Enron Case: Question answer. 1. What lead to the eventual collapse of Enron under Lay and Skilling?

Enron Case: Question answer.

1.      What lead to the eventual collapse of Enron under Lay and Skilling?

All the fraud activities conducted by Lay and Skilling and bad corporate culture led to the Eventual collapse of Enron. Both were aware of the Enron Code of Ethics but they did not follow it. Kenneth Lay former CEO was indicted on 11 criminal counts of fraud and making misleading statements. Jeff Skilling was indicted on 35 counts of wire fraud, securities fraud, conspiracy, making false statement on financial reports, and insider trading. Hence both were responsible for collapse of Enron.

2.      How did the top leadership at Enron undermine the foundational values of the Enron Code of Ethics?

Enron numerous executives such as former CEO, former chief financial officer and treasurer who forced company to the bankruptcy were found guilty after the bankruptcy. They were engaged in money laundering, fraud and conspiracy. In this manner Enron’s leadership undermine the company’s expressed Enron Code of Ethics i.e. respect, integrity, communication and excellence.

3.       Respect: given Kenneth Lay’s and Jeff skilling’s operating beliefs and the Enron Code of Ethics, what expectations regarding ethical decisions and actions should Enron’s employees reasonably had?

The Enron’s employees must had thought that senior management executive and top level management  are not concerned about the business ethics since they themselves were doing unethical things such as frauds, money laundering etc. The employees then automatically get the sense of freedom for doing unethical activities. Therefore there must be no value for Enron Code of Ethics in the eyes of the Enron’s employees.

4.      How did Enron’s corporate culture promote unethical decisions and actions?

The employees believed that they could deal with extra risk without any danger until they don’t get caught. Even if they got caught then also they could ask for second chance. The corporate culture took very less efforts to promote the code of ethics. Instead the company gave more emphasis on decentralization and there were inadequate operational and financial controls. They inflate the contracts and hided the losses.

5.      How did the investment banking community contribute to the ethical collapse of Enron?

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. Enron secured new prepays to pay off existing one and to support rapidly expanding investments in new business.

6.      Could another Enron occur now? Why or why now? Explain.

These days, all the company tried to hide their debts and show high profits in other to sustain and to avoid them from the bankruptcy. Therefore, another Enron could occur. Talking about bad corporate culture and fraud that Enron chief Executive officer had conducted, another Enron could not occur.