Enron and Corporate Ethics Essay

On December 2, 2001, Enron Corporation, then the seventh largest publicly traded corporation in the United States, stated bankruptcy. That bankruptcy saw thousands of Enron employees and shareholders losing their jobs and their investments. Enrons fall sent shockwaves to all corners of the business world. A Fortune four hundred come with with all the appearances of stability and corporate soundness, the companionships collapse was unthinkable. For here was a company who grew by leaps and bounds in so short a time a company who came from abstruseness to national prominence as the worlds largest in terms of revenue.But like anything else if it is besides good to be true it probably is. Unlike most bankruptcies which are caused by poor heed and stiff competition, Enrons demise appears simple enough individual and collective greed. It was shameless greed that motivated company officials to dupe thousands of honest individuals out of their hard earned money money that ran up to jillions (Nakayama, 2002). The bunco was unearthed just like any other scam when people start getting suspicious.Enron was generating a cumulus of revenues it was a smokescreen that allowed the company to attract more investors. period revenue generation was at memorialise highs, profit was scant and minimal a fact many people overlooked until it was too late. Enrons mirage was selling the same things over and over and over again. The illusion was the company was generating this much sales but the reality was on that point was barely any profit made. Like everything else in hindsight, it is now clear that promulgate tale signs were all over Enrons 2000 Annual Report.Still questions remain as to how a company that paraded its own Code of Ethics be so shamelessly unethical, a corporation that prides itself as having a reputation for fairness and honesty be so downright ruthless, callous and arrogant. Beyond the dollars and cents, the Enron debacle offers a new textbook examp le of failed ethics in business (Berenbeim, 2002). ENRONs 2000 Annual Report example signs Most of the investigation on Enrons finances has focused on its balance sheetit describe an otherworldly increase in revenue Between 1996 and 2000, Enron inform an increase in sales from $13. billion to $100. 8 billion a 57% five-year sales growth rate.The company more than doubled its inform sales between 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 next year. Had it by with(p) 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 accounting rules a tactic that whitethorn have been legal, but few investors understood it (Ackman, 2002).Forbes. com goes on to say that Enron earned more than 90% of its revenue from a busin ess it calls wholesale services, Enrons euphemism for trading. Here is how its 2000 annual report describes that activity Enron builds wholesale businesses through the creation of networks involving selective asset ownership, contractual access to third-party assets and market-making activities. Yet again, another warning sign. Footnotes in the annual report for 2000, also show hints of the hidden debt that pushed the company into bankruptcy.According to Businessworld, a footnote on pet stock indicates that if Enrons share price were to fall below $48. 55which first occurred on June 14the company would be obliged to issue stock to a partnership called Whitewing Associates (Tergesen, A. 2002). Other footnotes reveal like arrangements. True, Enron never put a dollar value on its potential obligations, and the footnotes did not divulge the design 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 code it promised to upheld (U. S Subcommittee on Investigations, 2002). In its decision, the Subcommittee cited, among others, the following (1) fiducial Failure. The Enron hop on of Directors failed to safeguard Enron shareholders and contributed to the collapse of the seventh largest public company in the United States, by allowing Enron to get in high peril accounting, inappropriate conflict f interest transactions, extensive undisclosed off-the-books activities, and ebullient executive hire.The Board witnessed numerous indications of questionable practices by Enron management over several years, but chose to drop them to the detriment of Enron shareholders, employees and business associates. (2) High Risk Accounting. The Enron Board of Directors knowingly allowed Enron to engage i n 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 party boss 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 conduct billions of dollars in off-the-books activity to make its pecuniary condition appear better than it was and failed to visualize adequate public disclosure of material off-the-books liabilities that contributed to Enrons collapse. 5) Excessive Compensation.The Enron Board of Directors approved excessive compensation for company executives, failed to monitor the cumulati ve cash drain caused by Enrons 2000 annual bonus and cognitive process unit plans, and failed to monitor or halt abuse by Board Chairman and Chief executive director Officer Kenneth Lay of a company-financed, multi-million dollar, personal credit line. (6) Lack of Independence. The independence of the Enron Board of Directors was compromised by financial ties between the company and certain Board members.The Board lso failed to ensure the independence of the companys auditor, allowing Andersen to go out internal audit and consulting services while serving as Enrons outside auditor. Conclusion While Enrons officials were caught and brought before 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 form of business decorum there will always be an Enron story. permits hope that people will not forget that s tory and profit from it.