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Enron Corporation, having been founded in 1985, was one of the largest integrated natural gas and electricity companies in the global economy. It was generally involved with natural gases and liquids handling the marketing and transmission of these products all over the world (Alvesson, 2002). It was also one of the largest independent producers of electricity providing for the needs of both private and public markets all over the world. This couples with its involvement in the solar and wind renewable energy sector allowed it to be allocated one of the largest gas-related risk management contracts in the world. It also managed on of North America’s largest oil and gas exploration centers, modernizing the utilities industry through a series of pioneered innovative trading products leading to a surge of economic growth that characterized the face of the company in the early nineties (Sims & Brinkmann, 2003).

The company also underwent a series of expansion programs that were made possible by the government’s deregulation of market prices in the sale of natural gas. This allowed the company to increase the price of their products allowing them a higher revenue margin that increased their profitability. As a result, the company was a huge opponent in the government’s bid to reintroduce regulation processes and succeeded through a series of lobbying mechanisms to maintain the free market (Sims & Brinkmann, 2003). Problems within the company arose when the magnitude of company losses was obscured from the stakeholders giving them the false perception that the company was still making profits.

The corporate governance structure within Enron was weak and questionable. The relationship among corporate governance intermediaries had failed because the company indeed had a board of directors and well qualified external auditors but the company still managed to increase it revenue to the unsustainable levels.

An in depth analysis into the business ethics of the company revealed that the company seemed to report more income and cash flow with inflated asset values while liabilities were not accounted for (Sims & Brinkmann, 2003). This among others were some of the reasons that the company went into bankruptcy dragging along with it investor’s money through a fall in stock prices. Revenue recognition by the company was done in a biased manner, overlooking the common method of reporting revenue. Because the company was involved in the provision of wholesale services and risk management, it was allowed to act as an agent in the provision of goods and services to the consumer. Instead, the company decided to generate its accounts as if trading in the buying and selling of goods and not as a service provider.

Enron was facing a crisis – impending losses and a drop in market share price; but instead of acknowledging this fact and mentioning it to the Board and other members, it decided to look for other methods to inflate it revenue base. It was the first company to employ mark to market accounting that would enable it account for its long-term contracts. Being that this future figure was difficult to project, investors were given false and misleading reports, which in turn had to be done year in year out to ensure that the investors could note continuous and ongoing growth within the company. Their method of reaction to this type of crisis (Sims & Brinkmann, 2003) was poor because instead of coming clean after the error, they would attempt to make up other accounting lies to cover up for their previous lies (Alvesson, 2002). This reaction method resulted in the creation of a chain of problems for the company leading to its eventual failure.

These were not true sales and should have been defined as loans but were instead defined as sales hence increasing the company’s accounting revenue. Other limited partnership companies were also formed by Enron so that these companies could buy out the poorly performing stocks within the company and show a reduction in total losses as a result of these stocks (Sims & Brinkmann, 2003).

Initial compensation and reward systems for employees within the organization sought to reward the most productive employee resulting in a series of dysfunctional corporate structures that drove employees to focus on sales maximization at all costs. Volume deals were more valued that the actual quality of cash flows or profits with focus on the company’s stock price.

Employees were paid generous bonuses and were some of the top 200 highest paid employees in the world making the company’s attention cost centered with extravagant and rampant spending throughout its system (Alvesson, 2002). It is even noted that the company’s auditor, as a result of the high amount of money that he was paid to audit the company’s accounts, overlooked a few significant details to the advantage of the company. In fact, accountants were hired into the firm specifically to devise ways of allowing the company to save money and may have employed the use of some accounting loopholes allowed in the accounting field. The criteria of selection and dismissal of employees was also an interesting aspect within the company (Sims & Brinkmann, 2003); employees were hired based on their classroom achievements.

It is widely known that Enron only hired the best graduates from the leading financial schools, colleges and universities making it performance driven as it could get the best business strategies from these people. This may have instilled greed and performance driven unhealthy competition among students all over just so that they could get into the company (Alvesson, 2002). The existing staff would also resolve to unethical methods in order to achieve success. The overall objective for the implementation of criteria for employee hiring and firing was disregarded as employees were hired and fired into the organization to suite whichever lie they wished to propagate at the time. Employees were fired when they were seen to not be performing on the company profit scale while others were hired on dummy projects when they wished to promote investor confidence in the scale of production within the company.

Attention focusing (Sims & Brinkmann, 2003) was very limited in the company as witnessed in the company’s Financial Board of Directors. This board that comprised of well educated members of society was not able to have a meeting long enough to focus their attention on why the company was making huge profits and what these limited partnership companies were. Auditors were also unable to focus on the company’s financial reports to identify the significant cancelled projects that were still in the company’s accounting books and as a result of lack of focus, the company suffered losses that the investors were unaware of. Failure to reinforce the aspects of organizational culture within an organization can lead to problems within the organization in light of ethical behavior among employees within Enron.

References

Alvesson, M. 2002. Understanding Organizational Culture. New York. Sage.

Sims, R. and Brinkmann, J. 2003. Enron Ethics (Or: Culture Matters More than Codes). In Journal of Business Ethics 45: 243-256. Amsterdam. Kluwer Academic Publishers.

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