Instructor Business Law
27 January 2011
Enron Corporation is an energy trading, natural gas, and electric utilities company that is based in Houston, Texas. It used fraudulent accounting techniques that allowed it to be listed as the seventh largest company in the United States. It created the phony energy crisis in California and became the largest corporate scandal in history.
Describe how Enron could have been structured differently to avoid such activities.
Enron like most public companies are required by law to disclose its transactions to its shareholders. Enron failed to to disclose facts that were important to the transaction. The should have had better financial oversight and should not have gone for the fast buck. The company should have organized themselves differently. From the get go they should have stuck with their original structure instead of hiring people from outside the company and giving them power to make decisions that would change the company. Enron gave their top performers bonuses and stock options. This was all controlled by internal authority and did not work properly. The people in control formed alliances and were not honest about reporting their figures. This created a larger profit and higher stocks. But in reality it was all a fraud to pad their pockets more. Mismanagement of huge proportions, disregard to organization and financial irresponsibility were all factors in its fall. Organizational structure is key to any business. The people chosen to make the company??™s important decisions in Enron were top management but did not have the productive objectives in mind. Key decision making was left up to the chief financial officer and the chief operating officer. This was outside their abilities.
Mr. Jeff Skilling wanted profits at all costs. The people recruited under this belief were to be of a certain type. They wanted a someone who had no reservations about closing a deal no matter what. The people in charge should have put a stop to this or at least seen the spiral that was to come as a result of these activities.
Discuss whether Enron??™s officers acted within the scope of their authority.
The way a business and its people conduct themselves is a direct mirror of its leadership. Enron had no responsible leadership or responsible decision making, so there was no respect. Top management turned over responsibilities to unqualified staff and they had not firm standard of conduct for their business practices. They turned a blind eye on legal issues and sent a message that they would tolerate these illegal practices. Enron??™s officers did not act within the scope of their authority. They falsified figures and their trading volumes, and ultimately went to jail for it. The scope of authority is limited to what is legal. They crossed that line so they no longer were acting in their authority. Management falsely reported financial growth and strengths to investors. Their scope was to provide guidance to their investors, not mislead and falsely inform the shareholders. The consequances that top executive faced proved that they were acting outside of their authority. Jeffrey Skilling and Kenneth Lay were both found guilty of most charges. Skilling was sentenced to 24 years in federal prison and Lay suffered a fatal heart attack. The chief financial officer, Andrew Fastow, plead guilty and cooperated with prosecutors.
Describe the corporate culture at Enron.
Enron??™s early organizational structure was different and it based its ideas on constructivism. Employees were encouraged to achieve more. After hiring outside people to powerful positions it became cutthroat. The corporation was being run on profit and immediate gratification, not on the long term potential of the company. Enron??™s corporate culture exemplified values of risk taking, aggressive growth and entrepreneurial creativity. These are all positive values, but they were not balanced by genuine attention to corporate integrity and the creation of customer value. Because the corporation was not well grounded, even the positve values became liabilities. Enron became arrogant.
Discuss two alleged irregularities in the actions between sellers of securities and Enron.
Enron and its accounting firm suffered scandals that consisted of the discovery of irregular accounting procedures. These accounting procedures included manipulating stock prices. It eventually caused Enron to file bankruptcy in December of 2001. There were management and leadership issues that were involved during the scandal. These executives found loopholes in the reporting procedure of financial information and led to hiding the losses of billions of dollars from failed business ventures and investments. Sherron Watkins, Enron??™s corporate development executive was later referred to as the whistleblower in the scandal. She wrote a letter to Kenneth Lay warning him of the accounting irregularities that could pose a threat to the company. Enron also admitted to inflating its profits by concealing debts in its complicated partnership arrangements or special purpose entities. These partnerships would have been considered legal if reported according to present accounting rules. This company had poor auditing procedures. Andersen was charged with obstruction of justice because of shredding documents that they were not supposed to.
Discuss whether or not Enron was liable for the actions of its agents and employees.
Corporations do not do anything on their own. They are legal entities that cannot act or do anything except through their agents and employees. Corporations can be sued civilly or prosecuted in criminal court for the actions of their agents if those actions give rise to a cause of a crime. Their also has to be a connection to the actions and the duties of the agent. Fraud on behalf of the company can lead to charges for both the employee and the corporation. according to Sarbanes-Oxley, Enron was fully liable for employee actions. The scam started with the top executives, it was planned and executed by Ken Lay and his chosen affiliates. So therefore, Enron was liable for the actions of its agents and employees.