Chairman Ken Lay, CTO lelliry Skilling and CRO nd CASE 9 Eno old style electrici
ID: 329075 • Letter: C
Question
Chairman Ken Lay, CTO lelliry Skilling and CRO nd CASE 9 Eno old style electricity a ompany and Wal Enron: Questionable Accountin Leads to Collapse ed from natural gas and electricity The smaining 3 perces athough Enon had dlimed a nit income of so that despite Em ow in 200, tw company INTRODUCTION ENRON'S CORPORATE CULTURE leaming tow A large banner in the lobby at cerporate hesdrs pra ad sa chance against it Jeflney Säilling ven west so fr o tel tlity esoutives e that he was going to invested The company plammeted The scandal usunding Eaon's demise mgendered a global lo ece in corporabe hut cs to plague markets today, and evay triggmed tough new scrutiey of Eaclporting practies In an silempt so unde andwhat west wong this case will esaine the hisory,cuhure, and major playens in the Sailing appears to bethe This "rank and yank" siten helped create a dence enviroamenst in eath of the six months, with those pited apainst rivals not only eutside the compasy nd yank" syiben is ENRON'S HISTORY e the trading oetion, fer cumple, were coered The E Corperation was created out of the merger of two major gas pipeline com- panies in 1985 Theogh itsbsidiaries and mmous affiliates, the company peonided goods and servces nlte o nutural gas, electricity and communications for its whele- ule and netal cstoes Eros transported nataral as through pipelises to casto s all over the Uinite States It gted, tranmitted, and distributed electricity to c arthwestern Unitod Staes, and mrketed natural gas, electricky, and other commedts gobaly was aso invoed in the developmest construction, and operation of pewet plants pipelines, and other energy-reled projects all over the world, inclading the delv ery and mangrment of esrgy to ail cusomers in both the industrial and commesoa of theetceses an Eon vas the cration of a corporate cultare in which people could seach ther ll poetial. He said that he wanted it to be highly moral and ethical caharathat he tried to 4rau" that people hononed the valoes of Ken Lay once said that he fielt tht o ight with the slogan "Vision and Vloes Degie sach good iaestionn hewses ethical behavioe was not pat into busisess for prolit. Short on assets and hewvly nelant on S ACCOUNTING PROBLEMS in 2001 was the lrgest in US corporate Siory at the tie. The bank ENRON' ol revelations that the gint energs teader had been usingExplanation / Answer
1. The culture established at Enron was highly competitive with employees facing more competition from their colleagues than their external market competitors. The employees were only motivated to achieve their personal career targets and were least motivated towards the wellbeing of their shareholders. Thus, due to this flawed Performance management established at Enron, the employees were vulnerable to getting involved in unethical and fraudulent activities. There was a sense of arrogance in the work environment established at Enron where the company boasted itself to be 'World's Leading Company' without any substantial evidence. This hauty image had created a disillusion in the mind of its employees about the right and wrong things they are getting involved in. In addition this, a lack of standard approach towards accounting system implementation, fueled the malicious intents of providing distorted information about the company to the outside world. Thus, a failed accounting system led to employees getting involved in corporate criminal activities.
2. Enron suffered a lot due to the lack of professionalism shown by their appointed auditing firm, Arthur Andersen. On being associated as the factor behind growth of Enron, Arthur Andersen developed a very Egoistic approach towards its work. This led to major lapses in the auditing of Enron's financial statements and thus, encouraging Enron to pursue unethical and fraudulent means in its business.
In addition to this, the appointed Bankers of Enron were also directly involved in the fraud. They had helped Enron falsify their loans as income and also assisted them in money laundering activities. On the hand, Lawyers appointed by Enron helped it structure the fraudulent partnerships. They also helped them falsify opinion letters supporting such partnerships. These lawyers were basically responsible for providing a legal cover to the unethical activities undertaken at Enron.
3. Enron's CFO, Mr Andrew Fastow, is considered to be the mastermind behind the chain of activities which led to the bankruptcy of Enron. He was the one who presented the idea of not reflecting certain partnerships in the balance sheets and thus avoiding the disclosure of debts in the balance sheet. This masking up of debts lead to quoting of higher than actual profits in the balance sheet. In addition to this, his activities lead to illegal offloading of shares and loss of Enron employees' retirement funds. This was thus a clear case of money laundering and misuse of power.
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