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Maurice Rhoades

Are correct budgets an ethical duty? I chose Enron as my assignment, as the scandal and unethical conduct committed by Enron fit into what we have been discussing in class (budgets). I realize that this debacle has been written about by everybody and his brother. So let me add mine Enron was one of the world’s leading electricity and natural gas companies, it was an energy company based in Houston, Texas. Enron employed approximately 22,000 employees. It was said by congress, that Enron’s failures were due to accounting fraud and corruption. However, all irregularities associated with Enron’s failure were due to poor organizational behavior. (Ethics in financial reporting) Enron's nontransparent financial statements did not accurately depict its operations and finances with shareholders and analysts. In addition, the company’s auditor was also implicit in the deceptive practices (fabricated financial statements) due to the financial rewards made by doing Enron’s work, Enron’s complex accounting, and unethical practices required that the company use accounting flaws and short comings to misrepresent earnings and modify the balance sheet to portray an inflated depiction of its performance. Thus, increasing its stock value. This unethical and illegal method of accounting and poor management decisions resulted in bankruptcy in 2002 after repeated failures of mergers and investments. Kenneth Lay the CEO of Enron was indicted on 11 counts of securities fraud in 2004 and found guilty in 2006, however, Lay died in 2006, and never received sentencing( he slipped out of the punishment, but death was the final arbiter) Enron’s failures are the attributes of numerous unethical behavioral practices. If the board of directors and senior management team had the organizations growth and goals in mind instead of their own personal wealth, Enron might still be operating today. Once it became evident that the original strategic plan was failing, they should have strategized and created a

2 more effective and feasible plan. Instead, the CEO and other officers sold their stock in the company before the fall and therefor were also guilty of insider trading. There was no good leadership there. A leader is one who influence, motivate and enable others to contribute toward the effectiveness of the organization. Leadership reflects the assumption that it involves a process whereby intentional influence is exerted by one person over other people to guide, structure, and facilitate activities and relationship in a group or organization. There was no good leadership at Enron. The total cost involved in this scandal, monetarily, was about 74 billion in stock loses. Frustration and anguish of the stockholders that lost homes/family’s cannot be calculated. This was truly a disaster, caused by unethical decision making by a few greedy people As a result of Enron, Congress passed the Sarbanes-Oxley act which expanded repercussions for destroying, altering, or falsifying records in federal investigations or for attempting to defraud shareholders. I am not sure that this would have stopped Lay originally, but it may stop some other CEO from making the same mistakes. . “On February 13, 2002, due to the instances of corporate malfeasances and accounting violations, the SEC called for changes to the stock exchanges' regulations. In June 2002, the New York Stock Exchange announced a new governance proposal, which was approved by the SEC in November 2003. The main provisions of the final NYSE proposal include:
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All firms must have a majority of independent directors. Independent directors must comply with an elaborate definition of independent directors. The compensation committee, nominating committee, and audit committee shall consist of independent directors.

All audit committee members should be financially literate. In addition, at least one member of the audit committee is required to have accounting or related financial management expertise.

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In addition to its regular sessions, the board should hold additional sessions without management.”

Let’s hope that does it. We don’t need another Enron, budgets are an ethical duty.

References: Internet, Wikipedia the free encyclopedia, the Enron scandal, no author listed. No dates listed.

http://en.wikipedia.org/wiki/Enron_scandal

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