The fall of Enron
...ced the report costing Enron millions of dollars. Arthur Andersen received incentives from Enron. These improper accounting practices facilitated the demise of Enron (Santa Clara University, 2005). There are many things that came together to bring about the fall of Enron. A few examples are conflicts of interests between the company and its employees, the relationship between Enron and their consulting firm Arthur Andersen and the uncontrolled access to employee pension funds. Enron chose Arthur Andersen to provide them with both consulting and financial auditing services. “This relationship became very strategic to Arthur Andersen, and opened the door for favorable reviews of Enron’s financial statements” (Santa Clara University, 2005). Arthur Andersen wanted to keep Enron happy in order to keep them as a client and to continue receiving additional consulting engagements and the revenues. “The employee pension funds were not properly managed by senior management at Enron” (Santa Clara University, 2005). Management could dip into the funds and make investments which had the potential to yield high returns. This would allow the company to artificially bolster revenue. In the long run, the high risk gamble did not pay off and led to many employees with less of a pension than they were expecting. The leadership of Enron brought a lot of the problems on themselves. They engaged in activities that were not in the best interest of the company. The character of the big three, Kenneth Lay, Jeffrey Skilling, and Andrew Fastow, have been called into question. These three were in charge of the day to day operations and financial activities. Enron had many questionable practices going behind the scenes. Arthur Anderson was monitoring the activities of Enron. Enron supported the use of Special Purpose Vehicles (SPV). SPVs were set up as a means of allowing Enron to raise debt but without being consolidated into Enron's accounts and affecting the company's bottom line. The accounts would avoid consolidation only if they adhere to one essential rule. The rule is 3% of the SPVs assets were to be held in hands completely unrelated to the parent company. The parent company in this case was Enron. In one SPV, Chewco, at that time Andersen found $11.4m of the SPV had come from a bank which met the 3% rule was intact. Later Andersen discovered that half the bank's stake was provided by Enron. The 3% rule had been breached and Andersen went to Enron's audit committee with the news that there have been possible illegal acts that had taken place. The auditors had not been informed. The SPV was supposed to be consolidated into Enron’s accounts. It was never consolidated. The responsibilities of Enron’s financial department led my Andrew Fastow was the center of scandal. Mr. Fastow used the unethical practices that to swindle the company out of millions of dollars. He was making money off each of the transactions that the company made and from outside partnerships. The total amount the Fastow made was 30 million in fees and profits from his involvement. Enron was forced to revises its financial statements to reduce earnings by an additional $586 million over the past four years, in large part due to losses with suspect partnerships. Enron revealed several days before it filed for bankruptcy; Enron gave bonuses up to $55 million to its managers. Enron laid off nearly 4,000 employees from its Houston headquarters, many of whom had lost up to 90 percent of their 401(k) retirement savings as Enron's shares plummeted that month. As a result of the Enron filing for bankruptcy, The Securities and Exchanges Commission (SEC) forced Enron, and other companies, to provide a revised earning statement of the past 5 years. An attempt to revise the ethical standards for a trouble organization must start with the top management and the organization’s culture. The culture of the business is determined by shared values and beliefs in conducting the business. These are invisible boundaries that define appropriate conduct in the organization. In Enron’s case, the culture has to be changed. Integrity, respect for others, and honesty must be incorporated in the core beliefs. Upper management must set the standard in both words and actions. Enron’s Code of Ethics was revamped to describe the company’s expectations of employees conduct. The company had a serious breakdown between its Code of Ethics and management’s behavior. “To be successful et...