partnerships
before verifying Enron financial statements. Also in March 2002, Andersen was found guilty of
obstructing just by destroying Enron related auditing documents. Andersen had a responsibility
as the auditor to ask for explanation of the fishy accounts found in Enron book of account but
instead they acted unethically and unprofessional by receiving million in audit fees and millions
in consulting fees.
Lastly, the attorneys Vinson & Elkins had represented Enron in a wide range of matters, with
Enron paying the firm legal fees of over $162 million in the five years ending with 2001. In
2001, Enron's fees of $35.6 million represented almost 8% of V&E's revenues” (Bost, 2006).
They helped to structure some of Enron’s special purpose partnership. The firm back up the
legality of many deals made by Enron such as the one with Sherron Watkins. Watkins had
inquiries on allegation of accounting fraud and Enron had V&E to look into it but it lead to them
dismissing the allegations. According to Thomas Bost article entitle “Corporate Lawyers After
the Big Quake: The Conceptual Fault Line in the Professional Duty of Confidentiality” explains,
that even though they knew Enron had performed substantive legal work on several of the
transactions specifically questioned by Watkins posed a conflict of interest by V&E's assessing
the propriety of transactions in which it had previously been involved as Enron's transactional
counsel and V&E's assumption of the role of mere interviewer and scrivener, conveying a
generally reassuring message even though it had institutional knowledge that at least some of the
SPE transactions were problematic (Bost, 2006). They were a great organizer of the legality
deals through transaction opinion letters and it was these deals that contribute to the demise of
Enron
What role did the company's Chief Financial Officer play in creating the problems that led
to Enron's financial problems?
The Chief Financial Officer of Enron was Andrew Fastow and was considered to be the brain
behind Enron’s special purpose entities and unconsolidated partnerships that were used to
conceal Enron’s debt from investor. He took advantage from the main purpose of SPE which was
later known as LJM partnership that provided the companies with a mechanism to raise money
for various needs without having to report the debt in their balance sheets. So Fastow used SPE’s
to hide over one million in Enron debt, which he made close to thirty million from LJM by using
these partnerships to get commission that were camouflaged as gift from family member. This
lead him to face 98 counts of money laundering, fraud, and conspiracy in connection with the
References
Bost, T. G. (2006). Corporate lawyers after the big quake: The conceptual fault line in the
professional duty of confidentiality. The Georgetown Journal of Legal Ethics, 19(4), 1089-1146.
Retrieved from http://ezproxy.liberty.edu:2048/login?
url=http://search.proquest.com/docview/227365068?accountid=12085
Brendan T O’Connell. (2004). “Enron. Con: “He that filches from me my good name…makes
me poor indeed”. Deakin Business School, Deakin University, Malvern, Vic. 3144, Australia.
Retrieved from
http://www.sciencedirect.com.ezproxy.liberty.edu:2048/science/article/pii/S1045235404000073
Ferrell, O.C., Fraedrich, John, & Ferell, Linda. (2015). “Business Ethics: Ethical Decision
Making and Cases, 10 th ed.” Stamford, CT. Cengage Learning.
Knottnerus J.D., Ulsperger J.S., Cummins S., Osteen E. (2006). “Exposing Enron: Media
representations of ritualized deviance in corporate culture” Crime, Media, Culture, 2 (2) , pp.
177-195. Retrieved from
http://cmc.sagepub.com.ezproxy.liberty.edu:2048/content/2/2/177.full.pdf+html
Petrick, J. A., & Scherer, R. F. (2003). The Enron scandal and the neglect of management
integrity capacity. Mid - American Journal of Business, 18(1), 37-49. Retrieved from
http://ezproxy.liberty.edu:2048/login?url=http://search.proquest.com/docview/214178861?
accountid=12085
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