Enron - Ask Why?

Topics: Enron, Enron scandal, Kenneth Lay Pages: 8 (2887 words) Published: October 7, 2007
Enron – Ask Why?
How Unethical and Illegal Behavior Ruined Lives
Brief History of Enron
Enron was an energy company based in Houston, Texas that dealt with the energy trade on an international and domestic basis. Enron formed in 1985 when Houston Natural Gas merged with InterNorth. After several years of international and domestic expansion involving complicated deals and contracts, Enron became billions of dollars in debt. All of this debt was concealed from shareholders through partnerships with other companies, fraudulent accounting, and illegal loans. By 1989 Enron diversified into trading energy-related commodities. In a few years, Enron had become the largest merchant of energy in the United States. By 1994 Enron had grown itself into the largest seller of electricity in the United States. During 1997 Enron went ahead with a program to reshape its corporate image to a new more modern, environmentally-aware company. They released a new corporate logo and acquired Zond Corporation, one of leading developers of wind energy power. Kenneth Lay CEO Lets Jeffrey Skilling Take the "Balll"

Ken Lay the CEO of Enron had come from humble roots. As Enron's supposed faithful leader he was anything but. He had hired a man by the name of Jeffrey Skilling and Lay thought Skilling was a guy with big ideas. Jeff Skilling's idea was a new way to deliver energy. He wanted to revolutionize the energy industry. Enron would become a stock market for natural gas. Skilling would transform energy into a way that it could be traded on the stock market. The sticking point for Jeff Skilling to join forces with Enron was going to be if Enron would be allowed to use a method of accounting called mark to market accounting. Mark to market enabled traders to change the tax status of their earnings from capital gains/losses to ordinary income/losses. This occurs on the last day of the year, at which time you tally all of your open holdings as if you were selling them at the market price that day. The day Skilling joined and decided to use this system was the beginning of the downfall to Enron. Mark to mark accounting allowed Enron to book potential future profits no matter where or how cash came into the door. It was a subjective system which Enron could say whatever its profits were. It was open to no regulation and they couldn't prove whether or whether not the profits actually existed. Skilling set-up Performance review committee PRC 1-5 grading system 10% of people had to be a 5 and they had to be fired. It was known as the "rank and yank" system. In my opinion after the research I completed and the documentary I watched these people were doing anything and everything to make profits. The culture was brutal and aggressive. Illegal activity or having unethical behavior did not matter. In this new world there were no rules and foul play was essentially encouraged. The traders were the most aggressive and the more aggressive the more reward. There was no regard for peers. The Stock Market's Role for Enron

The bull market of the late 90's was a time in the history of the stock market where there was the biggest bull market (increase in stock prices) in the history of the world. As long as a company met or exceeded the quarterly earnings the stock price would continue to go up. Everywhere in the Enron building the stock price was posted and it was in everyone's face. This started the new phase of "pump and dump" where pushing the stock price up through good numbers and earnings and then these executives would cash in their options. Enron Violated the Ethical Trust

Business ethics is based upon the golden rule that we treat others as we ourselves would like to be treated. Right desire consists in desiring whatever is really good for human beings (i.e. that which meets a human need) and not desiring that which is bad for us. Enron clearly did not fit that mold. There are two specific principles of...
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