2019-01-25T10:05:19+00:00 Assignments

The Circumstances under which Enron Scandal arose

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The Circumstances under which Enron Scandal arose

The Circumstances under which Enron Scandal arose

            The collapse of Enron, a giant company that was dealing in the energy industry is often discussed as the one of the major collapses to have occurred in the 21st century especially considering the company had been in existence for more than twenty years previously. Enron owes its collapses to poor management, poor ethics, and lack of concern by the management who would embezzle the company’s funds into their own endeavors while creating room for culmination of corruption and use of the shareholders funds.

The circumstance under which the collapse occurred has often raised eyebrows since the company was publicly traded and was under the review of various institutions and arms of the government. However, as Carnegie and Christopher (5-11) explains, Kenneth Lay the CEO at the time and Jeffrey Skilling the COO who were the main players created a room where the company adopted the accounting systems of the mark to market. This meant that upon the signing of the contract, future inflows would be recognized in the form of present revenues, while future outflows of the company’s investments would be recognized in the form of present expenses. To disguise their activities as legitimate, the executives would create special purpose business entities, which would not appear in the consolidated financial report of the company. Further, the executive would also get special incentives such as the stock options while, allowing the employees to own shares.

Interestingly, the company executives created a culture that that cultivated the existence of their selfish interests since they developed their own performance review committees, which would rate employee on scales of one to five. Employees that got a review of one would be awarded bonuses; those with mid-level reviews would be awarded lesser bonuses with one year while low performing individuals would get six-month notices to termination (Carnegie and Christopher 18). Employees that were deemed as antisocial were also likely to be terminated while those who actively participated and agreed with all the statements of the management were more likely to be retained. This meant that these reviews were very easy to influence since individuals had to always agree with the top management or risk being terminated

As Reviewer (38) notes, the suspicion of Enron’s doom arose after the then CEO resigned from the company with no prior notice which led Wall Street to begin investigating the financial position of the company. The financial statements of the company at the time were too good since Enron was making revenue returns


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