Enron Case Answer

Enron Case Answer Question 1. What lead to the eventual collapse of Enron under Lay and Skilling?

We can conclude that the illegal or fraud activity conducted Lay and Skilling are lead to the eventual collapse of Enron. Even though there is Enron Code of Ethics applied in Enron All the fraud activities conducted by Lay and Skilling and bad corporate culture led to the Eventual collapse of Enron. Both were aware of the Enron Code of Ethics but they did not follow it. Kenneth Lay forer CE! was indicted on "" criinal counts of fraud and aking isleading stateents. #eff Skilling was indicted on $% counts of wire fraud& securities fraud& conspiracy& aking false stateent on financial reports& and insider trading. 'ence both were responsible for collapse of Enron. 1)There are several reasons that eventually led to Enron’s collapse: a) A corrupt leadership at the top. Numerous Enron executives were charged with criminal acts, including raud, money laundering and insider trading. !en "lisan, Enron’s ormer treasurer was charged with two do#en counts o money laundering, raud and conspiracy. Andrew $astow, %e &'illing and (en ay were among the most nota*le nota*le top+level executives implicated o Enron’s collapse. $astow, ormer Enron chie inancial oicer -$), aced /0 counts o money laundering, raud and conspiracy conspiracy in connection with the improper partnerships he ran, which included a !ra#ilian power plant proect that was aided *y 2errill ynch, ynch, an investment investment *an'ing *an'ing irm. &'illing was was indicated on 34 counts o wire raud, securities raud, conspiracy, conspiracy, ma'ing alse statements on inancial reports and insider trading. ay was was indicted on 11 11 criminal counts counts o raud and ma'ing misleading misleading statements. statements. 5e died in 6778 9eiss, 677/). *) A corporate culture that supported unethical *ehavior. Enron listed its core values as: -ommunication, respect, integrity, excellence Enron Annual eport, 6777). Examples revealed that the culture culture stood opposed opposed to these core values. values. ;nstead o reinorcing reinorcing the code o o ethics and the list o core values, the actions o leadership esta*lished a culture o greed and pride. Examples: &'illing implemented a very rigorous and threatening perormance evaluation evaluation process or all Enron employees. (nown as
 The eventual collapse of Enron under Lay and Skilling was due to leadership of top management and corporate governance issue that lead to the corporate culture of the company. It was not the doing of one person but a group of them and an ineective system. The exercises exercises done by Lay and Skilling is hard to prove that they were violating laws but it is the two of them that created the corporate culture that portraits their beliefs and in Still them into the corporation. !ut it would be safe to say that the two were the one who were portraying as pushing the envelope. "hat Lay and Skilling Skilling practices in the corporation corporation is a total contrast contrast with the code of ethics of Enron. Enron#s ethics code was based on respect integrity communication and excellence. The core of these values was to enhance trust and transparency to the public by gaining their con$dence through the integrity of its workforce. The activities of top management Lay Lay and and Skill Skillin ing g not not only only did did not not adhe adherred to the the valu values es of respe espect ct integrity communication and excellence articulated in the Enron %ode of  Ethics but totally undermine the foundational values of Enron %ode of  Ethics. The problem does not lie within the %ode of Ethics of Enron& in fact

the code of ethics of Enron is well structured and strong but is that the top management did not walk the talk. Lay and Skilling sidestep to the %ode of Ethics and conducted the business of Enron under their own corporate culture. That is with greed and intimidation. The top management was constantly pushing its employees to meet the sales target regardless of ethical behavior. The unspoken message was '(ake the numbers if you steal if you cheat )ust don#t get caught. If you do beg for second chance and you#ll get one. This aggressive earnings management style forces employee to try to achieve targets regards of  any moral and ethical value. To the employee#s understanding is that if  the top management and other employees are doing it then it must be alright. The leadership of Enron plays an important part in de$ning it employee#s ethical behavior. * perception that if everyone is doing and is being rewarded then it is alright it is not about illegality but about the morality and ethics of all of those involved. Lay and Skilling has made it culture where it in+uenced employee into believing that what they were doing was legal although it was immoral and ,uite unacceptable in normal circumstances. !esides that Skilling also implemented a very rigorous.

The main points of bad leadership that explains the demise of Enron are as follows: 1. The working environment – Enron favored a system called “yank and rank” in which the employees who had the best credentials who earned the most and were the most noticeable in the eyes of the management were promoted very !"ickly with no regard to the amo"nt of experience they had or whether they were s"ited for the leadership role. This created an environment which harsh competition in t"rn making it hard for employees to develop other important b"siness skills s"ch as working in a gro"p or seeing things beyond immediate profit.  #lso the “yank and rank” system ca"sed people who were not necessarily s"ited for leadership roles to get to the top very !"ickly creating a vicio"s cycle in which the company was not led by people who knew the importance of “good followership” an important factor to the smooth r"nning of a company. $. %ishonesty – & think that probably the thing that led to s"ch a h"ge downfall was the general dishonesty of the company. Even if there was a problem it is astonishing how no one in the company attempted to do something abo"t it "ntil one employee was brave eno"gh to point it o"t in a memo. 'art of this is the work environment that & disc"ssed above b"t the fact that the leaders of the company were not competent eno"gh to do what was good for the company m"st also be considered. # good leader wo"ld have recogni(ed that not addressing the problems and covering over wo"ld event"ally lead to the demise of the company – yet the Enron management failed to do so. & think that another Enron can very well happen – it is incredible how blind people can get when they attain h"ge power and have so m"ch more to lose than the average person. The Enron case served as a good lesson to many for a decent period of time yet we still have corr"ption in b"siness and government. )bvio"sly not eno"gh people have learned from Enron*s disaster.

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!ow did the top leadership at Enron under"ine the foundational values of the Enron Code of Ethics?

Enron numerous executives such as former %E- former chief $nancial ocer and treasurer who forced company to the bankruptcy were found guilty after the

bankruptcy. They were engaged in money laundering fraud and conspiracy. In this manner Enron#s leadership undermine the company#s expressed Enron %ode of Ethics i.e. respect integrity communication and excellence.

Enron nuerous e(ecutives such as forer CE!& forer chief financial officer and treasurer  who forced copany to the bankruptcy were found guilty after the bankruptcy. )hey were engaged in oney laundering& fraud and conspiracy. *n this anner Enron+s leadership underine the copany+s e(pressed Enron Code of Ethics i.e. respect& integrity& counication and e(cellence.