Enron Case Study

The organizational culture of Enron was ultimately to blame.
As accounting tricks were

implemented to show a favorable portfolio, the ethical practices slowly eroded away. Soon the
culture of Enron was transformed and more aggressive and misleading business practices
sprouted. They were reporting profits from partnerships that had not yet been realized in an
effort to keep stock values up. As subordinates viewed the ethics of leadership deteriorate, it was
not long before they followed suit. A company that had once been praised for its ethical culture,
found itself with no ethical values at all. The leadership did not want to hurt the companys
image; they felt a little deception now would be ok. They felt as if they were saving their
organization from financial ruin. If investors got nervous they would sell their stock, when stock
gets sold too much it lowers its value. That would also hurt their credit rating and in turn would
trickle down to the organizations demise. Despite conflicts of interest, partnerships were made.
Then by selling off the partnered companys assets, they were able to lie about their bottom line
and claim it as profit. At first it was a short term fix to a long term goal of saving the company
shame, and keep it from bankruptcy.
By the time Enron hit bottom there was a complete lack of ethics in their organizations
culture. In the beginning they prided themselves on being an ethical company. In the end they
had become so numb to their actions they lost sight of their core values totally.
At the top of the list would have been to not create questionable accounting methods.
Then the whole conflict is an interest situation. Andrew Fastow, Enrons ex CFO partnered with
two companies that he either owned or was running. This violated Enrons own conflict of
interest policies.
In the year 2001 Enron Scandal had filed for bankruptcy and the collapse of the company
was regarded as the biggest audit failure of all times. This occurred when the shareholders of the
company had filed a suit against the company after the company share dropped from a double
digit number to less than $1. The root cause of the sudden drop in the share price of the
company confused the shareholders compelling them to file a suit against the company. It was
observed that lack of systematic and clear organizational structure was the root cause behind the
collapse of the company. The company failed to comply with business and legal ethical standards
and there was a lack of moral standard among the employees of the organization.
Employees were forced to stretch the rules; eventually ethical boundaries were stretched,
and then broken. By encouraging employees to push the envelope they soon lost sight of what
was ethical. Enrons CEO should have pushed employees to stay within their own ethical
boundaries. The CEO should have never resigned when financial troubles, unethical practices,
and deception were brought to light. The CEO should have reinforced Enrons code of ethics
which included respect, integrity, communication and excellence. Employees, stockholders,
and creditors should have received all of the above.
The failure to provide a valid reason for the collapse of the Enron Corporation aroused
curiosity among investors and sparked controversy among competitors and investment banking
analyst. The company management tried to solace the investors by claiming that it would hold an
IPO separately for its internet department but ultimately the company filed for bankruptcy. It was
noted that various employees and managers were involved behind the collapse of the company.
Lack of implementation of an ethical and moral standard by the human resource department can
pave the path for downfall of the company. Lack of financial, sustainability accounting
disclosure and lack of proper organizational climate within the company were solely responsible
for the scandalous act. The US government had immediately enacted the Sarbanes-Oxley Act in
response to this particular incident in the year 2002 which aimed at primarily promoting
transparent and accurate auditing among public accounting companies. This federal law has set
new accounting standards for USA public accounting companies, corporate directors and
corporate management to enhance the corporate practices.
Although, the government of varied nations have developed several legislation laws
which discourages unethical and immoral conduct among the corporate there has been evidence
of several scandalous corporate events. The legal and personal ethics has considerable influence
on the business ethics of an organization and has the influential power of changing the course of
managerial decision making. The theories proposed by the various theorists can be a remedial
solution in multiple situations and can also lead to the establishment of the moral concepts and
standards within a company. Normative, descriptive, Hybrid theories can prevent misconduct
within a company and can permit the employees of the organization to channelize their desires
and energy in a positive way. These theories will also serve the purpose of a strategic direction
and help in coordination of activities within the departments of the company. Thus, the
management of the companies can refer to various theories and treat them as a continuous
process which can improve the ethical climate of the company.

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How did Enron's culture change over time?

What were some of the unethical practices at Enron?

The organizational culture of Enron was ultimately to blame.

As accounting tricks were

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