Enron scandal is one of the largest scandal to ever rock cooperate America. The scandal demonstrated how recklessness and lack of integrity among corporate leaders and finical institution can lead to the collapse of a corporate giant.
Several reasons led to the collapse of Enron. One of the major reasons for the failure of Enron was accounting problems. Publicly traded organizations are obliged to make open their financial reports, but this was not the case with Enron. The firm’s funds were an impermeable network of creatively made-up transactions between the firm and its subordinates that covered its real financial condition. Second, Enron had considerable access lines of credit as a way to appear financially sound at the end of each day to resolve its signed contracts operated on its available system (Cuong, 2011). Enron experienced fallout from fraud through the creation of liability from accounting firm Arthur Anderson which later collapsed. Disclosure of the firm’s total worth led to a fall in its stocks. Fraud left investors with insignificant alternatives and annuity packages. Directors that read this danger earlier removed their shares in advance and made their way out with billions of funds.
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In conduction the above activities that lead to the collapse of Enron, the leaders violated ethics laws by being dishonest. Leaders engaged in dishonest accounting activities and ended up withdrawing their shares before the firm’s failure while the junior staffs were not given the opportunity due to restrictions. The stockholders were left with no options but with worthless stocks in their pension (Fry, 2016).
Investment banking was a big contributor ethical folding of Enron. Enron would, at times, book loans known as prepays to its operating cash flow. Andrew Fastow had the permission to use a ploy where a bad performing asset would be taken off the books and later be sold back to the firm at turnover after the end of quarters after the receiving had been reserved. The Federal Reserve was reluctant to help Enron from becoming bankrupt. Although the leader of Enron, such as the president reached the Federal Reserve for help in requesting bankers for credit extension, Federal Reserve denied the giant any help.
References
Cameron, S. (2019). The Enron scandal & ethics. BizFluent. Retrieved from https://bizfluent.com/info-7747847-enron-scandal-ethics.html .
Cuong, N. H. (2011). Factors causing Enron’s collapse: An investigation into corporate governance and company culture. Corporate Ownership & Control, 8 (3); 585-593.
Fry, M. D. (2016). Enron, ethics, & the dark side of leadership. PenState. Retrieved from https://sites.psu.edu/leadership/2016/07/03/enron-ethics-the-dark-side-of-leadership/
