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Enron Corporation’s Malpractices and Bankruptcy Case Study

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Updated: Jul 26th, 2021

Enron was one of the largest corporations in the United States before a series of malpractices led to its collapse in 2001. Enron’s corporate culture contributed hugely to its crumbling by creating an environment that encouraged unreliable financial statements, insider trading, and fraud. Enron also collaborated with partners such as banks, auditors, and attorneys to engage in unethical dealings that turned sour, thus leading to the company’s move to file for bankruptcy. Furthermore, Enron’s top executives, including Andrew Fastow, the company’s former Chief Financial Officer, played a crucial part in facilitating questionable accounting practices. With these brief highlights, in addition to exploring ways in which Enron’s organizational culture contributed to its bankruptcy, this paper finds it crucial to identifying the extent to which this company’s partners led to its collapse. As it will be revealed, Enron’s key executives played a significant role in causing financial problems that culminated in its fall.

The Contribution of Enron’s Corporate Culture to its Bankruptcy

The adoption of a healthy corporate culture leads to the success of an organization. On the other hand, the embracement of toxic organizational customs brings about disaster. According to Soltani (2014), circumstances that prompted Enron to file for bankruptcy in 2001 suggest the existence of a counterproductive corporate culture. The company’s mode of operation disregarded the importance of internal financial controls. According to an article by Morgenson (2017), internal financial controls facilitate the establishment of policies that seek to secure an organization’s assets from getting lost. However, Enron’s corporate culture overlooked the significance of observing accounting practices that would enhance not only the safety of its assets but also the company’s financial performance.

This counterproductive corporate culture destabilized the functionality of the controls environment by supporting insider dealings that damaged this organization’s financial performance, a situation that eventually resulted in bankruptcy. This culture ignored various biblical teachings presented in the book of Leviticus concerning the impact of false statements. In particular, Moses, the author of this book, asserts, “You shall not steal, nor deal falsely, nor lie to one another” (Lev. 19: 11 New International Version). As Ferrell, Fraedrich, and Ferrell (2017) reveal, private partnerships organized by Enron’s executives influenced the acquisition of significant debts, the concealment of losses, and the inflation of revenues.

Extensive debts incurred by Enron presented the company’s corporate culture as one that had failed to reinforce its financial systems, for instance, by implementing sound policies. As a result, executives saw the need for hiding substantial losses incurred by Enron due to insider dealings and fraudulent activities. The company’s finance department created unreliable financial statements that displayed overstated profits with a view to attracting unsuspecting investors. However, according to the Bible “The Lord detests dishonest scales, but accurate weights find favor with him” (Prov. 11: 1). Top managers at Enron overlooked the essence of honesty in business. Consequently, piled-up pressure from concerned stakeholders uncovered questionable accounting practices undertaken by Enron’s high-caliber executives. These discoveries indicate that Enron’s corporate culture indeed influenced its bankruptcy position in 2001.

How Enron’s Bankers, Auditors, and Attorneys Contributed to the Company’s Demise

Enron’s financial partners, especially auditors and bankers, played a huge part in influencing the company’s collapse. As Soltani (2014) reveals, banking institutions, including J.P. Morgan Chase & Co. and Citigroup, offered Enron multimillion-dollar loans that helped this company to hide its failing financial position in return for heavy fees and interest payments. Although banks were aware of the deceptive accounting approach adopted by Enron, they supported this malpractice by issuing loans that further created a disguise of the company’s financial position. Enron then altered its financial statements by recording these loans as income as opposed to liabilities. Such a situation undermined the stability of the balance sheet, hence proving that Enron was crumbling.

Arthur Anderson, Enron’s former auditor, played a crucial part in its collapse. As Alleyne, Hudaib, and Pike (2013) uncover, Arthur Anderson regarded Enron as its largest client since it generated an income of between $50 million to $100 million in the form of consulting fees. Furthermore, according to Azibi and Rajhi (2013), this auditor never raised concerns over all questionable accounting practices at Enron. Instead, this finance partner approved the company’s fraudulent transactions with banks among other parties. Therefore, this accounting firm contributed to the collapse of Enron by turning a blind eye on all ongoing malpractices in a bid to continue benefitting from consulting fees.

Moreover, attorneys who worked for Enron engaged in unprofessional conducts that influenced the demise of this company. In-house lawyers declined to raise legal concerns regarding fraudulent transactions within the organization under investigation. Additionally, according to McLean and Elkind (2013), outside law firms, including Andrews Kurth LLP and Vinson & Elkins LLP, allegedly had knowledge about Enron’s financial malpractices. Hence, it suffices to conclude that attorneys were part of the scheme that triggered the collapse of Enron.

The Contribution of Enron’s Chief Financial Officer to the Company’s Financial Problems

Andrew Fastow, Enron’s former CFO, also undermined the effectiveness of this organization’s controls environment, thereby subjecting it to financial difficulties. A CEO is responsible for managing an organization’s finances by streamlining functions such as monetary planning, record-keeping as well as financial reporting. Nonetheless, Fastow failed to observe his role diligently by facilitating the creation of inaccurate records and financial statements. This former CFO collaborated with other top executives in the company for personal gains.

This ex-CFO concealed the financial position of Enron by providing unreliable financial records that contained inflated revenues. Furthermore, Fastow used unfair mechanisms to hide Enron’s debts that had accumulated to over $1 billion (McNamara, 2015). Debatable accounting practices conducted by the CFO disguised the actual financial well-being of this company. Fastow produced inaccurate financial statements that ended up creating a misleading impression of Enron’s financial health to woo investors.

Fastow also engaged in fraudulent activities that saw him earn over $30 million (Di Miceli da Silveira, 2013). This former CFO also took part in private partnerships that facilitated insider dealings and fraud. As such, Fastow knowingly supported transactions that damaged the financial condition of Enron to benefit himself as well as other executives in this energy company. Therefore, it suffices to conclude that he actively led to the collapse of Enron by observing unethical accounting practices for selfish gains.


The collapse of Enron marked the largest financial scandal witnessed in the U.S. in the advent of the 21st century. The corporate culture adopted by Enron led to the development of an environment that encouraged unethical accounting processes. As such, top executives at this organization engaged in fraud and insider dealings that undermined its financial position. In a bid to conceal fraudulent activities, top executives led by the company’s CFO facilitated the creation of unreliable financial statements. They also partnered with banks, auditors, and attorneys to execute the scandal effectively. The need for self-enrichment among top managers as well as partners is considered the leading factor that pushed Enron to file for bankruptcy in 2001.


Alleyne, P., Hudaib, M., & Pike, R. (2013). Towards a conceptual model of whistle-blowing intentions among external auditors. The British Accounting Review, 45(1), 10-23.

Azibi, J., & Rajhi, M. T. (2013). Auditor’s choice and earning management after Enron scandals: Empirical approach in French context. International Journal of Critical Accounting, 5(5), 485-501.

Di Miceli da Silveira, A. (2013). The Enron scandal a decade later: Lessons learned? Homo Oeconomicus, 30(3), 315-347.

Ferrell, O. C., Fraedrich, J., & Ferrell, L. (2017). Business ethics: Ethical decision making and cases (11th ed.). Boston, MA: Cengage Learning.

McLean, B., & Elkind, P. (2013). The smartest guys in the room: The amazing rise and scandalous fall of Enron. London, UK: Penguin Publishing Group.

McNamara, J. (2015). Fraud, accounting scandals and the effect on trade credit: Part II. Business Credit, 117(5), 46-47.

Morgenson, G. (2017). The New York Times. Web.

Soltani, B. (2014). The anatomy of corporate fraud: A comparative analysis of high profile American and European corporate scandals. Journal of business ethics, 120(2), 251-274.

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