Enron Case Study Report Essay 1

Topics: Enron, Jeffrey Skilling, Corporate governance Pages: 9 (2032 words) Published: July 5, 2015


Enron: What Caused the Ethical Collapse?
Andrew Rumsey
Post University

Enron: What Caused the Ethical Collapse?
Enron, a Texas based energy company, has improved the way that electricity and natural gas is purchased ever since its inception in 1985 when its owner, Kenneth Lay, merged his original company called InterNorth with Houston Natural Gas Company. In addition to this, Enron’s growth was attributed to not only the U.S. congress deregulating the sale of natural gas but its selling of electricity at market prices. Even though Enron’s started with natural gas especially shipping natural gas on its pipelines, this company desired larger profits and shifted into electricity trading operations and/or was one of the first energy companies or traders to get into the electricity trading, which started some of its troubles. In light of the fact that electrical traders in Enron involved themselves in schemes to defraud officials running California's power grid, these same electrical traders at Enron drove up prices during the California power crisis through controversial techniques that contributed' to severe power shortages (Isaacs, 2012, Oppel & Gerth, 2002, Brigham & Daves, 2013, Enron-The rise and fall of the Energy Giant, 2011). In fact, Enron, which was once a favorite to investors and an American energy company had filed the hugest corporate bankruptcy because of the major events that led to the eventual collapse of this corporation, the ways the top leadership at this company undermined the foundation values of its own Code of Ethics, and the unethical decisions and actions that were promoted by its corporate culture. Firstly, there were many causes that led to the eventual collapse of Enron especially under Kenneth Lay, Jeffrey Skilling, Andrew S. Fastow, and other top-level officers. For instance, not only the fraudulent or deceitful activities that were orchestrated by Lay, Skilling, and Fastow, but also the company’s criminal and dishonest corporate culture caused the eventual collapse of Enron. In fact, the violation of laws that were not enforced or applied by the chair, chief executive officer, and members of its board of directors, the Arthur Andersen auditors, and the lack of regulation caused the collapse of Enron. Many of Enron’s executives conducted themselves in a fashion which directly or indirectly was detrimental (i.e., harmful) to the best interests of the company or in a fashion that would bring financial gain or advantage separately as a direct result of his or her employment with the company. So many of the leaders did not even carry out the expectations that were part of their company’s Code of Ethics. Above all, Enron’s filing of bankruptcy and collapse on December 2, 2001was brought about by the company’s revelation or disclosure of its overstatement of profits ("Andrew S. Fastow Indicted for Fraud”, 2002, Oppel & Gerth, 2002, Coenen, 2006, DiLallo, 2015, Collins, 2009, Wong, P. & Langley B. 2007). Secondly, chairman and chief executive officer Jeffrey Skilling hired Andrew S. Fastow, an expert on finance activities, to solve Enron’s debt difficulties or problems even though he had a tendency for financial risk-taking. Eventually, Fastow became an expert on Special Purpose Entities, which are off-balance-sheet structures, or arrangements that protect the company’s assets from business projects that are high-risk. In like manner, in order to protect Enron’s tax advantage, Fastow created a Special Purpose Entity called RADR in order to purchase through assumed or supposed independent third-party investors a portion of Enron’s interest or asset in certain wind farms, which would lose its tax advantage in the state of California. Sometime after this, he received not only bribes but also payments from third party investors who were actually Fastow’s assistants involved in RADR in the form of yearly gift checks of $10,000 to his family members all because he desired to...
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