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Enron was an American based energy company that was considered one of the largest in the world. The company headquarters was in Houston Texas. The company was involved in a scandal that destroyed the organization, requiring it to file bankruptcy and dismiss all of there employees. Enron's accounting scandal occurred because the companies' management was corrupt and selfish. They acted on the interest of an elite few rather than the best interest of the company. The people in leadership positions only thought of themselves and not the other employees. This type of behavior was the downfall for this multi- million dollar corporation. In the movie Enron, The smartest guys in the room, company leadership clearly stated over and over again to the other employees that the company was doing great and that there was nothing to worry about. Employees believed what they were told and by the time they figured something was wrong, they were already out of a job and retirement benefits. There was nothing left for them to fall back on.
In 1985 Houston Natural Gas merges with Omaha, Neb.-based InterNorth to create the company that would eventually be named Enron Corp. The deal integrated several pipeline systems to create the first nationwide natural gas pipeline system (chron, 2002). Ken Lay was the chief executive officer for this corporation. Enron was destroyed from the inside out and he and his executive management team was to blame. Management knew that the company was in financial trouble and did nothing about it. It is the chief executive officer's main responsibility to ensure that the company is being run in an ethical manner and that if there is anyone found to be in violation of these ethical standards then they should have been punished.
An example of one of Enron unethical practices is when they bought the shares of National Westminster Bank (NatWest) in a limited partnership with Credit Suisse First Boston. Enron paid $20 million, but only $1 million went to NatWest. The remainder of the money went to several executives and their families, as well as to three NatWest employees who were in on the deal (lawyershop, 2008). Although top level executives at Enron were most likely aware of the debt and the illegal practices, the fraud was not revealed to the public until October 2001 when Enron announced that the company was actually worth $1.2 billion less than previously reported. This prompted an investigation by the Securities and Exchange Commission, which revealed many levels of deception and illegal practices committed by high-ranking Enron executives, investment banking partners, and the company's accounting firm (lawyershop, 2008).
Enron had a safeguard in place. It was their code of ethics, but since management did not enforce these standards, then the code of ethics were not found to be of any use. A code of ethics is to ensure that a company complies with state and federal regulations. In many cases organization suffer because the channels of communication are not there. In this company's case there was communication but it was false communication. Employees were receiving false information from management. Junior employees were being tricked into thinking that falsifying documents and financial figures was the way to maintain the companies' competitive advantage and to keep funds coming in.
Congress enacted the Sarbanes-Oxley Act of 2002 and one of the main reasons this act was created was due to the Enron scandal. In the past there was not a law in place that hold organizations responsible for their accounting practices. This law holds organizations accountable for their documentation of financial records. It ensures that companies accurately report all of their financial figures and also informs them that there will be criminal charges for those that are found in violation of this law.
The employees of this company lost everything. Many of them worked for years to ensure that when they retired they would be able to receive financial befits for themselves and their families. All the money that Enron made went into the pockets of their corrupt management, including retirement benefits. When the company went bankrupt, management became rich and the employees were out of jobs and out of their benefits. This was a very sad situation for the employees.
Employees at Enron had 401k plans, but the money was going directly into the stock for the company. The way the 401k plan works is that every time an employee gets paid, money is deducted out before taxes and put into a retirement fund that is controlled by the company. A control measure that can be taken in the future to prevent what happened to these employees from happening again is for organizations to give employees full control over their own 401k plans. When this is done it will allow employees to open up a 401k plan at their own bank and the organization will have no control over the funds that are going into that account (Benett, n.d.).
The federal government had no idea what was going on at Enron until it was too late. After the scandal, the federal government could have ensured that innocent Enron employees received some form of compensation package for being involved in a scandal that they were completely unaware of. Former employees were just left out to hang and many of them had nothing to do with the scandal. Guaranteed employment could have been promised by the government at another corporation. Guaranteed employment is a major task and promise, but in reality it can be accomplished in a very effective manner.
Enron was a corporation that was at a level of excellence in the business world. There were no other businesses that could compete with them. This company was once an icon in the business world and now serves as an example of what not to do. The lesson that should be taken from the fall of Enron is to not conduct business in an unethical manner. Employees as well as the organization can pay for a mistake that was not corrected at a controllable level.
Chron (2002) Enron Timeline. Retrieved August 15, 2008 from http://www.chron.com/disp/story.mpl/special/enron/1127125.html
Lawyershop (2008) Enron Fraud. Retrieved August 15, 2008 from http://www.lawyershop.com/practice-areas/criminal-law/white-collar-crimes/securities-fraud/lawsuits/enron/
Bennet, J. (n.d.) 401(k) Retirement Plan: The Smart Way to Secure your Future. Retrieved August 15, 2008 from http://www.mortgagefit.com/401k.html