The Collapse of the Enron Corporation

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One of the most significant corporate scandals in U.S is the Enron Scandal which led to the collapse of the Enron Corporation in 2001. This was followed by the production of the documentary film, “Enron-The Smartest Guys in the Room”, on which the current essay is based.

The essay is an attempt to determine why the Enron Corporation failed, and the reasons why the senior management at Enron failed to uphold ethical principles, and lessons learned despite their educational background.

The fall of Enron Corporation as depicted in the documentary film was as a result of unethical activities and fraud by the senior management. The management failed to observe ethics in corporate governance and accounting reporting standards. Subsequently, this left room for the defrauding of investors by top managers who diverted funds from the organization to their individual bank accounts.

For instance, Jeffry Skiing, who was Enron’s CEO at the time, proposed the use of mark-to-model accounting which allowed for immediate financial recordings of potential profits even after the profits were made (Nakayama 2002).

This accounting method kept the company afloat even when it was making losses. Enron executives misused their powers and failed to observe the relevant set moral and ethical issues, resulting in poor analysis of the moral conflicts.

The senior management at Enron failed to uphold ethical principles despite their education because there was bias in management representation (Petrick & Scherer 2003). For example, after auditors discovered the schemes to defraud investors, Ken Lay denied knowledge of any wrongdoing despite the facts presented. Another reason was that senior executives like Jeff Skilling had hired lieutenants whose obligation was to execute his directives.

These malpractices by the senior management officers created room for corruption and embezzlement of shareholders’ funds. This shows the high levels of injustice, disrespect, selfishness, greed, arrogance, and dishonesty among senior members of Enron who despite their level of education were driven by personal interests and greed (Petrick & Scherer 2003).

Another reason why the senior management of Enron failed to uphold ethical standards is because it lacked there was lack of integrity in leadership. For example, based on the documentary, employees who failed to meet the set performance index were fired.

This created competition which resulted in the erosion of ethics and integrity thus creating a room for corruption (Nakayama 2002). Therefore, the senior management executives of Enron failed to observe the set obligations and because of negligence, the company was caught up in financial problems.

From the Enron scandal, it can learn that there is need for the establishment of significant reforms in corporate governance and accounting in the United States (Nakayama 2002). This is because the senior management was negligent and failed to observe the set accounting and reporting principles.

In addition, the senior management showed little attention and truthfulness in operations which created a culture of corruption and fraud among its members. Another lesson learnt is the need to scrutinize the level of ethical quality with regard to organizational culture of corporations and businesses in the U.S (Nakayama 2002).

This is because failure to follow the available ethical principles such as integrity shows the weakness and the selfishness of senior management executives.

The urge to pursue personal interests and not report any malpractices in the company shows how ethical principles such as accountability, and integrity were abused. For instance, Andrew Fastow and Jeffrey Skilling changed the corporate culture and business strategy for their own interests (Nakayama 2002).

Reference List

Nakayama, A. 2002, Lessons from the Enron scandal, Santa Clara University. Web.

Petrick, J. A & Scherer, R. F. 2003, ‘The Enron Scandal and the Neglect of Management Integrity Capacity’, American Journal of Business, vol. 18 no.1, pp. 1-10.

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The Collapse of the Enron Corporation

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