Case Study analysis Report

The Lesson from Enron Case – Moral and Managerial Responsibilities

• Background of the Case

The Enron Corporation was founded in 1985, a Texas-based American power corporation when two major oil and gas businesses, Natural Gas Co. and InterNorth Inc.,. The company was established in 1964. During Enron’s businesses, it has become a globally known company that is one of the most successful in natural gas, energy, and communications goods and services related to retail and wholesale. In the US, it started trading with energy trading plans, entered the water industry and grew into a global company. CEO Ken Lay advocated the reform of its energy system and intended to build power plants in the US and UK in preparation for it. During its growth in 1999, the McKinsey consultant Jeff Skilling of Enron created an electronic commerce site focusing on selling products and services that contributed to Fortune’s six years in a row from 1996 to 2001, which entitled itself to be ‘The Most Innovating Company’ (AppliedCG, 2016). Business executives of Enron aspired to enter the water sector. They intended to build on their external footprint by buying a major water firm in the UK that intends to expand the water industry to Argentina. While Enron continued to expand with new technology, Enron did not have enough funds to fund all its ambitious work (Knights, 2005).

Rational

The dotcom boom ended in 2001 and the internet business of Enron should be shut down. At the same time, worldwide energy businesses began to go awry; California’s privatization experiment failed to decrease the supply of electricity, which subsequently started to drop. The stock share price began to decrease. Thomas (2002) calculated that Enron’s stock costs decreased between mid-2000 and the end of 2011 from $90 per share to below one dollar. The collapse caused Enron to be unable to pay compensation provisions and brought many creditors to quit backing it, putting Enron in a position of 100 million dollars in serious debt. Enron was entitled to declare collapse by December 2001 without any banks or creditors backing it (Hosseini, 2016).

• Issues raised in this case

The issues addressed in this case pertain to conflicts of interest, financial fraud, integrity and moral liability. Enron’s management attempted to conceal financial difficulties to preserve his once-perfect image as America’s most efficient manager and refused to let stakeholders know that they were in financial trouble and infringed on all responsibility. There started to be accounting problems, which placed Arthur Anderson under the focus as Enron’s consulting and auditing firm (Seeger, 2003). Employees at Anderson have verified that Enron documents have been lost. This revelation strongly adversely affected the entire quality of the audit services of Anderson, which impacted the price of their customers and concluded with an unreputable reputation.

As Enron traders were compelled to estimate a higher net actual value based on dealing, the revenue projection was unlikely. “Enron’s advantage was the difference between the measured net present value and the originally paid value,” which was frequently overstated and overrated. Enron CFO Andrew Fastow and NatWest three established Swap Sub (SPE) to transform debt into profit, but they left it out of financial performance. SPE is a unique company. The idea that debt fell with increasing income was misleading to the stakeholders. Due to its social emphasis, virtue ethics was not chosen. Enron management has previously faced social pressures to maintain an unrealistic standard that has led them to make hazardous choices that they would not be up to. The focus would initially be on shareholders, followed by the community (Petrick, 2003).

Because choices about business are not always fair. Certain financial choices are intended to reduce competition and increase company profits, but that may not always be practical. Company managers, for example, are frequently compelled to decide how employees may reduce costs and increase profits when sales and incomes are low. It may not be fair for employees to cut expenses and make profits, but it helps the business to adopt an ethical choice (Salehi, 2012).

• Judgment/court decision

In this instance, Enron employees, shareholders, and external and internal businesses connected with Enron have had a high degree of corporate management, and in their transactions, the parties concerned. Hartley further argues that the Enron disaster affects the economy since stockholders have lost their money as Enron’s inventory declined (2014). Enron’s management team has been compelled to argue that customers are not financially responsible while Enron’s employees have lost employment. Arthur Anderson has been convicted of assisting Enron with financial risks and has been relieved of auditing and accounting for the provision of consistency and accountability in financial and domestic accounting statements (Spitzeck, 2010).

Sherron Watkins, a very committed employee who worked at Enron for eight years until she left in November 2012, cautioned CEO Ken Lay about its financial performance and encouraged Enron to do something about it before being faced with technological issues. In addition, Lay maintained and punished Enron, who dismissed her by pulling her out of her executive office at the top level and by taking her office gear to transfer her to a desk with tedious labour. It successfully wiped out the loyalty and morals of her employees, that finally prompted her to witness against Enron before the federal court and subsequently resign.

Enron management and some of its staffs were condemned to federal prison terms on many counts, including bank fraud, stock fraud, wire fraud, money laundering, insider trading and bribery, and others. Lay sold 500,000 shares to Enron less than 30 minutes before the collapse news viral of the company but was never punished for anything related to Enron’s bankruptcy. Arthur Andersen was condemned to legal intervention for deleting everything that connected the firm with Enron activities, although a tiny proportion of the employees were involved. The judgement was overturned, and Andersen was legally allowed to remain in business.

• d) Conclusion

It is concluded that loss of interest, financial fraud, honesty and moral responsibility are connected to the questions presented. Enron’s management attempted to conceal financial difficulties to preserve his once-perfect image as America’s most efficient manager and refused to let stakeholders know that they were in financial trouble and infringed on all responsibility. High level management, Enron personnel, shareholders, and third-party internal and external Enron-related businesses in company transactions were all affected. Set up a program for ethics and conformity training. Enron leaders should play a key role model in reporting misbehavior to their employees on ethics and practice.