DISASTERS OF CORPORATE GREED

A Reflection on the ENRON Scandal

ENRON was once one of the largest corporations in the United States of America that
revolutionized trading and the energy market. With complex and intricate businesses, average
persons could hardly understand how the company had operated its way to become the powerful
Darling of Wall Street. Little did everyone know, ENRON was full of lies, fraud, deception, and
political manipulation which eventually led it into a terrible collapse.
The ENRON scandal was infamous for being one the biggest scam in the US history. For
years, ENRON executives have been conspiring their way up to great heights, only to find
themselves in a turn of events – billions of dollars stolen, thousands of jobs lost, dozens of
convictions, largest bankruptcy reorganization of “the company that could never lose” in less
than a month, dissolution of Arthur Andersen, one of the five largest audit firm and accountancy
partnerships in the world, and the biggest audit failure.
Even from the start, accounting students like ourselves has always been taught of the
fundamental principles and concepts used in the business field which include the practice of
utmost good faith and full disclosure. When Jeffrey Skilling came into the picture, he led the
company into a new direction and introduced the Mark-to-Market (MTM) Accounting. It may
have not been illegal at the time but it allowed the company to fraudulently make billions.
Through the new method, ENRON was worth so much more in paper than it had actually earned
and such technique can be subject to manipulation, knowing that it was the key to making
millions. Basically, Skilling went over the abovementioned principle in the hopes of making more
money.
In addition to this, the company had successfully hidden its debts in order to make it seem
like the continuously gain profits so their stock market values continue to rise. This enticed more
people to invest in ENRON stocks that made the company more money. Andrew Fastow, the
company CFO, created a scheme called Special Purpose Vehicles (SPVs) to hide their debts by
transferring its stock to these SPVs so they can loan money on the company’s behalf. Even though
ENRON disclosed the existence of their SPVs to the public, it is undeniable that only a few fully
understood what it does. It failed to adequately disclose some deals between the two.
Skilling also once famously said that the money was the only thing that motivated people.
Because of this, he passed on his greed to his employees by grading them based on performance.
This eventually led to firing 10% of the company’s employees. Since then, the employees who
remained worked for almost 18 hours a day. If we look into the situation, the work atmosphere
and morale of the people depended on making money for the company, regardless of it turning
toxic and unhealthy for everyone.
 Integrity is one of the most critical characteristics anyone must possess. Even an average
person is required to have it in everything he does. But as for Arthur Andersen LLP and partner
David Duncan who was in charge of ENRON, most have suggested that there was a conflict of
interest and lack of independent oversight because the firm was both the auditor and consultant
on ENRON. Regardless of having a reputation for high standards and quality risk management,
and the ENRON’s poor accounting practices, the firm signed off on the corporate reports for
years. This is why a lot of analysts have been questioning the company’s transparency. In
addition, Duncan was fired because he ordered the destruction of documents and emails after
learning that the Securities and Exchange Commission had begun an investigation of ENRON.
The leadership of the company itself had managed to deceive regulations for a very long
period of time with fake holdings and off-the-book accounting. The era’s minimal regulatory
environment during that time may have been the reason why the management actually thought
they could manipulate information and hide crucial facts from regulations in order for them to
make more money than what is expected.
Kenneth Lay, the founder of ENRON, from the very beginning was already involved in the
Valhalla scandal which proves he did not care about the wrongdoings of his colleagues. All that
mattered to him was that they kept making more money for ENRON by saying, “Please keep
making us more millions.” After conviction of those traders primarily involved in the said scandal
with fraud, it was found out that he even encouraged them to continue
The steps taken by any corporate entity come from decisions and choices made by
individuals that make up the organization and it is but fair and just that they be bearers of moral
duties and responsibilities. Corporate culture also plays an important role that either makes or
breaks and organization. A reputation that is too good to be true should be paid more attention
to in order to avoid being deceived. All in all, business ethics is the main point of the scandal that
everyone should focus on. Business ethics is vital because these maintain a great reputation with
integrity, help avoid significant financial and legal issues that usually lead to failures, and these
ultimately benefit every stakeholder.