When most people hear the term Enron, they immediately know what is being discussed. What is being discussed is one of the biggest accounting scandals in the history of the United States, a scandal so popular that it is commonly talked and taught about in schools across the country. The Enron Corporation was one of the largest trading, natural gas and utility companies in the world. It was based out of Texas. Enron, founded in 1985 was one of the most profitable companies of its type, or so it seemed. Enron was believed to be the rising star of the business world. So much so, that it was named America’s Most Innovative Company for six consecutive years. For a company with such high praises, it went downhill fast, as they filed for bankruptcy in late 2001. How did this company go from riches to rags one might ask? The answer to that question is that Enron was built upon a house of cards, and the smallest gust of wind would eventually send it to the ground, and scrambling to pick up the pieces, with the main cause of this failure being the company culture within Enron.
Enron was a company that profited by providing delivery of gas and utility at a fair market price. At first glance, everything looked great. The revenue and corporate social responsibilities were attributes that any company would strive to attain. Before we knew it, Enron turned in to one of the largest corporate scandals in history. Enron’s apparent success was based on well planned corporate fraud, with a plethora of both legal and ethical issues. These issued derived from the company culture itself.
In any company there is something that defines the environment in which employees work. This something is known as culture. Culture is the combined values that are shared within a company, the standards and beliefs that each and every employee are to follow and the attitudes they have when following these beliefs (Career Balance). In order for a company to thrive it requires a positive and healthy company culture. After watching the movie Enron: The Smartest Guys in the Room it was very obvious to see what the culture was like prior to the accounting scandal and how it was the direct correlation to failure. The executives were extremely money hungry and would do anything and everything to make as much as possible. This culture was composed of lies, corruption and most evidently, greed (MOVIE). A company culture that is this toxic and in which this negative energy occurs is destined for failure. It is sometimes considered to have no culture at all. Ethical values need to be in tact, trust to co-workers and shareholders needs to exist.
As the CEO or top executive of a company it is of utmost importance to demonstrate ethical values to be spread down through the company. Other employees are going to follow the lead of the top employees. At Enron this was non existent. All these leaders wanted to do was enrich themselves, they did not care about anyone else. No vision was shared with other employees or shareholders. It was as if these executives did not know ethics at all. The only thing that seemed to be important to these executives was to do whatever possible to get their hands on every dollar humanly imaginable. This included mark to market accounting. This enabled Enron employees to use forecasted profits as actual profits. This MTM accounting was approved by the SEC in 1992 (MOvIE). Enron was using the fair market value account where things are often changing. This is where most of the lies took place because it is hard to pinpoint these manipulations when actual numbers are not being used (MOVIE). Under the leadership of Kenneth Lay and Jeffrey Skilling, anyone who ever questioned these decisions or actions was ignored or let go. Since this was the case most employees did not say anything at all in an effort to keep their job (MOVIE). This is completely unethical and employees should not feel they can not stand up for what is right in order to keep their job.
Just like all good things they eventually come to an end. This was an unsustainable cycle that eventually ended. Right before this crash Jeff Skilling, Ken Lay and other Enron executives cashed out on their stocks for about $1.1 billion. Middle and lower level employees were royally screwed over due to this scandal. The 401k restriction disabled these employees from selling their stocks in the company, and subsequently, many lost the entirety of their life savings (MOVIE). Completely unethical, and disgraceful.
Enron’s failure should be used as a lesson to other companies. To ensure smooth success and operations businesses need to focus on what right and ethical and what is wrong and unethical. Management is the leading example flowed through a company. Managers need to be good leaders, acting properly and ethically. The entire company needs to share the same vision and work as one. These are key takeaways caused by the accounting scandal.
The Enron scandal taught the world a lot of things, and also brought on many reactionary measures in order to protect from having these types of things happen again in the future. The Enron scandal showed to the world how corrupt and fraudulent a company can be, while getting away with their crimes, as well as millions of other people’s dollars. This was solely based the on the company culture and it was directly related to the ethics digressions. The discovery of the Enron scandal led to numerous discoveries of companies that were doing similar things. Reactionarily, the Sarbanes Oxley Act was created in order to try and prevent things like this from ever happening again. With the new rules and regulations, it makes sure that companies are operating ethically and legally, while also ensuring investors that they can have more confidence that their investments will be secure and safe. The Enron scandal and collapse is easily one of the most influential accounting frauds in history, and it has clearly left its mark on the world.
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