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Lessons Learned From Enron's Failure

Essay by 24  •  January 19, 2011  •  924 Words (4 Pages)  •  997 Views

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The well-established company Enron, which was once ranked by Fortune as “the most innovative company in America” faced bankruptcy and thus the downfall of Enron. One of the causes of Enron’s failure is that there is a weak corporate governance of board of directors. Their lack of social responsibility from the 4 main criteria identified by Archie Carroll, which is economic, legal, ethical and discretionary responsibilities. They only want to make profits without taxes and move up, leaving all the details behind for worrying later. They are doing business using the classical view, where the management’s only responsibility in running a business is to maximize profit .

Secondly, Enron’s fall was initiated by a flawed and failed corporate strategy which leads to many unwise decisions. But unlike other normal corporate failures, Enron’s fall was ultimately precipitated by the company’s pervasive and sustained use of aggressive accounting tactics to generate misleading disclosures intended to hide the bad business decisions from shareholders. The failure of Enron points to an unparalleled breakdown at every level of the management as they are out of the system. Enron’s management is lack of socioeconomic view that does not concern the social welfare and not just with the corporate profits .

Next, the reason to Enron’s failure is because of the ethical behavior of accountants and managers. The accountants were both complacent and incompetent enough to certify Enron’s financial statements. This is because they lack of solid ethical framework, and with further push from the managers, it affects these accountant’s ability to work. In my opinion, they were given a choice, whether their actions will be rewarded or punished by their supervisors. The manager that practices the utilitarian view knowing that he made a few bad decisions which leads to the loss of millions of the company, tries to cover up by hiring outside accountants to deal with off-balanced financial sheets. The environment of the organization has lead to the unethical behavior of accountants .

Finally, in my opinion, one of the main reasons Enron filed for bankruptcy is because of the lack of control in top management of supervision of managers. They performed only a “rubber stamp duty” in reviewing the middle management’s actions. For instance, the top financial officers were rewarded for continually producing “better results” of the company. Managers use creative approach to solve problems created by them beyond the legal and ethical boundaries to ensure the rise of Enron, but no one overview their misdeeds and approved of their doing. So, the lack of control and supervision has mainly contributed to this situation .

Lessons Learned from Enron’s failure

From Enron’s downfall, there are quite a number of lessons that can be learned from Enron to prevent these scandals from happening. Firstly, ethical cultures must be well-fortified so that among employees, customers, suppliers and investors will have higher degrees of satisfaction and loyalty. Ethics must be looked from both moral-rights and justice views. In organizations, this concept that includes the right of employees to reject unethical actions must be practiced. This is to ensure that employees are always protected in rights of privacy, choices, health and safety. Besides that, we



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