Enron violated stockholder thesis

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Peer reviews caused mistrust and management was able to get away with many unethical practices with little to no fear of being challenged. This also led to poor decision making and unsavory business practices that eventually imploded Enron. Enron handled its problem by creating fear in its organization and removing those that stood against them. The blatant disparity between these types of companies depicted a clear image of the differences in moral code. When officials, both external and internal, decide to ignore essential ethical practices due to personal greed, it will most likely lead to investor loss whether or not regulations are enforced.

This greed does not benefit the corporation, but instead simply destroys those interested parties that invest in the organization Cunningham and Harris The greed of high placed executives never was intended to actually help the company at all.

What Really Went Wrong with Enron?

Greed caused the downfall of both the corporation by developing a system where no one was actually looking out for the good of the company. The hunger fueled executives to make decisions in their own personal interest, at the sacrifice of the company, which led to the Enron collapse. The continual chase for more money set Enron apart from other more ethical companies and it became apparent where their priorities were.

This company clearly was not like many others. The third truism states that people and the organizations are not the same Crews 1. Both Jim Alexander and Sherron Watkins, employees of Enron, informed Lay that they were going to get into trouble for the ethics break.

The Enron Scandal

Lay ignored these messages and continued business as usual and even denied that there were issues with accounting, trading, or reserves McLean, Birnbaum, and Kahn. Both Alexander and Watkins tried to talk to the top executives and let them know that things were being noticed, but the culture at Enron was to look the other way and keep working. By ignoring the warning signs, Lay doomed the business to eventually fail due to disregarded malpractice and unchallenged illegal activity that soon became realized by the public.

In this example the organization clearly had a different mindset than the two people that had concerns. Partnerships easily and efficiently raised money for Enron, but came at the cost of setting up promises that could later not be kept. For example, Project Braveheart was an idea created with Blockbuster to deliver movies over phone line. The project fell apart not long after its creation, but the profits were never seized Prindle. The investments that Enron made were largely fictional and rarely actually profitable.

They would promise partners money that had also already been guaranteed to a different partner. This eventually came crashing down as investors called in what was owed to them, leading to the Enron collapse. The partners had become part of the organization, but in no way did they want the same things that Enron truly wanted. The partners wanted a profitable relationship for both companies, but the organization just cared about itself. Hence, Enron and its associates were very different. His strong personality, which often was described as arrogance, led to terrible ethical choices and if he thought that he had to change fiscal numbers he would.

These compromises, driven by his reckless personality, crashed the firm into the ground.

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This example works in reverse compared to the other third truism illustrations. In this case it was actually the individual that negatively affected the organization. Skilling shaped the company how he wanted it to be, despite what it cost. The fourth truism focuses on how ethical scandals are often not stopped due to useless in-house and external oversights Crews Deregulation laws in December gave energy traders too much power over prices. Consequently, Enron encouraged power blackouts in California in order to increase the price of reliable energy by up to 20x its normal value Wikipedia.

The deregulation of energy traders led to overconfidence in investments that Enron made because they thought they were in control. The problem with the deregulation was that Enron was trusted to behave ethically. This oversight by officials gave Enron the perfect opportunity to take advantage of the situation and its customers. Internal and external auditing must be done be separate corporations in order to be ethical.


Arthur Anderson acted as both roles for Enron and in turn allowed them to partake in many practices that would normally not be acceptable. Anderson ignored the unethical business practices and instead supported a corporation paid for their massive consulting fees Cunningham and Harris The accounting shortcuts they used to satisfy Enron were illegal and once discovered, caused the Enron collapse. Anderson was clearly in a conflict of interest and should not have been allowed to do the financial statements of Enron.

If there were better restrictions in place the ethics scandal would not have been able to happen.

Enron strategically stacked its house with political representatives, well-connected up-and-comers, and well-known public figures. They placed people of similar mindset in the board of directors and audit committee in order to have someone in their corner when they needed them Chandra By hand picking the people of importance in their environment, Enron was able to break the rules when they needed to. Having their people on the board of directors and audit committee allowed them to essentially do what they needed to provide results, which directly led to many illegal activities, and consequently the breakdown of Enron.

Regulations should have stopped Enron from placing their own people in external positions of power. The conflict of interest begged for abuse of the rules. Enron, as a company, completely fell apart after the collapse. The stock prices fell to mere pennies and all consumer and financial buoyancy was lost. Shortly after, Enron declared bankruptcy Prindle. Those that had their pension funds financed in the company lost almost everything.

Consequently, the SEC and Congress worked swiftly to begin immediate restructuring to reduce losses like those experienced, in the future Cunningham and Harris Money entrusted in the company in retirement savings or investments disbanded overnight. After the collapse, the SEC stated that they would try and recover as much of the lost money as they could in their judicial system The New York Times.

Enron executives also felt the consequences of the collapse. Skilling was charged with 24 years in prison due to mostly charges of securities fraud. Lay was charged with 45 years in prison, but died before the sentence was scheduled. Fastow was sentenced to 10 years in prison with no parole Wikipedia. Creditors involved with Enron struggled to receive all of the money that was owed to them. When its last business was sold, it left Enron without any assets. The first lesson that I learned was that there needed to be significant reforms in the accounting practices that corporations utilize.

It is not enough to assume that they are doing the right thing and it is important to always be skeptical Crews 1.

Enron Of Enron And Enron

Conflicts of interest are an extremely detrimental crutch in accounting and it made the Enron collapse essentially imminent. By restricting which accounting firms can provide services to an organization and also controlling how those firms are getting paid is a good step in eliminating conflicts of interest.

The second lesson is that the ethical choices of corporations need to be more closely monitored. We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. You can change your ad preferences anytime. Upcoming SlideShare. Like this document? Why not share!


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The Enron Scandal - A Simple Overview

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Enron, Ethics And Today's Corporate Values

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I would like to thank my project supervisor and guide Miss Purnima Sarkar, the FacultyMember, AMITY Global Business School, Bhubaneswar, for his invaluable guidance andassistance in preparing the project report and also contributing a lot for accomplishment ofthis project. I am also expressing my indebtedness to my parents and my friends who gave their full-fledged co-operation for the successful completion of project.

Purnima Sarkar, the Faculty Member, Amity Global Business school, Bhubaneswar All thedata furnished in this project report are authentic and genuine and this report neither full norin part has ever been submitted for award of any other degree to either this university or anyother university. Date: Miss.

enron violated stockholder thesis Enron violated stockholder thesis
enron violated stockholder thesis Enron violated stockholder thesis
enron violated stockholder thesis Enron violated stockholder thesis
enron violated stockholder thesis Enron violated stockholder thesis
enron violated stockholder thesis Enron violated stockholder thesis
enron violated stockholder thesis Enron violated stockholder thesis

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