BACKGROUND OF THE STUDY
The Enron scandal, revealed in October 2001, eventually led to the bankruptcy of the
Enron Corporation, an American energy company based in Houston, Texas, and the dissolution
of Arthur Andersen, which was one of the five largest audit and accountancy partnerships in the
world. In addition to being the largest bankruptcy reorganization in American history at that
time, Enron undoubtedly is the biggest audit failure. It is ever the most famous company in the
world, but it also is one of companies which fell down too fast. In this paper, it analysis the
reason for this event in detail including the management, conflict of interest and accounting
fraud. Meanwhile, it makes analysis the moral responsibility From Individuals’ Angle and
Corporation’s Angle.
CASE PROBLEM OR ISSUE
2.1 Truthfulness
The lack of truthfulness by management about the health of the company, according to
Kirk Hanson, the executive director of the Markkula Center for Applied Ethics. The senior
executives believed Enron had to be the best at everything it did and that they had to protect
their reputations and their compensation as the most successful executives in the U.S. The duty
that is owed is one of good faith and full disclosure. There is no evidence that when Enron’s
CEO told the employees that the stock would probably rise that he also disclosed that he was
selling stock.
2.2 Interest
It has been suggested that conflicts of interest and a lack of independent oversight of
management by Enron's board contributed to the firm's collapse. Moreover, some have
suggested that Enron's compensation policies engendered a myopic focus on earnings growth
and stock price. In addition, recent regulatory changes have focused on enhancing the
accounting for SPEs and strengthening internal accounting and control systems.
ALTERNATIVE COURSES OF ACTION
In summary, the fraud in Enron Corporation was a result of failure in the firm’s
leadership system, management control and ineffective organizational culture. Therefore, to
deal with these challenges, Enron should have considered the following alternative courses of
action:
1. The independent directors of the Enron must have a leader who does not also hold
the position of chief executive officer. Where the CEO and the chairman are the
same person, a lead director should be chosen from the non-executive directors.
The chairman of the audit committee must also be an effective leader who is
independent, financial literate, and has an accounting experience to insist on full and
complete discussions. Hence, leadership plays a vital role in the management as this
can be a mean of directing workers and colleagues with a strategy to meet the
company’s needs.
2. Enron should have adopted a progressive-adoptive culture. This culture focuses on
generation of new ideas and openness to new ideas.
3. It would also have been important for the firm to consider nurturing a community-
oriented culture which mainly seeks to ensure a high level of collaboration amongst
employees. Adoption of such cultures would have played an important role in
providing employees with direction.
4. To ensure effective reporting, Enron should have incorporated accrual method of
reporting to ensure accurate description of the company’s value. This method
measures the performance and position of a company by recognizing economic
events regardless of when cash transactions occur.
5. With regard to control issues, the firm should have adopted a more current control
system by reviewing its policies, procedures and rules focused on nurturing integrity.
Integrity means being straightforward, honest and truthful in all professional and
business relationships.
RECOMMENDATIONS AND REASONS
Among the alternative courses of action presented above, the best action that we can
recommend to the Enron Corporation is to have an effective leader who is independent,
financial literate, and has an accounting experience to insist on full and complete discussions.
Leadership plays a vital role in the management as this involves values, including showing
respect for followers, being fair to others, and building community. It is not a process that can
be demonstrated without showing our values. Therefore, when we influence, we have an effect
on others, meaning we need to pay attention to our values. Sherron Watkins demonstrated
how this moral dimension distinguishes ethical leadership from other types of influence, like
those of the Enron executives that knowingly decided to compromise their morals and values in
favor of achieving the greatest good for themselves. The Enron scandal serves as an excellent
case study why there is a high demand for moral leadership in our society today.
Enron Energy Corporation:
A Case Analysis
