Collapse of Enron
...of the investment within the stock market. This deceitful management practice by Lay’s group became the template for the corruption and unethical practices of a successful company with a “darkside”. How could a company flourish, while its true market value is worthless? In the ‘90s, after the oil-trading scandal, Enron laid low, while quickly making a profit. This was accomplished by erroneously inflating the share prices of its stock to create larger market value for Enron’s company’s shares. Naturally, this became the norm for many of the company managers and traders, because individuals, who were able to close high value investments, were paid a percentage of the potential expected earning. As a result, many managers were very eager to “over-inflate” the expected yield of every deal. “Such practices were a by-product of the company's obsession with its stock price, which was driven in the earlier years by Rich Kinder, chief operating officer from 1990 to 1996.” [Fowler] And, like a game of “Simon says” the company continued with this type of financial behavior in the ‘90s, after, Chief Financial Officer Andy Fastow convinced Enron’s board of directors to create “dummy” corporations, which could be used to purchase equity from Enron investments, while building-up Enron’s capital worth. In this process, Enron created a “borrow from Peter to pay Paul” type of in-house corporation. As a result, one in-house company would purchase product from the other at a low purchase price, while posing a purchaser and buyer (this would make Enron seem larger in equity value, than it really was, while allowing deals to be made under-the-table, hiding Enron’s growing debt). In turn, product was resold to an outside company for a higher purchase price while the seller company was used as a cover for the primary company and in theory was able to cover investment costs from one company to another, while creating “shady” new investments with unsuspecting investors. How was the company able to hide its fraudulent business practices? The company was able to hide its business practices, because many of the stops, which should have been in place, were ignored. First, a “deceptive norm” within the company was in place that discouraged employees from speaking out; even when they knew that their business practice was wrong, because of a top executive’s policy (Jeff Skilling). It was his policies which allowed the practice of encouraging managers to strive to make and close on high yield deals for bonuses, and the silencing of individual, who opposed his way of doing business. Second, the outside auditor, Arthur Andersen, turned a “blind-eye” to Enron’s accounting practices by misleading the securities commissions and reporting over-inflated profits by Enron. Third, Enron’s law firm Vins...