Foundation University Rawalpindi Campus

Class: BBA 4B
Subject: Business Ethics
Submitted by: Noor Us Sbah
Registration no: 078
Submitted to: Ma’am Maryam Arshad
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Question 1: How did the Corporate Culture at Enron contribute to its bankruptcy?
The corporate Culture at Enron could have contributed to its bankruptcy in many ways. Its corporate
culture supported unethical behavior without question for as long as the behavior resulted in monetary
gain for the company. It was describe as having a culture of arrogance that led people to believe that
they could handle increasingly greater risk without encountering any danger.
Its culture did little to promote the values of respect and integrity it instead rewarded ‘innovation’ and
punished employees deemed week. The performance evaluation process for employees that was
dubbed “rank and yank” utilized peer evaluations, and each of the company’s divisions was arbitrtly
forced to fire the lowest ranking employees. This created cut-throat competition not only against
Enron’s external competitors but also within the organization. It pitched employees against each other.
The internal rivalry created in turn contributed to less communication between operations for fears of
being fired. The “survival for the fittest” atmosphere reached the point where illegal activity was
deemed necessary to stay on top of the game.
Enron's compensation plans also seemed less concerned with generating profits for shareholders than
with enriching officer wealth. Its culture encouraged flaunting the rules and even breaking them.
Each Enron division and business unit was kept separate from the others and as a result very few
people in the organization had the big picture perspective of the company’s operations.
All these aspects of the corporate culture at Enron contributed separately to its eventual bankruptcy.

Question 2: Did Enron’s Bankers, auditors and attorneys contribute to Enron’s demise? If so,
what was their contribution?
Yes the bankers, auditors and attorneys contributed to Enron’s demise. This is because they took sides
with Enron’s management instead of acting impartial and professionally.
They contributed in Enron’s demise in the following ways:-
 Banker - Merrill Lynch
It facilitated Enron to sell Nigerian Barges therefore making Enron record about $12 million in
earnings and thereby meet its earnings goals at the end of 1999. This was a sham.
It facilitated Enron in fraudulently manipulating its income statements by entering into a deal whereby
Enron would buy Merrill Lynch in 6 months’ time with a guaranteed 15% rate of return.
Merrill Lynch replaced a research analyst after his coverage of Enron which displeased Enron's
executives. This coverage would have saved Enron from demise if Merrill Lynch would have prevailed
upon Enron to implement it.
Merrill Lynch gave in to threats by Enron that it would be excluded from a coming $750 million stock
offering and instead, the replacement analyst is reported to have upgraded his report on Enron's stock
rating. This was unethical and unprofessional.
 Auditors - Arthur Andersen LLP
They were responsible for ensuring accuracy of Enron’s financial statements and internal bookkeeping.
Potential investors used Andersen's reports to judge Enron's financial soundness and future potential
before they decided whether to invest. Current investors used those reports to decide if their funds
should remain invested there. As such, the investors expected that Andersen's certifications of accuracy
and application of proper accounting procedures would be independent and without any conflicts of
interest.

Question 3; What role did the chief financial Officer play in creating the problems that led to
Enron’s financial problems?
In order to prevent the losses from appearing on its financial statements, Enron used questionable
accounting practices. To misrepresent its true financial condition, Andrew Fastow, the Enron’s CFO,
took his role by involving unconsolidated partnerships and special purpose entities - "SPE’s”, which
would later become known as the LJM partnership. Taking advantage from the SPEs’s main purpose,
which provided the companies with a mechanism to raise money for various needs without having to
report the debt in their balance sheets, Enron’s CFO directly ran these partnerships and designed them
to purchase the underperforming assets (such as Enron's poorly performing stocks and stakes).
Although being recorded as related third parties, these partnerships were never consolidated so that
debt could be getting off its balance sheet and the company itself could boost and have not had to show
the real numbers to stockholders. Andrew Fastow was using SPE’s to conceal some $1 billion in Enron
debt. Overall, according to Enron, Fastow made about $30 million from LJM by using these
partnerships to get kickbacks which were disguised as gifts from family members who invested in them
and enriching himself. His manipulation of the off-balance-sheet partnerships to take on debts, hide
losses and kick off inflated revenues while banning employees' stock sales was one of the reasons
triggered the collapse of the company and its bankruptcy.