Case 9: Enron; Questionable Accounting Leads to Collapse
Minnesota School of Business
BS430 Business Ethics
November 25, 2012
1. How did the corporate culture of Enron contribute to its bankruptcy?
Effective leaders are good at getting followers to their common goals or objectives in the most effective and efficient way; unfortunately for Enron, in the end Ken Lay and Jeffery skilling were too focused on profits that nothing else mattered. In the beginnings of the company Ken and Jeff were very efficient in growing their company from a small oil and gas pipeline firm into one of the largest entities in its industry. As the company grew ...view middle of the document...
Enron’s leading bank affiliate, Merrill Lynch made internal hiring and firing decisions based on the recommendations and pressuring threats of Enron executives (Baird, Jackson, & Herndon, 2013). The party with the highest level of contribution to the demise of Enron would have to be their external and internal auditing firm Arthur Anderson. The primary responsibility of any auditing firm is to ensure the accuracy and validity of a company’s financial statements. Investors and stakeholders both internally and externally use this certified information to make critical business decisions. Arthur Anderson willfully partook in the scandals and subsequently went from the largest accounting firm in the world to dissolution in a matter of three years.
The unfortunate common denominator for all of these external companies is the level of influence Enron had on their profit margins. Enron was almost 10% of Vinson & Elkins annual revenue; Enron held similar if not greater margins with many of the other companies that helped with all of the unethical decisions (Baird, Jackson, & Herndon, 2013). The threat of loosing the profits associated with Enron’s business clouded the ethical judgment of everyone that did business with them.
3. What role did the company’s chief financial officer play in creating the problems that led to Enron’s financial problems?
From what I understand Andrew Fastow was hired for the sole purpose of developing an elaborate network of special purpose entities to cover up over $1 billion in debt (Baird, Jackson, & Herndon, 2013). When the curtain fell and the puppet master was revealed it was this debt that led to the bankruptcy and demise of Enron. Ken Lay and Jeffery Skinner recognized the threat that their mounting debt posed and instead of restructuring their business model and making ethical decisions, they brought in expert in financial reporting and economic theory. ...