THE ENRON CASE STUDY: HISTORY, ETHICS AND GOVERNANCE FAILURES

Questions

1) Summarize the main ethical violations that had done by Enron managers?

The main ethical violations that had done by Enron managers are al interrelated between
the company and its auditors. Both the management executives and the auditors mutually
hide the reality of the company and show a false reporting in their annual reports since
1997 the company was facing losses and the management hide the losses and show the
higher profits. The external auditor played the main role of violating the SEC rules and
regulation. He approved several accounting-measurement issues in apparent violation of
sound accountingprincip1es.That allowed Enron to significantly exaggerate the
company’s revenues since1997-2001. Enron’s executives such as the CFO and CEO also
began to bend the rules for personal-interest and gain profits.

Executive management motives were not aimed exclusively towards benefiting the
organization. The auditing system that the company had in place failed to serve its
purpose in the detection of fraudulent activity.

2) What are the main roles of ethics in corporate governance?

The main roles of ethics in corporate governance in this case are the following:

 Corporate governance has to follow the SEC rules and regulations

 Corporate governance role is to report the actual earning and expenses of
the company
 The corporate governance is not supposed to hide the realities from the
shareholders or general public
 Should be for the work for the benefit of the company
 Should have to show all the real transactions
 Should be positive
 Manage the company at their best level
3) The SEC is trying to get companies to notify the investment community more quickly
when a “material change” will affect their forthcoming financial results. In what sense
might a financial manager of ENRON be seen as “more ethical” if he or she follows his
directive and issues a press release indicating that profits will not be as high as previously
anticipated?

The security exchange commission SEC always wants to work with the benefit of the
general public and the companies. If the investor get information about the company
quickly and time to time about the material changes or any losses or profits than the
investors will make a right decision to invest in the company.
In case of Enron the mangers did unethical behavior by hiding the truth about the
company so it was their responsibility to be seen as “more ethical” and follows his
directive and issues a press release indicating that profits will not be as high as previously
anticipated in the last years.

4) What are the options that were available for ENRON managers to avoid bankruptcy?
The main option that was available for the ENRON mangers to avoid bankruptcy was to
provide the reality about the accounts. Continue the operations by selling some of their
assets in the market and operate normally. Slowly and gradually change all the managers
who involved in the criminal activities in the business. Hire new auditing firm. The CFO
and CEO should be replaced and start from lower income operation in the limited area to
growth in the future again.
The other option I prefer to the managers of Enron to avoid bankruptcy is tell all the
details about the problems of the company and handle it to the government of USA to
operate it with new management because the company was very famous and having loyal
customers so the government may take interest to operate Enron.

5) If you were the CEO of Enron, what are the actions that you would take?
If I would be the CEO of Enron, what are the actions that you would take depends on the
time period.
 If I would be the CEO of ENRON in 1997 than I would care about the accurate
reporting and make sure the financial statements are reported correctly.
 If I would be the CEO of ENRON in 1998 than I will never promote Andrew
Fastow as a CEO because he was the creator of the network companies that
helped to hide losses.
 If I would be the CEO of ENRON in the year 2000, than I would evaluate and
examine the reason behind the success of the company and that why the share
price reached very high price in the New York Stock Exchange.
 If I would be the CEO of ENRON in the year 2001 I would prefer to change the
Arthur auditing company and sue against them because they helped Enron to
manipulate the losses from the last 4 or 5 years. I would analyze all the mistakes
happened in the company and terminate and sue against all the employees who
involved in the criminal activity. I also take those peoples to the criminal law that
work to their own benefit and hide the information of the financial statements and
I will try to avoid bankruptcy of the company and try to use different outsourcing
ways to run and operate the company.