Enron - Essay Examples and Topic Ideas

Enron was formed as an energy producer in 1985, after a merger between InterNorth Inc. and Houston Natural Gas (Segal 2018; BBC, 2006). Enron became an energy trader and ended up an energy bank, providing products and services such as natural gas, electricity, and communications for its wholesale and retail customers (BBC, 2006; Ferrell, Fraedrich & Ferrell, 2011). From the start Enron had financial difficulties, but the 1988 deregulation of the electrical power markets, allowed the company to redefine its business from energy delivery to energy broker (Sims & Brinkmann, 2003). This again transformed Enron from a surviving company to a thriving one and in just 15 years it grew from no place to end up America’s seventh largest company, employing 21,000 staff in more than 40 countries (Sims & Brinkmann, 2003; BBC, 2006). Enron was also named America’s Most Innovative Company by Fortune magazine for six consecutive years from 1996 to 2001 (Segal 2018; BBC, 2006).

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Impact of Enron’s Corporate Culture

The 1988 deregulation, which deregulated prices and permitted more flexible arrangements between producers and pipelines, allowed Enron to play a matchmaker role by bringing buyers and sellers together (Healy & Palepu, 2003). Furthermore, the deregulation not only allowed Enron to benefit from the revenues generated from the exchanges, but also allowed Enron to be creative (Sims & Brinkmann, 2003). Enron was once required to play by the rule but now could innovate and test limits. Over time, as Enron’s contracts became increasingly diverse, more complex and its products and services evolved, so did the company’s culture (Sims & Brinkmann, 2003).

According to Ferrell, Fraedrich & Ferrell (2011), “A corporate culture can be defined as a set of values, norms, and artifacts, including ways of solving problems that members (employees) of an organization share” (p. 132). On the other hand, company’s ethical culture is an important component of corporate culture (Ferrell, Fraedrich & Ferrell, 2011). These two concepts are not only interrelated but also influence employees’ commitment to a firm and dictate how coworkers behaves. Hence, Enron’s corporate culture has impacted the behaviors of organizational members. According to Sims & Brinkmann (2003), the deregulation not only opened the industry up to experimentation but also allowed Enron to push its employees to explore this new playing field to the most extreme. Enron’s culture also considers pushing the limits as a survival skill. For instance, Jeffry Skilling, Enron’s former President and Chief Executive Officer (CEO), used a “Do it right, do it now, and do it better” motto to actively cultivate a culture that pushed limits (Sims & Brinkmann, 2003). In addition, Enron embraced a culture that reward “cleverness”, a culture that promoted innovation and uncheck aspirations but publicly ridiculed unsatisfactory performances. Enron’s reward system is a very good example of this culture. According to the reward system, those employees and units that performed consistently, regardless to their regard to ethics, are considered. The sad reality is; however, these best performing units and employees often overlook and break company rules (Sims & Brinkmann, 2003). On a similar note, Ferrell, Fraedrich & Ferrell (2011) stated that, Enron’s aggressive corporate culture used the rank and yank performance reviews process to rank employees against each other. Again, Enron’s selection and rewards system were in line with and a direct reflection of the culture of greed, selfishness, and jealousy within the organization. In connection to this, Sims & Brinkmann (2003) stated that, Enron’s executives selected those workers who shared their aggressive view of win-at all-costs mentality. Another feature of Enron’s culture is that it had little concern for the stakeholders. Instead, the focus was on the executives and how much money could be made by the c-suite. According to Sims & Brinkmann (2003), those c-suite, who behaved in desirable ways, received annual bonuses as high as $1 million and higher in the form of stock options. In a nutshell, Enron’s leadership created a cultural atmosphere that ripped the unethical and illegal behavior that occurred.

Who is at Fault?

The question that was in everybody’s mind was, how could Enron’s problems remain undetected for so long? According to Healy & Palepu (2003), the groups that were at fault include top management, Enron’s auditor, Enron’s audit committee, fund managers, financial regulators and sell-side analysts. However, this paper is limited to auditor’s, attorney’s, and banker’s contribution to demise of Enron.

Auditor

Arthur Andersen LLP was one of the largest independent audit firm in the 1990s, with 85 thousand employees operating in more than 84 countries (Collins, 2018). As independent auditor, Andersen’s major responsibility was to make sure that Enron’s financial statements was complete, accurate and understandable for investors so that they make informed investment decisions. However, Andersen was not only failed to fulfill the obligation of protecting investors’ interest, but also failed to disclose and explain the special purpose partnerships Enron had (By, 2001). Most of these partnerships were managed by former Chief Financial Officer Andrew S. Fastow. Anderson’s independence was once questioned for the unethical relationship it had with Enron and the subsequent conflict of interest. For instance, Ferrell, Fraedrich & Ferrell (2011) stated that, the audit firm was not only a major business partner of Enron, with more than one hundred employees dedicated to its account, but also the firm has a yearly consulting service deal with Enron for a total of $50 million. Furthermore, some executives of the audit firm even accepted jobs with the energy trader. When the Securities Exchange Commission (SEC) launched an investigation into the accounting of Enron, Andersen destroyed Enron’s auditing document. As a result, Andersen was found guilty for obstruction of justice and was barred to engage in audit services (Ferrell, Fraedrich & Ferrell, 2011). The incident remains one of the greatest lessons, how an independent opinion could be influenced by unethical relationship and the subsequent financial benefit.

Attorneys

Vinson and Elkins, a law firm, was founded in 1917 in Houston Texas by William Ashton Vinson and Judge James A. Elkins (Vinson & Elkins, 2010). However, it was on a spotlight for its role as a legal advisor to Enron. Enron has been one of the biggest clients of Vinson & Elkins long before the scandals. According to Schwartz (2002), Enron accounted for 8 percent of the firms’ $455 million gross revenues generated in 2001.

Vinson & Elkins along with Andersen, Enron’s auditor, covered up information regarding the subsidiaries it had from the public and the Securities Exchange Commission (SEC) (Sims & Brinkmann, 2003). What they did was, they helped Enron structure some special purpose partnerships. The law firm gave an opinion letters that allowed Enron to do many transactions on the ground of partnerships while these partnerships were subsidiaries (Ferrell, Fraedrich & Ferrell, 2011; Sims & Brinkmann, 2003). These improper accounting practices that involved a series of financial partnerships, overstated Enron’s earning by nearly $6oo million over five years (Richard, Oppel & Kurt, 2002).

Bankers

The brokerage and investment-banking firm, Merrill Lynch, is one of the largest financial institutions in the world. However, it was on spotlight for its high-profile collapse. The firm also faced a scrutiny from federal prosecutors and Securities Exchange Commission (SEC) for assisting Enron to record a fake profit in the fraudulent transaction of the 1999 Nigerian barge deal and the circular energy trades with little economic substances (Eichenwald, 2003; Segal, 2018; Ferrell, Fraedrich & Ferrell, 2011). According to Ferrell, Fraedrich & Ferrell (2011), the barge deal allowed Enron to record a fake profit of $12 million and thereby meet its year end earning goal. Although, Merrill Lynch denied knowingly helping Enron to falsify its financial reports, a jury convicted one former Enron executive and four former Merrill Lynch executives (Calkins, 2004). Merrill Lynch also agreed to pay $80 million to settle the SEC complaints and most of the money from the settlement will go to a fraud to compensate investors who were victims of the fraud (Eichenwald, 2003).

Ethical Leaders

Rev. Dr. Gemechis Buba

Dr. Buba was born and raised in a rural area of Western Ethiopia. The Marxist Derg regime imprisoned his father for his religious views, as a result, Dr. Buba was raised by his mother. Dr. Buba did his Bachelor and graduate studies in Theology in Ethiopia. After serving as a professor in Mekane Yesus Seminary for two years, he moved to the United States for further studies. In 2003, he got his Master of Divinity and Master of Arts in Christian Education from the Interdenominational Theological Center in Atlanta, GA (Buba, n.d.). In May 2006, Dr. Buba earned a Doctorate Degree in missional leadership from Columbia Theological Seminary, Decatur, GA (About, 2014).

According to his biography, Dr. Buba has served as a seminary professor, mission developer, senior pastor, vice president of the Southeastern Black Lutheran Pastors’ Conference, assistant bishop to the Southeastern Pennsylvania Synod (ELCA), director of African National Ministries (ELCA), and president of the worldwide Union of Oromo Evangelical Churches (Buba, n.d.). He was also a minister of St. Stephen Evangelical Lutheran Church and the African/Oromo Lutheran Church in Atlanta, GA. Currently, he is serving as Assistant to the Bishop for Mission for the North American Lutheran Church and lives in Atlanta, GA, with his wife and three children (Buba, n.d.).

As a leader, he has proven himself by allowing access to his ideas and introducing innovative ideas such as establishing a spiritual and social broadcasting system for all to inspire too. Currently Dr. Buba has three broadcasting stations. Evangelical TV and MOA TV are spiritual broadcasting stations, while LTV is a social and a cable News. Many local pastors and church leaders are using these spiritual platforms free of charge to educate their audiences. At the same time, the platforms allowed the leaders to learn from broad foundation creatively. Dr. Buba has gone as far as to acquire a collage, Leadstar College of Management and Leadership, intended to educate current and future leaders. As a leader, he has been so impactful that Dr. Abiy Ahmed, the current prime minister of Ethiopia, acquired MA degree in Management of Business Administration from Leadstar College. His journeys’ and endeavors have proven and shown how his leadership skills are an asset to many communities today.

Howard Schultz

Howard Schultz was born at Brooklyn, New York, on July 19, 1953 (Howard Schultz, 2018). He is an athlete with a natural talent in basketball and football. It is this talent that got him a football scholarship at the Northern Michigan University in 1970 (Howard Schultz, 2018). After completing his bachelor’s degree in communication, he joined Starbucks and became director of retail operations and marketing in 1982 (O’Leary, 2018). Howard saw a potential in the business and realized that he wanted to connect his life with Starbucks. It was his trip to Milan and his return with recipes of latte and cappuccino, that expanded Starbucks’ across the United states (Ferrell, Fraedrich & Ferrell, 2011). When he joined Starbucks, it was just a community coffeeshop, but his strategic leadership skills turned it into a global coffeehouse through a rapid store expansion and franchising. At the time he announced to resign from his chairmanship in early June of this year, Starbuck’s chain had grown to include more than 28,000 stores in 77 countries (Howard Schultz, 2018).

From the beginning, Howard’s vision was to start a business with a reputation for treating employees and customers fairly. His humble beginning and childhood experiences had shaped the kind of businessperson he has become. According to Ferrell, Fraedrich & Ferrell (2011), as a child he grew up witnessing the struggle of his father, who was not only injured on the job but also didn’t get a health benefits from his employers. This made him realize the importance of health care to the health and happiness of employees. As a result, Howard ensured that, all Starbucks employees who work for more than twenty hours a week, are entitled to receive health benefits such as helth, medical, dental and vison benefits (Ferrell, Fraedrich & Ferrell, 2011).

References

  1. About. (2014, April 15). Retrieved September 15, 2018, from https://gemechisbuba.wordpress.com
  2. BBC. (2006, July 05). Q&A: The Enron case. Retrieved from http://news.bbc.co.uk
  3. Buba G. D. (n.d.). Retrieved from http://day1.org
  4. By, J. W. (2001, Nov 05). What enron’s financial reports did — and didn’t — reveal — auditor could face scrutiny on clarity of financial reports. Wall Street Journal. Retrieved from https://search.proquest.com
  5. Calkins, L. B. (2004, November 4). Enron Fraud Trial Ends in 5 Convictions. Bloomberg News. Retrieved September 17, 2018, from http://www.washingtonpost.com
  6. Collins, D. (2018, January 31). Arthur Andersen. Retrieved September 15, 2018, from https://www.britannica.com
  7. Eichenwald, K. (2003, March 18). 4 at merrill accused of an enron fraud. Retrieved September 17, 2018, from https://www.nytimes.com
  8. Ferrell, O. C., & Fraedrich, J. Ferrell L. (2011). Business ethics: Ethical decision making & cases. (8th ed.). Nelson Education.
  9. Howard Schultz. (2018, June 05). Retrieved September 17, 2018, from https://www.biography.com
  10. Healy, P. M., & Palepu, K. G. (2003). The fall of enron. The Journal of Economic Perspectives, 17(2), 3-26. Retrieved from https://search.proquest.com
  11. O’Leary, C. (2018, August 31). Howard Schultz. Retrieved September 18, 2018, from https://www.britannica.com
  12. Richard A. Oppel Jr. with Kurt E. (2002, January 16). Enron’s collapse: The overview: Arthur anderson fires and executive for enron orders Retrieved September 17, 2018, from https://www.nytimes.com
  13. Schwartz, J. Y. (2002, January 16). Enron’s collapse: The law firm; Legal counsel in many ways mirrors client. Retrieved September 15, 2018, from https://www.nytimes.com
  14. Segal, T. (2018, March 14). Enron Scandal: The Fall of a Wall Street Darling. Retrieved September 12, 2018, from https://www.investopedia.com
  15. Sheaffer, Z., & Eckhous, E. (2017). Managerial hubris detection: The case of enron. Proceedings of The Multidisciplinary Academic Conference, 231-249. Retrieved from https://search.proquest.com
  16. Sims, R. R., & Brinkmann, J. (2003). Enron ethics (or: Culture matters more than codes). Journal of Business Ethics, 45(3), 243-256. Retrieved from https://search.proquest.com
  17. Staff, I. (2018, April 30). Nigerian Barge Deal. Retrieved September 17, 2018, from https://www.investopedia.com
  18. Vinson & Elkins. (2010, June 15). Retrieved September 16, 2018, from https://tshaonline.org

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