Enron and Whistle-Blowers in Australia - Case Study Example

Enron case and Whistle Blowers in Australia Name: Admission No: Institution: Instructor’s name: Date Executive Summary This paper presents the impact of fraud and lack of ethics in business by focusing on the events that led to bankruptcy of Enron, a leading gas and electricity distribution company in Houston, USA. It provides an account of various ways in which top officials of the company engaged in fraudulent activities without their actions being questioned. It also shows the contribution of the whistle blower in disclosing the accounting information publicized by Enron that did not depict its true financial position. This paper also presents the role played by bankers, auditors and attorneys towards Enron’s demise by investigating the roles they played towards concealment of its true financial position and preventing the possibility of being avoided by partners in stocks trade. In addition, this paper presents the form and level of current institutionalized whistle blower protection in Australia. It also presents the effectiveness of whistleblower protection in Australia with the use of examples to illustrate the effectiveness. Finally, it provides a conclusion of the need for ethics in areas of corporate practice and the importance of whistleblowers towards disclosure of professional misconduct in business activities. Introduction Conducting professional duties have required those involved to perform their duties professionally with the consideration of ethics. However, most professionals have been unable to observe business ethics by engaging in malpractices such as fraud (Benson and Ross 1998). The impact is that companies have been affected and gone bankrupt and employees lost their jobs. An example of a company that underwent such condition is Enron, a gas and electricity distribution company. It was only after a whistle blower disclosed the fraudulent activities of top officials of the company that the public became aware of the unethical practices of the top management of the company. Whistle blowers have been observed to be people who are able to go beyond their personal interests and let the public know about professional misconduct in their areas of business (Barreveld 2002). In the United States, it was the whistle blower who sensitized the public about fraudulent activities of top officials of the gas and electricity trading company, Enron thus resulting into the declaration of the bankruptcy of the company. In addition, whistle blowers have contributed significantly towards disclosure of information about professional malpractices in Australia. This paper presents the contributions made by top management of Enron towards its bankruptcy and the role of the whistle blower towards disclosure of fraudulent secrets of companies in the united state and Australia (Bierman 2008). It also presents the extent to which whistle blowers are currently protected and the effectiveness of this protection. Part A 1. How Enron’s corporate culture resulted into its bankruptcy Enron’s corporate culture was based on the belief that they could handle any risk with little danger. They developed the culture of flouting rules with the focus on making profits (Bryce 2003). Their compensation plan was focused on enriching the wealth of officers rather than generating profits for shareholders. A culture was developed where employees were rated every six months where those who underperformed were forced out of employment. As a result, a fierce environment was created that compelled employees to work extra hard so that they could retain their positions (Fainaru 2003). This shows the Kay, the CEO of the company was mainly concerned with getting high output from the employees with the focus on creating wealth that could be beneficial to him and other officials of the company rather than performing his duties professionally. It also shows that the culture of lack of concern for the well-being of employees was not shown. This is demonstrated by the fact that he forced employees to work hard while they were not awarded for their effort. Due to lack of benefits to employees, the operations of the company were disorganized and activities did not run smoothly. This partly contributed to the decline in the overall output of the company and the subsequent bankruptcy. Despite the expression that the company embraced the corporate culture of respect for values, integrity and excellence, most top managers did not put these slogans into practice. On the other hand, there was lack of integrity and the company engaged in turning assets into financial products and manipulating statistical models to trade at profits. This resulted into the loss of assets in the company thus exposing it to bankruptcy due to unproductively of its functions (Fox 2002). The process of modeling statistical information resulted into additional investments in the stocks of the company but the returns from the investments were only beneficial to the top managers and not the shareholders who are the rightful owners of securities in the company. As a result, the outcomes from securities exchange were taken by the managers and the financial position of the company stagnated. This resulted into a corporate culture where innovation was rewarded and employees are punished. This is against ethical professional practice which recommends that employees should be subjected to proper treatment in their work places by providing them with rights like any other person in the company. Another contributing factor to Enron’s losses that resulted into its bankruptcy is the fact that the company used partnerships referred to as ‘special-purpose entities’ SPEs, that concealed losses incurred by the company. They claimed that SPEs could contribute towards movement of assets and debts off the balance sheet and result into an increase in cash flow (Keown 2004). However, outside observers observed that these were fraudulent reports because they were not the accurate representation of the financial position of the business. This shows that the corporate culture of lack of transparency in the functions of top management contributed significantly towards the demise of Enron. This is because it was reposted that these SPEs were not in existence in actual sense and they were funded with the stocks owned by Enron. In the event that these partnerships failed to meet their obligations, the debts were covered by Enron with its own stock. In a situation where stocks of Enron were low, cash was used to meet the shortfall. These are unethical professional practices because the management of Enron used investors’ funds to meet the debts of its partners. This can be considered as one f the contributing factors to Enron’s bankruptcy. Another unethical practice that contributed to Enron’s bankruptcy is the falsification of its financial statements. This is where wrong financial position of the company was stated while the actual debts were not disclosed (Markham 2005). This is contrary to professional requirement of the people concerned to report the actual position of the business. Consequently, it was observed that there was a sharp difference in cash flow from positive $127 in 2000 to negative $ 758 million in 2001. This is because the company used some of its resources to cover losses of its partners. 2. How Enron’s bankers’ auditors and attorneys contributed to its demise There are many ways in which Enron’s auditors, bankers and attorneys contributed to its demise. The main areas where these firms and individuals contributed towards the demise of Enron include concealment of true financial statement of the company and approving the process of the company to participate in the off balance sheet partnerships that mainly enriched the top management but did not benefit the company (Sterling 2002). For instance, the auditors of the Chief Financial Officer Mr. Fastow was accused of having defrauded shareholders of their investments through the off-balance sheet partnerships that created an image that Enron was profitable while in actual sense it was not. The bankers also took advantage of the partnerships to get personal benefits amounting to $ 30 million while disguising them as gifts from family members and also taking income that was meant for other entities. Another banker who contributed to bankruptcy of Enron is Michael Kopper who was Fastow’s aide. He contributed to money laundering and wire fraud (United States 2003). These actions of bankers were unethical because they did not put the interests of stakeholders first, but focused on enriching themselves with the investments contributed by the stakeholders. As a result of channeling funds for their personal benefits, Enron was unable to operate in the investments sector thus losing its trade value and operational efficiency that resulted into its bankruptcy. Another individual responsible for Enron’s bankruptcy was Jeffrey Skilling, the CEO of the company at that time. He was considered to be the mastermind of all the fraudulent activities that took place in the company. He ignored notifications about the state of the off-balance sheet partnerships by declaring ‘he would remedy the situation’ (Barreveld 2002). Despite not accepting responsibility for Enron’s bankruptcy, he was accused of negligence of the warnings about the off-balance sheet activities of the company. The attorneys contributed significantly towards Enron’s bankruptcy by approving the off balance sheet partnerships that resulted into Enron’s bankruptcy. For instance, it is explained by Ken Lay that he participated in the board meetings that approved the off balance sheet partnerships because they were approved by the attorneys and accountants. This shows that the attorneys’ conspired with the top management to ensure the success of the off-balance sheet deals without regarding the welfare of employees of the company or shareholder’s welfare (Bierman 2008). The attorneys also allowed top management officials such as the CEO to participate in the insider trading thus enabling them sell their individual stocks within the company. The outcome of these stocks cannot be reported to the investors because they belong to an individual. They also allowed the top officials of the company to use the funds of the company to pay for shares they owned. Despite their responsibility to inform the top officials of the company about the misconduct they were involved in, they allowed the top officials to continue with their personal activities that led to the bankruptcy of Enron. The attorneys approved all the financial transactions that the CEO engaged in while they also claimed lack of awareness about some of the items in the indictment. Another law firm that served as an attorney for Enron is the Vinson & Elkins. This law firm contributed to concealment of facts brought forward by Sherron Watkins about the off balance sheet partnerships and lack of accountability and accounting fraud after conducting a number of enquiries. This shows that despite being responsible for conducting fair auditing, the company did not give the right information regarding Enron’s financial position of Enron (Bryce 2003). The information forwarded by Watkins about the use of opinion letters to support the legitimacy of the deals were dismissed by Vinson & Elkins because they did not want the disclosure of the impact of those opinion letters to facilitate the partnerships. On the other hand, the firm agreed to pay $ 30 million to Enron to clear their name from the contribution towards the company’s collapse. This is an indication that having contributed to the success of the off balance sheet partnerships, the company facilitated the process of self-enrichment of the top officials such as the CEO that resulted into no benefits to shareholders. This is an instance of unethical practice because despite the responsibility of the law firm to approve legitimate transactions; it approved fraudulent activities that led to bankruptcy of Enron. Thus, they are considered as having contributed partly towards Enron’s bankruptcy. In addition, Merryl Lynch banking and investment firm was accused of its contribution towards Enron’s sale of Nigerian badges. This resulted into an improper recording of about $ 12 million in earnings thus, enabling it to meet its income targets of the year 1999. However, it is alleged that Meryl Lynch bought the badges using the finances from Enron with the agreement that Enron would buy these investments from Merryl Lynch within a six months’ period with a 15% interest (Fox 2002). In the process of arranging for these transactions, Merryl Lynch was informed of the possibility of a construed transaction as a result of fraudulent manipulation of income statements by top management of Enron, but it went ahead with the transaction claiming it was not a sham. The executives were also displeased by the research analyst of the company after he disclosed Enron’s fraudulent allegations. This is because they did not want to be excluded from an upcoming $ 750 million stock offering. Merryl Lynch replaced the stock analyst and the report about Enron’s financial position was upgraded and Merryl Lynch maintained its stand that it did not have any improper transactions with Enron. As a result of these risky investment strategies, the company contributed to Enron’s financial losses and the company itself went into bankruptcy in 2008 and was purchased in 2008 by the bank of America after it was forced to do so by the federal government. Another auditing firm that contributed to Enron’s collapse is the Arthur Andersen LLP. This company ensured the financial statements of Enron were accurate while internal book keeping were properly conducted so that Enron was perceived as being financially sound and having a future potential. It also compiled a report that Enron’s financial statements would be accurate and would not result into any conflicts of interests. In an effort to maintain their relationship and conceal the true financial position of Enron, it sold about $ 50 million consulting services to Enron in a single year (Keown 2004). However, it was found that the company participated in obstruction of justice in 2002 when it was accused of destroying documents that would result into understanding of Enron’s true financial position. This resulted into banning the activities of the company and the company no longer operates. The contribution of Andersen towards Enron’s bankruptcy is based on the fact that it did not question Enron’s complex partnerships involvements before accepting to certify its financial statements. It is speculated that Enron paid large amounts of consulting fees to the company which prevented the company from questioning the partnership deals that were off the balance sheet. The audit firm was also approached by Watkins, the whistle blower about her concerns regarding the off balance sheet partnerships but it is not clear whether the senior Andersen management took any steps to investigate the concerns (Markham 2005). Thus, it can be concluded that Andersen audit firm approved the financial statements of Enron that facilitated personal interests of the top managers of the company without regarding the demands of ethical practice by avoiding discharging their duties according to the demands of their profession. This ensured the managers benefited from the off balance sheet partnerships while the company stocks did not gain value. This contributed to its demise. Part B 1. The form and extent of current institutionalized whistleblower protection in Australia Various institutions have implemented their institutional ways of whistle blower protection in Australia. Institutionalized whistle blower protection requires that there should be a comprehensive definition of the wrong doing involved in and organizations have to respond the disclosures of whistle blowers and ensure the whistle blower is protected (Norington 2000). The protection of the whistle blower should be proactive and focused on protecting the whistle blower through identification of oversight agencies tasked with the responsibility of ensuring the accomplishment of these requirements. There are a number of states and territories in Australia that have whistle blower protection legislations. These include ‘South Australian Whistle blower Protection Act 1993, the ACT Public interest Disclosure Act of 1994 among others that were formulated and amended between 1980 and 1999. These acts focused on whistle blowing by people in the public sector (Murray and Allison 1998). For instance, the ‘Queensland Whistle blower Protection Act’ requires that the disclosure of unlawful and negligent practices or improper conduct of the officials in the public sector should be protected by the law. Thus, any individual who discloses malpractices in the public sector is protected by this act for the benefit of the general public. In addition, NWS Protected Disclosures Act was formulated for the purpose of protecting public officials for disclosing corrupt activities, professional misconduct and misuse of power roles or misuse of public resources. Thus, in Australia, currently any individual in the public sector who reports these practices is protected by this act. Another Act that has contributed to whistle blower protection is the ACT Public Interest Act that enables individuals to report misconducts in the public sector. This is aimed at ensuring any misconduct in the public sector is reported and the individual concerned is held responsible for the actions. Another Act that has defined the nature and extent of whistle blower protection in Australia is the ‘Official Corruption Commission Act’ of 1988. This act provides protection for any employee in organization who reports corruption in the office. The Act gives the whistle blower the right to report these acts to the relevant bodies or publicizing the actions of the officials (McKay1996). In addition, the Act ensures the whistle blower is protected for any harm that may result from reporting corrupt activities in the public offices. The extent of this Act is that it allows the public as well as the employees of an organization to report cases of corruption irrespective of the social or economic status of the whistle blower. As a result of this Act, most top managers in organizations have ensured they do not engage corrupt activities with the knowledge of employees in the junior positions because of the fear of being disclosed by these employees based on the protection provided by this Act. The reason for whistle blower protection in Australia is that they render malpractices in the public and thus act in the interests of the public through reinforcement of accountability. This is because it is required that employees in the public sector should not tolerate corrupt activities as a result of the fear of the consequence of their actions. Another aim of whistle blower protection is to ensure the taxpayer does not bear the cost of corruption because of the intimidation they receive to remain silent (Lewis 1997). Thus, the Australian government has reflected this view by legislating am act which protects whistle blowers as public sector employees. Whistle blower protection has been faced with the controversy of affecting organizational loyalty in Australia. This is because it results into a conflict of values between personal and organizational values. In Australia, whistle blowing has been institutionalized so that individuals are in fear of being labeled as rats or squealers or tattletales. For instance, it was observed that in Australia, whistle blowing resulted into work place ostracism in a similar measure as it received support from colleagues (Lennane 1993). This is because most work mates demonstrate the true nature of the bout-face or solidarity with the management for the purpose of protecting their careers rather than reassessing the personality of the whistle blower. In addition, most institutional whistle blowing in Australia has been done by employees in the lower positions as a result of the impact on their careers or relationship with the companies they work for. In most institutions superiors have observed malpractices in their organizations and disapproved of the practices but for the purpose of preserving their careers, turn blind eyes to the malpractices and do not associate themselves with a whistle blower at the individual level (King 1999). In most cases, employees in lower positions who have disclosed malpractices in these organizations have been either dismissed from work or subjected to punishments such as demotion and retrenchments. These cases have contributed to the intimidation of employees to disclose malpractices in institutions. The process of disclosing information by the whistle blower is subject to manipulation because the information can be used as a method of preventing further damage control. This implies that the whistle blower can only be protected if he keeps the information disclosed to him and only disclosing it to the whistle blowing receipt agency. There have been cases where whistle blower in institutions is not supported by adequate facts and the whistle blowers have not been legally protected (Jubb1999). This has resulted into counteracting the viability of the existing whistle blower protection laws. In most institutions, it has been difficult to reach a conclusion of a practice to be a malpractice because the person responsible for the malpractice may have a reason for covering up their tracks. There may also be lack of clarity in the conditions and extent of legal protection. For instance, in Queensland and South Australia, there is conflict between protection of whistle blowers laws and laws within corporations where organizations expect employees to act in the interest of their organizations. This has resulted into most top officials in organizations taking advantage of the organizational laws to engage in corrupt activities because they believe the institutional policies would assure them protection from whistle blowers. 2. How effective Australian whistleblower protection has been It has been observed that whistle blowing has generally played an uncertain role in Australia. This has mainly been observed in the health care sector where adverse events have been recorded in health care admissions with increased clinical errors that are not reported (Norington 2000). Despite the emphasis of Australian Council on Health Care Standards efforts to ensure quality-control systems are put in place by reporting adverse health care practices, it has been observed that there are whistle blowing cases where whistle blowers have been discouraged from reporting the events. For instance, in 2002, in an inquiry into obstetrics services at King Edward Hospital, Perth, Western Australia, it was found that there were a number of deficiencies reported by whistle blowers rather than being identified and acted upon through safety monitoring systems. In the process of reporting malpractices, whistle blowers have received treatments that have not been favorable to them. These include layoffs from their jobs, isolation from other employees and neglecting of their views in the organizations where they work. An example of a case where whistle blowers were advisedly affected after reporting malpractices is the Campbell town and Camden Hospitals. In these hospitals, nurses complained about the efforts by these hospitals to frustrate their efforts to improve patient care in these hospitals (Zipparo 1999). As a result, the New South Wales health care Complaints Commission (HCCC) conducted an inquiry into the matter. According to the report of the inquiry, it was found that nurses who had complained paid personal price to enable them raise their complaints. Some were laid off while those in employment in the hospitals have been vilified and isolated by some of their colleagues due to their efforts to criticize the management systems of the hospital. The main areas of complaint were lack of positive feedback from management to workers who raised concerns on quality of health care service, delay in taking actions to review the reports and take the necessary actions and continued challenge to the issues raised by whistle blower nurses which was not allowed in a culture where safety was promoted through open discussion. Due to the public dissatisfaction with the results of the inquiry, a special commission of inquiry was formulated: Special Commission of Inquiry Act (1983) (NWS). According to the first report of this inquiry, the HCC did not carry out a proper examination of the complaints made to them regarding the issue. It was also found that the staffs that were responsible for inadequate conduct were not held accountable for their actions. This case shows that the institutional response to the concerns raised by nurses is that the expensive ‘ad hoc’ responses during these inquiries did not have any impact on a change in institutional cultures and did not respect professional virtues that promote open disclosure. Another case where the effectiveness of whistle blower protection can be observed in Australia is the case of King Edward memorial Hospital Inquiry where medical staff raised concerns regarding high rates of errors being committed by consultants while not being held accountable and lack of supervision of junior staff. Despite these malpractices, the hospital received accreditation that focused on nominal processes and structures. When a new COE was appointed, Michael Moodie, he wrote to the metropolitan Health Service Board indicating the evidence of a number of safety deficiencies and lack of quality services (Jackson1999). This resulted into branding of the CEO as being one of the whistle blowers. The report compiled by him contained a number of complaints such as patient care that was below standard, lack of identification and rectification of clinical issues by senior management, lack of monitoring of adverse clinical incidents, absence of systems that focused on addressing complaints from patients, lack of supervision of junior medical staff and lack of quality clinical systems. This prompted the Health service Board to commission an inquiry by an independent senior clinician and a 2-week review. Recommendations were made for implementation but when the CEO attempted to implement them, he was resented by many senior clinicians and forced to cooperate with them. This resulted into the resignation of the CEO. The two examples show that the role of whistle blowers has not been fully accepted in Australia. This is because in either case, the whistle blowers received disownment of the whistle blowers by the organizations they work for or lack of recognition of their complaints by the top management in the organizations. Thus, unethical professional conduct has not been successfully controlled in Australia despite the possibility that whistle blowers can contribute significantly towards attainment of this objective. Conclusion The case of demise of Enron and the role of whistle blowers in Australia is a wakeup call for professionals to exercise their ethical standards to discharge their duties. It is observed that despite being qualified in a particular field, lack of professional ethics can result into career threatening consequences such as collapse of an organization and negative impact on customers. This paper also shows that the corporate culture that focuses on high performance and intense competition such as Enron’s case results into a culture loyalty is substituted with high performance. The arrogance of the top management of Enron resulted into unhealthy corporate culture that focused on creating partnerships that benefited them rather than the company and shareholders of the company. The allegations surrounding the attorneys shows that a scandal of the magnitude that affected Enron usually does not involve a single individual, but a number of people whose cooperation result into a destruction of such a magnitude. This paper also shows that whistle blowers are people who should be protected by the state and the concerns rose by them need to be addressed with utmost seriousness. This is illustrated in the two cases where whistle blowers contributed to the disclosure of malpractices at Enron and organizations in Australia. As a result of these disclosures, it was possible to investigate the cause of problems experienced such as the cause of bankruptcy of Enron and the cause of poor medical services in the Australian hospitals. References Anon. 2000. ‘Paying the price of accountability.’ Accountancy 125 (April): 24. Ballantine, D. 2000. ‘How we made the law work.’ [News report about allegations of malpractice by a former Victorian detective.] Sunday Herald Sun, 11 June: 4-5. Barreveld, D. J. 2002. The ENRON collapse: creative accounting, wrong economics or criminal acts? ; a look into the root causes of the largest bankruptcy in U.S. history. San Jose, Calif. [u.a.], Writers Club Press. Benson, J.A., and D.L. Ross. 1998. ‘Sundstrand: A Case Study in Transformation of Cultural Ethics.’ Journal of Business Ethics 17: 1517-1527. Bierman, H. 2008. Accounting/finance lessons of Enron a case study. Singapore, SG, World Scientific. Bowie, N.E., and R.F. Duska. 1990. Business Ethics. 2nd edn. New Jersey: Prentice Hall. Bryce, r. 2003. Pipe dreams: greed, ego, and the death of Enron. New York, PublicAffairs. De Maria, W. 1995. ‘Whistleblowing.’ Alternative Law Journal 20 (6): 270-281. De Maria, W., and C. Jan. 1997. ‘Eating its Own: The Whistleblower’s Organization in Vendetta Mode.’ Australian Journal of Social Issues 32 (1): 37-59. Dempster, Q. 1997. Whistleblowers. Sydney: ABC Books. Ellicott, J. 1996. ‘Morgue staff took kickbacks.’ The Australian, Tuesday 18 June: 5. Fainaru, S. 2003. Effect of the bankruptcy of enron on the functioning of energy markets: hearing. [S.l.], Diane Pub Co. Finn, W. 1998. ‘Don’t shoot the messenger.’ Director 52 (2): 46-50. Fox, L. 2002. Enron the Rise and Fall. Hoboken, John Wiley & Sons. Gobert, J., and M. Punch. 2000. ‘Whistleblowers, the Public Interest, and the Public Interest Disclosure Act 1998.’ Modern Law Review 63 (1): 25-54. Jackson. P. 1999. ‘Whistles and safety valves.’ CA Magazine 132 (3): 43-44. Jubb, P.B. 1999. ‘Whistleblowing: A Restrictive Definition and Interpretation.’Journal of Business Ethics 21 (1): 77-94. Kaptein, M. 1998. Ethics Management. Dordrecht: Kluwer. Keown, A. J. 2004. . Beijing, Qinghua University Press. King, G., III. 1999. ‘The Implications of an Organization’s Structure on Whistleblowing.’ Journal of Business Ethics 20: 315-326. Lennane, K.J. 1993. ‘Whistleblowing: A health issue.’ British Medical Journal 307: 667-670. Lewis, D. 1997. ‘Whistleblowing at work: ingredients for an effective procedure.’ Human Resource Management Journal 7 (4): 5-11. Markham, J. W. 2005. A financial history of modern U.S. corporate scandals: from Enron to reform. Armonk, N.Y. [u.a.], Sharpe. McKay, J. 1996. ‘The Public Interest or Improper Use of Information - the Dilemma for the Insider Environmental Whistleblower.’ Australian Business Law Review 24 (4): 319-22. Murray, A., and L. Allison. 1998. ‘Court decision against Karl Konrad highlights urgent need for whistleblower protection laws.’ Media release, 22 January. Democrats web site. Norington, B. 2000. ‘Bosses told how to lie.’ Sydney Morning Herald 26 April: 1. Rothschild, J., and T.D. Miethe. 1999. ‘Whistle-Blower Disclosures and Management Retaliation.’ Work and Occupations 26 (1): 107-128. Seligman, D. 1999. ‘Blowing whistles, Blowing smoke.’ Forbes 164 (5): 158, 162. Senate Select Committee on Public Interest Whistleblowing. 1994.In the Public Interest. Canberra: Senate Printing Unit. Sterling, T. F. 2002. The Enron scandal. New York, Nova Science Pub. United States. 2003. Report of Investigation of Enron Corporation and Related Entities Regarding Federal Tax and Compensation Issues, etc., Volume I: Report, February 2003. S.l, s.n. Workcover. 1998. Recent Prosecutions 1/2. Melbourne: Victorian Workcover Authority. Zipparo, L. 1999. ‘Encouraging Public Sector Employees to Report Workplace Corruption.’ Australian Journal of Public Administration 58 (2): 83-93. Read More

Part A 1. How Enron’s corporate culture resulted into its bankruptcy Enron’s corporate culture was based on the belief that they could handle any risk with little danger. They developed the culture of flouting rules with the focus on making profits (Bryce 2003). Their compensation plan was focused on enriching the wealth of officers rather than generating profits for shareholders. A culture was developed where employees were rated every six months where those who underperformed were forced out of employment.

As a result, a fierce environment was created that compelled employees to work extra hard so that they could retain their positions (Fainaru 2003). This shows the Kay, the CEO of the company was mainly concerned with getting high output from the employees with the focus on creating wealth that could be beneficial to him and other officials of the company rather than performing his duties professionally. It also shows that the culture of lack of concern for the well-being of employees was not shown.

This is demonstrated by the fact that he forced employees to work hard while they were not awarded for their effort. Due to lack of benefits to employees, the operations of the company were disorganized and activities did not run smoothly. This partly contributed to the decline in the overall output of the company and the subsequent bankruptcy. Despite the expression that the company embraced the corporate culture of respect for values, integrity and excellence, most top managers did not put these slogans into practice.

On the other hand, there was lack of integrity and the company engaged in turning assets into financial products and manipulating statistical models to trade at profits. This resulted into the loss of assets in the company thus exposing it to bankruptcy due to unproductively of its functions (Fox 2002). The process of modeling statistical information resulted into additional investments in the stocks of the company but the returns from the investments were only beneficial to the top managers and not the shareholders who are the rightful owners of securities in the company.

As a result, the outcomes from securities exchange were taken by the managers and the financial position of the company stagnated. This resulted into a corporate culture where innovation was rewarded and employees are punished. This is against ethical professional practice which recommends that employees should be subjected to proper treatment in their work places by providing them with rights like any other person in the company. Another contributing factor to Enron’s losses that resulted into its bankruptcy is the fact that the company used partnerships referred to as ‘special-purpose entities’ SPEs, that concealed losses incurred by the company.

They claimed that SPEs could contribute towards movement of assets and debts off the balance sheet and result into an increase in cash flow (Keown 2004). However, outside observers observed that these were fraudulent reports because they were not the accurate representation of the financial position of the business. This shows that the corporate culture of lack of transparency in the functions of top management contributed significantly towards the demise of Enron. This is because it was reposted that these SPEs were not in existence in actual sense and they were funded with the stocks owned by Enron.

In the event that these partnerships failed to meet their obligations, the debts were covered by Enron with its own stock. In a situation where stocks of Enron were low, cash was used to meet the shortfall. These are unethical professional practices because the management of Enron used investors’ funds to meet the debts of its partners. This can be considered as one f the contributing factors to Enron’s bankruptcy. Another unethical practice that contributed to Enron’s bankruptcy is the falsification of its financial statements.

This is where wrong financial position of the company was stated while the actual debts were not disclosed (Markham 2005).

Read More