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8/25/2010 Rasheedah Abubakr Bus 390 Instructor Mary Kraut

Rasheedah Abubakr BUS 390 Instructor: Mary Kraut The Unethical Business Practices of Enron “An Case Study” Enron Code of Ethics2 Respect We treat others as we would like to be treated ourselves. contractors. Enron stands on the foundation of its vision and values. lavish entertainment or gifts will be given or received in exchange for special position. We do not tolerate abusive or disrespectful treatment. employees. stockholders. whether contractual or verbal. bonuses. will be honored. press and bankers — will be conducted in honesty. We are dedicated to conducting business according to all applicable local and international laws and regulations. then we won't do it. callousness and arrogance don't belong here. and excellence. We believe in respect for the rights of all individuals and are committed to promoting an environment characterized by dignity and mutual respect for employees. candor. communication. and sincerely. when we say we cannot or will not do something. governments. The great fun here will be for all of us to discover just how good we can really be. we treat others as we expect to be treated ourselves.customers. and representatives of all levels of government. price or privilege. the US Foreign Corrupt Practices Act. Agreements. community members. customers. honestly. vendors. we take the time to talk with one another and to listen. Here. and with the highest professional and ethical standards. including. Everything we do evolves from Enron's vision and values statements. Ruthlessness. Every employee is educated about the Company's vision and values and is expected to conduct business with other employees. but not limited to. Even though the laws and business practices of foreign nations may differ from those in effect in the United . Integrity We work with customers and prospects openly. and fairness. We will continue to raise the bar for everyone. Communication We have an obligation to communicate. suppliers. partners. Relations with the Company's many publics —. suppliers. and customers keeping in mind respect. Excellence We are satisfied with nothing less than the very best in everything we do. suppliers. We believe that information is meant to move and that information moves people. kickbacks. Laws and regulations affecting the Company will be obeyed. No bribes. integrity. contractors. partners. At Enron. we will do it. When we say we will do something.

the applicability of both foreign and US laws to the Company's operations will be strictly observed. Business ethics is about how business affairs are conconducted3. A Corporation or organization is a legal entity and upon registration or incorporation. It is also about individuals and the institutions with which they deal with. Texas that went bankrupt as a result of committing institutionalized.000 people. Enron made millions due to its initiative marketing and endorsement of power and communications bandwidth services and risk management offshoots8.Enron employed more than 20. Companies are also required to be ethical in their dealings. . systematic and well-planned accounting fraud8. company directors have a fiduciary duty to act in the interests of their company and the best interest of the company’s sharholders3. the expectations and requirements as well as the social and economic requirements of society3. it is given the legal status of an individual. Introduction: The ENRON Corporation was a corrupt energy company based in Houston. Its revenue in the year 2000 was more than $100 billion4. Illegal behavior on the part of any employee in the performance of Company duties will neither be condoned nor tolerated. It was named as "America's most innovative companies for six consecutive years by Fortune 500 magizaine4.Rasheedah Abubakr BUS 390 Instructor: Mary Kraut States. As companies operate largely via their directors.

When the deal fell through. special purpose entities. The U. underlying assumptions. Enron filed for bankruptcy on December 2. Securities and Exchange Commission (SEC) began an investigation. attitudes. and poor financial reporting. were able to hide billions in debt from failed deals and projects. through the use of accounting loopholes. Chief Financial Officer Andrew Fastow and other executives were able to mislead Enron's board of directors and audit committee of high-risk accounting issues as well as pressure Andersen to ignore the issues6. which hit a high of US$90 per share in mid-2000.S. 2001 under Chapter 11 of the United States Bankruptcy Code. The absence of Positive Business The absence of positive business culture led to the 2001. Several years later.S. Culture is the behavior that results . when Jeffrey Skilling was hired. he developed a staff of executives that.4 billion. and Dynegy offered to purchase the company at a fire sale price. caused shareholders to lose nearly $11 billion when it plummeted to less than $1 by the end of November 2001.Rasheedah Abubakr BUS 390 Instructor: Mary Kraut The fall of Enron Enron was formed in 1985 by Kenneth Lay after merging Houston Natural Gas and InterNorth6. it was the largest corporate bankruptcy in U. beliefs. Culture is made up of the values. Enron's stock price. and with assets of $63. and behaviors shared by a group of people9. history until WorldCom's 2002 bankruptcy9.

executives. Culture is especially influenced by the organization’s founder. and Daily work practices. stories and legends. An organization’s culture is made up of all of the life experiences each employee brings to the organization. Culture is represented in a group’s: • • • • • language. symbols. decision making. The basic fundamentals of a positive organization are the following: • • Workers are treated with respect Values. and other managerial staff because of their role in decision making and strategic direction9.Rasheedah Abubakr BUS 390 Instructor: Mary Kraut when a group arrives at a set of .rules for working together. An organization culture directly affects the success or failure of a company. In there are generally two types of organizational culture negative and positive. goals and missions are followed and respected Feedback is expected and respected • The basic fundamental of a negative organization are the following: • • • Workers are treated with little to no respect Only top managers make decision Feedback is not expected or tolerated .generally unspoken and unwritten .

S. competence and clear accountability is practice throughout the company. also known as the 'Public Company Accounting Reform and Investor Protection Act' (in the Senate) and 'Corporate and Auditing Accountability and Responsibility Act' (in the House) and commonly called Sarbanes–Oxley.S. Legal Actions of Enron (adapted form Wilipedikapa) Unethical and illegal business practices at Enron led to the creation of Serbanes . The Enron Company simply does not follow any code of ethics. if the report any suspicion of unethical practices Positive organizational culture creation is the responsibility of management. The problem which led to the bankruptcy of the company lay in the operations management department. 116 Stat. ethical values. is a United States federal law enacted on July 30. public company boards. goals and missions of the company are non-existence are just ignored People are scared to lose their job. 2002). 745. The Sarbanes–Oxley Act of 2002 (Pub. 2002. which set new or enhanced standards for all U. enacted July 30.L. Senator Paul Sarbanes (D-MD) and U.Rasheedah Abubakr BUS 390 Instructor: Mary Kraut • • Values. Representative Michael G. Sarbox or SOX. 107204. management and public accounting firms.S. than a negative organizational culture is created. . It management duties ensure that positive. if managements ignore the code of ethics themselves. It is named after sponsors U.Oxley Act of 2002. integrity. Oxley (R-OH). However.

the 26th chairman of the Securities and Exchange Commission (SEC). led the SEC in the adoption of dozens of rules to implement the Sarbanes–Oxley Act. Peregrine Systems and WorldCom. charged with overseeing. corporate governance. President George W. quasi-public agency. inspecting and disciplining accounting firms in their roles as auditors of public companies. It does not apply to privately held companies. Harvey Pitt. the Public Company Accounting Oversight Board. Roosevelt.Rasheedah Abubakr BUS 390 Instructor: Mary Kraut The bill was enacted as a reaction to a number of major corporate and accounting scandals including those affecting Enron. These scandals. The act also covers issues such as auditor independence. shook public confidence in the nation's securities markets. Adelphia. It created a new. ranging from additional corporate board responsibilities to criminal penalties. or PCAOB. Bush signed it into law. The act contains 11 titles. Tyco International. which cost investors billions of dollars when the share prices of affected companies collapsed. and requires the Securities and Exchange Commission (SEC) to implement rulings on requirements to comply with the new law. and enhanced financial disclosure. The act was approved by the House by a vote of 423–3 and by the Senate 99–0. regulating."[1] . stating it included "the most far-reaching reforms of American business practices since the time of Franklin D. or sections. internal control assessment.

It also creates a central oversight board tasked with registering auditors. 2. Opponents of the bill claim it has reduced America's international competitive edge against foreign financial service providers. to provide independent oversight of public accounting firms providing audit services ("auditors").S. strengthening corporate accounting controls. to limit conflicts of interest. 1. saying SOX has introduced an overly complex regulatory environment into U. Sarbanes–Oxley contains 11 titles that describe specific mandates and requirements for financial reporting. and enforcing compliance with the specific mandates of SOX. summarized below. Supporters contend the legislation was necessary and has played a useful role in restoring public confidence in the nation's capital markets by. financial markets.Rasheedah Abubakr BUS 390 Instructor: Mary Kraut Debate continues over the perceived benefits and costs of SOX. Each title consists of several sections. among other things. Public Company Accounting Oversight Board (PCAOB) Title I consists of nine sections and establishes the Public Company Accounting Oversight Board. It also addresses new . inspecting and policing conduct and quality control. Auditor Independence Title II consists of nine sections and establishes standards for external auditor independence. defining the specific processes and procedures for compliance audits.

For example.Rasheedah Abubakr BUS 390 Instructor: Mary Kraut auditor approval requirements. It defines the interaction of external auditors and corporate audit committees. Section 302 requires that the company's "principal officers" (typically the Chief Executive Officer and Chief Financial Officer) certify and approve the integrity of their company financial reports quarterly 4. and specifies the responsibility of corporate officers for the accuracy and validity of corporate financial reports. It enumerates specific limits on the behaviors of corporate officers and describes specific forfeitures of benefits and civil penalties for non-compliance. Corporate Responsibility Title III consists of eight sections and mandates that senior executives take individual responsibility for the accuracy and completeness of corporate financial reports. audit partner rotation.. It describes enhanced reporting requirements for financial transactions. and mandates both audits and reports on those controls. It also .g. Enhanced Financial Disclosures [3] Title IV consists of nine sections. pro-forma figures and stock transactions of corporate officers. It requires internal controls for assuring the accuracy of financial reports and disclosures. including off-balance-sheet transactions. consulting) for the same clients. 3. and auditor reporting requirements. It restricts auditing companies from providing non-audit services (e.

securities violations and enforcement actions. which includes measures designed to help restore investor confidence in the reporting of securities analysts. 5. It defines the codes of conduct for securities analysts and requires disclosure of knowable conflicts of interest. Commission Resources and Authority Title VI consists of four sections and defines practices to restore investor confidence in securities analysts. and whether investment . advisor.Rasheedah Abubakr BUS 390 Instructor: Mary Kraut requires timely reporting of material changes in financial condition and specific enhanced reviews by the SEC or its agents of corporate reports. Studies and Reports Title VII consists of five sections and requires the Comptroller General and the SEC to perform various studies and report their findings. the role of credit rating agencies in the operation of securities markets. Studies and reports include the effects of consolidation of public accounting firms. 7. Analyst Conflicts of Interest Title V consists of only one section. 6. It also defines the SEC’s authority to censure or bar securities professionals from practice and defines conditions under which a person can be barred from practicing as a broker. or dealer.

This section is also called the “White Collar Crime Penalty Enhancement Act of 2002. Corporate Fraud Accountability Title XI consists of seven sections. 8. Corporate Tax Returns Title X consists of one section. while providing certain protections for whistle-blowers. destruction or alteration of financial records or other interference with investigations. 10. Section 1101 recommends a name for this title as “Corporate Fraud Accountability Act of 2002”. It identifies corporate . 11. Global Crossing and others to manipulate earnings and obfuscate true financial conditions. It recommends stronger sentencing guidelines and specifically adds failure to certify corporate financial reports as a criminal offense. It describes specific criminal penalties for manipulation.” This section increases the criminal penalties associated with white-collar crimes and conspiracies. Corporate and Criminal Fraud Accountability Title VIII consists of seven sections and is also referred to as the “Corporate and Criminal Fraud Act of 2002”. Section 1001 states that the Chief Executive Officer should sign the company tax return. 9. White Collar Crime Penalty Enhancement Title IX consists of six sections.Rasheedah Abubakr BUS 390 Instructor: Mary Kraut banks assisted Enron.

Employees should be trained to believe that success is possible by being ethical. Penalties of any unethical behavior should be severe. Conclusion: Organizations should make ethics part of corporate culture. Managers should be held accountability for the creation of a positive or negative culture of the organization. It also revises sentencing guidelines and strengthens their penalties. This enables the SEC the resort to temporarily freeze transactions or payments that have been deemed "large" or "unusual". .Rasheedah Abubakr BUS 390 Instructor: Mary Kraut fraud and records tampering as criminal offenses and joins those offenses to specific penalties.

San Francisco: Jossey-Bass. Upper Saddle River. Edgar H. 2003.helium. NJ: Pearson/Prentice Hall. Nancy B. . New York: Foundation. Organizational Culture and Leadership. 3. Farrell. Loren. Business. 1985. from http://ezinearticles. Hoboken.com/?How-Poor-Business-Ethics-Led-To-The-CollapeOf-Enron-Ethics&id=951763 7. http://www.. 6.Rasheedah Abubakr BUS 390 Instructor: Mary Kraut Bibliography 2 Enron’s 64-page Code of Ethics can be found at http://www. How Poor Business Ethics Led To The Collape Of Enron Ethics.economist. 2007-07-26. Ebert. Web. 27 Aug. "How Much Does Culture and Lifestyle Affect Behavior? . Schein. 5.cfm?story_id=9545905." Helium . 2.Social Values & Norms . <http://www. 2006. (2008. Greg. 2010.thesmokinggun. Dharan. and Bala G.Where Knowledge Rules.com/archive/0130061enron1. 2004. January 27).Helium. 4. Clark.com/knowledge/12794-how-much-does-culture-andlifestyle-affect-behavior>. . Print. Griffin. 2010. R. and Ronald J. The Economist. Fox.html 1. Print. Ricky W. Retrieved August 23. Print. Enron: the Rise and Fall. "America Robbed Blind. NJ: Wiley.." Wizard Academy Press: 2005 8.com/displaystory. Rapoport. Enron: Corporate Fiascos and Their Implications. Print.

Rasheedah Abubakr BUS 390 Instructor: Mary Kraut .

Rasheedah Abubakr BUS 390 Instructor: Mary Kraut .