Enron was a corporation founded in 1985; named Enron after merging two companies together Internorth Incorporated and Houston Natural Gas. Enron became one of the world’s leading electricity and Natural Gas Company founded in Houston, TX. Enron’s Bankruptcy case was one of the biggest case in the United States history. Enron is a corporation, where ethics and corporation values have been abolished. The CEO and management abolished not only corporate culture, but many other rules and norms of a business.
| The Lessons of the Enron Debacle | by Huck Gutman | | The fall of Enron, and its subsequent bankruptcy, may well be the largest scandal in the history of American business and politics. If we ask, "What went wrong with Enron?" the answer would be, "Everything. "Enron's rise from a small Texas gas company to the seventh largest American corporation was spurred, at every juncture, by political influence and political decisions. Whether they were changes in government policy, loosening of federal regulations, staffing of key positions which supported or monitored energy issues: The government of the United States and the state government of Texas, looked out for Enron's interests.
Not for good reasons though. The company had earned the dubious distinction of being involved in the largest accounting scandal ever to hit the US corporate history. WorldCom had reportedly misrepresented its financial statements to an extent of around $ 4 billion. The company admitted that it had resorted to fraudulent accounting practices for five quarters (four quarters of 2001 and the first quarter of 2002). Soon after, WorldCom terminated the services of some of its top executives including Scott Sullivan (Sullivan), the Chief Financial Officer and David Myers, the Senior Vice President and Controller.
Organizational Structure With a market capitalization of nearly $74 billion, Enron was one of the world’s leading energy companies by the late 1990s. However, it had gained this status through the perpetration of illegal activities at the very highest levels of the organization. Enron’s fall was because of the organizational-level corruption that grew from its structure and trickled down to the collective behavior of its employees. Enron’s top-down, hierarchical structure by unit grouping meant that the top management team either directly or indirectly through their subordinates influenced the actions of the organization. For example, the structure of the accounting department allowed it to disregard legal requirements through “structural secrecy” that Enron’s executives could exploit (Beenen & Pinto, 2009, p. 283).
The company had forgiven millions of dollars in loans and granted excessive bonuses to executives. It was also found that Tyco’s stock price was inflated. (Kaplan, 2009) The main impropriety was discovered when District Attorney, Morgenthau, was investigating Kozlowski for tax evasion on some exotic art work. The investigation uncovered that many other questionable business practices had ensued. (Kaplan, 2009) The illegal and unethical behavior occurred when (CEO) Kozlowski, and (CFO) Swartz, awarded millions of dollars to themselves and other executives that were not approved by the board of directors.
Enron quickly dominates the energy market and adopts a new accounting method. The smartest guys in the room fooled us for a while but before long Enron was being blamed for massive blackouts and price hikes in California. In lieu of their pending demise Lay announces that Enron stock is an incredible deal and that the company was doing great. In October 2001, the Securities Exchange Commission opened an inquiry into Enron’s many limited partnerships. Lay continues to communicate lies to Enron employees as well as the general public.
1. What do you think are the most important lessons to be learned from the Enron Scandal? Enron was the country's seventh-largest company with a soaring stock price that grew more than 100 percent in 2000. Most significantly we have learned that first, he biggest and perhaps the most scandalous bankruptcy in US history, and then senior Enron management engaged in self-dealing transactions, and second, Enron transacted with partnerships controlled by CFO, his associate and others, and that Enron appeared to shift the risk of loss on risky investments in these partnerships, but in fact, remained fully liable for their investments and those risks. 2.
Analysis of Case Study – Restoring Trust at WorldCom In July 2002, the U.S. Courts appointed Richard C. Breeden to be the Corporate Monitor for WorldCom, Inc. Co–founded by Bernie Ebbers and one of the world’s largest telecommunications companies, WorldCom was embroiled in the largest corporate fraud and accounting scandal in U.S. history, and had filed for bankruptcy. In August 2003, Breeden published Restoring Trust:Corporate Governance for the Future of MCI, Inc., in which he identified the issues which led to WorldCom’s collapse and outlined 78 recommendations for improving the company’s internal governance. The recommendations (or reforms) focused on balancing power among the company’s CEO, board, and shareholders. Evaluate Breeden’s reforms The main purpose of this section is to evaluate the reforms Breeden proposed. How did Breeden see the balance of power among WorldCom’s CEO, its board, and its shareholders?
The company’s management should have functioned to bring to the board’s attentions these acts and allow the board to evaluate how the profit was being made. The board of directors did do anything about how the falsification of fanatical documents would affect the company. 5. Ken Lay was the chair of the board and the CEO for much of the time. How did this probably contribute to the lack of proper governance?
An Ethical Analysis and Evaluation: Jerome Kerviel and the “Rogue Trading” Scandal at Societe Generale 7/31/12 1. What was the case about? (Summary of the Case) This case was about a man named Jerome Kerviel, a former employee of Societe Generale, (one of the largest banks in France), whose “rogue trading” ended up costing the bank a total of 4.9 billion Euros ($6.02 billion @ $1.22/euro). Jerome was a man who started working at Societe Generale in the year 2000, in the middle office managing risk exposure on certain foreign securities. In 2004, however, he was promoted to the elite “Delta One” trading desk, where the scandal took place.