business ethics_enron case

8/9/2019 Business Ethics_Enron Case

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Business Ethics Enron Case

Ethics is about how we meet the challenge of

doing the right thing when that will cost more

than we want to pay

-The Josephson Institute of Ethics

7/21/2010 2IIPM SS09-11 - Business Ethics

Ethics


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Ethics

Business Ethics

Business Ethics involves set of actions that

make company more favorable to public and

employees.

It defines the code of conduct for employees

It makes the company activities more legal and

policies more social



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Ethics

Business Ethics

Present-daypractices

A Strong Trend: Integration

Post-modernism: de-re construction of values

Multivariate analyses

Multidisciplinary practices

Globalization of markets and cultures

Stakeholder theory, CSR

Integrated models of organizational

performance



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Organizational Ethics



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Ethics

Business Ethics


Key areas to focus

For any corporation

to be healthy andproductive, it needs

to be strong in four

core areas:-

Financial capital in terms of investments and

profits.

Technological capital in terms of cutting-edge

software and hardware.

Human capital in terms of knowledge,

expertise, and creativity.

Social-spiritual capital in terms of ethics,

relationships, meaning and purpose.



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Ethics

Business Ethics


Key areas to focus

Cultural aspect

-Toxic corporateculture

-Healthy corporate

culture

Culture typically includes the totality of

socially transmitted behaviors, beliefs,

attitudes, human thoughts and creations.

It affects every aspect of our lives - the way

we look at things, the way we act and react

and how we express our feelings.



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Corporate Culture

Toxic corporate culture

Authoritarian-hierarchical culture

Competitive-conflictive culture

Laissez faire culture

Dishonest-corrupt culture

Rigid-traditional culture

Healthy corporate culture

Progressive-adaptive culture

Purpose-driven culture

Community-oriented culture

People-centered culture



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The Enron Accounting Scandal

The Enron Scandal

Timeline

Causes of downfall

Trials and aftermath



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Enron The Key Players

Kenneth LayFounder

Jeffrey SkillingCEO (President)

Andrew FastowCFO



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The Enron Accounting ScandalTime-line

1985

1987

1990

1993

Ken Lay, Founder and CEO of ENRON, Created Enron as a result

of mergers of gas and pipeline companies in US South east at

Houston, Texas

Lou Borget of Enron Oil Trading is convicted of money

laundering and fraud costing Enron shareholders about $64

million.

Jeff Skilling joins Enron Corp after leaving the failed bank, First

City Bank of Houston which was seized for insolvency

Enron launches investments in South America and India (Dabhol

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Enron starts trading Electricity

Andrew Fastow creates an Chewco in an effort to hide debt and

inflate profits, but Chewco doesnt meet requirements to keep it

off Enrons balance sheet

Enron enters into several capital intensive ventures that turn into

financial disasters including a water distribution scheme and

power plants in Brazil

Enron withdraws from oil and gas productions and announces the

launch of EnronOnline, its internet-based commodity trading

1994

1997

1998

1999




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2000 Enron launches EnronCredit.com which buys and sells credit

risk to help companies manage the risk in trading

Ken Lay files fraudulent financial documents and Jeff Skilling

signs fraudulent financial reports to ArthurAnderson

Enron publishes a comprehensive ethics code which stressed on

Survival of the fittest instead of moral values.




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2001 Enron causes rolling blackouts in California

The inauguration of George W. Bush is attended by Enron

Founder Ken Lay and CEO Jeff Skilling, who each make

$100,000 contributions for the event.

Jeffrey Skilling commits securities fraud by omitting bad news

and lying to investors. He makes a false presentation to

investors and Enron executives receive million dollar bonuses.

Enron is named most innovative company in America for the

sixth consecutive year by Fortune Magazine




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2001 ArthurAnderson tells the Enron board of directors audit committee

that they have no concerns. Enron announces a first quarter profit of

$536 million

Lay and other Enron officials meet with the energy task force of

Vice President Dick Cheney. Fortune Magazine issues a story Is

ENRON overpriced?

Enrons Stock price closes at $59

.78

from $95

. Executives startselling ENRON Stocks

Jeff Skilling and Sherron Watkins resigns from the post of CEO and

Vice president respectively




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2001 Sherron Watkins, VP of Enron puts a one-page letter in

Lays suggestion box, questioning Enrons accounting

practices

ArthurAnderson starts document shredding and Enron

announces third quarter loss of $618 million.

Enrons assets (shareholder equity) are reduced by $1.01bn

The Enron 401 (k) retirement plan is frozen for

administrative charges

Andrew Fastow is forced to leave Enron




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2001

2002

The SEC starts investigating Enron and ArthurAnderson

o Dec 2, 2001 Enron declares bankruptcy and Ken Lay lays off

21,000 employees

ArthurAnderson states that it destroyed Enron documents.

o Former Enron executive J. Clifford Baxter found dead from apparent

suicide




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Mark-to-Market

accounting

Structured

Finance/Special

Purpose Entities

Corporate

Governance

The Enron Accounting ScandalCauses of downfall



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The Enron Accounting ScandalThe Trials

Ken Lay: Convicted for securities and wire

fraud, prison term up to 45 years. He died before

sentencing

Jeff Skilling: 24- Year prison term for fraud

convictions

Andy Fastow:10

Year sentence for fraud,conspiracy, insider trading. The Prison term was

reduced to 4 years after he testified in a plea

bargain against Lay and Skilling



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Shareholders lost $74 billion

Bankruptcy ofArthurAnderson

Sarbanes-Oxley act was passed in the

Year, 2002

The Enron Accounting ScandalThe Aftermath


By

Lumpi Mandal

Gokul Chandrappa

Maheedhar.k

business ethics_enron case

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