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White Collar Crime: Collapse of Enron - Research Paper Example

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This essay explores the white collar crime: collapse of Enron. Enron, American Energy Company, has become the “ultimate symbol of corporate wrong-doing” due to certain inept leadership actions of Kenneth Lay and the resultant unethical practices…
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White Collar Crime: Collapse of Enron
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Download file to see previous pages This paper illustrates that in organizations in any sector, leader is the one who can lead the employees under him/her on the successful path or on the detrimental path. The management team and their employees for their part also maximally follow their leaders. The risk factor in this practice of just following the leader is that, if the leader functions ineptly, unethically, inefficiently, etc, then there is a possibility that the whole organization could collapse. This is what happened in Enron. When the leadership role of former Enron CEO and Chairman, Kenneth Lay is analyzed, it is clear that he has lead workers including in the management team, as well as customers and investors who depended on him to on the detrimental path, thus leading to the in-famous Enron scandal. Since Enron’s executives and top management team were compensated based on the stock price, they had an incentive to keep the stock price artificially high by not declaring their losses. Enron is a stark example of how companies rewarded corrupt practices of employees at the company. They paid hefty bonuses to competent managers who were willing to do whatever it takes to improve the company’s stock process. They did so by using accounting malpractices to hide these losses and to even declare profits. Enron consistently published falsified financial statements that obscured aspects of its operations. These statements tried to disguise debt levels and used external partnerships to convert stock into profit. In addition, an overly complex organizational structure facilitated the fraud. These actions reflect a bad decision-making process where accurate information (losses and proper accounting principles) were used to support the negative values and preferences (they wanted to earn more than what they deserved) of the management team. “Enron's executive compensation philosophy and executive incentives were misaligned as management was paid based on revenue and earnings growth when they should have been compensated for economic profit creation and profitability” (“Enron Destroyed Long-Term Shareholder Value”, 2002). From this unethical and fraudulent actions of Enron, its top management and particularly its CEO, it is clear that decision making processes has to be carried out, taking into considerations the repercussions of the decision that will be taken. The decision-maker has to make sure that the consequent risks could be managed, including whatever indirect advantages the decisions may have. However, Enron and its management did not think about the risks, and tried to deceive various stakeholders. When the whole fraud was revealed to the public, the stocks of Enron plunged to very low levels leading it to bankruptcy and leaving the 20,000 odd employees in dire straits. To make matters worse, when CEO, Lay knew that the company is on the verge of collapsing, he sold majority of his stocks and did not take any positive steps, leading to the decimation of many of the employees’ retirement accounts, which were largely based on Enron stock. That is, even after knowing that his company is on the verge of collapse with its stock price collapsing, he encouraged the workers to put their retirement fund in the company’ ...Download file to see next pages Read More
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