Enron Collapse Case Study

If I were to say that Enron did everything wrong from an ethical and financial side of business, I would not be understating the issue. Enron lost millions of dollars of debt and losses through their unlawful accounting practices. Enron had acquired several businesses in foreign countries and were able to hide their losses there. Several members in upper management did sell off their stock at a high price right before the fraud was exposed, thereby bailing them out of financial ruin, without any regard to how the fraud would affect the lives of so many people (US Senate Committee Exhibit 4). The investors and employees lost their investments, pensions, and retirement accounts and were left high and dry by the unethical practices of Enron (Jickling). There are many criminal investigations and cases registered for Enron executives. These executives have been known to receive hefty bonuses just before the collapse of Enron. There are many issues that were raised with the collapse of Enron as described in the CRS Report for the Congress in 2002:

There are three major issues and several smaller issues that led to the collapse of Enron. Among them are:

* The conflicts of interest between the two roles played by Arthur Andersen, not only as auditor for Enron, but also as their consultant.

* The lack of attention Enron's Board of Directors took with the off-books financial entities with which Enron did business.

* The lack of truthfulness by management about the health of the company and its business operations.

In some ways, the arrogance of Enron's executives was the primary cause of the collapse. The senior executives believed Enron had to be the best at everything and that they had to protect their reputations, and their compensation, as the most successful executives in the United States. When some of their foreign business and trading ventures began to perform poorly, the executives instructed Arthur Anderson to try and cover up their own failures.

Jeffrey Skilling and Andrew Fastow changed the business strategy and corporate culture of Enron. During the change, Skilling and Fastow appeared to make Enron very sophisticated, successful, and profitable. When the stock is rising and the shareholders are getting rich, there is little incentive for the Board of Directors and the investment community to question the executives very closely. The Board is to blame for permitting the suspension of Enron's own code of conduct to permit the conflicts of interest committed in the off-books corporations controlled by Fastow.

Several things could have been done to prevent the collapse of Enron from occurring. With the creation of the Sarbanes-Oxley Act of 2002, the following issues have been addressed:

* Public Company Accounting -