Case Analysis: The Role Of Corporate Culture Of Enron In Its Bankruptcy

Enron had a corporate culture that contributed to its bankruptcy due to unethical behavior that included financial gain and did not look at anything else. The unethical behavior such as performing corrupt acts, lying to customers, cheating on balance sheets, fraudulent practices and information about the company that were untrue. Greed was the only focus they had that turned their attention to immediate gain. Along with the greed, came other unethical contributions such as personal satisfaction. The Washington Post in 2002 states: “it seemed likely that Enron had taken too much risk; that it had hidden this risk from shareholders by parking it in secret partnerships; and that senior executives had urged investors to buy stock even when they themselves were selling out.

Enron’s executives apparently used the secret partnerships not just to hide risk but also to steal money”. Enron used their money irresponsibly by motivating their employees with salary bonuses with percentages equal to hundred percent. They offered unnecessary services such as laundry and car washing services, free wireless laptops, in-home health club and doctor’s office along with traveling to pursuit customers, which caused them to spend huge amounts of money. This caused employees to believe they were in competition with each other and this, in the end, helped employees see there were deceived regarding actual financial condition and saw retirement portfolios being slowly disappearing as top managers used the employee’s retirement portfolios to lucrative stock options. For Enron to isolate their unethical behavior, many division and business unit were separated from each other. With this idea Enron had, it kept these groups from having a clear view on the operations that were taken place. Because they shielded their operations, bankruptcy was upon them as they could only cover but so much of their corruption.

In what ways did Enron’s bankers, auditors and attorneys contribute to Enron’s demise?

Enron’s culture came from many sources that contributed to their demise. These sources include bankers, auditors and attorneys, who all know the ethical operations when dealing with a corporation. One name that stands out from the rest is Merrill Lynch. As an investor, He aided Enron to with transactions that was not only unethical, but did not act as an investor should when their money was not used cautiously towards their financial goals. Merrill Lynch also contributed to Enron’s demise by helping Enron and involving themselves in falsifying income statements which lead to deal of 15% return in exchange for Enron’s purchase in Merrill Lynch. During the height of Enron, Merrill Lynch participation was not only unprofessional yet it was highly unethical. Another main contributor to Enron’s demise would be Arthur Anderson, the auditors who play an important part. Their roll played an important part because their job is to check for accuracy of both financial statements and internal bookkeeping. Arthur Anderson is well trusted among other investors. They work and their findings are well trusted, which plays an important part for investors to begin or continue investing. Trusting that there is no conflict of interest, investors anticipated that the accuracy of Andersen’s certification and application of proper accounting procedures would be independent and truth. With Arthur Anderson involvement, this was not the case, they deceived all investors that replying on the reports. With this information, a conflict of interest between business partner of Enron and Arthur Anderson, even some of their executives accepted jobs from Enron. Andersen failed to ask Enron to clarify their partnerships before verifying their financial statements. In March 2002, Andersen was found guilty of obstructing, they destroyed related auditing documents. Andersen did not take the responsibility as the auditor to question or ask for an explanation of the suspicious accounts found in the books of accounts, instead their actions were unethically and unprofessional by receiving million in audit and consulting fees.

The last group that had a participation in Enron’s demise is the attorneys Vinson & Elkins, who represented Enron in another matters. Their involvement with Enron, included payments of firm legal fees of over $162 million, all within five years ending with 2001. In 2001, V&E's revenues were from Enron's fees of $35. 6 million represented almost 8%. They had a huge involvement in the structure of Enron’s special purpose partnership. Deals made by Enron such as the one with Sherron Watkins, the firm back up the legality. Watkins is known for having inquiries on allegation of accounting fraud, but it leads to them dismissing the allegations with Vinson & Elkins involvement. The article entitle “Corporate Lawyers After the Big Quake: The Conceptual Fault Line in the Professional Duty of Confidentiality” explains, they knew Enron had performed substantive legal work on several of the transactions specifically questioned by Watkins, posed a conflict of interest by Vinson & Elkins assessing the propriety of transactions in which it had previously been involved as Enron's transactional counsel and Vinson & Elkin’s assumption of the role of mere interviewer and scrivener, conveying a generally reassuring message even though it had institutional knowledge that at least some of the SPE transactions were problematic. Vinson & Elkins had an important role as they were an organizer of the legality deals through transaction opinion letters and deals are the cause that contribute to the demise of Enron.

What role did the company's Chief Financial Officer play in creating the problems that led to Enron's financial problems?

Andrew Fastow, known as the Chief Financial Officer of Enron, was considered the brain behind Enron’s special purpose entities and unconsolidated partnerships that were used to conceal their debt from investors. He took advantage from the main purpose, which was later known as LJM partnership, provided the companies with a mechanism to raise funds for various needs without needing to report the debt in their balance sheets. So Fastow used methods to hide over one million in Enron’s debt. He made close to thirty million from LJM, due to using these partnerships to gain commission that camouflaged as gift from family member. His actions of improper partnerships lead him to face 98 counts of money laundering, fraud, and conspiracy. This would include a Nigerian and Brazilian power plant projects. The debt of one million he actively tried to hide was the main reason that lead to Enron’s bankruptcy.