The Scandal of Enron

What brought Enron to the largest bankruptcy reorganization in American history, and the biggest audit failure? 

What lessons can be learned?

The Enron scandal demonstrated the need for significant reform in accounting and corporate governance in the United States, as well as for a close look at the ethical quality of the culture of business generally and of business corporations in the United States.

But, when executives are uncooperative, it is not easy for analysts to understand and evaluate new kinds of businesses...

Because investment banks make far more money from underwriting or merger deals than they do from broker fees, industry analysts find it difficult to face the “conflicting loyalties” of chief executives and the investor.

When members of an organization’s board, industry analysts, and government agencies see “to-good-to-be true” financial statements, or a company’s excellent performance measures, it is up to human individuals’, and a corporations’ management, to be seen as the primary bearers of moral duty and moral responsibility.

In the case of the Enron failure, the senior executives believed that Enron had to be the best at everything it did and that they had to protect their reputations and their compensations as the most successful executives in the U.S. The perfection that the Enron executives found in their actions, was corruption in the form of accounting fraud, dishonest practices, and malfeasance.

In the Enron scandal, CFO, Andy Fastow, and CEO, Jeffrey Skilling planned a “mark to market” accounting plan to pump up the Enron’s stock price, by recording huge profits of “projected” future returns on start-up companies. Then, they would hide Enron losses  in the start-up companies, and then compensate company losses with Enron stock in the future, with more start-up companies. This led to an eventually write off $1.01 billion dollars in Enron losses, and eventually a loss of $1.2 billion dollars in shareholders equity due to accounting errors. 

After the Enron scandal, only with a healthy corporate culture, corporate and federal governance, the ability to discerning immoral and illegal acts, and visibility through truth and disclosure can the issue of corporate corruption find resolve. Shareholders should stay clear  of corporations that have a myopic focus, and a lack of truthfulness.

According to the law, each man has rendered the justice that is do to him. And, for the executives at Enron their justice is prison time to contemplate their crimes against America.