Running Head: FROM TOP TO BOTTOM
From Top to Bottom: The Fall of Enron
Raquel M. Scott
Enron was an energy marketing corporation that suffered from a financial scandal, which involved Enron and its accounting firm. The scandal consisted of the discovery of irregular accounting procedures, which took place during the 1990??™s. The irregular accounting procedures included manipulating stock prices. This caused Enron to file bankruptcy in December of 2001. Based on the background of this scandal, there were some management and leadership issues involved during the scandal. The following will identify the management and leadership failures which led to the Enron scandal, as well as how these failures could have been predicted. As well as show how proper organizational behavior of management and leadership could have impacted Enron in a positive manner.
From Top to Bottom: The Fall of Enron
It Began at the Top
Enron was created through the merger of Houston Natural Gas and Internorth by Kenneth Lay. A few years later, Jeffrey Skilling was hired as CEO of the company. During Skilling??™s reign, he brought aboard his own executives. Not only were these executives able to find loopholes in the reporting of financial information but also able to hide the losses of billions of dollars from failed business ventures and also investments. But most importantly, the executives and Skilling were able to hide these discretions from the board of directors and the audit committee. Therefore, the success and failure of the organization began at the top.
With any organization some of the major players consist of the senior leadership, board of directors and internal and external auditors. Out of all these key players, everyone failed to do their job. The success of the organization lies in the collective efforts and smart decisions made by these individuals. The downfall of the organization cannot be prevented even if one of the players is not executing their part ethically and sincerely.
The auditors failed to investigate a mal-practice for the reason being they did not feel it was necessary because of rising stock prices and projected growth. Failure to intervene into the wrong doing of management fell on the board of directors. Due to the lack of judgment, the board of directors contributed to the collapse of one of the largest public companies in the United States. They allowed Enron to engage in high risk accounting, inappropriate conflict of interest transactions, extensive undisclosed off the books activities and excessive executive compensation. Even though the directors were aware of these mishandlings, they still chose to ignore these issuesto the detriment of Enron shareholders, employees and business associates.
Even though the problems arouse at the top, the actual employees were partially to blame even though they were impacted in the end. Enron had in inside legal staff and an accounting staff of trained and certified accountants. Instead of going to these departments to question current practices and methods being used, they chose not to rock the boat about questionable activities.
Arthur Andersen, consultants and auditors,all so played a major role in fall of Enron. The board allowed Andersen to provide internal audit and consulting services while serving as Enron??™s outside auditor at the same time failing to ensure the independence of the company??™s auditor.
Political and Legal Action Comes into Play
In House Protection
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