Examining a Business Failure
In order to succeed in today’s evolving global market, organizations must adopt business principles and practices of knowledge sharing, shareholder protection and ethical business practices. Many business crimes are committed because the companies apply pressure to managers and employees to produce results. Economic pressure is responsible for much business crime. Business ethics is important to a company’s future and the tone at the top (management) is crucial to modeling ethical behavior, and if, the top of the hierarchy disregards corporate ethics so will everyone else.
Failure of Enron
Enron was the United ...view middle of the document...
Most of the profits and revenue were the result of deals with special purpose entities (limited partnerships which Enron controlled). Falsifying financial reports allowed Enron to drive up the price of its own stock. Evidence is available that Enron’s subsidiaries engaged in sham trading among them to drive up the price of electricity, and Enron traders arranged power supply deals with California that gave the appearance of creating power congestion, generating fraudulent fees when Enron then appeared to take steps relieving the nonexistent congestion. The large profits made during the crisis were partially hidden by manipulating Enron's financial reserves (Wikipedia, 2009).
Compare and Contrast Contributions to Enron’s Failure
Leadership, management and organization contribution to Enron’s failure: Enron created offshore entities that was used for planning and avoidance of taxes, raising the profitability of a business providing ownership and management with full freedom of currency movement and anonymity that allowed the company to hide loses making Enron look more profitable than it was, while corporate officers created the illusion of billions in profits as the company was losing money. Executives worked on insider information and traded millions of dollars worth of Enron stock with the help from insiders at Enron whom knew about the offshore accounts that were hiding losses for the company. CFO, Andrew Fastow led the team which created the off-books companies, and manipulated the deals to provide himself, his family, and his friends with hundreds of millions of dollars in guaranteed revenue, at the expense of the corporation for which he worked and its stockholders. Enron executives sold their stock but investors were told to buy the stock because the price would continue to climb. The executives were secretly unloading their shares as the price began to drop.
Kenneth Lay, CEO, issuing statements and making appearances to calm investors assuring them Enron was headed in the right direction. Lay has been accused of selling over $70 million worth of stock to repay cash advances on lines of credit; he sold another $20 million in the open market and his wife, sold 500,000 shares totaling $1.2 million. News of Enron's millions of dollars in losses they had been hiding went public and the stock price fell to below one dollar. Former Enron executive Paula Rieker has been charged with criminal insider trading and sold that stock a week before the public was told what she already knew about the $102 million loss.
Workers who audited the company's books for Arthur Andersen, the big accounting firm, received instructions to destroy all audit material, except for the most basic work papers. This practice continued over a period of several weeks even after the first...