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Corporation Enron (former symbol of ticker NYSE ENE) was the American power company based in Houston, Texas. Before its bankruptcy in the end of 2001, Enron used approximately 22 000 and was one of a leading electricity in the world, natural gas, pulp-and-paper, and the companies of communications, with demanded incomes almost $101 billion in 2000. Fortune by name of Enron "the most innovative Company of America" within six consecutive years. In the end of 2001 it has been shown that its financial condition on which inform, has been supported essentially institutionalized, regular, and has creatively planned the accounting swindle known as "scandal Enron". Enron since then became a popular symbol of deliberate corporate swindle and corruption. The scandal also brought in a question practice of the reporting of many corporations everywhere across the United States and, was the factor in creation of law Sarbanes-Oxley 2002.
Lay and Skilling
Scandal, by definition, is a case which involves statements about offence, a shame, or a moral arbitrariness. In other words, scandal is caused by lacks of ethics. Enron's Ken Lay, Jeffrey Skilling and Andrew Fastow everyone participated in unethical methods in their various positions of leadership in Enron and has forced thousand serving Enron and investors to lose the savings.
Kenneth Lay has shown all signs transformational the leader early in his career. Lie has begun as well as for ever remained the true defender for the free markets and cancellation of the state control of the markets. It had a vision of the free market of energy which will be more favorable than the burdened market adjusted by the government. Kenneth Lay used the considerable political influence received from its friendship with a family of Bush to further its agenda of cancellation of the state control. Vision Lay of the misadjusted market, it would seem, will sadden its ethical judgment in the future.
In the aftermath of Enron's bankruptcy filing, numerous Enron executives were charged with criminal acts, including fraud, money laundering, and insider trading. For example, Ben Glisan, Enron's former treasurer, was charged with two-dozen counts of money laundering, fraud, and conspiracy. Glisan pled guilty to one count of conspiracy to commit fraud and received a prison term, three years of post-prison supervision, and financial penalties of more than $1 million. During the plea negotiations, Glisan described Enron as a "house of cards."
Enron's ethics code was based on respect, integrity, communication, and excellence. These values were described as follows:
Respect. We consider others as we would like to be considered directly. We do not suffer offensive or disrespectful processing. Cruelty, roughness and arrogance do not belong here.
Integrity. We work with clients and prospects openly, fairly and sincerely. When we will tell that we will make something, we will make it; when we say that we should or do something then we will not do it.
Communications. We have an obligation to communicate. Here we do not hurry up to speak with each other... And to listen. We believe that the information intends to move and that the information moves people.
The superiority. We are satisfied not than other as very much the best in all that we do. We will continue to lift a bar for all. The big entertainment here will be for all of us to find out only, how much good we can to be really.
The activities of Skilling, Fastow, and Lay cause questions on how close they adhered to values of respect, integrity, communications, and the superiority clearly formulated in Moral code Enron. Before crash when Bethany McLean making investigation the journalist for magazine of the Condition, prepared article how Enron has made its money, she named then-president Enron, Jeff Skilling to search for its explanation "almost incomprehensible financial reports." The extension became McLean raised with inquiry, has told to it that the interrogation line was unethical, and McLean was afflicted. Shortly after that Andrew Fastow and other two key heads have gone to New York to meet McLean, ostensibly to answer its questions "completely and precisely."
Fastow participated in several actions which throw down a challenge to basic values of the code of ethics of the company. Fastow has tried to hide, how it is extensive Enron has been involved in trade for the simple reason that at the trading companies is it is integral the changeable income which is not rewarded in the share market with an appreciation - and the market appreciation was essential to obstacle Enron to collapse. Other enterprise Fastow adjusted also the operational associations named transactions with the participating parties to have business relations with Enron. In the course of the permission of Fastow to establish and operate these very profitable private associations, board Enron and the higher executive management of a distance of Fastow clearing of the code of ethics of the company.
Each division Enron and business unit has been kept separate of others and as a result very few people in the organization had "a big picture" prospect of operations of the company. Support of this accent on decentralization was the insufficient operational and financial control just as "the distracting chairman based on non-interference, obedient board of directors, and powerless staff of bookkeepers, auditors, and lawyers."
Jeff Skilling has carried out very strict and menacing process of an assessment of works for all employees Enron. Known as "the category and jerk," annual process used estimations of the peer, and each of company divisions has been any way compelled to dismiss the lowest one fifth rankings of the employees. Employees often estimated the peers more low to increase their own positions in the company.
The plan of indemnification of Enron "seemed focused to enrichment of heads instead of making profit for shareholders" and encouraged people to break rules and to inflate value of contracts even thus that no actual cash has been made. The program of the award of Enron encouraged uses of non-standard practice of the reporting and the inflated an estimation of transactions on company books. Really, transaction inflation became widespread within the company, as associations have been created exclusively to hide losses and to avoid consequences fairly owning up to problems.
According to investigative reporters McLean and Elkind, "One of the most sordid aspects of the Enron scandal is the complicity of so many highly regarded Wall Street firms" in enabling Enron's fraud as well as being partners to it. Included among these firms were J.P. Morgan, Citigroup, and Merrill Lynch. This complicity occurred through the use of prepays, which were basically loans that Enron booked as operating cash flow. Enron secured new prepays to pay off existing ones and to support rapidly expanding investments in new businesses.
One of the related party transactions created by Andrew Fastow, known as LJM2, used a tactic whereby it would take "an asset off Enron's hands-usually a poor performing asset, usually at the end of a quarter-and then sell it back to the company at a profit once the quarter was over and the 'earnings' had been booked." Such transactions were basically smoke and mirrors, reflecting a relationship between LJM2 and the banks wherein "Enron could practically pluck earnings out of thin air."
I think no. Because this law considerably toughens requirements to the financial reporting and to process of its preparation - result of the numerous corporate scandals connected with unfair managers of large corporations. If this law had been in effect before this corporation was collapsed it would a working company and employees are not cheating. This law protecting investors and look for the corporation's .Also the most important reason of creating the Sarbanes-Oxley law it's collapsed of Enron Corporation. Also may be employees had been afraid of this law and did not try to do this corruptions. And now Sarbanes-Oxley is perceived as having a positive effect on the industry.
Though I am an optimist by the nature, I do not think that we will ever see day that a corporate governance without scandals. Always there will be people in high positions which have too big ambition, the power or an ego. Though I believe that always there will be corporate scandals, I doubt that we will testify another Enron in the near future. A corporate board of directors is the major protection against a recurrence of an Enron-type catastrophe.
Who else can help to avoid to us another Enron? The answer is more likely clear: management, trustees, groups of the shareholder and regulating agencies. Management duties are obvious enough. The same can be told for trustees.
What concerning duties of shareholders? They obviously have most to lose and should be ever vigilant. The biggest burden goes in institutional investors who are sentry dogs of the funds belonging to a wide range of people, such as civil servants, and retired serviceman's.
One of most visible of institutional investors, who have accepted extremely preventive role which is watching funds of its participants, is the System of Resignation of the Californian Civil servants differently known as CALPERS. They were remarkable trustees of money of the public. As it is possible to see, participation of the shareholder - necessity if we have to avoid future Enron's.
But, what concerning regulators, the government? Certainly they figure. Their main task as I see it, consists in making instructions strong enough, to protect shareholders, but not so serious that they limit competitiveness and profitableness of business.
Though I am an optimist by the nature, I do not think that we will ever see day that a corporate governance without scandals. Always there will be people in high positions which have too big ambition, the power or an ego. Though I believe that always there will be corporate scandals, I doubt that we will testify another Enron in the near future.