Student help center: Case 1: Enron Corporation (Reflection paper)

SABITA BARAL

Case 1: Enron Corporation (Reflection paper)

Enron Corporation was one of the largest global energy, services and commodities companies, before it filed bankruptcy (Kurdina, 2005). All the officers and employees of Enron Corp., its subsidiaries and affiliated companies were supposed to follow Enron Code of Ethics which was approved by the board of directors. Enron Code of Ethics consists of: Respect, Integrity, Communication and Excellence. In 2000, the reported revenues of the company made $101 billion and approximately $140 during the first three quarters of 2001 to declaring bankruptcy in December 2001. As a result of the scandal, thousands of people lost their jobs, some people lost their entire pensions, and all of the shareholders lost the money that they had invested in the corporation after it went bankrupt.

Enron’s Top Leadership: After the bankruptcy of Enron numerous executives such as former chief financial officer and treasurer were found guilty. They were engaged in money laundering, fraud and conspiracy. They violated the Enron Code of Ethics i.e. respect, integrity, communication and excellence. Andrew Fastow, former CFO, trading companies have intrinsically volatile earnings that aren’t rewarded in the stock market with high valuations on the other hand high market valuation was necessary to maintain Enron from collapsing.

Unethical Corporate Culture: The overall corporate culture depicts the arrogance in each level of the company. The employees believed that they could deal with extra risk without any danger. The undeclared message was you can make as much money you want until you don’t get caught. The corporate culture took very less efforts to promote the code of ethics. Instead the company gave more emphasis on decentralization, employee appraisals and its compensation program. Each Enron division and business unit was separate from others and there were inadequate operational and financial controls. The compensation plant put the employees first rather than its shareholders and buoyant employees to crack the rules and inflate the contracts even though no real cash generated.

Complicity of the Investment Banking Community: Enron was engaged with highly reputed firms such as Citigroup, J. P. Morgan and Merrill Lynch and used prepays. Prepays were basically loans that Enron booked as operating cash flow. The poor performing asset, at the end of quarter used to sell it back to the company at a profit once the quarter was over and the earnings had been booked.