Question 1: How did the Corporate Culture at Enron contribute to its bankruptcy?
The corporate Culture at Enron could have contributed to its bankruptcy in many ways. Its corporate culture supported unethical behavior without question for as long as the behavior resulted in monetary gain for the company. It was describe as having a culture of arrogance that led people to believe that they could handle increasingly greater risk without encountering any danger.
Its culture did little to promote the values of respect and integrity it instead rewarded ‘innovation’ and punished employees deemed week. The performance evaluation process for employees that was dubbed “rank and yank” utilized peer evaluations, and each of the company’s divisions was arbitrtly forced to fire the lowest ranking employees. This created cut-throat competition not only against Eron’s external competitors but also within the organization. It pitched employees against each other. The internal rivalry created in turn contributed to less communication between operations for fears of being fired. The “survival for the fittest” atmosphere reached the point where illegal activity was deemed necessary to stay on top of the game.
Enron’s compensation plans also seemed less concerned with generating profits for shareholders than with enriching officer wealth. Its culture encouraged flaunting the rules and even breaking them.
Each Enron division and business unit was kept separate from the others and as a result very few people in the organization had the big picture perspective of the company’s operations.
All these aspects of the corporate culture at Eron contributed separately to its eventual bankruptcy.
Question 2: Did Enron’s Bankers, auditors and attorneys contribute to Enron’s demise? If so, what was their contribution?
Yes the bankers, auditors and attorneys contributed to Enron’s demise. This is because they took sides with Enron’s management instead of acting impartial and professionally.
They contributed in Enron’s demise in the following ways:-
Banker – Merrill Lynch
It facilitated Enron to sell Nigerian Barges therefore making Enron record about $12 million in earnings and thereby meet its earnings goals at the end of 1999. This was a sham.
It facilitated Enron in fraudulently manipulating its income statements by entering into a deal whereby Enron would buy Merrill Lynch in 6 months time with a guaranteed 15% rate of return.
Merrill Lynch replaced a research analyst after his coverage of Enron which displeased Enron’s executives. This coverage would have saved Enron from demise if Merrill Lynch would have prevailed upon Enron to implement it.
Merrill Lynch gave in to threats by Enron that it would be excluded from a coming $750 million stock offering and instead, the replacement analyst is reported to have upgraded his report on Enron’s stock rating. This was unethical and unprofessional.
Auditors – Arthur Andersen LLP
They were responsible for ensuring accuracy of Enron’s financial statements and internal bookkeeping. Potential investors used Andersen’s reports to judge Enron’s financial soundness and future potential before they decided whether to invest. Current investors used those reports to decide if their funds should remain invested there. As such, the investors expected that Andersen’s certifications of accuracy and application of proper accounting procedures would be independent and without any conflicts of interest. However, this was not the case and the investors were deceived by relying on the reports of Andersen.
On the other hand, Andersen was a major business partner of Enron and some executives of Andersen accepted jobs from Enron. This was a conflict of interest. Additionally, in March 2002, Andersen was found guilty of obstructing justice by destroying Enron related auditing documents.
Moreover, Andersen failed to ask Enron to explain its complex partnerships...
References: 1. The Responsibility and Accountability of CEOs: The Last Interview with Ken Lay Journal of Business Ethics _ Springer 2010 DOI 10.1007/s10551-010-0675-y O. C. Ferrell Linda Ferrell
2. The critical role of ethics: recent history has shown that when individual ethics are compromised, corporate ethics fail and financial disaster is not far behind by Marianne M. Jennings http://findarticles.com/p/articles/mi_m4153/is_6_60/ai_111737942
3. Enron And Arthur Andersen: The Case Of The Crooked E And The Fallen A Gary M. Cunningham and Jean E. Harris Global Perspectives on Accounting Education Volume 3, 2006, 27-48
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