Enron Essay

The Collapse Of Enron And The Sarbanes-Oxley Act
The fall of the colossal entity called Enron has forever changed the level of trust that the American
public holds for large corporations. The wake of devastation caused by this and other recent
corporate financial scandals has brought about a web of new reforms and regulations such as the
Sarbanes–Oxley Act, which was signed into law on July 30th, 2002. We are forced to ask ourselves
if it will happen again. This essay will examine the collapse of Enron and detail the main causes
behind this embarrassing stain of American history.
Whenever someone hears the word "Enron" today, they usually think of the transgressions
committed by the top–level executives who successfully managed to destroy the company's
reputation and achievements....show more content...
This would serve to guarantee the SPE's value [2]. The SPE, in exchange, would use the stock to
hedge the value of various investments on Enron's balance reports [2]. Enron stock prices had been
consistently on the rise and, counting on this trend to continue, the false assumption was made that
they would never have to pay on any of the guarantees [2]. These complicated financial maneuvers
generated huge sums of money for Enron. Several people were getting rich from these dealings,
especially Mr. Fastow. They were given enormous amounts of compensation to continue promoting
the use of the SPEs [2].
One example of these transactions took place in June of 2000. The SPE known as LJM2 purchased
fiber–optic cable for $30 million in cash and $70 million in IOUs [3]. LJM2 sold part of the fiber
to other companies for $40 million and paid Enron a 20 million dollar agency fee for helping to
market the product [3]. LJM2 then sold the remaining fiber for $113 million to a company owned
by Enron and used some of the money from that sale to pay off their remaining debt [3]. When it
was all over, LJM2 was 2.4 million dollars richer, and Enron's credit risk had been reduced by $9
million [3]. Unfortunately for Enron and its investors, the money party was short lived.
When Enron's stock values began to fall, the value of the SPEs fell with it, triggering the previous
guarantees. This caused the
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Essay on Ethics And Enron
ENRON
Introduction
Enron was the country's largest trader and marketer for electric and natural gas energy. Its core
business was buying energy at a negotiated price and later, selling the energy when prices
increased. As an energy broker, Enron provided a service by allowing producers to negotiate a
certain price while Enron took the risk that prices would fall below what it bought energy. Buyers of
energy also benefited because Enron could ensure the supply of energy. In 2000 Enron was listed
number five on the Fortune 500. What happened to the company which was among the most
admired for vision and quality thinking? Enron was the company that held virtual assets and not the
real assets, such as power stations, which were capital...show more content...
These promises changed the position of Merrill Lynch from equity to debt. But Enron showed it as
cash income and did not show that amount was really a loan to be repaid. Enron was not legally
required to reflect any of its debt of the SPE (Bohlman, 2005).
World Com
Introduction
WorldCom, now named MCI, recently emerged from bankruptcy protection after reporting
accounting irregularities of $11 billion. During the late 1990s there was formidable pressure on
WorldCom to preserve historic levels of cash flow and EBIDTA (earnings before interest,
depreciation, taxes, and amortization) while new telecommunications orders were in decline as well
as continued pressure on existing price points. It was during this period that WorldCom began many
of the fraudulent accounting practices. The SEC Report (2003) on WorldCom identified fraudulent
behavior in three main areas: the unauthorized movement of line costs to capital resulting in
decreased expenses, the improper release of accruals reducing current expenses, and questionable
revenue entries producing an increase to earnings. These accounting irregularities have resulted in
many of WorldCom's previous executives being prosecuted on securities' charges. As part of
emergence settlement, MCI paid the Securities and Exchange Commission (SEC) fines totaling $750
million and former bondholders received 36 cents on the dollar in stock in the new company (Scharff,
2005).

Enron Essay
ENRON In 2000 Enron was the world's leading corporation in selling natural gas with an estimated
worth in sales of around one hundred billion dollars and the company showed only signs of
progressing. Within one year the company went completely bankrupt and forty of their top
employees were arrested or are in jail awaiting trials. How can a multinational corporation with
steadily increasing revenue take such a drastic fall into bankruptcy and how did no one see this
coming? In the end Enron knew exactly what was in their future and hid it from the public by
allocating their debt and with a loophole in their accounting, it turned out to be one of the biggest
cover ups in the stock markets history. In 1985 Houston Natural Gas merged...show more content...
Enron's greatest tool for concealing their debt and in the end was their ultimate demise was
called "mark to market accounting" (oppel). "Mark to Market Accounting" is not totally illegal if
it is done correctly which is acknowledging future sales and revenue with a new operation or
business venture. What the Enron executives did was when a new natural gas plant was still in
production they would predict that their new plant will generate them one hundred million
dollars over the next ten years. However instead of just using this number as a future goal they
would register this as revenue for that year. This would greatly increase their numbers and allow
their stock to rise and profits to be divided among the top executives. To the outside world Enron
appeared to be very successful and a great investment when in fact they were digging their own
graves. Enron's stock and reports annually improved without ever having debt. These great figures
started to arise some questions of doubt of all of their success. With these questions people started
to look into their books and analyzing all of their data in the reports to try and find some mistakes,
and it did not take very long to do so. Government Accountants started to realize that their numbers
did not add up to their profits and looked into the explanation of where the missing numbers went
(Berenson). Like a house of cards, Enron crumbled to the ground. Enron immediately went into a
crises mode

4 Ethical Issues with Enron Essay
There was a vast number of ethical issues raised in the movie "Enron–the Smartest Guys in the
Room" but the four I am going to focus on are listed below. Art Anderson, Ken Lay and all of the
other executives did a number of unethical things which ultimately brought down Enron and affected
thousands of employees and their futures. The bottom line was that each and every one of them
acted out of greed for the almighty dollar.
1– Encouraging employees to invest and buy stock in Enron when they knew the truth about the lack
of value in the stock.
As an employee you trust in your management to make the best choices both for you and for the
business to succeed. Ken Lay and other executives strongly encouraged Enron employees to invest in
...show more content...
One Merrill Lynch analyst began to question the numbers and profits that were being produced by
Enron and eventually he was fired. Enron invested a lot of money with Merrill Lynch and they
didn't want Enron to stop investing so Merrill Lynch got rid of the employee who question Enron,
when in reality they should have listened to him. Merrill Lynch's decision not to listen to him
showed other employees that they better keep quiet with their opinions or their jobs would be on the
line. If they listened to him they might have lost the deal with Enron, but in the end they lost it
anyway and lost millions along with it. Merrill Lynch's main focus should have been their employees
and their investors, not solely Enron. They should have stuck to their code of conduct and followed
their values.
3– Manipulated earnings.
Enron executives and accountants cooked the books and lied about the financial state of the
company. They manipulated the earnings and booked revenue that never came in. This was
encouraged by Ken Lay as long as the company was making money. Once word got out that they
were disclosing this information, their stock plummeted from $90 to $0.26 causing the corporation
to file for bankruptcy.
This deception on behalf of the executives and others in the organization who hid this vastly affected
anyone who had stock in Enron as well as stock in other energy corporations. The

Enron Case Study Essay
Globalization and Corporate Social Responsibility – Corporate Culture and Individual Responsibility
1. Based on Alex Gibney's film version of the rise and fall of Enron, do you accept Joel Bakan's
argument that the corporation shows "psychopathic" traits?
I agree with Joel Bakan, however, just partially about the corporation Enron showing 'psychopathic'
traits. Yes there are traits that they were doing unethical actions that completely ruin many people
life–long works and their lives; nonetheless, in my opinion, those actions were intentional. The
executives at Enron were gambling intelligently, according to the movie, and take a risk so big that
it was over their heads at the end, making it an absolute failure. The psychopathic...show more
content...
At some point, Enron executives use the deregulation of Californian energy market to raise the price
of electricity, getting other company to join in action and make skyhigh profits. At the end, all these
illegal, unethical actions they had done snowballed and they could not stop because once they could
not hide their debts, and government institutes started to suspect, they are left with nothing to
protect themselves. They took a high risk road to profit, followed a strategy of 'win at all cost' so it
will later come back at them. Throughout company's history, its culture had been an unethical one,
with staffs from executives to accountants to associated firms having joined in their strategies and
performed underhand actions. The environment was set for them to success in their scams because
they brought in people and company having the same mind set. As for personal values, they
executives only cared about themselves and whoever on their side. The financial executive, like
Fastow even stole money from the company for himself and it was 40 million dollars. They
pocketed millions of dollars so they did not pay much attention to what would happen to their
employees once this scam was taken out of the dark. After Enron bankrupted, their employees had
nothing in return, not even pension money and shareholders, with the stock price of the company
being lower than a sing dollar, lost everything. In conclusion, what happened at

Enron Essay
Integrative Case – The Downfall of Enron
Part I
1. Ken Lay served as CEO and chairman and Jeffrey Skilling also served as CEO. They both were
responsible for planning, organizing, controlling and leading the company. They set goals for the
company and organized how they would be achieved. Kay's role was as the figurehead and the
leader. He also served as the spokesperson for the company and made many of the decision on the
future of the company. As CEO's they both possessedeffective communication skills, where
decisive, which was evidenced by their vision for the company and refusal to admit wrong even at
the end, and visionary. Throughout Lay's tenor the company continued to grow and prosper at a fast
The downside to this approach was that these individuals were inexperienced and prone to taking
large risks.
2. Enron employees were motivated by vanity and greed. Management used promotions, hefty raises
and bonuses to motivate their employees. The focus was placed on meeting financial needs. It was
effective in motivating those who were extremely ambitious and did not have concerns for ethical
practices but put their focus on earnings and acquiring wealth.
3. Enron used a 360–degree feedback performance management system (PMS). Performance was
directly linked to rewards. The system can be beneficial to managers because it typically gives them
a much wider range of performance–related feedback than traditional evaluation provides. The
disadvantage to this type of PMS is that if used inappropriately the focus can be placed on
individual biases and politics. That is, if an employees peer dislike them, the PMS can be used as a
means to hurt that individual. Enron should have more closely managed their PMS so that its focus
remained on constructive rather than destructive criticism. Also, they could have removed the link
between the PMS and rewards.
Part III – The Leadership
1. Lay and Skilling can be characterized as highly educated, extraverted, over achievers.

Enron Essay
As Bethany McLean and Peter Elkind portray in The Smartest Guys in the Room: The Amazing
Rise and Scandalous Fall of Enron, there was a chain–reaction of events and a hole that dug deeper
with time in the life–span of, at one time the world's 7th largest corporation, Enron. The events were
formulated by an equation with many factors: arbitrary accounting practices, Wall Street's evolving
nature and Enron's lack of successful business plans combined with, what Jeff Skilling, CEO of
Enron, believed was the most natural of human characteristics, greed. This formula resulted in fraud,
deceit, and ultimately the rise and fall of Enron.
Kenneth Lay created Enron in 1985 as a result of the merger of Houston Natural Gas and Internorth.
Within a...show more content...
Next came California's rolling blackouts caused by Enron's traders. By turning the power off and
on in California, they could control the price of electricity, essentially stealing people's money.
Because they could manipulate the price, they made hefty bets on it, and in turn made over $2
billion dollars for Enron. Just before the fall of Enron, the insiders sold off nearly $1 billion dollars
prior to the annunciation of the bankruptcy of Enron. What caused so many executives and
employees to behave in such a fraudulent way? As Skilling put it, the biggest motivator for humans
is money. Enron's executives received large quantities of stock options, motivating them to
manipulate earnings which would cause an increase in the stock price. The nature of Enron's
executives also played a big role in influencing employees to display similar characteristics of
aggression, arrogance, greed and dishonesty. Executives at Enron were known to take extreme
dirt–biking trips to places like Mexico, where they could dangerously travel 1200 miles of rugged
terrain. Stories of broken bones, stitches and flipping jeeps became legendary at Enron, and fed the
macho personality of the employees. Top management gave its managers blank orders, to "just do it"
(60). In turn, employees attempted to not only crush outsiders, but eachother. Skilling encouraged
this behavior, saying "he wanted them to

Enron Case Study Essay
Enron Summery of Enron case The Enron scandal has far–reaching political and financial
implications. In just 15 years, Enron grew from nowhere to be America's seventh largest company,
employing 21,000 staff in more than 40 countries. But the firm's success turned out to have involved
an elaborate scam. Enron lied about its profits and stands accused of a range of shady dealings,
including concealing debts so they didn't show up in the company's accounts. As the depth of the
deception unfolded, investors and creditors retreated, forcing the firm into Chapter 11 bankruptcy in
December. More than six months after a criminal inquiry was announced, the guilty parties have still
not been brought to justice. Leaders...show more content...
The PRC was a powerful mechanism for preventing the emergence of subcultures running counter
to the organizational tone set by Enron's hierarchy. Members of the Risk Management and
Assessment Group who reviewed the terms and conditions of deals (and who were largely
inexperienced recent MBA graduates) as well as internal auditors, were fearful of retaliation in the
PRC from persons whose deals they were reviewing (Chaffin and Fidler 2002; Dallas 2003). At best,
control was compliance–based, seldom encouraging employees to follow either the letter or the
intent of laws (Dallas 2003). This punitive environment brought the consequences of dissent sharply
into focus. Enron's culture has been characterized as "ruthless and reckless ... lavish rewards on
those who played the game, while persecuting those who raised objections" (Chaffin and Fidler
2002, 4–5). Led by Skilling's cavalier attitude to rules, top management conveyed the impression
that all that mattered was for employees to book profits. In sum, this led to an erosion of
employees' confidence in their own perceptions and, most crucially, to further compliance with the
organization's leaders in a way that strengthened conformist behavior. Former employees have noted
how "loyalty required a sort of group think" (Chaffin and Fidler 2002, 2) and "that you had to 'keep
drinking the Enron water'" (Stephens and Behr 2002, 2). A myth of smooth, flawless operations was
perpetuated

Essay On Enron
Enron was the 7th greatest company in all over United States of America and the largest company
that controlled electricity and gas in the world.
Enron became largest independent developers and producers of electricity in the world, serving both
industrial and emerging markets. after expanding the business and some more researches done on
solar and wind energy, Enron became the largest supplier of this new energy over the world.
After reaching the pick of its business Enron started to have some difficulties at the late 1990's and
the greatest scandal started on their stockholders by hiding the results of the losses. And the scandal
came to public after a failed merger with Dynegy Inc. in 2001.
Origins of the Enron Company
Enron's was known as Northern Gas Company in...show more content...
Beginning in 1991, Enron expanded it electricity business by building the first power plant in
England, Teesside and become the largest plant built in the world with about 1,875 megawatts.
Subsequently, Enron built power plants in industrial and developing nations all over the world: Italy,
Turkey, Argentina, China, India, Brazil, Guatemala, Bolivia, Colombia, the Dominican Republic, the
Philippines, and much more others in many countries. By 1996, the revenues of the Enron Company
were from these worldwide projects and it was about 25 percent before counting the interest and
taxes.
In 1994 the United States started and new way to consumes electricity and citizens were given the
choice on how they want to use their gas or electricity as they can choose the plan of electricity,
Enron had a new market and fresh market by depending this new

Enron Essay
An Explanation of the Causes and Effects of the Enron Accounting Scandals
Name:Do Minh Tam
Class:MEP 100
Lecture:Karen Bird
Date:December 24, 2010
Introduction
Background
From the 1980s until now, there have been a lot of accounting scandals which were widely
announced on by media. The result of this situation is many companies were bankruptcy protection
requests, and closing. One of the most widely reported emulation of accounting scandals is Enron
Company. Enron Corporation is one of the largest energy companies in the world. Enron was
founded in Houston, Texas, America in July 1985 by the consolidation between Houston Natural
Gas and InterNorth of Omaha, Nebraska ("Enron and Enderson: The story", n.d.). According to
Endrew and his wife got benefits from Enron to buy Chewco where his wife is owner. He controlled
subsidiary companies to buy stock and hid debt for Enron. Enron did not follow the accounting rules.
Every mistake in accounting needs to note and describes for shareholders know, and writes on the
financial statements. In 2001, Accountants cannot combine Chewco into the Enron's financial
statement. This lead to misunderstanding report which show the financial statement of Enron such
as a decrease Enron income and an increase Enron's reported debt. In addition, Enron tried to make
maximize profits by break the law. Therefore, dishonesty in the financial statement, corruption and a
lack of knowledge and skills of accountants are the causes of the Enron's bankruptcy.
The Effects of Enron Accounting Scandal on
Employees and shareholders
When Enron was bankrupt, the most affected people are Enron's workers and shareholders. Many
people lost their jobs, their whole pension and all of the shareholders lost their money (Dunder,n.d.).
According to Raver (2006, p4–5), Enron stocks prices were increased nearly double in one year by
many ways such as legal and illegal way. The stock price was increasing so fast, many Enron
employees bought Enron stock as saving money, and also their pension are in Enron's stock too.
When Enron was failing, Enron's stock

Essay on Overview of the Enron Scandal
Enron Corporation was an energy company founded in Omaha, Nebraska. The corporation chose
Houston, Texas to home its headquarters and staffed about 20,000 people. It was one of the largest
natural gas and electricity providers in the United States, and even the world. In the 1990's, Enron
was widely considered a highly innovative, financially booming company, with shares trading at
about $90 at their highest points. Little did the public know, the success of the company was a
gigantic lie, and possibly the largest example of white–collar crime in the history of business. The
roots of the lies start with former Enron CEO Kenneth Lay. This man helped bring together a number
of smaller energy companies, namely InterNorth International and...show more content...
All these factors lead to figures that were less than what Ken Lay promised, and even started
posting losses by the second quarter of 1997. These less than stellar numbers did not discourage
company executives, and Enron continued to spend foolishly on advertisement and lobbying for
deregulation. All of the prior represents the business side of the downfall of Enron. That being
said, businesses fail all of the time. The reason why Enron Corporation and its executives will
always live in infamy is not because the company failed, but how and why the company failed.
How, exactly, does a company worth about $70 million collapse in less than a month? It became
clear that the company not only had financial problems, but ethical problems that started from the
top of the company and trickled down. A key player in these problems was Jeffrey Skilling. He was
a man brought to the company by Ken Lay himself. Skilling brought his own accounting concept to
the company. It was called mark–to–market accounting. This concept allowed Enron to record
potential profits the day a deal was signed. This meant that the company could report whatever they
"thought" profits from the deal were going to be and count the number towards actual profits, even if
no money actually came in. Mark–to–market accounting granted Enron the power to report major
profits to the public, even if they were little or even negative. It became a major way

Enron Scandal Essay
The reason of Enron Corporation downfall for audit failure is conflict of interest and accounting
fraud. This is because it has been suggested that conflicts of interest and a lack of independent
oversight of management by Enron's board contributed to the firm's collapse. Some have suggested
that Enron's compensation policies engendered a short–sighted focus on earnings growth and stock
price. In addition, recent regulatory changes have focused on enhancing the accounting and
strengthening internal accounting and control systems. In these issues, it begin with Enron's board.
The conflict of interest between the two roles played by Arthur Andersen, as an auditor, he also as a
consultant to Enron Corporation. While investigations continue, Enron Corporation has sought to
salvage its business by spinning off various assets. As that, Arthur Andersen actually has admitted
some...show more content...
It also help to understand the real meaning of Shareholder Wealth Maximization. Enron Corporation
scandal also help to conceal the true of financial statement and ensure that investor fund. When the
time of Enron's collapse, it was the biggest corporate bankruptcy ever to hit the financial world. But
then WorldCom, Lehman Brothers and Washington Mutual have surpassed Enron as the largest
corporate bankruptcies. The Enron scandal drew attention to accounting and corporate fraud, as its
shareholders lost $74 billion in the four years leading up to its bankruptcy, and its employees lost
billions in pension benefits. The Sarbanes–Oxley Act has been called a "mirror image of Enron, the
company's perceived corporate governance failings are matched virtually point for point in the
principal provisions of the Act." Increased regulation and oversight have been enacted to help
prevent or eliminate corporate scandals of Enron's

Enron Essay

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