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Every individual within the Enron is responsible for their actions to its bankruptcy. The corporate culture at Enron can be described as a dishonest corrupt culture. In this culture, greed is good and money is everything (Dr. Paul Wong). There was an overwhelming aura of pride, carrying with it the deep-seated belief that Enron's people could handle increasing risk without danger. Corporate officers at Enron seem at best to have been neglectful of their responsibilities for oversight, or, at worst, outright criminal and abusive in their levels of greed and deception. The culture also was about a focus on how much money could be made for executives. For, example Enron's compensation plans seemed less concerned with generating profits for shareholders than with enriching officer wealth.. People like Fastow intimidate people, who threaten to blow the whistle on them. There is little or no regard, for ethics or the law. Such attitudes prevailed through the whole company, from the top down to individual workers, and began by weak ethical management by the top official Kenneth Lay Bribery, cheating, and fraudulent practices were widespread within the organization, and even spread to affiliated organizations like Arthur Anderson (Lay, 2002).
Fraudulent accounting practices and misleading profit reports were common and engineered by senior accountants. Denial, rationalization and reputation management enabled the bad guys to carry on their unethical and often illegal activities, until they were caught red-handed or exposed to the outside market. When management is blinded by greed and ambition, their judgment becomes distorted and their decisions become seriously flawed; as a result, they often cross the line without being aware of it, and Enron serves as a good example. Thus, Kenneth Lay should have been a better molder of corporate culture because corporate culture does matter. Furthermore, Lay should have shaped the culture in such a way that it would stay healthy in spite of turbulent changes in the company. Therefore, managers should not only be trained in technical aspects of running a business, but also in less obvious skills as empathy, communication, validation, conflict management and community building.
Did Enron's bankers, auditors, and attorneys contribute to Enron's demise? If so, what was their contribution?
One part of the fallout from Enron's demise involves its relations with banker, auditor and attorneys. Although the banks knew there was a problem with Enron finance, their underwriting filings on debt issues sold to the public proved that without its bankers, of course, Enron could never remained its schemes on the investing public. Enron's auditor, Arthur Andersen was responsible for ensuring the accuracy of Enron's financial statements and internal bookkeeping. Anderson's reports were used by potential investors to judge Enron's financial soundness and future potential before they decided whether to invest and by current investors to decide about their funds should remains invested there. Former CEO, Jeffrey Skilling, widely seen as Enron's mastermind. He was so sure he had committed no crime that he waived his right to self-incrimination and testified before Congress that was not aware of any inappropriate financial arrangement. Jeffrey McMahon told a congressional subcommittee that he had informed Skilling about the company's off-the-balance-sheet partnership in March 2000, when he was Enron's Treasurer (the fall of enrons, 2005). Enron's auditors knew in mid-August of a senior Enron employee's concerns about improprieties in the energy company's accounting practices, Congressional investigators studying Enron's collapse said today (new York times,2002). Officials of the auditing company, Arthur Andersen, sought guidance from their lawyers then about how to respond, according to the investigators. The disclosure raised fresh questions about Andersen's decision to stand by Enron's financial reports until early November, when the accountants forced the company by then under investigation by the Securities and Exchange Commission to restate five years of results and erase almost $600 million in reported profits (New York Times, 2002). According to Congressional investigators, the Enron employee, Sherron S. Watkins, called a former colleague at Andersen on Aug. 20 and told him of her concerns about the energy company's accounting. About the same time, Ms. Watkins also laid out her doubts in a letter to Enron's chairman, Kenneth L. Lay, disclosed earlier this week by a Congressional committee that warned that the company might be revealed as an ''elaborate accounting hoax.(Richard A. oppel jr, NY Times)
What role did the chief financial officer play in creating the problems that led to Enron's financial problems?
In order to prevent the losses from appearing on its financial statements, Enron used questionable accounting practices. To misrepresent its true financial condition, Andrew Fastow, the Enron's CFO, takes his role involving unconsolidated partnerships and "special purpose entities", which would later become known as the LJM partnership. Taking advantage from the SPEs's main purpose, which provided the companies with a mechanism to raise money for various needs without having to report the debt in their balance sheets, Enron's CFO directly ran these partnerships and designed them to purchase the underperforming assets (such as Enron's poorly performing stocks and stakes). Although being recorded as related third parties, these partnerships were never consolidated so that debt could be getting off its balance sheet and the company itself could boost and have not had to show the real numbers to stockholders. Andrew Fastow was using SPEs to conceal some $1 billion in Enron debt. Overall, according to Enron, Fastow made about $30 million from LJM by using these partnerships to get kickbacks which were disguised as gifts from family members who invested in them and enriching himself. His manipulation of the off-balance-sheet partnerships to take on debts, hide losses and kick off inflated revenues while banning employees' stock sales( International Swaps and Derivatives Association)
Fastow is the highest ranking executive to suggest his bosses may have known about the fraud and misconduct that helped bring down the nation's seventh largest company (CBS news 2006). Fastow designed a complex web of companies that solely did business with Enron, with the dual purpose of raising money for the company, and also hiding its massive losses in their quarterly balance sheets. This effectively allowed Enron's audited balance sheet to appear debt free, while in reality it owed more than 30 billion dollars at the height of its debt. While presented to the outside world as being independent entities, the funds Fastow created were to take write-downs off Enron's books and guaranteed not to lose money. Yet, Fastow himself had a personal financial stake in these funds, either directly or through a partner (elisa s. moncarez & raul moncarez)
Fastow made tens of millions of dollars defrauding Enron in this way, while also neglecting basic financial practices such as reporting the 'cash on hand' and total liabilities. Fastow pressured some of the largest investment banks in the United States, such as Merrill Lynch, Citibank, and others to invest in his funds, threatening to cause them to lose Enron's future business if they did not. Fastow also reportedly got these firms to fire their analysts who dared to rate Enron negative ratings. The Securities and Exchange Commission, which is investigating Enron and Andersen's auditing of its books, filed an action in federal court today seeking to compel Enron's former chief financial officer, Andrew Fastow, to comply with a subpoena the SEC issued to him on Oct. 31. Fastow was the lead architect of complex partnerships that allowed Enron to keep some $500 million in debt off its books and let executives profit from the arrangements (US Securities and Exchange Commission 2001).