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| Words: 949 | Submitted: 01-May-2011
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Enron Corporation and the Scandal
Enron was an energy trading and communication company based in Houston, Texas. In 2001 the company was listed as the seventh largest company in America and it employed approximately twenty one thousand people. The company was formed in 1985 with a merger of Houston Natural Gas and InterNorth. With Kenneth Lay as CEO Enron grew wealthy through it marketing and promotion of power and communication bandwidth commodities. The company eventually went bankrupt as a result of major accounting fraud, which let it to become the biggest corporate failure in history (www.sourcewatch.org).
In order to avoid the fraudulent activities that contributed to Enron’s demise, the company could have had a more separation of duties. It seemed that only a handful of people were making decisions and sometimes it was based on their individual judgment and not in the best interest of the organization. There were no checks and balances in place. Corporate structure helps to establish a working line of authority and Enron lacked that.
All public companies are required by federal securities laws to describe its related –party transactions to shareholders and members of the investing public in disclosure documents and Enron was no exception (news.findlaw.com). Enron failed to disclose facts that were pertinent for an understanding of the substance of the transactions. The company never clearly disclosed the purposes behind these transactions or the complete financial statement effect of these complex arrangements. As such, Enron omitted material facts to investors and the SEC.
Enron’s officers did not act within the scope of their authority. As part of Enron’s Code of Ethics there was a ban on officers or employees from owning, or participating in the profits of any other entity which does business with or is a competitor of the Company without running it past the chairman or chief executive (www.soxfirst.com). Clearly, Enron’s executives did not adhere to their own code of ethics. Individually and collectively, Enron’s management failed to carry out its substantive responsibility for ensuring that the transactions were fair to Enron-which in many cases they were not and its responsibility for implementing a system of oversight and controls over transactions (www.plu.edu/enron).
The tone for a company’s ethical culture is set at the top. Enron’s corporate culture best exemplified values of risk-taking aggressive growth and entrepreneurial creativity. Although, typically positive values; in the case of Enron it became its reason for being, and even its positive values ...
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