Q. 1. Describe how Enron could have been structured differently to avoid such activities.
Ans: To avoid bankruptcy Enron should have scanned its ethical environment and put safeguards in place. A lot of corporations have cultures. Structures should have been in place to examine its corporate culture carefully, particularly in terms of its behavioral norms and values. Its directors should have considered conducting a formal audit of its corporate culture from the standpoint of approaches, perceptions, values, standards of conduct, pressures to commit misconduct, communications, risks, and weaknesses.
Writing a code of conduct, supporting it at top levels and communicating it to employees is just a start. Corporations should have a committee of independent non-executive directors on its Board of Directors who are responsibility for ensuring that systems are in place in the corporation to guarantee employee obedience with the Code of Ethics.
Measures they recommend should include staff training, evaluations of compliance systems, appropriate funding and staffing of the corporate ethics office, and effective protections to employees who “blow the whistle” on perceived actions contrary to the essence or letter of the Code.
Every member of the Board of Directors of a publicly listed corporation should be required to sign the Code of Ethics and pledge that she or he will never support a board motion to suspend the Code. All outside law firms and auditing firms that consult to publicly list corporations should be required to sign statements noting that they understand and accept the corporations Code of Ethics.
Allowing Arthur Andersen to both audit and consult with Enron created at least an appearance of a conflict of interest. Subsequently, hiring Arthur Andersen employees as Enron employees who then managed the affairs of their former colleagues made this a real ethical conflict of interest. The independence and integrity of financial auditing organizations are fundamental to the stability and growth of American business and free markets throughout the world. Auditing and consulting functions must be kept separate.
Q. 2. Discuss whether Enron??™s officers acted within the scope of their authority.
Ans: The scope of corporate authority is limited by what is legal. Cross the line and do something illegal and you are no longer acting within the scope of corporate authority.
According to CODE OF BUSINESS CONDUCT: GENERAL POLICY REGARDING LAWS AND BUSINESS CONDUCT
Compliance Officer under this Corporate Policy with respect to the Related Code of such Operating Group. c. Existing Auditing Functions. This Corporate Policy shall not be deemed to affect the Companys internal auditing or environmental auditing programs from time to time, which programs shall remain in place subject to the authority of the persons currently having authority over them, provided that alleged or suspected violations of law or of the Code of Business Conduct that may be material and that are discovered by such auditing programs shall be reported to the Enron Compliance Officer or, subject to the limitations contained in Section B.6.b hereof, to the Compliance Committee of the appropriate Operating Group, for investigation. It is understood, however, that the Enron Compliance Officer or the Operating Group Compliance Committee, as applicable, has the authority to delegate the investigation of such a violation to the persons they deem appropriate, including the auditing department or to the persons responsible for environmental compliance.
(CODE OF BUSINESS CONDUCT: GENERAL POLICY REGARDING LAWS AND BUSINESS CONDUCT, Page 5 of 12)
Q. 3. Describe the corporate culture at Enron.
Ans: Enron??™s corporate culture best exemplified values of risk taking, aggressive growth and entrepreneurial creativity. These are all positive values. But these values were not balanced by genuine attention to corporate integrity and the creation of customer and not just shareholder value. Because the Enron corporate culture was not well grounded, a single scorecard maximized price per share of common stock – became its reason for being, and even its positive values became liabilities.
Enron??™s corporate culture also seemed to embrace a value – massive size – that is not so much a value as it is a strategy through which to achieve a larger mission. This dedication to sheer size, left unchecked, made the company prone to use of its size to bully and intimidate those who, for example, questioned some its balance sheet practices. Enron became arrogant. (The Case of Enron by A. J. Schuler, Psy. D.2002)
Q. 4. Discuss two alleged irregularities in the actions between sellers of securities and Enron.
Ans: As the result of the Fastow testimony and discovery of documents, there is now undeniable evidence that the banks, motivated by corporate greed and personal profit, knowingly and actively helped to cause Enron??™s efforts to deceive investors out of billions of dollars at virtually every step in the company??™s deceitful scheme. The sworn testimony and primary documents reveal that, beginning as far back as 1996, the banks intentionally worked with Enron to falsify the company??™s financial statements and deceive investors through phony financial deals that were not legal and would not have been approved by regulators. Together with the internal documents from Enron and the banks, help paint a detailed picture of the secret quid-pro-quo relationship between Enron and its financial institutions. Simply put, the banks would provide the financial tools for Enron executives to deceive investors, while the company paid off the banks with access to special deals, premium payments and insider access to future lucrative transactions.
Q. 5. Discuss whether or not Enron was liable for the actions of its agents and employees.
Ans: Corporations cant do anything on their own. Theyre legal entities, not actual beings. They cannot act or do anything except through their agents and employees. Corporations can be prosecuted in criminal court for the actions of agents and employees if those actions give rise to a cause of action or constitute a crime. Because the rules in place are not stringent, Enron was able to deploy its financial situation. In 2000, the SEC went back to the Financial Accounting Standards Board (FASB) asking for a set of stronger rules regarding the reporting on special purpose entities. The stronger rules did not come soon enough to prevent the Enron accounting scandal. On April 23, 2002, Enron reported it may write down the value of its assets by $14 billion due to ???possible accounting errors or irregularities??? in earlier financial statements prepared by Enron management and reviewed by Andersen (Pacelle 2002). The story of Enron is replete with numerous instances of conflict of interest in the present system of corporate governance. The failure of Enron demonstrates the vital role business plays in American society and therefore underscores the importance of good governance in business. It also reinforces the multiplicity of stake-holders that any large corporation must consider in its decision making processes. Enron was liable for the action of its agents and employees according to studies.
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Pacelle, M. 2002. Enron may post $14 billion write down. The Wall Street Journal, 23 April, C1
Schuler, A.J, (2002) Does Corporate Culture matter http://www.schulersolutions.com/enron_s_corporate_culture.html