The Rise and Fall of Enron

Enron began business in 1986 as a small pipeline company out of Houston. When Enron started operation the goal was to create the first national gas pipeline. Enron Corporation was one of the largest integrated natural gas and electricity companies in the world. The company marketed natural gas liquids worldwide and operated one of the largest natural gas transmission systems in the world; Enron totaled more than 36,000 miles and was also one of the largest independent developers and producers of electricity in the industry (Segal, 2018).

This company served in both areas of the industrial and emerging markets. Enron also became a major supplier of solar and wind renewable energy worldwide, managed the largest portfolio of natural gas-related risk management contracts in the world, and was one of the worlds the biggest independent oil and gas exploration companies

Enron became the largest wholesale marketer of natural gas and electricity in North, America. During Enron’s growth peek the company ran into difficulties. The magnitude of Enron’s losses was hidden from stockholders.

The company folded after a failed merger deal with Dynegy Inc. in 2001 brought to light massive financial finagling. The company had ranked number seven on the Fortune 500, and its failure was the biggest bankruptcy in American history (Galdwell, 2018).

In an investigation on October 23,2016 it was found that Enron deceived investors, shareholders and other entities that had investments in the company. Enron collapsed into bankruptcy almost exactly five years before the investigation without notifying the shareholders. The company failed to pay any taxes gaining billions of dollars.

Get quality help now

Dr. Karlyna PhD

Verified

Proficient in: Enron

4.7 (235)

“ Amazing writer! I am really satisfied with her work. An excellent price as well. ”

+84 relevant experts are online

Hire writer

The investigation showed that the vast some of the money earned was paid to the top 200 executives of the company who received 1.4 billion dollars in salary bonuses (Schifferes, 2003). Under no circumstances should executives collect that much money while the company is suffering, and the shareholders in the blind about the bankruptcy. It is clear that Enron’s executives were well aware of the financial issues, but showed zero regard to the fact that the company was in jeopardy; they chose to cheat on financial statements to keep the big clients and pay the top executives a ridiculous amount of money. Enron’s culture was solely based on money and cheating, and didn’t stand a chance because of the dishonest example that was set by the executives.

The acts performed by the company are both legal and ethical issues. Enron executives Misused company resources by using company media to forecast higher market value, profits, and higher market shares. The media was compromised by management to influence investors to purchase Enron’s stocks and is also Bribery. The company was forced to disclose the accounting practices, and it was found that the company was manipulating finical statements, which is Accounting Fraud. Enron was also faced with more legal issues because their auditor Arthur Andersen provided external auditing, internal auditing and consulting services at the same time, violating accounting and auditing standards because of Conflicts of Interests among these services (Wang, 2012).

The neglect of Enron managerial integrity is the root of the ethical issues. Enron’s scandal impacted the primary stakeholders tremendously; the chose of greed and short-term money gain made by the top executives caused the destruction of Enron’s personal and business reputation also damaging their social standing. Enron had a responsibility to the shareholders to be honest, however the truth was hidden and deception was the goal of the mangers at Enron.

Enron’s business practices exemplify a violation of code of ethics. The company’s accounting and finance managers, including CFO Andrew Fastow plead guilty to various criminal offences, including fraudulent accounting practices and manipulating quarterly earnings reports. Enron offers several important insights for managers (Free, 2007). The scandal underlines the vital role of top management leadership in fostering organizational culture. The actions of Jeffrey Skilling are conspicuous in all accounts of Enron’s organizational culture. Enron managers abandoned the moral integrity and damaging the relationship with the shareholder and trusted investors. On May 2006, the executives were found guilty on 19 counts of conspiracy, fraud, and inside trading. Skilling was found to have orchestrated a series of deals and financial schemes which later lead to loses as they covered debts from investors (Free, 2007).

Michael Kopper, former executive at Enron, was sentenced to 37 months in jail. Kopper pleaded guilty in 2002 to wire fraud, and money laundering. Michael Koenig, another former executive, served 18 months in jail as he helped present false accounts to investors (Investopia, 2018). After the Enron scandal, one of the debates was conducted around the ethical behavior of executives. Although there are several factors that influence ethical behavior, none were powerful enough to change the mess that the executives created. If Jeff Skilling and associates at Enron considered whom they would affect, and why the deception could tarnish the company they could’ve save themselves from the scandal. By considering these factors Enron could’ve avoided the legal and ethical debacle they caused.

The Enron case caused massive losses in the stock exchange, the company became a system of corruption, and in my opinion Enron is out of options when trying to redeem the trust of the shareholders and the lenience of the legal system. Innocent employees lost their pension due to the scandal. Investors lost some 60 billion dollars within a few days; for many it meant losing their old-age security, citizen’s trust in the American economic system was destroyed, banks were suspected of collusion, and auditing firm Arthur Anderson lost its accreditation. The rules for company financial reporting were drastically sharpened under Sarbanes-Oxley Act 2002, also known as Corporate Responsibility Act 2002 after the scandal (Investopia, 2018). The SOX mandated strict reforms to improve financial disclosures from corporations to prevent accounting fraud, the SOX also increased criminal punishment.

In my opinion, the innocent employees who formerly worked for Enron who loss their jobs and retirement savings shouldn’t have to be subjected to the scrutiny. I believe that all of Enron workers didn’t play a part in the greed and dishonesty that brought down the company. Those employees who are found innocent should at least be able to keep their pension. All 200 executives are to give up their pension to assist with funding the employee’s. These executives should also use what is left of their ridiculous bonuses to also assist with the funding the employees. The shareholders who invested into the stocks should also be eligible for a payout so they wouldn’t completely loose everything they’ve invested in. the shareholders if possible should be eligible to at least a small amount if possible. In a settlement agreement, almost everything that is owned by the executives should be turned over to a fund to compensate former shareholders. Though no amount of money can mend the disappointment that Enron cause the shareholders, employees, and investor the financial whole that they will have to dig themselves out of after legal fees and life happenings are greater than the Enron scandal itself. These are innocent individuals who believed in the company’s mission they took a risk, which caused them their livelihood. Enron should definitely be held accountable for their unethical business practices, and the lies they fed everyone involved. The best move for the company is to consider all parties involved and try to figure out how to distributed funds amongst each party.

While evaluating the most realistic options in regards to the shareholders, the legal assistance to the shareholders should consider the below rights that will assist with settling for the stock stolen and the investments lost.

The Right to Transfer Ownership. This allows the company to transfer ownership to the shareholders to remedy the issues with Enron’s plummeted stock. This ownership allows the shareholder to trade their stock on an exchange. The right to transfer is provided by stock exchanges and is extremely important. Liquidity can be defined as the degree to which an asset or security can be quickly bought or sold in the market without affecting the asset’s. (Hellwig, 2018).

An Entitlement to Dividends. Along with a claim on assets, shareholders also receive a claim on any profits a company pays out in the form of a dividend. Enron has two options with profits; they can be reinvested back into the company with the remaining bonus funds from the top 200 executives or paid out in the form of a dividend. (Hellwig, 2018). As for the employees as stated before all 200 executives are to give up their pension to assist with funding the employee’s retirement plan.

As a consultant the central issue that created the domino effect was the lack of attention shown by members of the Enron board of directors. The major issue that caused the ethical dilemma was the lack of truthfulness by management about the health of the company and its business operations. The only way I see Enron remedying the scandal is to do right by the individuals who lost everything to the higher managers greed and finagling. To consult for the Enron would be taking a risk, to represent this company would mean that the well –being of Enron’s executives would be the main priority. All personal feeling towards the executives involved in scandal would need to be left outside for the sake of giving executives like Jeffrey Skilling a fair shot at lenience by doing right for the shareholders. The cost implemented for auditing fees as well as consultant cost would cost Enron roughly 8.5 million dollars. I believe that the price provided is reasonable considering the severity of the crimes as well as the amount of parties involved. When considering the decision the best tactic for this company is to simply do right by the individuals that essentially suffered in the crossfire of one of the most remembered scandals.