Essay: The Enron scandal

The Enron scandal led to the bankruptcy of the Enron Corporation which is an American energy Company. The story of Enron is one of history’s utmost business scandals whereby the top executives of America’s 7th leading company walked away with around one billion dollars as investors as well as workers lost everything they worked for. Enron was almost regarded as one of the country’s most innovative companies. The company persisted to build power plants as well as run gas lines, but it became well known for its exceptional trading businesses. The sudden and unexpected fall or Enron Corporation was the first in a series of key corporate accounting scandals that had shaken confidence in corporate governance as well as the stock market (Ferrell et al., P410).
Enron scandal was typified by greed and arrogance. The Senior Executives were concerned in breaking the law through a series of intricate financial deceptions. The company’s bank accounts were manufactured to cover considerable financial losses. This paper will focus on issues for Enron management, employees, investors, and analysts that were linked to financial controls, business ethics, and financial reporting.
Issues for Enron management
Management controls denote the tools that seek to extract behavior that attains the strategic goals of an organization like budgets, standard of operating processes, performance measures, and performance centered remuneration a well as incentives. Despite the fact that Enron’s demise has been depicted as resulting from a few unscrupulous rogues acting in the absence of formal management controls, it characterized all the trappings of proper management control (Sterling, P54). The control infrastructure of the company was widely lauded right up until the downfall of the company. Organizational culture was one of the essential aspects that played a vital role in the downfall of Enron Corporation. As revealed in Enron case, the management and trading floors were obsessed with value of the Enron stock from which wealth would be produced. Enron used to pay huge bonuses to employees as well as partners who performed pretty well in their jobs. To acquire these rewards, some divisions of Enron falsified information concerning their financial performance an issue in the management that lead to the downfall of the company (Ferrell et al., P415).
Issues for Enron employees
Enron’s fast downfall left the prospect of 21,000 employees in uncertainty and wiped out what was left of the holding of stock investors (Sterling, P50). Many employees and investor lost billions of dollars as the company shares shrank to penny stock levels. The top officials of the company misused their power and privileges, stage-managed information, engaged in conflicting treatment of internal as well as external constituencies besides putting their own interests above those of their workers and the public. The company also failed to implement appropriate oversight or shoulder accountability for ethical failings. The swift downfall of Enron Corporation devastated its workers retirement plan that was heavy with company stock besides infuriating employees who were prohibited from altering their investment as the stock plunged (Kammerer, P7). Both current and former workers of the company lost their health care as well as life savings since the bankruptcy of the company was recorded.
Issues for Enron investors
Investors in Enron Company suffered the most as a result of the downfall of the company. It starts with anyone who purchased shares from the company. Also investors from other mutual funds stood a better chance of being affected by Enron’s demise since 10 of its largest shareholders were all big money managers (Sterling, P45).
Issues for Enron Analysts
Despite numerous reports to the contrary, all the four Wall Street analysts testifying said they felt no pressure either from their own companies or from Enron to tout the stock. They all trusted based on public information as well as their own analysis about the Enron’s downfall (Sterling, P41). Many analysts defended Enron even after having the idea that it had financial problems and writings put on the walls to show a sign of its downfall.
Issues relating to financial controls and reporting
The theatrical downfall of Enron Corporation following a sequence of discoveries of accounting improprieties led to many people questioning the soundness of present accounting and financial reporting standards. Examining Enron’s financial performance throughout the 10 years preceding its declaration of bankruptcy the study reveals rising variability of key performance measures from 1997 throughout 2000, a time in which Enron’s stock price usually outperformed the NASDAQ composite (Kammerer, P2). Much of the accounting as well as financial issues connected to Enron dealt with the treatment of SPEs. This is because SPEs take the lawful form of trust, corporation or partnership and are typically established for particular purpose (Bierman, P74). Therefore, the downfall of Enron Corporation was due to mismanaged and mishandled financial controls and reporting procedures by the top officials of the company.
Business ethics regarding Enron Corporation
Enron scandal includes both unlawful and unethical activities besides the courts of law will decide the exact extent of civil as well as criminal accountability that ensues to the perpetrators. Enron Corporation emerged to symbolize the best a 21st era organization could offer both economically and ethically (Ferrell et al., P405). Enron ethics denotes that business ethics is a question of organizational culture other than of cultural artifacts such as ethics codes and ethics officers. Many investors were appalled to learn of the unethical practices carried out by the leaders and some employees of Enron Corporation. The company used diverse ways off deception to appear more profitable than it really was to the faces of the people. As the company stock rose, its debt as well rose besides the company leadership started using insider information and trading millions of investor’s dollars company stock (Ferrell et al., P408). As a company, Enron had code of ethics to be followed by all the employees, but the leaders did not abide by the codes and did not provide an appropriate example for the workers to emulate. The employees in return used the behavioral cues to shape their own actions and their decisions not to report the unethical acts of others.