Introduction
In his case, Ferrell (2012) discusses Enron Corporation from when it was formed, when it collapsed and all that followed after its collapse. Enron Corporation is an American company headquartered in Houston, Texas. This company was formed in the year 1985 through the merging of two gas pipeline companies. Enron Corporation deals in products and services such as natural gas, and also electric power generation and distribution. However, in the year 2001 when Ken Lay was the Chief executive officer and at his time of his stepping down, Enron was faced with financial problems which eventually led to its bankruptcy. Despite his knowledge of the financial status of the company Ken Lay kept on encouraging the investors that all was well (McLean, 2004). Some of the factors that led to its bankruptcy included corporate culture, and malpractices linked to the bankers, attorneys, auditors and also the management more so the Chief Executive Officer. Some of the allegations and accusations connected to all these include the following;
Question 1
Corporate culture
The corporate culture of an organization includes the beliefs and behaviors of the employees and the management staffs that show how they interact as they carry on their day to day transactions or activities. However, the corporate culture of Enron supposedly led to its bankruptcy (Ferrell, 2012)
Unethical behavior
Enron's corporate culture encourages flouting rules in pursuit of profits. The employees were allowed to do whatever they wanted on the basis that they give profits.
A culture of ‘rank and yank.'
This type of culture is whereby the employees were ranked according to their performance. Chief Executive Officer Jeffrey Skilling is linked to having created this form of culture whereby the employees were ranked every six months. The ranking had its consequences with the bottom twenty employees having their jobs terminated due to poor performance. The appraisal led to competition amongst the employees working in the same departments which was not good for the company (Ferrell, 2012)
Bad communication
McLean (2001) argues that any bad news brought into the company by any messenger could lead to loss of job at any given time. The fear of job loss in return led to employees covering up information regarding problems experienced during trade operations. This information could be helpful in saving the company in some way.
Inaccurate accounting procedures.
The procedures presented favorable financial picture, but outside people viewed them as fraudulent since they never showed the true value of the company’s financial position.
Question 2
All the bankers, auditors, and attorneys associated to Enron led to its failure due to their malpractices. Subject to these, they all were held liable for any transaction made with Enron before and even after it being announced bankrupt.
Attorneys
Vinson & Elkins law firm was Enron's first line attorneys. It is evident that Enron's legal department comprised of members from Vinson & Elkins' law firm. When whistleblower Sherron Watkins presented allegations of accounting fraud in the company, the law firm was the first to dismiss these allegations. Vinson & Elkins also put forth the special purpose partnerships that led to the failure of the company. It is stated that these dealings could not have happened without assistance from law experts whom Watkins concluded that the law firm assisted in that. Claims connected the law firm to being a major contributor to Enron’s failure.
Bankers
Enron engaged in complicit investments with some banks including J.P Morgan, Citigroup, and most notably Merrill Lynch. These investment and banking firms are linked with the sale of Nigerian barges. However, Merrill Lynch had been forewarned that any engagement with Enron could be taken as an aid to Enron's fraudulent acts. Allegations say that Merrill Lynch replaced an informative who dealt with Enron's status in an aim to maintain their relationship to net a $750 million during the stock offering by Enron. It is reported that the bank paid $80 million to settle any charges connected to the Nigerian barges.
Auditors
It is the role of an auditor to see to it that all the financial statements and reports give a true and fair view of a company’s financial status. However, Arthur Andersen Enron's auditor defaulted in its doings. The Andersen accounting firm was a major partner to Enron with quite a big number of employees linked to both. However, in March 2002, Andersen was found guilty by the jury for obstructing justice through the destruction of important auditing documents during the investigations. This led to Andersen being barred from conducting any audits. These practices greatly led to the failure of the Enron since investors who are interested in investing in any company look at the financial reports and if by any chance they fail to represent a true and fair view they might end up leading to the failure of a company hence losses to the investors.
Question 3
The Chief Finance Officer Andrew Fastow in his power managed to engage in some things that greatly contributed to the collapse of Enron. This left him being considered as the most influential person who contributed to the collapse of Enron. Fastow was charged with fraud, money laundering, conspiracy, etc. Fastow established what is called special purpose entities with an aim of moving its assets and debts from the balance sheet and creating an increased cash flow. Fastow tactically convinced the Enron shareholders about the company’s false worth through the off-balance sheet partnerships that reflected inflated profitability of the company. Moreover, the chief finance officer covered the debts obliged to those partnerships with Enron's stocks leading to huge debts that eventually rendered Enron bankrupt. This is one way in which Fastow attempted to inflate the financial position of Enron leading to the U.S. Department of Justice charging Fastow with 98 counts.
Conclusion
References
Ferrell O.C.(2012). Business Ethics: Ethical decision making and cases, 9th Ed. New York: Cengage Learning.
La Rue, H. (2012). Ethics in Management. New York: McGraw-Hill.
McLean, B. (2001). Why Enron went bust. Fortune, http://www.fortune.com, accessed April 15, 2016.
McLean, B. (2004). Ken Lay flunks ignorance test. Fortune, http://www.fortune.com, accessed April 15, 2016.
William, C. (2002). The rise and fall of Enron. Accessed from www.journalofaccountancy.com/issues/2002//theriseandfallofenron.ht
