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How Ethics May Have Played a Role in Enron’s Way of Doing Business Report (Assessment)


Out of a merger between Houston Natural Gas and InterNorth, Enron was formed in 1985 based in the United States. As an energy trading and communications company, at the start, the company was involved in construction, development and operation of power plants, pipelines globally.

Further, it was participating in the transmission, distribution of electricity and gas throughout the state and. Afterwards, Enron enlarged their wealth through marketing and promotion of commodities which included; power and communications bandwidth and related risk management derivatives as tradable securities.

Enron energy trading and Communications Company that was based in Houston, TX was well re-known for its accounting strategies a factor that allowed it to be listed as the seventh largest company in America (Molly, 2001). The company had a work force of about 21,000 employees grouping them among the largest employers in the country. In the same year, it was ranked number seven by the fortune magazine among first five hundred companies in the United States.

The energy company had made inventions in communications, power and weather securities and due to this it was expected to dominate the trading in these areas. However, in the year 2000, the company had claimed a revenue base of about with $101 billion but due of their trade activities. Despite all that, the company still ended up the biggest failure in the corporate history (Molly, 2001)

Despite the fame and wealth Enron had accumulated, the company stood on the verge of bankruptcy by mid November 2001 (Bryce, 2002). This had arisen from numerous scandals and collective failure between the company and its auditing firm which brought about by accounting irregularities that surrounded fraud. Poor decisions, mismanagement and individualistic type of management by Enron’s top were also major contributors in the collapse of the corporation.

At the same time, the value of investors’ equity per share in 2001 fell from $85 to 30 cents a fact that plunged the company into a disastrous loss. Discovery of the company’s source of profit which happened to be from deals with limited partners which it controlled was one of the factors that resulted to the company’s loss of value.

This loss and other similar financial conflicts, was not reported in any of the company’s financial report (Niskanen, 2005). More to that, the company had also devised a method to elude taxes and maintain anonymity by opening offshore accounts that allowed them easy currency flow. By the end of the year 2001, the firm’s European operations filed for bankruptcy and sought protection in the US Southern District of New York under chapter 11 (Hodak, 2007).

In the year 2000 during the companies’ financial peak point, public investors were encouraged to buy stocks in the company since the prices were at their highest with a promise of further appreciation in their value in the subsequent year.

However the executive in the company knew of the looming loss that was to be experienced in the near future and instead of advising the public, they were in a hurry to sell out all of their stocks (Hodak, 2007). To the demise of the investors, the stocks plummeted causing a great loss across the board of approximately $102.

Later in the subsequent years, Enron was forced to sell out its assets since it had incurred a large financial loss. The sale was to be done since the company had to liquidate its assets and raise funds to aid in settling the creditors and investors who had not anticipated the collapse. However, Enron reopened again under a new name Enron Creditors Corporation after settling with most of its creditors except Citigroup (Hodak, 2007).

Impact on stakeholders

Enron Company was composed of share holders that included both the private and corporate class. Since the company had a good reputation of its wealth and a large revenue base, the rate at which people invested was overwhelming.

Reports by Chris Penttila, (2002), indicated that the Enron’s mission statement dictated the four key values that the company prided itself in. These key values were: excellence, communication, integrity and respect. The purpose of this was to instill in the public the confidence that everything that happened in the company was fair and open a notion that was welcomed by the managers working for the company.

However, collapse of the company was partly allowed by the stakeholders since they were afraid of questioning the companies’ business activities and conflicts that they were always involved in. for example many of the stakeholders knew of the financial conflict of interest that existed between Arthur Anderson, Vinson, Elkins and the Enron’s board of directors.

The collapse of the company was met with a lot of negative reactions. The public was hit with a rude shock and immediately people stated pointing fingers to the systems that allowed the disaster to happen. According to (Bryce, 2002) the collapse affected all stakeholders from the big investors to the least employee in the company.

Some of the social impacts included loss of lively hoods by small employees who worked in the company to billions by the investors, deaths, life savings and even imprisonment. In a meeting with the Congress former Enron employees witnessed that they had not only lost their jobs but also their retirement savings. Moreover, the threat of loss of employment was not only felt by Enron employees but even those at Andersen’s U.S. operations (Dugan and Spurgeon, 2002; Bryan-Low, 2002)

Loss of business by the partners and affiliates of the company was another major impact of the collapse. An example of this was Andersen which after indictment started to experience a mass exodus of its clients. This had a great effect on the revenue of the company and the public confidence.

Andersen then went further to loose the favor on settlement with the judiciary a move that was seen as suicidal if adopted by the other states, since it might preempt them to revote the companies license. According to Wynn (2009), other trading partners that were affected by Enron’s losses were ING Barings, Deutsche bank, Duke Power and American power who also suffered immense losses.

Other social impacts that were felt by the stakeholders involved deaths that were not anticipated for. Such an example is; Kenneth Lay who was an Enron’s CEO but died of heart attack in July 2006. The causes of the Enron’s CEO death were attributed to stress brought about by public unrest and legal pressures in the cases filled against him in the state (Palepu & Healy, 2003).

Outcome and Fairness of Punishment

Following the collapse of Enron Company, the public did not seem contented by the outcome that affected their livelihoods directly. Therefore, some of the stakeholders sought to authorities that would attend to their grievances. Forums and meetings were held across the state by governors and other government officials to try to address the issue.

Some of the grievances were resolved but some still remained for legal action (Wynn, 2009). The outcomes of the collapse ranged form imprisonment to even indictments, revoking of license and even settlement bans from the different states of operations

For example Jeffery Skilling was imprisoned to serve a 24 year sentence in a low security prison in Minnesota. Another executive Andrew Fastow was also jailed to serve a six-year sentence in a federal prison in Louisiana due to corruption allegations in the company and also for giving the public conflicting information for purpose of personal gain.

Other auditing and legal consultants e.g. Arthur Anderson and Vinson & Elkins also were indicted and underwent trial in Houston for their involvement in obstruction of justice by concealing information and giving of false information to the public. This in turn greatly affected their business since they had to lay off workers and could not regain their client confidence (DeFond, Raghunandan and Subramanyam, 2002). The justice state justice in Houston also went further to revoke their settlement right in the state.

The public confidence in the market was also compromised since many investors started to question the integrity of other companies’ financial records. This weighed hard on the whole economy and also on other uninvolved companies.

Losses; these were the most felt social effects after the collapse of the energy company in the late 2001. Big investors like the J.P. Morgan Chase and Citigroup experienced large loses on bad loans that had subsided with the company (Palepu & Healy, 2003). These mutual friends were said to have lost a value of about $70 billion in market value.

Formulation of policies; after the collapse of Enron Energy Company, the government revived a debate on company regulation after the discovery of the magnitude such a companies collapse can cause to the economy. The national stock exchange market became more watchful and strict introducing new policies to ensure the trade market remains safe for the public.

The NASDAQ for instance introduced a regulation that for a company to trade in it the stock option plans must be endorsed by the stockholders. While on the NYSE, it is a must that most of all equity based compensation plans be endorsed by shareholders. They also dictated that in both the trading company must have independent directors (Palepu & Healy, 2003).

Ethics in the way Enron conducted business

Enron was a large multimillion energy company that had its missions and visions set to become the biggest and the best energy company in the United States. Due to their defined focus, they had decided to set their work values basing on the companies ethics book. These values were supposed to guide the people working in the company to ensure transparency and efficiency in achieving the company’s goals. These company values were respect, communication and excellence (Code of Ethics, 2000, 4).

On the other hand, Enron’s ethics infrastructure consisted of four main pillars which included; a 65 pages long code of ethics booklet, a certificate of compliance to be signed by all employees, different channels for attaining answers to ethical questions, and finally a possible violations reporting system.

Despite the high standards that had been set by the company, it was evident that the management was least concerned with fulfilling them while conducting business. They had no serious regard for the ethics. In 1999, the company’s code of ethics was suspended twice by the Enron’s Board of Directors to allow the formulation of two SPEs. These SPEs were to be controlled by Andrew Fastow, who was to benefit personally from the outcome (Goh and Ederington, 1993).

To the companies’ board of directors, business had just become a point of making money despite the consequences that were to be faced. A good example is seen when two traders Lois Borget and Thom Mastroeni were allowed by the 1997 Enron’s CEO Kenneth Lay to conduct questionable oil trading operations in 1997 despite his knowledge of the illegalities and financial risks incident that were involved (Niskanen, 2005).

The company through their management believed that doing business and channeling in money was the only thing that mattered the other considerations’ came after. Many businesses in the company therefore, were done through unscrupulous deals that were later covered by the business partners involved form the watchful eye of the public.

example is when Andersen connived with the Enron energy company to inflate the figures of the company while Enron was a financially ailing entity (Niskanen, 2005). This was done to boost the public confidence and increase their investments in Enron. Another instance was when Andersen destroyed all the evidences of the financial transactions of the company when the company was under investigation.

Enron being a large company had a lot of influence in its surrounding. Therefore it had no one to criticize the way Enron conducted their business. The company therefore decided to use its power and political influence to achieve its wealth and maintain its dominance. Professional ethics were not adhered to in this company and they did not govern any business that they conducted.

An example is when the management knew of future losses in the company and barred the other small stakeholders to dispose off their stocks while they disposed theirs. This was done with a personal interest and it left the other stakeholders in loss when the company value plummeted (Hamburger and Brown, 2002)


The collapse of Enron can be attributed to the companies practice, poor management strategies and a favorable environment for corrupt employees. The companies’ business plans, executive management and untrustworthy partners are other causes that contributed to the collapse. The state justice however was fair in their punishment and took a good step to protect the public from such kind of companies. The stock market should also be keen despite the stringent laws put in place to ensure that in-genuine entities are kept on watch.


Bryce Robert. (2002). Pipe Dreams: Greed, Ego, and the Death of Enron,) “Enron starts dumping PR firms”, O’Dwyers PR Daily.

DeFond, L., Subramanyam K.R., and Raghunandan K. (2002). Do non-audit service fees impair auditor independence?California. University of Southern California.

Dugan, I.J., & Spurgeon D. (2002). Partners in peril. The Wall Street Journal. Enron. (2000). Code of Ethics.

Goh, J.C., & Ederington L.H. (1993). Is a bond rating downgrade bad news, good news or no news for stockholders? Journal of Finance 48:2001-2009

Hamburger, T., & Brown K. (2002). Andersen knew of Enron woes a year ago. The Wall Street Journal.

Hodak Marc. (2007). The Enron Scandal, Organizational Behavior Research Center Papers (SSRN), June 4

Molly Ivins. (2001). “Enron-gate: Where are the investigations of Bush’s liaison with the bankrupt company?” working for change, December 12,

Niskanen, W. A. (2005). After Enron: Lessons for Public Policy. Lanham, MD: Rowman Littlefield Publishers.

Palepu, K. G., & Healy M. (2003). The Fall of Enron. Journal of Economic Perspectives.

Wynn, G. (2009). Essentials of Corporate Responsibility. USA. University of Tampa.

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"How Ethics May Have Played a Role in Enron's Way of Doing Business." IvyPanda, 1 Dec. 2019, ivypanda.com/essays/how-ethics-may-have-played-a-role-in-enrons-way-of-doing-business/.

1. IvyPanda. "How Ethics May Have Played a Role in Enron's Way of Doing Business." December 1, 2019. https://ivypanda.com/essays/how-ethics-may-have-played-a-role-in-enrons-way-of-doing-business/.


IvyPanda. "How Ethics May Have Played a Role in Enron's Way of Doing Business." December 1, 2019. https://ivypanda.com/essays/how-ethics-may-have-played-a-role-in-enrons-way-of-doing-business/.


IvyPanda. 2019. "How Ethics May Have Played a Role in Enron's Way of Doing Business." December 1, 2019. https://ivypanda.com/essays/how-ethics-may-have-played-a-role-in-enrons-way-of-doing-business/.


IvyPanda. (2019) 'How Ethics May Have Played a Role in Enron's Way of Doing Business'. 1 December.

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