Enron was considered to be one of the largest growing company’s in Texas. The company was also ranked among the top Fortune 500 companies, but that was extremely short lived when the company collapsed under a tremendous amount of debt. This debt was hidden through a difficult and high-tech scheme of off-balance-sheet partnerships.
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Due to this collapse the company was forced to file bankruptcy, which is turn caused over 4,000 employees and thousands of others lost their retirement funds due to investments they made within the company. The stockholders lost millions of dollars as the stock prices fell dramatically. Enron had an overpowering aura of extreme pride and by a belief that ran deep from the beginning that the company could handle any type of hazards without any worries or stress about there being issues. The company name was tarnished, and the integrity of the company was destroyed by this scandal. This bankruptcy was just the beginning for Enron, the company also became a part of a huge and very public investigation into the company finances and determine what happened and who was responsible for the company collapsing.
How did the corporate culture of Enron contribute to its bankruptcy?
The culture of Enron that contributed to its bankruptcy had many different reasons for these consequences. First off, Enron’s corporate culture supported any and all unethical behaviors without ever once questioning the legality of the situation as long as whatever it was resulted in a monetary gain. Ferrell, Fraedrich & Ferrell (2013) indicated that, Enron’s corporate culture rewarded innovation and punished employees deemed week rather than promoting values of respect and integrity. Enron had a rank and yank system that they created an intense and competitive work environment for all employees. This system was designed to promote those who had what it took to make the company a success and to yank away any promotion or job in general for those who just could not cut it in the company. It also took caused such a competitive area that any employee that fell in the bottom 20 percent of performance was forced out of the company. An article written in LinkedIn by Jason Martin stated that, For a company to thrive and be productive, it requires a healthy corporate culture among its workers and employers. From the beginning, Enron stated that were a good and ethical company and wanted to help make a change for others. They claimed that they had morals and that their beliefs were good and held the upmost respect for the laws. Unfortunately, this stream of misguiding and misusing of funds has proven otherwise for this once glamorous company.
Did Enron’s bankers, auditors, and attorneys contribute to Enron’s demise? If so, how?
Enron’s bankers, auditors, and attorneys contributed to Enron’s demise in several different ways. The accounting practices showed that Enron was guilty of fraud and that the company had established the SPEs to move assets and debt off its balance sheet and to increase in cash flow by showing that funds were flowing through its books when it sold assets (Ferrell, 2017). This seemed to work well for the company as long as the stocks remained intact and at a high rate but the minute that the stock prices fell, Enron could not foot the bill or cover the compensation in the downfall. Most outside observers knew that these practices were unfavorable and fraudulent in reporting, because they did not accurately represent the company’s true financial status. However, the company made every effort to make sure it appeared that they were doing everything correct to outsiders. The company could have tried to get ahead of this situation however they chose to ignore it instead. When Vice President Sherron Watkins, who’s job was to find assets that could be sold off, instead found off the book arrangements that were backed by Enron’s deflating stock and this became very troubling to her. She confronted the CEO at that time, Chair Ken Lay. Lay decided to respond to these accusations by having the company’s law firm and accounting firm start an investigation which to no one’s surprise, no evidence was found to support Watkins accusations. After this incident, Watkins was removed from her comfy office and was given less important job task elsewhere. The company then decided that they needed to create a new policy to destroy any documentation that would discredit the company. Enron knew that it was only a matter of time before things began to get more complicated. Then the company began to go through investigation by the Securities and Exchange Commission because of the bankruptcy, the company was told that any person who took part in destroying documentation, would then be charged and become an accomplice in the whole cover-up scheme.
What role did the company’s chief financial officer play in creating the problems that led to Enron’s financial problems?
Unfortunately, when a company this large is under investigation, the prosecutor looks for someone to blame. The company usually plans for these sorts of scenarios and has a person in place in case the worse ever happens. In this case, Andrew Fastow was given that title as the company’s Fall Guy. As Fastow, was the company’s chief financial officer, he was charged with 98 counts regarding his involvement. The charges included fraud, money laundering, conspiracy, and one count of obstruction of justice. Fastow was thought to be the brain behind the partnerships used to conceal more the $1 billion in Enron debt which directly led to Enron’s bankruptcy (Ferrell, 2017). He tried to inflate the profits and was one of the reasons for his indictment. Fastow originally claimed he was not guilty and had no knowledge of any wrong doing. Fastow claimed that he had the CEO and the company lawyers review his work and verified that everything was correct and in order. Fastow eventually cut a deal with the prosecutors by giving them the information they needed and returning all monetary assets he had as repayment for all he had taken during this process. All the top executives at Enron were subject to prosecution due to all the company scrutiny. In a recent interview, Fastow stated that things that his company and things that he did back then are still being done today. Fastow said that his job was to view the rules and regulations and security laws and find the vagueness within them and use it as an opportunity and take advantage of what works for the company. The issue with that is although there may be a vague understanding of the laws and regulations, one’s ethical beliefs should be strong enough to determine if that is being done is morally wrong. Since his release from prison, Fastow has a regular 9 to 5 job and does an occasional lecture in regards to fraud and what he did and his actions and how he deals with the backlash daily. Nevertheless, Fastow, never says a harsh word about any of his bosses and continues to believe that though he knew what he did was wrong he did not believe it was illegal, he just thought it was how you played the game.
In conclusion, Enron became the largest company to be faced with such intense scandal and bankruptcy in business history. The scandal become legendary and even resulted in a movie about the collapse and the events that led up to and came afterwards. The company put aside their so-called ethical beliefs and good moral conduct and instead decided to think profit over professionalism and honor. Throughout the bankruptcy and investigation, the members of the board had every chance to change the course of the case and do the right thing. This would have caused more punishment for themselves, but it would have restored some of the members integrity. The company truly lost sight of what they stood for and became greedy and looking to make every opportunity to increase profit whatever the way. Proverbs 15:27, Whoever is greedy for unjust gain troubles his own household, but he who hates brides will live. The company caused trouble for their household by becoming filled with greed. Now they must reap what they sow. Galatians 6:7, Do not be deceived: God is not mocked, for whatever one sows, that will he also reap. This will forever be a case worth the study and provide much needed insight and lessons learned on the importance of business ethics and discovering the vague or gray areas and deciding how to correct them in an ethical and good moral way.
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