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the enron scandal and its implications literature review and assessment Introduction Background Problem and Research Question This paper reviews literature that is relevant to the Enron scandal Enron was an electrical energy trading company that collapsed under theweight of its own misdeeds in the early years of the st century Theseeds of the collapse of the company however were sown years earlier The Enron scandal remains important in for several reasons First the utter disregard of ethical principles by Enron senior executivesindicate

"Ex-Enron Executive Kopper Will Plead Guilty to Fraud". Secondarily, however, thepaper deals between the company and fictitious entities diverted largeamounts of money from the company to high-level executives at Enron. "Business Versus Biznes". As necessary as theaccounting reforms are, however, the cry of investors in the Enron case issomewhat hollow. It was onlyafter the investors found that Enron's top executives kept the gains forthemselves that the investors complained. (2 7, Summer). Financial management focused ondeveloping a perception of profitability, together with the reality ofstrong cash flows. Even then, the complaints fromthe investors focused on the actions related to misstated earnings andfraudulent partnership activities. The corporate culture that evolvedat Enron facilitated the perpetration of misdeeds at the company (Raghavan,Kranhold, & Barrionuevo, 2 2). The formal organizational structure defines responsibility andauthority for both organizational units and individuals within acorporation. o Providing clearly written guidelines reinforces our principles and business ethics. Theelectrical energy companies provided Enron access to electrical powermarkets. Enron created the shell partnership companies, and a favored fewmembers of the company's senior management team controlled the shellpartnership companies as the partners in those same shell partnershipcompanies (Kranhold and Barrionuevo, 2 2). (2 2, August 26). Ultimately, however, the inflated profitscontributed to the creation of a false representation of Enron'sperformance that created financial benefits Enron selected executives atthe expense of investors and the public. It is highlyprobable that Secretary O'Neill meant that the market detected the problemand was in the process of sorting it. Retrieved on 2 9- 4-19 at: http://www.enron.com/corp/pressroom/responsibility/human_rights_statement .htmFerrara, D. Wall Street Journal, 1. One incongruent outcome that is associated with the Enron scandal isthat the company executives committed financial reporting fraud within anorganization that had a formal and a functioning audit committee. The Enron scandal remains important in 2 9 for several reasons.First, the utter disregard of ethical principles by Enron senior executivesindicate that the behaviors of the corporate executives that led the worldinto the contemporary financial and economic crisis, at a minimum, implythat little of the earlier lessons were heeded by regulatory authorities.These regulatory authorities, had they heeded earlier lessons, could haveprevented (at best) or ameliorated the effects (at least) of the currentcrisis. (2 2, February 4). Retrieved on 2 9- 4-19 at: http://online.wsj.com/article/ ,,SB1 3 32 28554 885115, .html?mod=Page+O neShawyer, T., and Clements, L. Fourth, the Enron crisis tainted the credibility of supportingactors such as the public accounting profession, credit rating agencies,and governmental regulatory bodies. (2 2, August 21). In relation to respect, Enron invoked The Golden Rulewhen it states that: "We treat others as we would like to be treatedourselves. Organizational culture is important because it unites individuals witha corporate purpose under a set of principles and standards. (2 2, August 23). Christian Science Monitor, 1.Dunlop, A. Krugman (2 2) countered that the Enronscandal was an example of the worst excesses of capitalism. 4). One actionto prevent future Enron scandals, therefore, is the enactment of whistleblower protection laws that have real penalties associated with them. Such behavior at the personal level, asunacceptable as it is, characterized most of the top management team atEnron. Enronalso demonstrated a willingness to retaliate against whistle-blowers.Employees, therefore, must be willing to risk both their jobs and theirfinancial stability when they decide to report ethical lapses. Management Accounting (British) 77 (April 1999): 24-25.Edwards, J., and Wolfe, S. The Secretary was in error, however, in assuming thatordinary investors and employees who suffered devastating losses associatedwith Enron would experience any wealth restoration of significance. We do not tolerate abusive or disrespectful treatment.Ruthlessness, callousness and arrogance don't belong here" (Enron Corp.,2 3, p. (2 8, Winter). The organizational change imposed at Enron refocused organizationalobjectives on deceptive practices in the trading of energy market to createinflated and unwarranted profits for Enron at the expense of utilitycompanies and utility consumers. Berkeley Journal of International Law 26(2), 452-478.Giroux, G. "Testing Time for Corporate Governance". Krugman (2 2)did not advocate extensive regulation of business; however, neither did heaccept the neocons establishment proposition that the market alone willpreclude the occurrence of most abuses, and that the market alone willcorrect those abuses that do occur. The cash was easily diverted to shell partnershipcompanies (although the process was complex). With respect to integrity, Enron pledged to "work withcustomers and prospects openly, honestly and sincerely" (Enron Corp., 2 3,p. "New Scandals, Old Lessons Financial Ethics after Enron". Raghavan, Kranhold, and Barrionuevo (2 2), in anarticle in the Wall Street Journal, stated that, at Enron, the "prevailingcorporate culture was to push everything to the limits: business practices,laws and personal behavior" (p. An important organizationalconcept (one which influences the functioning of other organizationalconcepts) is organizational culture. 1). Enron stated further that: "Every employee is educated about thecompany's Vision and Values and is expected to conduct business with otheremployees, partners, contractors, suppliers, vendors and customers keepingin mind respect, integrity, communication and excellence" (Enron Corp.,2 3, p. Enron traces its beginnings to NorthernNatural Gas Company and Houston Natural Gas Company. "Ethical and Compliance- Competence Evaluation: A Key Element of Sound Corporate Governance. If, as was thecase at Enron before the company's collapse, those principles and standardshave little connection to ethical values and principles, the rot can erodethe entire organization. Corporate Governance: An International Review 15(2), 359-369.Enron Corp. Northern Natural Gaswas a natural gas pipeline company that started in Nebraska in 193 , whileHouston Natural Gas began as a natural gas distributor in Texas in 1925. 4): o Because we take our responsibilities to our fellow citizens seriously, we act decisively to ensure that all those with whom we do business understand our policies and standards. "Whistleblowing: Factors That Contribute to Management Accountants Reporting Questionable Dilemmas". While the activities of the financial management sub-culture exhibitedneither a sense of ethical values nor a responsibility to serve theinterests of the wider company, the activities nevertheless were consistentwith Enron's organizational culture. Thisteam functioned almost as if Enron existed to serve them. Many corporations operating in the deregulated energy tradingenvironment, however, did not publicly reject the behaviours of the higher-level executives at Enron. The company policy went on to state, "We are dedicated toconducting business according to all applicable local and internationallaws and regulations, including but not limited to, the U.S. American Business Law Journal 45(4), 685- 721.Kranhold, K., and Barrionuevo, A. In 1997, Enron began acquiring electric utility companies. 3). A second set of actions to prevent the occurrence of future Enronscandals, thus, is to create a stronger role for non-management investorsin corporate ownership structures. 2). Thus, the development of sub-cultures withinthe Enron organization that placed priorities on their own enrichment (asopposed to promoting the interests of the company) is not surprising (Weiland Kranhold, 2 2). Retrieved on 2 9- 4-19 at: http://online.wsj.com/article/ "How Enron Bosses Created a Culture of Pushing Limits. 1). In light of the foregoing information, the research question for thisliterature review has three parts. Kenneth Lay became the first president of Enron, a job he helduntil the scandal forced him out of the leadership job at Enron. Lastly, Enron added that (EnronCorp., 2 3, p. Northern Natural Gas eventually renamed itself InterNorth. Management Accounting Quarterly 9(2), 26-38.Weil, J., and Kranhold, K. Ethics and culture go hand in hand. J. A review of the formal organizational structure of a companyfacilitates the determination of which parts of the organization areconsidered by top management to be the most important. "Complaint Says Fastow, Kopper Worked Closely to Defraud Firm". (2 2, February 12). (2 8, Winter). Over a span of several years, high-level executives at the EnronCorporation, essentially an energy distribution form, engaged in a complexset of financially-oriented behaviors designed to deceive customers,governmental regulators, investors and investment analysts, other membersof the Enron organization, and probably several other groups of individualsand organizations (Millman, 2 2). Enron had a very strong formal ethics structure in place. Enron investors cry that they were deceived byEnron executives (true) and outside auditors (true). The immediate intent of deceptive practices in the trading ofenergy market was the manipulation of prices to created inflated andunwarranted profits for Enron at the expense of utility companies andutility consumers. Board members shouldbe elected only by shareholders who are not also employed by the company inany capacity. (2 2, July-August). P. Wall Street Journal, 1. In 1985,InterNorth acquired Houston Natural Gas. Similarly, the immediateintent of deceptive accounting practices involving Enron and fictitious (orpaper) entities was to shield from investor and governmental regulators thefact that Enron was not a profitable enterprise. Third, the financial manipulationsthat were perpetrated at Enron foreshadowed the evolution of the even moremanipulative and destructive financial practices that led to the currentcrisis. The scandaldemonstrated just how easily ethical standards can be discarded at thehighest corporate levels when the price is right. The financial management teamat Enron created a sub-culture within the Enron corporate culture. Wall Street Journal, 1. Ultimately, however, the inflated profits contributed tothe creation of a false representation of Enron's performance that enrichedEnron executives at the expense of investors. Statement of human rights principles. 2). Deregulationopened the doors of the electrical power markets to both sinners andsaints. The United States Congress and several state legislatures rushedheadlong into the deregulation of electrical power markets. Accounting Fraud and Lessons from the Recent Scandals". (2 8). ForeignCorrupt Practices Act, and with the highest professional and ethicalstandards" (Enron Corp., 2 3, p. Compensation levels for board members shouldbe determined by the vote of shareholders who are not employed by thecompany in any capacity (Ferrara, 2 7; Gill, 2 8). A22). (2 8, Winter). H. The Enron scandal was and is an important development. Ordinary investors,however, also were culpable. The Enron Scandal: How to Stop Such Behaviors Secretary O'Neill was partly correct in stating that the functioningof the market did deny some wealth to the guilty parties involved in theEnron scandal. The assessment that the Enron scandalreflected the genius of capitalism also displayed the underlying corebelief of neocons establishment that the "market" is inviolable, thatpeople are commodities, and that a little suffering causes them to be morepliable as employees and followers. Corporate management personnel should beprohibited from membership in the board of directors. (2 3). In the wake of the unfolding of the Enron scandal, then Secretary ofthe Treasury O'Neill referred to the situation as an "illustration of thegenius of capitalism" (quoted in Krugman, 2 2, p. Other preventiveactions include the following: o Outside auditing firms should be prohibited from providing any services other than auditing to a public company (Gunz and Gunz, 2 8) o Outside auditing firms should present their reports only to auditing committees of the board of directors of the audited company (Giroux, 2 8) o Ethics policies should be approved by boards of directors, and boards should be required to monitor and punish violations (Edwards and Wolfe, 2 7) BibliographyAxtman, K., & Scherer, R. The company, as it exists today,however, is but a shell of its former organizational structure. "Enron Lapses and Corporate Ethics". Theseeds of the collapse of the company, however, were sown years earlier. The investors apparently still found nofault in the unethical behavior of Enron traders in the electrical powermarket. "What Went Wrong? The objectives of these behaviors variedto some extent depending upon the focus of the specific activity; however,the objectives, regardless of the focus of the specific activity, wereinterrelated. The public utterances of most corporateexecutives in the broader economy denounced the behaviours of the topexecutives at Enron as betrayals of trust and as being inimical to theinterests of business because such behaviours damaged public confidence inbusiness. Enron stated that the company's corporate vision was "to become theworld's leading energy company - creating innovative and efficient energysolutions for growing economies and a better environment worldwide" (EnronCorp., 2 3, p. Asecond and equally important action is to vigorously enforce such laws(Shawyer and Clements, 2 8). The formalorganizational structure at Enron placed disproportionate power and controlin the hands of financial management. Everyorganization has a distinct character. The first part asks, "What happened atEnron?" The second part asks, "How did it happen?" The third part asks,"How can such behaviors be stopped?" The Enron Scandal: What Happened and How It Happened Enron was a trading company that emphasized market creation and marketmanipulation in electrical power. Second, the Enron crisis provides an important case illustration ofhow a malignant corporate culture can so permeate a corporate organizationthat almost any behavior is tolerated as long as most stakeholders believethat some gains are accruing to them. The members of top management at Enronwho did not participate in the shell partnership companies neverthelessbenefited from unrealistic compensation packages justified by the falsereports of profitability. A secondincongruent outcome that was associated with the Enron scandal was theoccurrence of widespread unethical behavior by senior executives within anorganization that has an exemplary formal, written vision and a formal,written ethics policy. Elected boards alone should establish compensation schedulesfor senior company executives. FDCC Quarterly 57(4), 347-374.Gill, A. New York Times, A22.Millman, G. An organization's culture consists ofthe general environment of beliefs, customs, knowledge, practices, and theconventional behavior of the members of the organization. o Enron employees at all levels are expected to be active proponents of our principles and are trained to report without retribution anything they observe or discover that indicates our standards are not being met. P., and Gunz, S. Thesebehaviors created great harm for other Enron employees, external investors,and consumers (Axtman and Scherer, 2 2). "Corporate Governance as Social Responsibility: A Research Agenda". The merged company became Enronand was instantly the largest natural gas pipeline company in the UnitedStates. Retrieved from the Internet on 2 3-11-22 at: http://online.wsj.com/ article/ ,,SB1 3 6125 716558515, .html?Krugman, P. (2 7, March). Rather than reforming and once againbecoming solid citizens, these actors fell in to the role of usual suspectswho were and are deeply implicated in the current crisis. Financial Executive 18(5), 16-19.Raghavan, A., Kranhold, K., and Barrionuevo, A. "Directors and Officers: Side A Only Coverage Working Through the Hype". Houston, Texas: Enron Corp. "Client Capture and the Professional Service Firm". The principles and standards shaping theorganizational culture at Enron promoted growth at any cost (as opposed todelivering outstanding customer service as an example) and to enriching thecompany regardless of the effects on others (as opposed to a culturepromoting win-win solutions). The Enron investors did not demand that the company changeits business practices when it manipulated the California electrical energycrisis for what the investors believed to be their own benefit. Social Research 75(4), 12 5-1238.Gunz, H. Theexpected function of an audit committee implemented by an organization isthe prevention of financial reporting fraud (Dunlop, 1999). the enron scandal and its implications: literature review and assessment Introduction: Background, Problem, and Research Question This paper reviews literature that is relevant to the Enron scandal.Enron was an electrical energy trading company that collapsed under theweight of its own misdeeds in the early years of the 21st century. When some ofthe top executives at the company ordered or countenanced marketmanipulations and entered into fraudulent deals with fictitious accountingentities, however, there was a clear demonstration that formal statementsof ethics have little meaning when they are ignored by the people in anorganization's top rungs. Enron was more creative than were most traders in devising ways tomanipulate the electrical power markets.

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