Enron Business Failure

This paper will discuss the devastating business scandal of Enron. The paper will also discuss the ambiguities of the accounting department and the feeble financial reporting to the stockholders. In addition this paper will discuss what lead to the collapse, the adoption of ethical behaviour, ethical decision making, goal setting theory, corporate governance, and leadership.

In October 2001 the business failure of Enron produced the world's most disastrous scandal in the United States during that period. In this scandal the well- acknowledged energy company Enron and the accounting, auditing and consultancy enterprise of Arthur Andersen were implicated. The corporate scandal of Enron essentially headed the company towards the disgrace, which resulted in the largest bankruptcy in American history. Together with this scandal the Arthur Andersen, one of the five major accounting firms in the world, was disbanded (Enron Scandal, 2009).

This scandal of the company was the consequence of its accounting ambiguities, particular intent entities and pathetic financial reporting. Due to all these loopholes of Enron the chief financial officer, Andrew Fastow and other executives were able to conceal billions in money owed from disastrous deals and projects. Andrew Fastow and other executives mislead the company's board of directors and audit commission. With all these kinds of acts, company's stock price started tumbling and then the U.S. Securities and Exchange Commission (SEC) commenced a probe and with this Dynegy extended to buy the company at a fire sale price. When the conduct fell through, Enron charged for bankruptcy on December 2, 2001 under Chapter 11 of the United States Bankruptcy Code. For this scandal, Enron's auditor, Arthur Andersen, was discovered responsible (Enron Scandal, 2009).

Subsequent to the scandal, a number of executives were accused for a variety of indictments and then they were sentenced to prison. The company's employees and shareholders experienced determined returns in suits, in spite of dropping off billions in pensions and stock prices. With the materialization of this scandal, in 2002, the Sarbanes-Oxley Act came about as a result of the beginning admissions of deceptive conduct. The act elaborated criminal punishments for destructing, falsifying, or making up records in federal probes or for any effort to deceive shareholders (Enron Scandal, 2009)

Enron's scandal directed the company at a complete devastation, which could have been saved from wide-spread failure, if the company executives and Chief Financial Officer would have adopted appropriate organizational behavioural theories like:

Adoption of Ethical Behaviour: Ethics play an important role in aligning the resources and employees of the business organization for attaining the goals and objectives. Ethical conduct of business processes assists an organization in being successful in the competitive business environment. The case of Enron and Arthur Anderson provides related conclusions of dealing with the accounts. The audited accounts of both the companies were wrongly presented to the Auditors and the Government authorities. The officials of both the companies did not follow the ethical structure of business and social responsibility of business and if they have followed an appropriate ethical behavioural they could have resolved this business failure (Salter, 2008).

Ethical Decision Making: Ethical Decision making involves decisions based on the ethics and rationality. Ethical decision making, direct the company towards a long-term success and ensured recognition. If Enron's executive and CFO would also have adopted a practice of ethical decision making, they would have resolved this situation of bankruptcy that occurred due to their misconducts. Ethics and ethical values are very important in accounting and decision making process for every organization where accounting