Enron Case Answer 2m115d

Enron Case Answer Question 1. What lead to the eventual collapse of Enron under Lay and Skilling? We can conclude that the illegal or fraud activity conducted Lay and Skilling are lead to the eventual collapse of Enron. Even though there is Enron Code of Ethics applied in Enron 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. 1)There are several reasons that eventually led to Enron’s collapse: a) A corrupt leadership at the top. Numerous Enron executives were charged with criminal acts, including fraud, money laundering and insider trading. Ben Glisan, Enron’s former treasurer was charged with two dozen counts of money laundering, fraud and conspiracy. Andrew Fastow, Jeff Skilling and Ken Lay were among the most notable top-level executives implicated of Enron’s collapse. Fastow, former Enron chief financial officer (CFO), faced 98 counts of money laundering, fraud and conspiracy in connection with the improper partnerships he ran, which included a Brazilian power plant project that was aided by Merrill Lynch, an investment banking firm. Skilling was indicated on 35 counts of wire fraud, securities fraud, conspiracy, making false statements on financial reports and insider trading. Lay was indicted on 11 criminal counts of fraud and making misleading statements. He died in 2006 (Weiss, 2009). b) A corporate culture that ed unethical behavior. Enron listed its core values as: Communication, respect, integrity, excellence (Enron Annual Report, 2000). Examples revealed that the culture stood opposed to these core values. Instead of reinforcing the code of ethics and the list of core values, the actions of leadership established a culture of greed and pride. Examples: Skilling implemented a very rigorous and threatening performance evaluation process for all Enron employees. Known as “rank and yank”, the annual process...

The eventual collapse of Enron under Lay and Skilling was due to leadership of top management and corporate governance issue that lead to the corporate culture of the company. It was not the doing of one person but a group of them and an ineffective system. The exercises done by Lay and Skilling is hard to prove that they were violating laws, but it is the two of them that created the corporate culture that portraits their beliefs and in Still them into the corporation. But it would be safe to say that the two were the one who were portraying as pushing the envelope. What Lay and Skilling practices in the corporation is a total contrast with the code of ethics of Enron. Enron’s ethics code was based on respect, integrity, communication and excellence. The core of these values was to enhance trust and transparency to the public by gaining their confidence through the integrity of its workforce. The activities of top management, Lay and Skilling, not only did not adhered to the values of respect, integrity, communication and excellence articulated in the Enron Code of Ethics but totally undermine the foundational values of Enron Code of Ethics. The problem does not lie within the Code of Ethics of Enron; in fact,

the code of ethics of Enron is well structured and strong, but is that the top management did not walk the talk. Lay and Skilling sidestep to the Code of Ethics and conducted the business of Enron under their own corporate culture. That is with greed and intimidation. The top management was constantly pushing its employees to meet the sales target regardless of ethical behavior. The unspoken message was, µMake the numbers if you steal, if you cheat, just don’t get caught. If you do, beg for second chance, and you’ll get one. This aggressive earnings management style forces employee to try to achieve targets regards of any moral and ethical value. To the employee’s understanding is that if the top management and other employees are doing it, then it must be alright. The leadership of Enron plays an important part in defining it employee’s ethical behavior. A perception that if everyone is doing and is being rewarded then it is alright, it is not about illegality but about the morality and ethics of all of those involved. Lay and Skilling has made it culture where it influenced employee into believing that what they were doing was legal although it was immoral and quite unacceptable in normal circumstances. Besides that, Skilling also implemented a very rigorous.

The main points of bad leadership that explains the demise of Enron are as follows: 1. The working environment – Enron favored a system called “yank and rank”, in which the employees who had the best credentials, who earned the most, and were the most noticeable in the eyes of the management, were promoted very quickly with no regard to the amount of experience they had or whether they were suited for the leadership role. This created an environment which harsh competition, in turn making it hard for employees to develop other important business skills, such as working in a group, or seeing things beyond immediate profit. Also, the “yank and rank” system caused people who were not necessarily suited for leadership roles to get to the top very quickly, creating a vicious cycle in which the company was not led by people who knew the importance of “good followership”, an important factor to the smooth running of a company. 2. Dishonesty – I think that probably the thing that led to such a huge downfall was the general dishonesty of the company. Even if there was a problem, it is astonishing how no one in the company attempted to do something about it, until one employee was brave enough to point it out in a memo. Part of this is the work environment that I discussed above, but the fact that the leaders of the company were not competent enough to do what was good for the company must also be considered. A good leader would have recognized that not addressing the problems and covering over would eventually lead to the demise of the company – yet the Enron management failed to do so. I think that another Enron can very well happen – it is incredible how blind people can get when they attain huge power and have so much more to lose than the average person. The Enron case served as a good lesson to many for a decent period of time, yet we still have corruption in business and government. Obviously, not enough people have learned from Enron’s disaster.

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.

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.