Enron and Corporate Ethics Essay

On December 2, 2001, Enron Corporation, then the seventh largest publicly traded confederation in the United States, declared bankruptcy. That bankruptcy saw thousands of Enron employees and shareholders losing their jobs and their investments. Enrons f whole sent shockwaves to all corners of the production line world. A Fortune cd comp all with all the appearances of stability and corporate soundness, the social clubs cut off was unthinkable. For here was a company who grew by leaps and bounds in so short a time a company who came from obscurity to study prominence as the worlds largest in terms of tax. and like anything else if it is too undecomposed to be true it probably is. inappropriate most bankruptcies which are caused by poor management and stiff competition, Enrons demise appears simple enough individual and collective voracity. It was shameless greed that motivated company officials to dupe thousands of honest individuals out of their hard take in money money that ran up to billions (Nakayama, 2002). The scam was unearthed just like any other scam when people start getting suspicious.Enron was generating a stool of revenues it was a smokescreen that allowed the company to attract more investors. While revenue generation was at record highs, hit was scant and minimal a fact many people overlooked until it was too late. Enrons mirage was merchandising the same things over and over and over again. The illusion was the company was generating this frequently gross sales but the reality was there was barely any profit made. Like everything else in hindsight, it is now recognise that tell tale signs were all over Enrons 2000 Annual Report.Still questions remain as to how a company that paraded its own engrave of Ethics be so shamelessly unethical, a corporation that prides itself as having a reputation for fairness and truthfulness be so downright ruthless, callous and arrogant. Beyond the dollars and cents, the Enron debacle offers a new textbook example of failed ethics in business (Berenbeim, 2002). ENRONs 2000 Annual Report Warning signs Most of the investigation on Enrons finances has focused on its balance sheetit describe an nonnatural increase in revenue Between 1996 and 2000, Enron reported an increase in sales from $13. billion to $100. 8 billion a 57% five-year sales growth rate.The company more than twind its reported sales surrounded by 1999 and 2000. Looking back then, this was a sign that the company appeared too good to be true. Before it declared bankruptcy, Enron said it was on track to double revenue again the adjacent year. Had it done so, it would have become the second-largest corporation in the world in terms of sales. According to Forbes. com, Enrons reported revenue was based on its exploitation of a loophole in accountancy rules a tactic that may have been legal, but few investors silent it (Ackman, 2002).Forbes. com goes on to say that Enron earned more than 90% of its reve nue from a business it calls wholesale services, Enrons euphemism for trading. Here is how its 2000 annual report describes that employment Enron builds wholesale businesses through the creation of networks involving selective asset ownership, contractual chafe to third-party assets and market-making activities. Yet again, another warning sign. Footnotes in the annual report for 2000, as well as show hints of the hidden debt that pushed the company into bankruptcy.According to Businessworld, a footnote on preferred stock indicates that if Enrons share price were to fall under $48. 55which first occurred on June 14the company would be compel to issue stock to a partnership called Whitewing Associates (Tergesen, A. 2002). Other footnotes reveal comparable arrangements. True, Enron never put a dollar value on its potential difference obligations, and the footnotes did not divulge the extent of the partnerships. But enough was revealed to suggest that investors were not getting a full view of the companys finances. Enron and its Code of EthicsEnron trumpeted its own Code of Ethics, but based upon investigation by the U. S. Senate Permanent Subcommittee on Investigations, it willfully and shamelessly violated the very grave it promised to upheld (U. S Subcommittee on Investigations, 2002). In its decision, the Subcommittee cited, among others, the following (1) Fiduciary Failure. The Enron panel of Directors failed to vindication Enron shareholders and contributed to the collapse of the seventh largest public company in the United States, by allowing Enron to occupy in high risk accounting, inappropriate conflict f interest transactions, extensive undisclosed off-the-books activities, and excessive executive honorarium.The Board witnessed many indications of questionable practices by Enron management over several years, but chose to rationalize them to the detriment of Enron shareholders, employees and business associates. (2) High Risk Accounting. Th e Enron Board of Directors knowingly allowed Enron to engage in high risk accounting practices (Thomas, 2002). (3) Inappropriate Conflicts of Interest. Despite clear conflicts of interest, the Enron Board of Directors approved an unprecedented arrangement allowing Enrons Chief financialOfficer to establish and operate the LJM private equity funds which transacted business with Enron and profited at Enrons expense. The Board exercised inadequate oversight of LJM transaction and compensation controls and failed to protect Enron shareholders from unfair dealing. (4) Extensive Undisclosed Off-The-Books Activity. The Enron Board of Directors knowingly allowed Enron to acquit billions of dollars in off-the-books activity to make its financial condition appear unwrap than it was and failed to ensure adequate public disclosure of material off-the-books liabilities that contributed to Enrons collapse. 5) unjustified Compensation.The Enron Board of Directors approved excessive compensatio n for company executives, failed to monitor the additive cash drain caused by Enrons 2000 annual bonus and slaying unit plans, and failed to monitor or halt abuse by Board Chairman and Chief Executive Officer Kenneth Lay of a company-financed, multi-million dollar, personalized credit line. (6) Lack of Independence. The independence of the Enron Board of Directors was compromised by financial ties among the company and certain Board members.The Board lso failed to ensure the independence of the companys auditor, allowing Andersen to provide internal audit and consulting services while component part as Enrons outside auditor. Conclusion While Enrons officials were caught and brought originally the bars of justice, many wonder how widespread the lack of corporate ethics is in the business world. Greed they say is universal. Who knows what will be the next Enron. As long as there are CEOs, CFOs who disregard the simplest institute of business decorum there will always be an Enr on paper. permits hope that people will not forget that story and profit from it.