Unethical Business Practices
Unethical Business Practices at Enron
LDR/531 Organizational Leadership
August 11, 2011
Unethical Business Practices at Enron Enron Corporation came into existance in 1985 as the result of a merger between InterNorth and Houston Natural Gas. This merger produced the longest natural-gas pipeline network in the United States. Under the leadership of Chief Executive Officer Jeffery Skilling, Enron changed from a gas-pipeline business into a natural-gas and electricity company during the 1990s. By the year 2000 it was the seventh largest United States corporation and by December 2001 it suffered the largest bankruptcy and stock collapse in the history of the United States. Enron used careless and misleading accounting practices to hide its financial problems. The use of unethical financial methods was used to benefit executive staff members and conceal financial losses. According to Sims and Brinkmann (2003), “Enron created "special purpose vehicles" (SPVs), pseudo-partnerships that allowed the company to sell assets and "create" earnings that artificially enhanced its bottom line” (p. 245). They also used overstated and inflated income projections from trading contracts after signing them. When Arthur Anderson, an outside auditing firm, accurately accounted for a partnership deal in 2001, large quarterly losses resulted. Those losses and ensuing profit and debt restatements caused Enron 's stock price to drop, triggering the unraveling of the partnership and resulting in a sudden and remarkable financial collapse that led to bankruptcy in Dec., 2001. Sixty-two percent of the company pension plan consisted Enron stock and the pension plans of nearly 20,000 Enron employees were destroyed ("Enron Corporation," 2009). Because of unethical business practices of Enron’s management team, more than 30 people were charged with various crimes while more than 20 people, including top management officials were eventually convicted of or pleaded
LDR/531 Organizational Leadership
August 11, 2011
Unethical Business Practices at Enron Enron Corporation came into existance in 1985 as the result of a merger between InterNorth and Houston Natural Gas. This merger produced the longest natural-gas pipeline network in the United States. Under the leadership of Chief Executive Officer Jeffery Skilling, Enron changed from a gas-pipeline business into a natural-gas and electricity company during the 1990s. By the year 2000 it was the seventh largest United States corporation and by December 2001 it suffered the largest bankruptcy and stock collapse in the history of the United States. Enron used careless and misleading accounting practices to hide its financial problems. The use of unethical financial methods was used to benefit executive staff members and conceal financial losses. According to Sims and Brinkmann (2003), “Enron created "special purpose vehicles" (SPVs), pseudo-partnerships that allowed the company to sell assets and "create" earnings that artificially enhanced its bottom line” (p. 245). They also used overstated and inflated income projections from trading contracts after signing them. When Arthur Anderson, an outside auditing firm, accurately accounted for a partnership deal in 2001, large quarterly losses resulted. Those losses and ensuing profit and debt restatements caused Enron 's stock price to drop, triggering the unraveling of the partnership and resulting in a sudden and remarkable financial collapse that led to bankruptcy in Dec., 2001. Sixty-two percent of the company pension plan consisted Enron stock and the pension plans of nearly 20,000 Enron employees were destroyed ("Enron Corporation," 2009). Because of unethical business practices of Enron’s management team, more than 30 people were charged with various crimes while more than 20 people, including top management officials were eventually convicted of or pleaded
References: (2009). Enron Corporation. Columbia Electronic Encyclopedia, 6th Edition, 1. Bartlett, C., Ferrell, O., & Oliverio, M. (2002). Enron 101. BizEd, 40. Free, C., Macintosh, N., & Stein, M. (2007). MANAGEMENT CONTROLS: THE ORGANIZATIONAL FRAUD TRIANGLE OF LEADERSHIP, CULTURE AND CONTROL IN ENRON. Ivey Business Journal, 71(6), 1. Sims, R., & Brinkmann, J. (2003). Enron Ethics (Or: Culture Matters More than Codes). Journal of Business Ethics, 45(3), 243-256.