Case Study of Enron

Corp.
Submitted By:
Jelyn Junsay
Sheena Claire Brillas
Welgin Carbaquil
 Enron:
What Caused the
Ethical Collapse?
 II. Facts of the case

a. ORGANIZATION INVOLVE
Enron Corp and J.P Morgan, Citigroup and Merrill Lynch-firms

b. CASE SETTING AND LIMITATION

Enron collapsed dramatically , it was reported that their revenue in year
2000 is $101 billion and approximately $140 billion during the first three
quarters of 2001 and declared bankruptcy in the last month of the 4th
quarter in the same year. Rumors spread that it all rooted in a
combibation of the failure of top leadership, a corporate culture that
supported unethical behavior, and the complicity of the investment
banking community.
c. ACTORS AND THEIR ROLES

• Kenneth Lay - former chairman and chief executive officer (CEO) of

Enron Corp.
• Ben Glisan - Enron's former treasurer
• Andrew Fastow - former Enron Chief Financial Officer (CFO)
• Jeff Skilling and Ken Lay - together with the former CFO Andrew
Fastow are among the most notable top level executives implicated in
the collapse of Enron
• Sheron Watkins - The key Enron whistleblower
• J.P Morgan - Citigroup and Merrill Lynch-firms that took a big role in the
bankruptcy of Enron
 III. Incidents leading to the case

Sudden collapsed of Enron Corp. despite of reporting high

profitability of the corporation with the issue of failure in top
leadership, corporate culture that supported unethical behavior
and complicity of investment in banking community.
 IV. Analysis of the case

a. Statement of the problem

• Enron projected to be a highly profitable corporation to
conceal its true state, having debts and multiple number of
complex fraud cases.
• Enron's non transparency of financial statement.
Unethical practice at the top leadership.
• Compensation plan of enron's corp. encourage its employees
to break rules and initiate the value of contracts even no cash.
b.Objectives

• To know the crises of Enron Corp.

• To highlight the regulatory authority failure and
loopholes in law.
• To know the accounting irregularity by Enron Corp.
c. Perspective of the Analysis

• The organization should be transparent of their internal

problems as well as in their financial statements.
• Avoid arrogance and fraud.
• Establish code of ethics
d. Alternative Courses and Action

• Instead of concealing their massive debts; Enron Corp must

be more transparent and stop being arrogant and believing
that they could handle increasingly greater risk without
encountering any danger.
• Appoint top leaders that are honest that can be a role model
and Implement code of ethics.
• Avoid giving excessive compensation to the employees.
e. Consequences in Each Action

• Exposing their true state - this action might leave stain to their
company but won't give them scandalous issues to the
company as well as to its members.
• Appoint top leaders that are honest that can be a role model
and implement code of ethics - it might be hard to find and in
terms of code of ethics some members might not obey to it.
• Avoid giving excessive compensatipn to the eployees - some
employees might not be motivated to their works.
 V. Summary/ Findings

In summary, top officials at Enron abused their power and

privileges. They manipulated information while engaging in
inconsistent treatment of internal and external constituencies.
These leaders put their own interests above those of their
employees and the public, and failed to exercise proper
oversight or shoulder responsibility for ethical failings.
 VI. Conclusion
Therefore, there is a need for the directors to follow particular
examples in following matters:
• First, there should be a healthy corporate culture in a company.
In Enron’s case, its corporate culture played an important role
of its collapse. The senior executives believed Enron had to be
the best at everything it did and the shareholders of the board,
who were not involved in this scandal, were over optimistic
about Enron’s operating conditions. When there existed
failures and losses in their company performance, what they
did was covering up their losses in order to protect their
reputations instead of trying to do something to make it
correct. Therefore, the “to-good-to-be-true” should be paid more attention by directors of
board in a company.
• Secondly, a more complete system is needed for owners of a
company to supervise the executives and operators and then
get the idea of the company’s operating situation. There is no
doubt that more governance from the board may keep Enron
from falling to bankruptcy. The boards of directors should pay
closer attention on the behavior of management and the way of
making money. In addition, Enron’s fall also had strikingly
bad influence on the whole U.S. economy. Maybe the
government also should make better regulations or rules in the
economy.
 • Thirdly, “Mark to market” is a plan that Jeffrey Skilling and
Andrew Fastow proposed to pump the stock price, cover the
loss and attract more investment. But it is impossible to gain in
a long-term operation in this way, and so it is clearly immoral
and illegal. However, it was reported that the then US Security
and Exchange Commission allowed them to use “mark to
market” accounting method. The ignorance of the drawbacks
of this accounting method by Securities and Exchange
Commission also caused the final scandal. Thus, an accounting
system which can disclose more financial information should
be created as soon as possible.
 • And fourthly, maybe business
ethics is the most thesis point people doing business should
focus on. As a loyal agent of the employer, the manager has a
duty to serve the employer in whatever ways will advance the
employer's self-interest. In this case, they violated the principle
to be loyal to the agency of their Enron. Especially for
accountants, keeping a financial statement disclosed with true
profits and losses information is the basic responsibility that
they should follow.