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Enron Scandal And Ethics
The 2001 Enron scandal gave business ethics a new lease on life. Enron, an energy firm in Texas, was considered an economic success story. Its stock had grown quickly, and the board of directors was satisfied with management. It was discovered, however, that management was keeping two sets of books, hiding billions of dollars worth of debt. Arthur Andersen, a major accounting firm, had been complicit in this deception and went down with Enron to business infamy. The scandal exposed the weaknesses in the American way of doing business.
Summary of the scandal
The ultimate cause of Enron Corporation's brutal collapse was a culture of greed and arrogance that bred excessive secrecy," competitors and lawyers interviewed by Kurt Eichenwald of the New York Times said. Due to the alleged white-collar crime causing the fall of Enron Corporation, one of the world's largest energy traders, Congress has been forced to reevaluate the business ethics of the entire nation. Critics and members of Congress charge that Enron Corporation managed to violate basic accounting procedures and committed white-collar crime, that have not only effected its employees and shareholders, but its political status with the country.
"Dec. 2 Enron Corporation filed for a Chapter 11 bankruptcy, which is a form of bankruptcy that allows the company to operate while attempting to redeem itself," Dr. Mary Harris, assistant professor of finance, said. A Chapter 11 bankruptcy may not seem extremely detrimental to many businesses, but in Enron's situation it is a matter of $1.2 billion of debt and losses that were kept off the books, hidden in separate investment partnerships.
Investment partnerships can be best described as separate businesses that were partially owned by Enron Corporation; however, Enron failed to report the debt and losses of these small investment partnerships on the books because Enron did not claim to own more than half of these companies. According to a basic accounting principle, known as the Owner of Partnership, if a company/person (Enron) owns less than 50-percent of a company (investment partnerships) the loss and debt of that company does not have to be reported on the books. It was later discovered that...