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Enron Company’s Collapse Essay


The article was authored by Emily Primeaux and includes an interview with a former Enron CFO (Andrew Fastow) regarding the collapse of Enron due to fraudulent accounting practices. Enron collapsed nearly 15 years ago because of the unethical decisions made by its C-suite executives. The organization’s toxic corporate culture encouraged unethical decisions that led to the disintegration of the firm and the conviction of top executives. The decisions made by top management incentivized employees to act unethically in order to mislead the world regarding the company’s finances. Consequences of the unethical decisions included a $40 billion loss in stock market value, collapse of the company’s accounting firm (Arthur Andersen), and massive loss of jobs. Fastow’s role in the company’s descent involved creating a system that allowed Enron to get access to capital in order to make financing less costly. The system allowed the exclusion of debts from the balance sheets in order to misrepresent Enron’s poor financial situation. The company lied about its income, equity value, losses, and debts.

Enron’s tough financial situation became evident in 2001 after the CEO (Kenneth Lay) declined to issue equity, thus raising suspicion. The company was relegated to junk status and that marked the beginning of its end. Employees were among the victims of the saga as they lost jobs and had their pension funds wiped out. The firm’s top executives were arrested and sentenced to prison on different counts of fraud. Fastow was sentenced to six years and Skilling received 24 years and four months. Lay did not live to serve his sentence.

Fastow tells the author how he was hired by Enron as a low-level employee and how he was promoted to CFO within seven years. He was promoted because of his ability to perform structured financing and manipulate financial statements. He argues that the aggregation of the innumerable deals he made resulted in the company’s collapse. His ability to find loopholes in financial statements earned him frequent salary increments and promotions. He tolerated unethical accounting practices because they benefited the company in several ways including transferring risk, preserving tax credits, and lowering the cost of financing. At first, they did deals to benefit the company economically. However, as years went by, they did the deals to create a misleading image of the company’s financial performance. Many of the deals were financially correct but amounted to fraud because of the intent to alter financial statements.

The corporate culture of Enron was toxic because it incentivized people to make decisions that favored the company’s financial reporting over the long-term value the decisions would create. Employees engaged in unethical practices because top executives like Fastow were closing unethical deals. The firm’s mission, vision, code of conduct and code of ethics were almost meaningless because top executives did not apply them in making decisions. Fastow’s unethical character was unquestionable because even though what he was doing was illegal, he never thought about the legal and financial consequences of his decisions. Whenever they closed a deal, they partied to celebrate. He never stopped participating in the unethical practices even though he knew that his actions were misleading investors and shareholders regarding the company’s financial performance. Fastow was good at finding loopholes that he used to manipulate financial statements. However, his expertise paid off for a short time before his fraudulent practices were discovered. His unethical decisions destroyed the lives of many people and affected the economy of the United States in a big way.

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IvyPanda. (2020, October 14). Enron Company's Collapse. Retrieved from https://ivypanda.com/essays/enron-companys-collapse/

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"Enron Company's Collapse." IvyPanda, 14 Oct. 2020, ivypanda.com/essays/enron-companys-collapse/.

1. IvyPanda. "Enron Company's Collapse." October 14, 2020. https://ivypanda.com/essays/enron-companys-collapse/.


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IvyPanda. "Enron Company's Collapse." October 14, 2020. https://ivypanda.com/essays/enron-companys-collapse/.

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IvyPanda. 2020. "Enron Company's Collapse." October 14, 2020. https://ivypanda.com/essays/enron-companys-collapse/.

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IvyPanda. (2020) 'Enron Company's Collapse'. 14 October.

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