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Enron Case Study

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by

Brenda Kathurima

on 7 May 2012

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Transcript of Enron Case Study

COUNT #1: RESPECT COUNT #2: BUSINESS ETHICS Hostile Corporate Culture

“rank and yank”
inside rivalry and competition; rewarded innovation, punished those deemed weak
breaking of laws and rules without consent to supervisors was acceptable as long as they yielded high profits

Arrogant Leadership
Skilling (CEO) states "I will eat your lunch"
private staircase to executive offices

Absence of Humility
Slogan change from "World's Leading Energy Company" to "World's Coolest Company" Stakeholder Deception

Special Purpose Entities (SPEs) were used to cover Enron's debts
losses were unreported on Enron's balance sheets and income statements
distorted perception of the health of the company

"Mark-to-Market" Accounting
claim projected profits of current assets
illusionary profits 1985 Enron was formed in 1985 by CEO, Kenneth Lay when he merged two companies, Houston Natural Gas with InterNorth COMPENSATION WELL-BEING OF STAKEHOLDERS (cc) photo by medhead on Flickr Enron’s code of ethics
included provisions on:
integrity
respect
ethical behavior 1997 Andrew Fastow (CFO) establishes SPECIAL PURPOSE ENTITIES
off balance sheet partnerships that isolate firm from financial risk
accounting fraud and deceptive financial statements
hide debt and inflate profits to keep stock prices high and rising 2001 Enron announces $638 million in third-quarter losses
stock prices start decreasing
Enron lacks financial capital to pay off debts
$1.2 billion reduction in shareholder equity

Chapter 11 Bankruptcy
Largest bankruptcy of a publicly held company in history The Downfall of Enron 1. live your corporate values
treat ethics as more than an artifact
Enron Ethics-contradiction between words and deeds
2. Establish an Ethics Committee
keep the organization focused on the seven main provisions of the Federal Sentencing Guidelines of 1991
Examine your ethical climate and put safeguards against unethical behavior in place
elimate opportunities for arrogance, greed and foolishness to manifest
3. Maintain a balance between profit maximization and stakeholder interests ... small With deregulation of power markets, the company begins focusing on financial trading of energy, electricity and bandwidth Top Managers convicted of several counts of:

fraud
conspiracy
money laudering
insider trading
obstruction of justice 1990s Record of Arrest and Prosecution $100 billion annual revenues
sixth largest energy company globally
largely due to high Enron stock prices 1998-2000 BUSINESS ETHICS
Advertising and promotion will be truthful, not exaggerated or misleading Code of Ethics, p. 12 INTEGRITY
We work with customers and prospects openly, honestly and sincerly. Code of Ethics, p. 4 EXHIBIT A RESPECT
We treat others as we would like to be treated ourselves. We do not tolerate abusive or disrespectful treatment. Ruthlessness, callousness and arrogance do not belong here. Code of Ethics, p. 4 We the UIU
declare the defendant,
Enron.... 2001-2006 COUNT #3: INTEGRITY California Electricity Crisis of 2000

Enron created artificial shortages
energy traders shut down power plants during peak hours for "maintenance"

Manipulation of energy market
created a demand supply gap
enables power to be sold at premium prices
20 times its normal values

Cost California residents $40 to $45 billion DOING THE
RIGHT THING?????? of 3 counts
of wrongdoing! "Do the right thing...before you're forced to."
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