Enron Paper

2077 Words Jan 31st, 2011 9 Pages
IS-401 BUSINESS ETHIC
CASE STUDY THE FALL OF ENRON: A STAKEHOLDER FAILURE
GROUP TWO

HISTORY
Enron started out as a merger between Houston Natural Gas and Internorth in 1985. The CEO of Houston Natural Gas, Ken Lay, became chairman and CEO of the newly formed company the next year. Enron provided natural gas, electricity, and communications to its customers across the US and even around the world. It was also involved in developing many new energy related products. Enron continued to grow rapidly and in 1990 Jeff Skilling joined the company as the head of the trading and finance department. Skilling would become president and chief operating officer in 1996. In 1997, Enron once again expanded its products to
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Employees were also resistant to deliver bad news to management. Delivering bad news to management could result in losing one’s job. This caused lying by omission. Bottom level employees were not the only members of Enron acting unethically. Although Lay once said he wanted Enron to be a highly moral and ethical culture, he lied about their financial condition.
ACCOUNTING PROBLEMS
Special Purpose Entities (SPE), the single biggest reason for Enron’s downfall, is tools a business uses to direct cash flows through in order to show less debt and stronger earnings. The problem with Enron’s SPE’s was that not only were some of them not even real but the company did not even disclose their use to investors. Enron showed profitable earnings and investors believed that the company they had interest in was actually successful. The SPE’s that Enron had been using the hide their earnings would borrow debt from banks and Enron would guarantee the borrowings, and the most unusual condition was that the principal asset of these SPE’s was Enron restricted stock. Thus, when the stock price crashed the assets were not of any saving value to the company and when the financial institutions and investment firms came to collect Enron had no way of paying their debt. This forced the company into bankruptcy on December 2, 2002. The claims made against Enron were those of not practicing known ethical accounting practices, most notably, the

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