REFLECTION ON ENRON’S FINANCIAL SCANDAL

Derecho, Aedrian Lee G. Ms. Bernadette K. Dimzon,

Introduction

Businesses are an important sector of our society and government. Managed by highly intellectual and
experienced people, businesses are the growth drivers of our economy. They are the source of wealth,
jobs, products, and services of the community's people. On the other hand, these institutions can lead to
a furious change in society.

People usually spend their time working and interacting with others inside the company's facilities;
people tend to cope and change according to the area's norms and culture. Also, the company policies
and norms affect the behavior of its employees. Furthermore, the top management's views and points in
decision-making may also affect its employees' point of view.

In Enron's case, employees, especially traders, create some unfortunate actions towards other vital
society players. Top management's thoughts, such as Skilling and Fouler, became the catalyst for the
employees' tenacious decisions and actions. The relation and interaction between Enron's employees can
also describe or interpret their behavior. Furthermore, key employees such as accountants, managers,
supervisors, and chiefs start to commit fraudulent actions and decisions to earn higher and more
significant amounts of money. Thus, unethical decisions began to nourish every employee in the
company. With this condition, the fall of Enron began.

Actual Activity of Enron Corp.

In 2002 Enron Corp., an energy trader, was marked as one of corporate America's biggest scandals.
Within a year, the company had gone from being one of the most innovative companies of the late 20th
century to being deemed a byword for corruption and mismanagement. According to CNN, Enron shares
were worth $90.75 at their peak in August 2000 and dropped to $0.67 in January 2002. Due to their
downfall, the top ten Enron executives sold their company stock. Moreover, the lower-level employees
were prevented from selling their stock due to 401k restrictions, and many subsequently lost their life
savings. On the other hand, Enron's top 140 executives received $680 million in 2001, and Kenneth Lay
and Jeffrey Skilling were given $67.4 million and $41.8 million consequently.

As mentioned by Britannica, Enron was formed in July 1985 when Texas-based Houston Natural Gas
merged with InterNorth, a Nebraska-based natural gas company. The new company was just a natural
gas provider in its first few years, but by 1989 it had begun trading natural gas commodities, and in 1994
it began trading electricity. In energy trading, the company introduced several revolutionary changes. It
changed the nature of the energy markets, which were being deregulated in the 1990s, and opened the
door for new power traders and suppliers. For the first time nationwide and ultimately global, Enron
modified electricity and natural gas contracts to reflect the delivery cost to a specific destination.
Through this, the company launched Enron Online, an Internet-based system in 1999, and executed
online trades worth about $2.5 billion a day in 2001. Enron targeted the state of California as it was
vulnerable to numerous blackouts and electricity problems. Knowing this, Enron continued to sell its
product to the people of California.

Enron's success was indeed known to the public as they were listed as top companies in America, and
the shares of stocks were increasing. However, Enron's balance sheet did not make sense to the analysts.
The public did not know that Enron began shuffling much of its debt obligations into offshore
partnerships by the late 1990s. Most of these partnerships were made possible by the Chief Financial
Officer, Andrew Fastow. Furthermore, the company was reporting inaccurate trading revenues. The
traders' schemes in making a false data were: linking up a buyer and a seller for a futures contract, and
then booking the entire sale as Enron revenue and using the fake partnerships to sell contracts back and
forth to itself and booking revenue each time.

In February 2001, the president and chief operating officer, Jeffrey Skilling, took over as Enron's chief
executive officer, while former CEO Kenneth Las stayed on as a chairman. However, in August, Skilling
immediately resigned, and Lay resumed the CEO role. This was a red signal to the stakeholders since the
CEO usually announced his/her retirement months before to prepare the changes that the company
would be having.

The Securities and Exchange Commission had begun an inquiry into Enron and the offshore
partnerships by October 22. The simple inquiry was then becoming full investigation after a week. By
mid- 2002, Enron, the once-mighty company, was in its fall. It had been sold off to the European bank
UBS Warburg in January. Furthermore, top Enron officials were subpoenaed to testify before
congressional hearings. The majority of Enron's employees were unemployed, and their stock plans had
become almost worthless.

So, where are they now? Lay was convicted of 10 counts of fraud and conspiracy in two cases
against him, facing up to 165 years in prison. However, he died of a heart attack while on holiday skiing
in rural Colorado in July 2006. Today, Skilling, who is the longest ever given for a white-collar criminal at
the time, could be out of prison as early as 2017 with good behavior. In comparison, Fastow served ten-
year prison and is now traveling worldwide to talk about the Enron scandal.

Insights

"Just as character matters in people, it matters in organizations," says Justin Schultz, a corporate
psychologist in Denver. This does hold on what had happened to Enron, one of the most innovative
companies in America. Enron's collapse can be seen as the result of its frangible ethical values. With the
collapse of Enron, it had not only brought the company to bankruptcy, but it brought with its thousands
of lives of people whose dreams and lives have crumbled.

Former employees of Enron had to face the struggles of finding jobs in a challenging economy. However,
what more saddening is Enron's betrayal whom they have given their service, trust, and loyalty.
Together with other stakeholders, employees felt betrayed by Enron's collapse because they, too, had
been misled by their own company regarding its weakening financial health. Enron's executives told
them how everything's going well with the company's finances, and there is nothing to worry about, and
behind those false assurances, these executives gain, while their employees lost their investments,
benefits, and eventually their jobs. Executives even encouraged these employees not to sell their shares
because they were told that it would go up and rise in value, and they also had issued more options. If
we look closely, it is not just the failure of a once glorious company of a business, but it is the company's
failure to see how enormous the impact of its unethical values is to its stakeholders. It had indeed failed
to perform its fiduciary duties to its employees as it failed to act in their best interests. For the company,
it may have been just business.

Moral of the Reflection

Ethical issues usually go along with temptations and threats. Using specific ethical theories, humans can
be guided in identifying and handling self-interest issues and other unethical issues.

Utilitarianism can be defined as a theory that deals with creating the most significant amount of good
for a greater number of people. Companies such as Enron act unethically because of the senior
employees' decisions, usually to benefit the company. In his opinion, Jeff Skilling's decision to" cook the
accounting books" may be seen as an ideal way to benefit the shareholders by financially portraying the
right image. Nonetheless, this action's consequences were not able to create the most significant
amount of good for the greatest number of people. Instead, this self-interest influenced unethical
decisions through greed and pressure from Wall Street to benefit the management of Jeff Skilling for
personal and financial gain, not just the organization.

Conclusion

The value of ethics and integrity in every organization is significant. It molds the organization's
behavior towards different circumstances. Top executives must take into account other
stakeholders in society. The decisions and course of action must focus not only on the
improvement or growth of the company but also on society's development. Fraudulent actions
like manipulation of financial statements and falsification of documents and events should not be
considered a choice of action. Also, proper appropriation and use of power must be
continuously monitored to avoid unnecessary actions.
Just as Richard Rudden said: "Without them, no strategy can work and, as Enron has
demonstrated, enterprises will fail. That is despite having some of the 'smartest' guys in the
room."
In such a case, Enron's downfall had proven that ethics and integrity within the organization are
necessary to achieve long term success. Each goal of the company must be achieved through
excellent disciplined and morally acceptable actions. Key players of the business must be
knowledgeable about the consequence of their actions. In return, they must be held liable for
their decisions and actions. Furthermore, every employee or worker in an institution must not
think of their self-interest but rather the majority's welfare.
References:
- Enron Fast Facts. (n.d.). Retrieved March 07, 2016, from
http://edition.cnn.com/2013/07/02/us/enron-fast-facts/
- O'Leary, C. (n.d.). Enron-What Happened? Year in Review 2002. Retrieved March 07, 2016,
from http://www.britannica.com/topic/Enron-What-Happened-1517868
- Pettinger, T. (2012) Definition of Deregulation. EconomicsHelp.org. Retrieved from
www.economicshelp.org/blog/glossary/deregulation
- Walsh, C. (2002) Fallen idols of the free market. Guardian News and Media Limited.
Retrieved from http://www.theguardian.com/business/2002/jul/28/enron.madeleinebunting