The document summarizes the Enron scandal and bankruptcy. It discusses how Enron officials abused their power and privileges, putting their own interests above employees and shareholders. This led to Enron's bankruptcy in 2001. The document outlines Enron's history, growth through acquisitions, and use of off-balance sheet entities to hide debts and losses. Investigations revealed accounting fraud and deception by executives. Loophole abuse and risky investments eventually caused Enron's collapse when losses could no longer be concealed, making it one of the largest corporate frauds in history.
World's biggest financial scam. This presentation would give you all the information about the people who are engaged in the scam and they manipulated their data from balance sheet. How culprits were sent behind bars and what were the changes in Law that were done after this scam. For more understanding of case i will recommend to see the movie
" Enron- The smartest guy in the room"(2005)
Whistle Blower is a person who takes a stand against the wrong for Selfless motives and remains resolute to his/her stand. This was a presentation given by me as a group of 5 girls across the MBA at Atmiya Institute of Technology & Science
The document discusses compensation management at Packages Private Limited. It outlines Packages' compensation system which includes establishing pay rates based on factors like market rates and job evaluations. The compensation package consists of base pay, incentives, and benefits. Packages aims to attract and retain talent through an equitable compensation system tied to performance and contributions.
WorldCom engaged in fraudulent accounting practices that inflated revenues and hid expenses, which ultimately led to its bankruptcy. Top executives pressured employees to manipulate financial reports in order to meet expectations. When the fraud was uncovered, it resulted in massive job losses, the loss of $180 billion in shareholder value, and damage to the telecom industry. The fraudulent culture was driven by autocratic leadership, lack of transparency, and failure of oversight by the board and auditors.
OECD Principles Of Corporate Governance in IndiaRoopanshi Virang
The OECD Principles of Corporate Governance provide a global framework for well-governed corporations and were first published by the OECD in 1999. They establish guidance in six areas, including ensuring an effective governance framework, equitable treatment of shareholders, the role of stakeholders, and disclosure and transparency. In India, the principles have been applied through regulations like Clause 49 of the Listing Agreement and the Companies Act of 2013. For corporations to fully adopt the OECD principles in India, they must embrace values of justice, truth, and harmony; act with fairness, integrity, and care toward stakeholders; and ensure good, reliable direction and governance of the company.
Business Ethics case study on spectacular rise and fall of Enron. Enron Corporation was an American energy, commodities, and services company based in Houston, Texas.
The Enron scandal (Accounting Fraud), publicized in October 2001, eventually led to the bankruptcy of the Enron Corporation
This document provides an overview of Enron's fraud scandal and case study. It discusses Enron's history as a large energy corporation that collapsed in 2001 due to widespread corporate fraud. It examines the unethical behaviors that took place, such as removing debts from financial statements and executives selling stock before the scandal broke. The document also considers the impact on stakeholders, compares the legal consequences faced by those involved, and provides recommendations for actions around ethics and whistleblowing going forward.
The story of Enron Corporation depicts a company that reached dramatic heights only to face a dizzying fall. The fated company's collapse affected thousands of employees and shook Wall Street to its core. At Enron's peak, its shares were worth $90.75; when the firm declared bankruptcy on December 2, 2001, they were trading at $0.26. To this day, many wonder how such a powerful business, at the time one of the largest companies in the United States, disintegrated almost overnight. Also difficult to fathom is how its leadership managed to fool regulators for so long with fake holdings and off-the-books accounting.
- The document discusses a loss-loss situation that occurred between Maruti Suzuki and its workers union at the Manesar plant in India. Operations were stopped for a month due to differences in salaries, working conditions, and demands for a new union. This led to estimated losses of over 1.5 billion rupees for the company and unemployment for many workers. It identifies a lack of communication between HR and unions as a key problem. Suggested solutions include proper coordination, non-discriminatory salary policies, understanding workers' problems, and following labor laws in a humanitarian way.
The document provides an overview of the Enron scandal from a corporate perspective. It discusses Enron's origins and growth into one of the largest energy companies in the world. It then examines the accounting fraud and deception that took place, hiding billions in losses and debts through off-balance sheet entities. Key people like CEO Ken Lay and CFO Andrew Fastow benefited greatly from these actions. The scandal broke in late 2001, wiping out billions in market value and causing thousands of layoffs. It shook confidence in corporate accounting practices and led to new regulations like the Sarbanes-Oxley Act of 2002.
A. Andersen founded the accounting firm Arthur Andersen & Co. in 1913 in Chicago. He headed the firm until his death in 1947. The firm grew rapidly but eventually failed to withstand pressure to prioritize revenue over ethics. It provided accounting services for Enron but failed to follow accounting standards and destroyed documents, contributing to Enron's collapse in 2001. In response, Congress passed reforms like the Sarbanes-Oxley Act to strengthen oversight of public accounting. Arthur Andersen was forced into bankruptcy as a result of its role in the Enron scandal.
The document discusses different types of audits:
- Statutory audits are legally required reviews of a company's or government's financial records to determine if they provide an accurate representation of their financial position.
- Non-statutory audits are voluntary and terms are agreed upon between the auditor and proprietor.
- Internal audits are independent reviews conducted within an organization to evaluate risk management, controls, and governance processes.
- Special audits are specifically requested to detect potential errors, irregularities, or fraud.
Broadbanding is a strategy that consolidates many traditional pay grades into a few wider salary ranges or "broad bands" in order to support more agile and flexible organizational structures. It reduces the number of salary grades by half to two-thirds and increases the spread between minimum and maximum pay to 75-125% to facilitate lateral moves, career development, and quicker responses to change. Most companies use 10 broadband levels, with 2 for executives, 4 for managers, and 4 for non-managers. While broadbanding aims to empower managers and focus on competencies over jobs, its success requires strong management training and commitment, and it risks employees rising too far above market rates without precise controls.
The presentation highlights the important compensation policies of Nestle. It will help the viewers to understand the compensation management and distribution procedure.
Broadbanding involves collapsing multiple salary grades into broader pay bands with wider salary ranges. This provides more flexibility in compensation and allows employees' pay to be determined by their skills, competencies, and market factors rather than their specific job title or grade. Under broadbanding, organizations set up bands divided into zones to ensure internal pay equity while allowing room for growth. Job families are also defined to group similar roles within each band.
This is prepared simply for practicing presentation-skills and understanding “slideshare”’s online platform. All content is simply for the learning purpose. We don’t claim accuracy or complete information. All information is presented just for overview. Any inadvertent use of company name, images are unintentional. & if brought to notice, we will remove them.
The document summarizes the Satyam scam case involving corporate governance failures at Satyam Computer Services. Ramalinga Raju, the chairman of Satyam, allegedly siphoned off funds from Satyam into other companies he owned and inflated revenue and profits. This led to a loss of confidence in Satyam and impacted its employees, clients, and business partners. The case showed the importance of strong corporate governance and auditing to prevent such scams. Tech Mahindra later acquired Satyam to turn it around.
The document provides an analysis of the failure of corporate governance that led to two major corporate scandals - Enron and Satyam. It discusses the major reasons for corporate governance failures like ineffective boards, poor communication, and lack of transparency. It then summarizes the key events around the collapses of Enron and Satyam. Enron was once a leading energy company that filed for bankruptcy in 2001 after a major accounting fraud was uncovered, destroying billions in shareholder wealth. Satyam was a leading Indian IT company that collapsed in 2009 after it was discovered that the founder had been inflating cash and bank balances for years. Both companies fell from grace due to failures of corporate oversight and governance.
This presentation covers Accounting of Services and Operations like - Cinema Hall, Canteen, Hospital, Transport, Costing etc.
an important part in MBA Financce
The Enron scandal involved accounting fraud at the now-bankrupt Enron Corporation. Enron disguised losses as profits by using accounting loopholes and complex financial reporting. This allowed Enron executives to profit while hiding the company's true financial situation. When Enron collapsed in 2001, it was one of the biggest corporate bankruptcies in U.S. history and drew attention to flaws in accounting oversight and corporate governance.
The Enron scandal involved massive accounting fraud at Enron Corporation that was discovered in 2001. Enron used creative accounting practices and off-balance sheet entities to hide debts and inflate profits. When these practices were revealed, Enron faced bankruptcy and its stock price plummeted. Thousands of employees lost their jobs and pensions. The scandal damaged public trust in accounting practices and led to increased regulation like the Sarbanes-Oxley Act.
The role of government in promoting business ethicsActivity 2R.pdfambikagarmentsjdp
The role of government in promoting business ethics
Activity 2
Read the Enron Case study and analyze the role that the government played in addressing these
ethical challenges and evaluate the effectiveness of the government's response
Enron accounting fraud case study
The Enron accounting fraud case is a well-known example of corporate greed and unethical
behavior in the business world. The scandal involved Enron, a Houston-based energy company,
which was found to have engaged in fraudulent accounting practices to inflate its profits and hide
its losses from investors and the public. Enron was founded in 1985 and quickly became one of
the largest energy companies in the world. However, in the late 1990s, Enron faced several
financial difficulties due to increased competition, falling energy prices, and investments in risky
ventures.
To hide its financial troubles, Enron engaged in a series of fraudulent accounting practices, such
as creating off-balance-sheet entities to hide debt and losses, inflating revenues through sham
transactions, and manipulating energy prices through market manipulation.
The fraud was eventually uncovered, leading to the collapse of Enron and the loss of thousands
of jobs and investments. Several executives, including CEO Kenneth Lay and CFO Andrew
Fastow, were charged with fraud and conspiracy. Lay died before sentencing, while Fastow
served a six-year prison term. Arthur Andersen, Enron's accounting firm, was also found guilty
of obstruction of justice for shredding documents related to the case.
Lessons Learned
The Enron scandal highlighted the importance of corporate governance, transparency, and ethical
behavior in business. It led to the passage of the Sarbanes-Oxley Act of 2002, which aimed to
improve corporate accountability and prevent financial fraud. The scandal also led to increased
scrutiny of accounting practices and auditing standards, as well as a renewed emphasis on the
role of boards of directors and independent oversight.
Enron was originally a pipeline company that diversified into energy trading. It employed skilled mathematicians and economists but also used complex partnerships and accounting practices to hide debts and inflate profits. When these were uncovered, Enron stock plummeted from $86 to $0.26, costing employees their pensions and investors billions. The scandal highlighted the need for reforms to increase transparency and prevent conflicts of interest between companies and their auditors.
Enron Corporation was formed in 1985 through the merger of two energy companies and grew to become the largest natural gas and electricity trader in North America. Through aggressive strategies and accounting practices that hid losses, Enron saw its stock price rise dramatically in the late 1990s. However, in 2001-2002, Enron collapsed into bankruptcy after its complex accounting schemes and off-balance sheet debt were revealed through a whistleblower and SEC investigation. Top executives were later convicted of fraud for artificially inflating profits through these practices.
This document discusses the nature and goals of business ethics. It defines business ethics as the values, standards, and principles that should guide business. Business ethics is a multidisciplinary field that incorporates perspectives from philosophy, management, economics, marketing, and public policy. The document also notes that business ethics involves ethical analysis and decision-making. While some think business ethics should focus only on legal compliance, the document argues this is insufficient and ethical business goes beyond just obeying the law. The Enron scandal is provided as an example of a situation where aggressive business practices were legal but still considered unethical.
This document discusses the nature and goals of business ethics. It defines business ethics as the values, standards, and principles that should guide business. Business ethics is a multidisciplinary field that incorporates perspectives from philosophy, management, economics, marketing, and public policy. The document also notes that business ethics involves ethical analysis and decision-making. While some think business ethics should focus only on legal compliance, the document argues this is insufficient and ethical business goes beyond just obeying the law. The Enron scandal is provided as an example of a situation where aggressive business practices were legal but still considered unethical.
Discuss in scholarly detail implications of any considerations that sh.docxrtodd615
Discuss in scholarly detail implications of any considerations that should be emphasized by firms seeking to manage a strategy-culture relationship.
Solution
Suspicion of corporations, corporate executives, and a general mistrust of business in the minds of the public grew in two waves. The first of these was the late 1960?s in which issues management was formed in reaction to these pressures as a process in which corporations could better understand, anticipate, and proactively manage issues of public concern. The second wave of heightened mistrust was in the late 1990?s to early 2000s, as a reaction to huge corporate scandals such as that of Enron. As thousands of former-Enron employees lost their retirement funds in the collapse, Enron executives maintained in the news media that they had done nothing wrong. Yet, as facts emerged, ethical transgressions of the public trust were unearthed and criminal charges against many top executives were filed; later convictions followed (for more discussion of this case, see Bowen & Heath (2005) or Sims & Brinkman (2003). The shockwaves following Enron, and other scandals of this period such as Tyco and WorldCom, resulted in new demands for ethical responsibility and corporate governance. One result was the implementation of the 2002 Sarbanes-Oxley Act (http://www.sarbanes-oxley.com/index.php) in which the Securities and Exchange Commission (SEC) required new standards of financial compliance and record keeping. From these cases and the new legislation, a renewed concern for corporate ethics, compliance, regulation, governance, transparency, and honest financial reporting procedures resulted. Many of these issues are the domain of the public relations function, and all of them are communicated about by the public relations function.
Research conducted recently by the International Association of Business Communicators (IABC) Research Foundation (http://www.iabc.com/rf/) studied public relations ethics and reported survey results from 1,827 IABC members and other professional communicators worldwide (Bowen & Heath, 2006). The study (Bowen et al., 2006) revealed a number of surprising and interesting findings in public relations ethics. Public relations practitioners around the world reported that 65% of them have regular access to the
.
Enron was formed in 1985 through the merger of Houston Natural Gas and InterNorth. It grew rapidly through the 1990s becoming a large multinational corporation dealing in the sale of energy, communications, and pulp and paper. However, Enron hid massive debts and losses through off-balance sheet partnerships and questionable accounting practices. In late 2001, Enron filed for bankruptcy after revelations of accounting irregularities and institutionalized, systematic, and creatively planned accounting fraud were uncovered. The collapse of Enron cost investors and employees billions of dollars and significantly damaged the public's perception of the integrity of U.S. business practices and financial reporting.
⇉Summarize The Enron Scandal Accounting Essay Example | GraduateWay. ⇉Ethical and Governance Issues of the Enron Scandal Essay Example .... The Enron Scandal. Main Reasons for the Downfall of the Company - GRIN. Enron scandal - reasons, discovery and implications. - A-Level Business .... Enron Scandal - Research Paper Example - Free Essay. Enron Scandal Analysis Narrative Essay Example | StudyHippo.com. Enron Scandal and Accounting Fraud Case - Free Essay Example .... Enron scandal case study pdf in 2021 | Research paper, Case study, Essay. Enron Scandal As A Learning Lesson - Free Essay Example - 2581 Words .... (PDF) THE ENRON SCANDAL - A Simple Overview. Enron Scandal Case study Essay Example | Topics and Well Written Essays ....
Enron was once considered one of the most successful companies in the US, but collapsed due to accounting fraud. Key internal controls were ignored when LJM1 was created to hide losses. There was poor oversight of special purpose entities used to hide debt. The collapse cost thousands of jobs and billions in losses for investors. Lessons include the need for strong internal controls and oversight to prevent similar accounting fraud.
The Enron scandal involved widespread corruption and unethical behavior at Enron that ultimately led to its bankruptcy in 2001. Top executives at Enron manipulated the company's financial reports to mislead investors about its financial performance and hid debts. This corruption was enabled by a culture at Enron that encouraged greed and fraud over creating real business value. The scandal showed that without integrity, no strategy or business can succeed in the long run. It also revealed problems with deregulation of industries like energy and lack of transparency in corporate accounting practices.
This document provides an overview of the Enron accounting scandal that led to the bankruptcy of Enron Corporation. It describes how Enron grew rapidly in the 1990s to become the 7th largest company in the US by manipulating its accounting practices and hiding debts. Key executives encouraged a culture of greed and dishonesty. When Enron's poor financial performance was revealed in 2001, it collapsed due to mounting debts and losses that it had concealed through complex financial structures and partnerships. The scandal had widespread impacts, destroying billions in shareholder wealth and pension plans.
The Enron scandal involved accounting fraud at the energy company Enron. Enron used mark-to-market accounting to recognize future profits from long-term energy contracts before they were realized. They also used special purpose entities to hide debts and losses. This allowed Enron to misrepresent its financial performance and hide its true financial situation. When the fraud was uncovered, Enron collapsed and filed for bankruptcy in 2001, costing investors and employees billions and changing accounting practices.
The document analyzes the Enron scandal and identifies key learnings. It discusses how Enron executives prioritized short-term financial gains over ethical behavior, harming stakeholders. Their actions revealed lapses in integrity that destroyed the company. Some key lessons from Enron are that companies should provide real value through goods/services, arrogance from executives should raise red flags, and executives paid too much can feel above rules and cut ethical corners to retain wealth. The scandal showed the need for updated regulations to govern new economy companies.
This document summarizes a case study on the collapse of Enron Corporation. It provides background on Enron's rapid growth and success in the late 1990s as an energy company, but also describes how much of its reported profits were fictional due to fraudulent accounting practices. The summary outlines some of the major ethical issues involved, including accounting fraud, misleading financial disclosures, excessive executive compensation tied to stock performance, lack of oversight of risky derivatives trading, and 401k retirement plans that were heavily invested in Enron stock. The downfall of Enron in 2001 as the largest corporate bankruptcy at the time had wide-ranging impacts and led to new regulations and legislation to reform corporate accounting and governance.
Dissertation Report On A Case Analysis On Enron Failurearpan_rkl
This document is a dissertation report submitted by Arpan Ghosh on a case study of Enron's failure. It includes an acknowledgment, declaration, and certificate sections. The table of contents outlines 6 chapters: an introduction providing background on Enron, a company profile, literature review, research methodology, results and discussions, and conclusions and suggestions. An abstract at the end summarizes that Enron collapsed unexpectedly in 2001 due to fraudulent accounting that hid debts and losses. The objectives are to understand the crises at Enron, its accounting irregularities, and regulatory and legal failures.
Enron grew rapidly to become America's seventh largest company but was involved in an elaborate scam that lied about profits. As the deception unfolded, investors withdrew funding forcing Enron to declare bankruptcy. Leaders have not been brought to justice over six months after a criminal inquiry began. Enron's culture emphasized ruthless ambition and punished dissent, eroding employees' confidence and encouraging conformity to hide operational flaws and perpetuate success.
Comparative corporate governance The Enron Debacle Sudeshna07
This document summarizes a paper on corporate governance practices post-Enron. It provides background on Enron's history and collapse. Key factors identified include aggressive accounting that hid debts, lack of board oversight, conflicts of interest with auditor Arthur Andersen, and failure of regulators to prevent the fraud. The Sarbanes-Oxley Act of 2002 imposed new rules for boards, auditors, and executives in response. Companies now face greater disclosure requirements and scrutiny of compensation and conflicts to restore investor confidence after the Enron scandal.
Similar to “The Lesson from Enron Case - Moral and Managerial Responsibilities” (20)
Misleading Advertising Strategies: Issues and ChallengesAMU
This document discusses misleading advertising and issues related to it. It defines misleading advertising as claims that give consumers an incorrect understanding of a product. Misleading ads can harm consumers through financial losses or other damages. The document outlines types of misleading claims and practices, laws related to misleading advertising in India, examples of misleading techniques, challenges, and recommendations which include making ASCI membership mandatory and establishing a comprehensive advertising law.
A REVIEW ON ORGANIZATIONAL STRATEGY IN INTEGRATION WITH HRD POLICIESAMU
This document reviews the integration of organizational strategy with human resource development (HRD) policies. It discusses how HRD, through personnel training, career development, and organization development, helps organizations meet changing needs, execute strategies, and influence stakeholders. The literature identifies that HRD must be strategic by contributing to goals and aligning with business strategy. HRD can shape goals and strategies, not just support them. Effective integration of HRD policies with organizational strategies requires assessing needs, developing integrated solutions, and achieving organizational outcomes.
“Human Resource Development Policies in Coordination with Organizational Stra...AMU
1. The document discusses the importance of integrating human resource development policies with organizational strategy. It argues that this alignment allows HR to play a strategic role in helping the organization achieve its goals.
2. Key aspects of strategic human resource development that are discussed include developing core competencies, functional and behavioral competencies in employees, and ensuring training needs are classified and addressed appropriately.
3. When HR is coordinated with organizational strategy from the beginning, it can impact value creation and allow the human capital of the organization to be effectively utilized to support the chosen strategy.
Social Security in Informal Sector: A Myth or realityAMU
This document discusses social security for workers in India's informal sector. It provides an overview of India's social security system and the constitutional rights related to social security. While India has enacted some laws to provide social security benefits like health insurance and pensions, they mainly cover organized sector workers and do not adequately address the needs of unorganized sector workers who make up around 90% of the workforce. The Unorganized Workers Social Security Act of 2008 aims to provide welfare schemes for this group but it lacks dedicated funding, does not recognize social security as a right, and does not establish an empowered regulatory body to implement it effectively. Overall, the document argues that more needs to be done to expand social security coverage and protections to India's vast un
Grievances refer to any form of discontent or dissatisfaction arising from employment. A grievance is a formal dispute registered according to procedures between an employee and management regarding employment conditions. It is a feeling of injustice or dissatisfaction with some aspect of the work situation that is brought to management's attention. Grievances can stem from real or perceived issues and may be voiced, unvoiced, or take shape over time if initial complaints go unaddressed.
“Syrian Women Refugees and Their Human Rights – Recent Events and Challenges”AMU
This document discusses the human rights status of Syrian women refugees and challenges in effectively protecting their rights. It notes that women and children make up a large portion of refugees globally and face increased risks. While international laws exist to protect refugees, enforcement can be lacking, especially for women who face discrimination and human rights abuses both in their home countries and as refugees. The document calls for reforms to better identify and protect at-risk refugee women through improved legal protections and services that respect their basic rights, safety, and security.
The Incident of Foot comfort company - A case studyAMU
The Foot Comfort company faced labor strikes due to outsourcing production to China, which workers feared would reduce incomes and jobs. The strikes lasted over 5 months, severely impacting the company. Negotiations increased wages but a new union refused renewed agreements. The company locked out 300 workers without proper notice, viewing it as a way to deter future strikes. However, this sacrificed employees and ignored legal requirements for dispute resolution processes between unions and management, exacerbating the conflict. The root issues included lack of job security assurances, ineffective communication, and passive management that failed to consider employee needs when implementing strategic changes.
The document provides an overview of labor laws and dispute resolution mechanisms in India. It discusses:
1) The historical background of labor legislation in India and how the original colonial laws were modified for independent India.
2) The key objectives of the Industrial Disputes Act, 1947 which provides machinery for regulating employer-employee relations and settling disputes through collective bargaining, mediation, adjudication and other means.
3) The primary mechanisms established under the Act for settling disputes, including collective bargaining, mediation and conciliation, investigation, arbitration, and adjudication. Adjudication involves mandatory resolution of disputes by labor courts and tribunals.
Syrian Women Refugees and Their Human Rights’ protection – Recent Events and ...AMU
The document discusses the challenges facing Syrian women refugees, including human rights violations they experience. It notes that women refugees face issues such as displacement, family separation, sexual and gender-based violence including rape and sexual slavery. They often take on roles as heads of household but struggle with lack of legal protections, healthcare access, poverty and discrimination. The document calls for reforms to better protect refugee women under international law and ensure their rights are upheld in refugee camps and host countries.
Karl Marx was a German philosopher, economist, historian, and revolutionary socialist who lived from 1818 to 1883. He is renowned for his theories about capitalism and socialism. Some of his key ideas were that capitalism exploits workers for profit, inequality is inherent in the capitalist system as the wealthy bourgeoisie owns the means of production, and that communism is a classless system where the working class owns the means of production. He published the Communist Manifesto in 1848 which outlined his theories and called for working class revolution.
Effective Protection of Muslim Women under Family Law in Iran and IndiaAMU
This document discusses family laws in Iran and India as they relate to Muslim women's rights. It notes that Muslim women face discrimination under these laws, including minimum marriage ages, need for guardian permission to marry, polygamy, lack of women's autonomy, inheritance discrimination, and lack of domestic violence laws. Both Iran and India have laws that restrict Muslim women's rights in marriage and personal freedoms. The document argues that reforms are needed to these family laws to better protect Muslim women's rights and empower them to have equal status as men.
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This document discusses refugee law and social security for refugees in India. It notes that while India hosts millions of refugees from countries like Tibet, Myanmar, Nepal, Sri Lanka, Afghanistan, and Sudan, it does not have a specific refugee law and refugees' social security rights are inadequate. The document examines how different refugee groups like Tibetans, Sri Lankan Tamils, and Chakmas are treated differently in terms of rights to employment, healthcare, education, and social welfare. It argues that India's approach to refugees lacks a strong legal basis and does not sufficiently uphold its obligations under international refugee conventions, resulting in refugees facing insecurity and hardship.
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This document discusses Iran's domestic laws regarding refugees and its international responsibilities for protecting refugees. It notes that Iran is host to one of the world's largest refugee populations, with around 1 million Afghan refugees and 28,000 Iraqi refugees registered in 2015. While Iran is a signatory to the 1951 Refugee Convention, there are gaps in effectively protecting refugees. The document examines Iran's refugee laws and regulations, refugee rights in Iran such as residency and work permits, but notes that most refugees remain in Iran illegally without full legal rights. It analyzes the waves of Afghan and Iraqi refugee influxes to Iran and their status. To better understand the refugee situation and protection gaps, the document argues that Iran's domestic refugee laws and international obligations
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Content validity requires subject matter experts to evaluate whether test items adequately assess defined content areas. One widely used method for measuring content validity was developed by Lawshe, who had experts rate each item as essential, useful but not essential, or unnecessary. Items rated as essential by over half the experts are considered to have positive content validity. Assessing the mean rating across items can indicate the overall test's content validity. Content validity differs from face validity, which assesses whether a test looks valid based on superficial impressions rather than rigorous analysis.
A team leader provides guidance, instruction, and leadership to a group to achieve results. As the learning advocate, the team leader should develop his capabilities by responding to identified concerns and reflecting on technical tasks. It is important for the team leader to allocate time to learn with the group to enhance capabilities, refine methodology, and encourage cross-project learning.
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2. buyers of natural gas could lock in long-term supplies and
corporation at the same time for oil and gas producers started
to offer financing. Enron Corporation by acquiring Transport
adora de Gas del Sur expended to South America and started to
push to extend on the continent in 1992. In England after one
year Enron’s Teesside power plant began operations as the first
successes for Enron’s international strategy. The corporation
made its first electricity trade in 1994 and in the next years it
turns into one of biggest profit centers for Enron. In London by
establishment of a trading center, Enron in 1995 entered the
European wholesalers market as part of Enron Europe. In
1996, Dabhol power plant construction started in India.
However, the project would be plagued by political problems
and eventually Enron put the project up for sale in 2001. After
one year, Enron bought Portland General Electric Corporation,
the utility serving the Portland, Oregon (USA), which would
be sold for about 1.9 billion Dollars in 2001 to Northwest
Natural Gas Co, in the same year, Enron Energy Services was
formed to provide energy management services to commercial
and industrial customers. Enron continued its policy of
acquiring companies and in 1998 acquired Wessex Water in
the United Kingdom which formed the basis for its water
subsidiary Azurix. But in 1999, when in an action one-third of
Azurix sold to the public, the company’s problems become
apparent as the shares fell sharply after an early rise. The same
year, Enron Online, the company's commodity trading Internet
site, started to operate. Enron Energy Services turned its first
profit in the last quarter of the year.
Enron’s annual revenues reached one hundred billion Dollars
in 2000, which was reflecting the growing importance of
trading. However, the problems with Azurix continued and
Rebecca Mark resigned from her position of chairwoman while
Enron announced the intention to take the subsidiary private.
The same year, The Energy Financial Group ranked Enron the
sixth-largest energy company in the world, based on market
capitalization.2
In April 2001 Enron disclosed it had owned
570 million Dollar by bankrupt California utility Pacific Gas &
Electric Co. While the top executives were likely aware of the
debt and the illegal practices, the fraud was not revealed to the
public until October 2001 when Enron announced that the
company was actually worth 1.2 billion Dollar less than
previously reported. This problem prompted an investigation
by the Securities and Exchange Commission3
, which has
revealed many levels of deception and illegal practices
committed by high-ranking Enron executives, investment
banking partners, and the company’s accounting firm, Arthur
Anderson. At the end of the year Enron’s shares closed at 8.63
Dollar per share, an 89 percent drop since the beginning of the
year. The critical dates in the scandal are October 16, 2001 and
November 8, 2001. On October 16, Enron announced that it
had made a loss of 618 million Dollar in 3 months, while on
the second date it announced that it had exaggerated its
revenue since 1997 by 586 million Dollars. In Fact, accounts
2
The Collapse of Enron Corporation, (23, March 2015), Retrieved from:
https://www.ukessays.com/essays/accounting/the-collapse-of-enron-
corporation-accounting-, accessed on: 05May2016.
3
“The United States Securities and Exchange Commission (commonly known
as the SEC) is a United States government agency having primary
responsibility for enforcing the federal securities laws and regulating the
securities industry, stock market”, Retrieved from: https://en.wikipedia.org/
wiki/U.S._Securities_and_Exchange_Commission, accesses on: 8 May 2016.
of Enron had not shown the true state of its huge indebtedness
on that time.
Analyzing the Fraud: Timeline and Financial Highlights
Enron Corporation until December 2001 appeared very strong,
voluntary made the decision to restate its financial statements.
This proved to be mortal. While the bankruptcy of a small
company is taken as a routine, the corporation had to go for a
bankruptcy. During the 1990s, Enron expended into several
areas quickly such as developing a pipeline and a power plant,
however, this expansion required long gestation period and
large initial capital investments. Enron raised a lot of debt
funds from the market hence any other attempt to raise funds
would affect Enron’s credit rating. Enron had to maintain the
credit ranking at investment rate in order to continue business
but Enron was not making enough profits. Hence, Enron began
making partnerships and other special “arrangements” like
SPE or Special Purpose Entity. These companies were used to
keep Enron’s debts and losses away from its balance sheets,
therefore allowing it to have a good credit rating and showing
good look in front of the investors. Enron goal was to
overcome the rules of consolidation and, in the same time
increase credibility. If a parent company (in this case Enron)
financed less than 97 percent of an initial investment in a SPE,
it didn’t have to consolidate in into its own accounts4
. In order
to achieve non-consolidation, according to GAAP,5
two
conditions must be met first the assets must be legally isolated
from the transferor and second an independent third party
owner has to make a substantive capital investment which
should amount to at least 3 percent of the SPE’s total
capitalization. The independent third party owner must
exercise control over the SPE in order to avoid consolidation.
The third party control and the legal isolation over the SPE,
reduce the risk of the credit. Therefore, off-balance sheet
treatment of such a SPE involves enough third party equity
which must be “at risk”, otherwise the transferor would be
required to consolidate the SPE into its own financial
statements. Therefore, thoughts solution of Enron was to find
outside investors willing to enter into financial arrangements
with them and started several structured entities in the name of
SPEs. To allow the SPE to borrow from the market, in many
cases Enron provided credit support such as guaranty. Enron’s
off-balance sheet treatment was subject to achieved of all its
SPEs, without test of accounting to determine to know whether
the SPE should be consolidated or not. The Enron followed
this policy in financing which ultimately would enable it to be
valued more attractively by rating agencies and Wall Street
analysts. after word the huge debt took place into the
subsidiaries and many obligations flew from US companies
into Enron’s SPEs, while the contracts likely to end up in loses
were mentioned unclearly in the footnotes of company
accounts. Enron used several dependent sectors in rising of
4
EITF (Emerging Issues Task Force) is “an organization formed in 1984 by the
Financial Accounting Standards Board (FASB) to provide assistance with
timely financial reporting” Retrieved from: http://www.investopedia.com/
terms/e/eitf.asp, accessed on: 05May2016.
5
These rules and standards are mandated for the creation of uniform financial
reports by publicly traded companies. “It includes the standards, conventions,
and rules accountants follow in recording and summarizing transactions, and in
the preparation of financial statements”, Retrieved from: http://www.
accounting.com/resources/gaap/, accessed on: 05May2016.
37452 Seied Beniamin Hosseini and Dr. Mahesh, The lesson from Enron case - moral and managerial responsibilities
3. equity and structured its financial arrangements by using
existed weakness of laws and trying to not consolidate into its
accounts by intentionally not fulfilling certain conditions.
Key Management at Enron
Kenneth Lay (Former Enron Chief Executive, Chairman
and Board Member)6
Lay took up the reins at Enron in 1986 after it was formed
from the merger of two pipeline firms in Texas and Nebraska.
Prior to Enron’s collapse, he was credited with building
Enron's success. Lay resigned as CEO in December 2000, and
was replaced by Jeffrey Skilling. In August 2001, he resumed
leadership after Skilling resigned. Lay resigned again in
January 2002 after becoming the focus of the anger of
employees, stockholders and pension fund holders who lost
billions of dollars in this disaster.
Jeffrey Skilling (Former Chief Executive, President and
Chief Operating Officer)7
Skilling joined Enron in 1990 from the consultancy firm
McKinsey, where he had developed financial instruments to
trade gas contracts. Prior to becoming Chief Executive in
February 2001, Skilling was President and Chief Operating
Officer of the firm. Skilling was also seen as a key architect of
the company’s gas-trading strategy. Skilling resigned his post
as Enron’s chief executive in August 2001 without a pay-off.
Andrew Fastow (Former Chief Financial Officer)8
Fastow was fired in October 2001, when Enron made losses
amounting to $ 600 million. Fastow was allegedly responsible
for engineering the off-balance sheet partnerships that allowed
Enron to cover its losses. Fastow was also found by an internal
Enron investigation to have secretly made $30 million from
managing one of these partnerships.
Clifford Baxter (Former Chief Strategy Officer and Vice
Chairman)9
Baxter was known to have been one of the Enron executives,
who had opposed its creative accounting practices. Baxter
retired from Enron in May 2001. Baxter committed suicide in
January 2002.
Enron’s Auditor (Arthur Andersen)10
Arthur Andersen, one of the world's five leading accounting
firms, was Enron’s auditing firm. This means that Andersen’s
6
Kenneth Lay, Retrieved from: https://en.wikipedia.org/wiki/Kenneth_Lay,
accessed on; 10 June 2016
7
Jeffrey Skilling, Retrieved from: https://en.wikipedia.org/wiki/
Jeffrey_Skilling, accessed on; 10 June 2016
8
Andrew Fastow, Retrieved from: https://en.wikipedia.org/wiki/Andrew_
Fastow, accessed on; 10 June 2016
9
J. Clifford Baxter, retrieved from: https://en.wikipedia.org/wiki
J._Clifford_Baxter, accessed on : 8 June 2016
10
Some of the biggest accounting scandals, The author is an FCA, ACS,
AICWA, LL.B. M.B.A. Dip IFRS (UK), Dip LL&LW, Retrieved
from:http://flame.org.in/KnowledgeCenter/Someofthebiggestaccountingscanda
ls.aspx, accessed on: 5 may 2016.
job was to check that the company’s accounts were a fair
reflection of what was really going on. As such, Andersen
should have been the first line of defense in the case of
deception or any fraud. Arguments about conflict of interest
had been thrown at Andersen since they acted as both
consultants and auditors to Enron. Andersen earned too much
fees of audit and consultants work from Enron Company.
Scandal broke; the US government began to investigate the
company’s affairs, Andersen’s Chief Auditor for Enron, David
Duncan, ordered the thousands of documents that might prove
compromising. That was after the Securities and Exchange
Commission had ordered an investigation into agents Enron.
Duncan said he was acting on an e-mail from a lawyer at
Andersen his name was Nancy Temple, but Temple denied
giving such advice. While Andersen fired Duncan, its Chief
Executive Officer, Joseph Berardino, insisted that the firm did
not act improperly and could not have detected the fraud.
Berardino conceded that an error of judgment was made in
shredding documents, but he still protested Andersen’s
innocence.11
Enron Trials
Fastow and Lea (his wife), both pleaded guilty to charges
against them. Fastow was initially charged with 98 counts of
fraud, money laundering, insider trading and conspiracy
among other crimes.12
Fastow pleaded guilty to two charges of
conspiracy and was sentenced to ten years with no parole in
a plea bargain to testify against Lay, Skilling, and Causey.13
Lea was indicted on six felony counts, but prosecutors later
dismissed them in favor of a single misdemeanor tax charge.
Lea was sentenced to one year for helping her husband hide
income from the government.14
Lay and Skilling went on trial
for their part in the Enron scandal in January 2006. The 53
count, 65-page indictment covers a broad range of financial
crimes, including bank fraud, making false statements to banks
and auditors, securities fraud, wire fraud, money laundering,
conspiracy, and insider trading. United States District Judge
Sim Lake had previously denied motions by the defendants to
have separate trials and to relocate the case out of Houston,
where the defendants argued the negative publicity concerning
Enron's demise would make it impossible to get a fair trial. On
May 25, 2006, the jury in the Lay and Skilling trial returned its
verdicts. Skilling was convicted of 19 of 28 counts of
securities fraud and wire fraud and acquitted on the remaining
nine, including charges of insider trading. He was sentenced to
24 years and 4 months in prison.15
The United States
Department of Justice in 2013 reached a deal with Skilling,
which resulted in ten years being cut from his sentence.16
Lay
11
The collapse at Enron, Retrieved from: Essay UK -
http://www.essay.uk.com/essays/finance/the-collapse-at-enron/, accessed on:
10 June 2016.
12
DeVogue, Ariane; Peter Dizikes; Linda Douglass (18 February 2002)."Enron
Fires Arthur Andersen", ABC News. Archived fromthe original, accessed on 5
May 2016
13
Said, Carolyn (9 July 2004)."Ex-Enron chief Ken Lay Enters Not Guilty
Plea".San Francisco Chronicle. Archived fromthe original,accessed on: 5 May
2016.
14
Hays, Kristen (5 May 2016)."Fastow's Wife Pleads Guilty in Enron Case".
USA Today. Archived fromthe originalon; 2010-10-17. accessed on: 5 May
2016.
15
Johnson, Carrie (2006-10-24)."Skilling Gets 24 Years for Fraud at Enron
".Washington Post. Archived fromthe originalaccessed on: 5 May 2016.
16
Ex-Enron Chief's Sentence is Cut by 10 Years to 14". ‘The New York
37453 International Journal of Current Research, Vol. 08, Issue, 08, pp.37451-37460, August, 2016
4. pleaded not guilty to the eleven criminal charges, and claimed
that he was misled by those around him. He attributed the main
cause for the company's demise to Fastow.17
Lay was
convicted of all six counts of securities and wire fraud for
which he had been tried, and he was subject to a maximum
total sentence of 45 years in prison.18
However, before
sentencing was scheduled, Lay died on July 5, 2006. At the
time of his death, the SEC had been seeking more than 90
million Dollar from Lay in addition to civil fines. The case of
Lay's wife, Linda, is a difficult one. She sold roughly 500,000
shares of Enron ten minutes to thirty minutes before the
information that Enron was collapsing went public on
November 28, 2001.19
Linda was never charged with any of
the events related to Enron.20
Although Michael Kopper
worked at Enron for more than seven years, Lay did not know
of Kopper even after the company's bankruptcy. Kopper was
able to keep his name anonymous in the entire affair.21
Kopper
was the first Enron executive to plead guilty. Chief Accounting
Officer Rick Causey was indicted with six felony charges for
disguising Enron's financial condition during his tenure.
After pleading not guilty, he later switched to guilty and was
sentenced to seven years in prison.22
All told, sixteen people
pleaded guilty for crimes committed at the company, and five
others, including four former Merrill Lynch employees, were
found guilty. Eight former Enron executives testified the main
witness being Fastow against Lay and Skilling, his former
bosses.23
Another was Kenneth Rice, the former chief of Enron
Corp.'s high-speed Internet unit, who cooperated and whose
testimony helped convict Skilling and Lay. In June 2007, he
received a 27-month sentence.24
Michael W. Krautz, a former
Enron accountant, was among the accused who was acquitted
of charges related to the scandal. Represented by Barry
Pollack, Krautz was acquitted of federal criminal fraud charges
after a month-long jury trial.25
Arthur Andersen was charged
with and found guilty of obstruction of justice for shredding
the thousands of documents and deleting e-mails and company
files that tied the firm to its audit of Enron.26
Although only a
small number of Arthur Andersen's employees were involved
with the scandal, the firm was effectively put out of business;
Times’, accessed on 5 May 2016.
17
Leung, Rebecca (2005-03-14). "Enron's Ken Lay: I Was Fooled". 60
Minutes (CBS News). Archived fromthe originalon 2010-10-17. Accessed on :
5 May 2016.
18
Hays, Kristen (2006-05-26)."Lay, Skilling Convicted in Enron Collapse".The
Washington Post. Archived fromthe original on 2010-10-17, accessed on: 5
May 2016.
19
Eichenwald, Kurt (2004-11-17)."Enron Inquiry Turns to Sales By Lay's
Wife".The New York Times. Archived from the original, accessed on: 5 May
2016
20
Johnson, Carrie (2006-06-10)."A Woman Of Conviction".The Washington
Post. Archived fromthe originalon 05/05/2016, accessed on: 5 May 2016
21
McLean, Bethany; Peter Elkind.The Smartest Guys in the Room.
p.153.ISBN1-59184-008-2
22
McCoy, Kevin (2005-12-28)."Former Enron executive pleads guilty".USA
Today. Archived fromthe original, accessed on: 5 May 2016.
23
Pasha, Shaheen; Jessica Seid (2006-05-25). ”Lay and Skilling's Day of
Reckoning".CNNMoney.com. Archived fromthe original, accessed on: 5 May
2016.
24
Porretto, John (2007-06-18)."Ex-Enron broadband head sentenced". USA
Today. Archived from the original, accessed on: 5 May 2016
25
Murphy, Kate. "One Guilty and One Acquitted in Enron Broadband Trial".
The New York Times.
26
Thomas, Cathy Booth (2002-06-18)."Called to Account".Time. Archived
fromthe original, accessed on: 5 May 2016.
the Securities And Exchange Commission is not allowed to
accept audits from convicted felons. The company surrendered
its Certified Public Accountant license on August 31, 2002,
and 85,000 employees lost their jobs.2728
The conviction was
later overturned by the U.S. Supreme Court due to the jury not
being properly instructed on the charge against Andersen.29
The Supreme Court theoretically left Andersen free to resume
operations. However, the damage to the Andersen name has
been so great that it has not returned as a viable business even
on a limited scale. Gary Mulgrew, David Bermingham, and
Giles Darby worked for Greenwich NatWest. The three British
men had worked on a special purpose entity called Swap Sub.
When Fastow was being investigated by the Securities and
Exchange Commission, in November 2001 the three men met
with the British Financial Services Authority to discuss their
interactions with Fastow.30
In June 2002, the U.S. issued warrants for their arrest on seven
counts of wire fraud, and they were then extradited. On July
12, a potential Enron witness scheduled to be extradited to the
U.S., Neil Coulbeck, was found dead in a park in north-east
London.31
Coulbeck's death was eventually ruled to have been
a suicide. The U.S. case alleged that Coulbeck and others
conspired with Fastow. In a plea bargain in November 2007,
the trio pleads guilty to one count of wire fraud while the other
six counts were dismissed. Darby, Bermingham, and Mulgrew
were each sentenced to 37 months in prison.32
In August 2010,
Bermingham and Mulgrew retracted their confessions.
Employees and Pension Fund Holders as a Victim
Collapse of Enron has left thousands of people out of work.
Thousands of people lost their personal investments and
pensions and it has left many employees out of their work such
as money employees had personal pension funds made up of
Enron shares, a common situation in America, where
occupational schemes based on final salary payments are
increasingly rare and money purchase schemes, known as
401K plans, are the norm. Employees at Enron were
encouraged to do so by the company, which also forbade them
from selling their stocks, when the company share price came
down. In contrast, many Enron executives were able to cash in
their share options when the company’s fate became clear.33
27
Rosenwald, Michael S. (2007-11-10)."Extreme (Executive) Makeover".The
Washington Post. Archived fromthe original, accessed on: 5 May 2016
28
Alexander, Delroy; Greg Burns; Robert Manor; Flynn McRoberts; and E.A.
Torriero (2002-11-01)."The Fall of Andersen".Hartford Courant. Archived
fromthe original, accessed on: 5 May 2016
29
"Supreme Court Overturns Arthur Andersen Conviction". Fox
News.Associated Press. 2005-05-31. Archived fromthe original, accessed on:
5 May 2016.
30
Hays, Kristen (2007-11-27)."Source: British bankers to plead guilty in Enron
case ".Houston Chronicle. Archived fromthe original, accessed on: 5 May
2016.
31
"Enron Witness Found Dead in Park". BBC News. 2006-07-12. Archived
from the original, accessed on: 5 May 2016.
32
Murphy, Kate (2008-02-22)."'NatWest 3' sentenced to 37 months each".The
New York Times. Archived fromthe original, accessed on: 5 May 2016.
33
B.B.C News, Enron: who’s who, employee and pension holders, retrieved
from:
http://news.bbc.co.uk/hi/english/static/in_depth/business/2002/enron/9.stm,
accessed on:13 June2016
37454 Seied Beniamin Hosseini and Dr. Mahesh, The lesson from Enron case - moral and managerial responsibilities
5. The Causes of Enron’s bankruptcy
Truthfulness
The truthfulness was missed by management of Enron about
the health of the company, according to Kirk Hanson, the
executive director of the Markkula Center for Applied Ethics.
He believed Enron had to be the best at everything it did and
that they had to protect their reputations and their
compensation as the most successful executives in the U.S.A.
There is no evidence that when Enron’s CEO told the
employees that the stock would probably rise and he was
selling stock. Moreover, the employees would not have learned
of the stock sale within days or weeks, as is ordinarily the case.
Only the investigation surrounding Enron’s bankruptcy
enabled shareholders to learn of the CEO stock sell-off before
14 February 2002 which is when the sell-off would otherwise
have been disclosed. The stock was sold to the company to
repay that the CEO’s owed money and the sale of company
stock qualifies as an exception under the ordinary director and
officer disclosure requirement. It does not have to be reported
until 45 days after the end of the company’s fiscal year.34
Interest
It has been suggested that a lack of independent oversight of
management conflicts and interest by Enron's board
contributed to the firm's collapse. In addition some have
suggested that Enron's compensation policies engendered a
myopic focus on earnings growth and stock price. Moreover,
recent regulatory changes have focused on enhancing the
accounting for SPEs and strengthening internal accounting and
control systems. We review these issues, beginning with
Enron's board.35
The conflict of interest between the two roles
played by Arthur Andersen While investigations continue,
Enron has sought to salvage its business by spinning off
various assets. It has filed for bankruptcy under Chapter 11,
allowing it to reorganize while protected from creditors.
Former chief executive and Chairman Kenneth Lay have
resigned, and restructuring expert Stephen Cooper has been
brought in as interim chief executive. The energy trading arm
has been tied up in a complex deal with UBS Warburg as
Enron's core business. The bank has share some of the profits
with Enron buthas not paid for the trading unit.
Enron and the reputation of Arthur Andersen
In the third quarter of 2001 the revelation of accounting
irregularities at Enron caused regulators and the media to focus
extensive attention on Andersen. The magnitude of the alleged
accounting errors, combined with Andersen's role as the
widespread media attention and Enron's auditor provide a
seemingly powerful setting to explore the impact of auditor
reputation on client market prices around an audit failure. CP
investigates the share price reaction of Andersen's clients to
various information events that could lead investors to revise
34
The Conference Board, Inc., 845 Third Avenue, New York, NY 10022-
6679. Retrieved from: www.conference-board.org., accessed on : 5May 2016
35
Gillan SL, Martin JD, (2007), corporate governance post-Enron: effective
reforms, or closing the stable door?, journal of corporate finance.
their beliefs regarding Andersen's reputation.36
Most damaging
to Andersen's reputation Perhaps was their admission on 10
January 2002 that employees of the firm had destroyed
documents and correspondence related to the Enron
engagement. Office clients of Andersen's Houston, where
Enron was headquartered, experienced a negative market
reaction than Andersen's non-Houston clients.37
Overall, CP
concludes the shredding announcement had a significant
impact on the perceived quality of Andersen's audits, and that
the resulting loss of reputation had a negative effect on the
market values of the firm's other clients.
An important factor: accounting fraud (using “mark to
market” and SPE as tools)
In addition there are new findings that shed light on an auditor
reputation effect which is important to auditors and their
clients. In this regard, there is an important factor namely
“accounting fraud” which using “marks to market” and SPE as
tools which will be discussed below;
Mark to Market
As a public company, Enron was subject to external sources of
governance including market pressures, oversight by
government regulators, and oversight by private entities
including auditors, equity analysts, and credit rating agencies.
In this section we recap the key external governance
mechanisms, with emphasis on the role of external auditors.
This method requires that once a long-term contract was
signed, the amount of which the asset theoretically will sell on
the future market is reported on the current financial statement.
In order to keep appeasing the investors to create a consistent
profiting situation in the company, Enron traders were
pressured to forecast high future cash flows and low discount
rate on the long-term contract with Enron. The difference
between the calculated net present value and the originally
paid value was regarded as the profit of Enron. In fact, the net
present value reported by Enron might not happen during the
future years of the long-term contract. There is no doubt that
the projection of the long-term income is overly optimistic and
inflated.
SPE (Special Purpose Entity)
Accounting rule allow a company to exclude a SPE from its
own financial statements if an independent party has control of
the SPE, and if this independent party owns at least 3 percent
of the SPE. Enron need to find a way to hide the debt since
high debt levels would lower the investment grade and trigger
banks to recall money. Using the Enron’s stock as collateral,
the SPE, which was headed by the CFO, Fastow, borrowed
large sums of money. And this money was used to balance
Enron’s overvalued contracts. Thus, the SPE enable the Enron
to convert loans and assets burdened with debt obligations into
income. In addition, the taking over by the SPE made Enron
36
Nelson KK, Price RA, & Rountree BR. (2008). “The market reaction to
Arthur Andersen's role in the Enron scandal: Loss of reputation or
confounding effects?”. (Journal of Accounting & Economics, 46(2): 279-293-
December 2008)
37
Barreveld, D. J, “The Enron collapse: Creative accounting, wrong
economics or criminal acts?”,( San Jose, CA: Writers Club Press- 2002).
37455 International Journal of Current Research, Vol. 08, Issue, 08, pp.37451-37460, August, 2016
6. transferred more stock to SPE. However, the debt and assets
purchased by the SPE, which was actually burdened with large
amount of debts, were not reported on Enron’s financial report.
The shareholders were then misled that debt was not increasing
and the revenue was even increasing.
Abuse of Power
Both Lay and Skilling could wield power ruthlessly. The
position of vice-chair was known as the “ejector seat” because
so many occupants were removed from the position when they
took issue with Lay or appeared to be a threat to his power.
Skilling, for his part, eliminated corporate rivals and
intimidated subordinates. Abdication of power was also a
problem at Enron. At times, managers did not appear to
understand what employees were doing or how the business
which was literally creating new markets operated. Board
members also failed to exercise proper oversight and rarely
challenged management decisions. Many were selected by
CEO Kenneth Lay and did business with the firm or
represented non-profits that received large contributions from
Enron.38
Excess Privilege
Excess typified top management at Enron. Lay, who began life
modestly as the son of a Baptist preacher turned chicken
salesman, once told a friend, “I don’t want to be rich, I want to
be world-class rich”.39
At another point he joked that he had
given wife Linda a $2 million decorating budget for a new
home in Houston which she promptly exceeded40
. The couple
borrowed $75 million from the firm that they repaid in stock.
Linda Lay fanned the flames of resentment among employees
when she broke into tears on the Today Show to claim that the
family was broke. This was despite the fact that the Lays
owned over 20 properties worth over $30 million.41
During
Enron’s heyday, some of the perks filtered down to followers
as well. Workers enjoyed such benefits as lavish Christmas
parties, aerobic classes, free taxi rides, refreshments, and the
services of a concierge.
Deceit
Enron officials manipulated information to protect their
interests and to deceive the public, although the extent of their
deception is still to be determined. Both executives and board
members claim that they were unaware of the extent of the
company’s off-the-books partnerships created and operated by
Fastow and Kopper. However, both Skilling and Lay were
warned that the company’s accounting tactics were suspect.42
The Senate Permanent Subcommittee on Investigations, which
investigated the company’s downfall, concluded, “Much that
38
Associated Press (2002, July7). Report: Enron board aided collapse.
Retrieved from; http://www.nbcnews.com/id/3951358/ns/business-corporate_
scandals/t/former-enron-exec-fastowpleads-guilty-agrees-testify/, accessed 13
June 2016.
39
Cruver, B. Anatomy of greed: The unshredded truth from an Enron insider.
(New York: Carroll & Graf- 2002) , p. 23
40
Gruley, B., & Smith, R, Kenneth Laydisaster? (Wall Street Journal, 2002,
April 26) , pp. A1, A5
41
Eisenberg, D. (2002, February 21). Ignorant & Poor? Time, pp. 37-39
42
Duffy, M. (2002, January 28). What did they know and when did they now
it? Time, pp. 16-22.
was wrong with Enron was known to the board”43
Board
members specifically waived the conflict of interest clause in
the company’s code of ethics that would have prevented the
formation of the most troublesome special partnerships
Employees were quick to follow the lead of top company
officials. They hid expenses, claimed nonexistent profits, and
deceived energy regulators and so on.
Inconsistent Treatment of Internal and External
Constituencies
Enron’s relationships with both employees and outsiders were
marked by gross inconsistencies. Average workers were forced
to vest their retirement plans in Enron stock and then, during
the crucial period when the stock was in free fall, were blocked
from selling their shares. Top executives, on the other hand,
were able to unload their shares as they wished. Five-hundred
officials received “retention bonuses” totaling $55 million at
the same time laid off workers received only a fraction of the
severance pay they had been promised. Enron treated its
friends royally. In particular, the company used political
donations to gain preferential treatment from government
agencies. Kenneth Lay was the top contributor to the Bush
campaign and officials made significant donations to both
Democratic and Republican members of the House and Senate.
In return, the company was able to nominate friendly
candidates for the Security Exchange Commission (SEC) and
the Federal Energy Regulatory Commission (FERC). Federal
officials intervened with foreign governments to promote
Enron projects, and company representatives played a major
role in setting federal energy policy that favored deregulation
of additional energy markets. Anyone perceived as unfriendly
to Enron’s interests could expect retribution, however. In one
instance, Lay withdrew an underwriting deal to pressure
Merrill Lynch into firing an analyst who had downgraded
Enron stock. Skilling called one analyst an “asshole” when he
questioned the company’s performance during a conference
call.
Misplaced and Broken Loyalties
Enron officials put their loyalty to themselves above those of
everyone else with a stake in the company’s fate stock holders,
business partners, rate payers, local communities, foreign
governments, and so on. They also betrayed the trust of those
who worked for them. Employees apparently believed in the
company and in Lay’s optimistic pronouncements. In August
2001, for example, he declared “I have never felt better about
the prospects for the company”44
. In late September, just
weeks before the company collapsed, he encouraged
employees to “talk up the stock” because “the company is
fundamentally sound”45
. These exhortations came even as he
was unloading his own shares. The sense of betrayal
experienced by Enron employees only added to the pain of
losing their jobs and retirement savings.
43
Associated Press (2002, July 7). Report: Enron board aided collapse.
Retrieved from http://www.msnbc.com/news/777112.asp, accessed on : 5 May
2016
44
Cruver, B. (2002). Anatomy of greed: The unshredded truth from an Enron
insider. New York: Carroll & Graf. (Cruver, 2003), p. 91
45
Fox, L.”Enron: The rise and fall. New York: John Wiley & Sons”, (Fox,
2003), p. 252
37456 Seied Beniamin Hosseini and Dr. Mahesh, The lesson from Enron case - moral and managerial responsibilities
7. Irresponsible Behaviour
Enron officials acted irresponsibly by failing to take needed
action, failing to exercise proper oversight, and failing to
shoulder responsibility for the ethical miscues of their
organization. CEO Lay down played warnings of financial
improprieties and some board members did not understand the
numbers or the company’s operations. Too often company
managers left employees to their own devices, encouraging
them to make their numbers by any means possible. After the
collapse, no one stepped forward to accept blame for what
happened.
Lay and Fastow claimed Fifth Amendment privileges against
self-incrimination when called before congressional
committees; Skilling testified but claimed he had no
knowledge of illegal activity. The unethical behavior of
Enron’s leaders appears to be the product of both individual
and situational factors. Greed was the primary motivator of
both managers and their subordinates at Enron. Optimistic
earnings reports, hidden losses and other tactics were all
designed to keep the stock price artificially high. Lofty stock
values justified generous salaries and perks, deflected
unwanted scrutiny, and allowed insiders to profit from their
stock options. Greed was not limited to top Enron executives,
however. Meeting earnings targets triggered large bonuses for
managers throughout the firm, bonuses that were sometimes
larger than employees’ salaries. Rising stock prices and
extravagant rewards made it easier for followers as well as
leaders to overlook shortcomings in the company’s ethics and
business model.
Hubris was also a major character flaw at the Crooked E, a fact
reflected in the company banner that declared: FROM THE
WORLD’S LEADING ENERGY COMPANY: TO THE
WORLD’S LEADING COMPANY.46
Skilling, who lacked the
social and communication skills of Ken Lay, best exemplifies
the haughty spirit of many Enron officials. At the height of the
California energy crisis he joked that the only difference
between the Titanic and the state of California was that “when
the Titanic went down, the lights were on”.47
Even the so-
called “heroes” of the Enron debacle failed to demonstrate
enough virtue to delay or to prevent the company’s collapse.
Former company treasurer Clifford Baxter complained about
Fastow’s financial wheeling and dealing, but then retired
without going public with his complaints. Vice-president of
corporate development Sherry Watkins outlined her concerns
about the firm’s questionable financial practices in a letter and
in a meeting with Lay. Later she discussed the same issues
with an audit partner at Anderson. While these are
commendable acts, in her letter she recommended quiet clean
up of the problems rather than public disclosure. She stopped
short of talking to the press, the SECURITIES AND
EXCHANGE COMMISSION and other outside agencies
when her attempts at internal reform failed.48
The destructive
46
Cruver, B. “Anatomy of greed: The unshredded truth from an Enron
insider.” , (New York: Carroll & Graf (Cruver, 2002), p. 3
47
Fusaro, P. C., & Miller, R. M. (2002). What went wrong at Enron. Hoboken,
NJ: John Wiley & Sons. (Fusaro & Miller, 2002),. p. 122
48
Zellner, W.(2002, January 28). A hero and a smoking-gun letter. Business
Week Online. Retrieved from http://www.businessweek.com/
magazine/content/02_04/b3767702.html. , accessed on : 10 June 2016.
power of individual greed and pride was magnified by Enron’s
corporate culture that encouraged creativity and risk taking.
Employees invented a host of new commodity products which
earned Enron top ranking six straight years on Fortune
magazine’s list of most innovative companies49
.
Ken Lay was fond of telling the story of how Enron employees
in London started its on-line trading business which later
carried a quarter of the world’s energy trades, without the
blessing or knowledge of corporate headquarters in Houston.50
The cost of freedom, however, was pressure to produce that
created a climate of fear. Enron’s atmosphere was similar to
that of an elite law firm where talented young associates
scramble to make partner.51
Adding to the stress was the
organization’s “rank and yank” evaluation system. Every six
months 15 percent of all employees were ranked in the lowest
category and then had a few weeks to find another position in
the company or be let go.52
Workers in the next two higher
categories were put on notice that they were in danger of
falling into the lowest quadrant during the subsequent review.
This system encouraged cutthroat competition and silenced
dissent. Followers were afraid to question unethical and or
illegal practices for fear of losing their jobs. Instead, they were
rewarded for their unthinking loyalty to their managers who
ranked their performance and the company as a whole. Lack of
controls, combined with an intense, competitive, results-driven
culture made it easier to ignore the company’s code of ethics
which specifically prohibited conflicts of interest like those
found in the SPEs and to seek results at any cost.53
Anderson
auditors signed off on its questionable financial transactions
for fear of losing lucrative auditing and consulting contracts
with Enron.
Enron was also a victim of larger social and cultural factors.
Publicly traded firms in the United States are judged by their
quarterly earnings reports. Obsession with short-term results
encourages executives to do whatever they can to meet these
expectations. Enron’s explosive growth took place during the
economic boom of the 90s. All the major stock indices soared
and billions were wasted on Internet start-ups that never had a
realistic chance to make a profit. During this period the Cult of
the CEO emerged. Business leaders achieved rock star status,
gracing the covers of national magazines and best selling
biographies.54
In this heady climate, government regulators
and investors felt little need to study the operations or finances
of apparently successful companies led by business superstars.
The recent spate of corporate scandals and the accompanying
market crash may be the penalty that society must pay for the
excesses and inattention of the last decade.
49
Fusaro, P. C., & Miller, R. M. (2002). What went wrong at Enron. Hoboken,
NJ: John Wiley & Sons. (Fusaro & Miller, 2002)
50
Stewart, T. A. (2001, December 5). Two lessons from the Enron Debacle.
Business 2.0. Retrieved August 2, 2002, from http://www.business2
.com/articles/web/0, 1653,35995, 00. html. (Stewart, 2001)
51
Fusaro, P. C., & Miller, R. M. (2002). What went wrong at Enron. Hoboken,
NJ: John Wiley & Sons. (Fusaro & Miller, 2002)(Fusaro & Miller, 2002).
52
Cruver, B. (2002). Anatomy of greed: The unshredded truth from an Enron
insider. (New York: Carroll & Graf- 2002).
53
Hill, A., Chaffin, J., & Fidler, S. (2002, February 3). Enron: Virtual
company, virtual profits. The Financial Times. Retrieved from http://specials.
ft.com/enron/FT3648VA9XC.html. (Hill, Chaffin, & Fidler, 2002).
54
Elliott, A. L, & Schroth, R. J.How companies lie: Why Enron is just the tip
of the iceberg. (New York: Crown Business- 2002). p. 125
37457 International Journal of Current Research, Vol. 08, Issue, 08, pp.37451-37460, August, 2016
8. The collapse of ENRON and Moral Responsibility
From Individuals’ Angle
As corporate acts originate in the choices and actions of human
individuals, these individuals who must be seen as the primary
bearers of moral duties and moral responsibility. The then
chairman of the board, Kenneth Lay, and CEO, Jeffrey
Skilling, to allowed the then CFO, Andrew Fastow, to build
private cooperate institution secretly and then transferred the
property illegally. The CFO, Andrew Fastow, violated his
professional ethics and took the crime of malfeasance. When
the superior, the chairman of the board of Kenneth Lay and
CEO Jeffrey Skilling, ordered conspiratorial employees to
carry out an act that both of them knowing is wrong, these
employees are also morally responsible for the act. The courts
will determine the facts but regardless of the legal outcome,
Enron senior management gets a failing grade on truth and
disclosure. The purpose of ethics is to enable recognition of
how a particular situation will be perceived. At a certain level,
it hardly matters what the courts decide. Enron is bankrupt
which is what happened to the company and its officers before
a single day in court. But no company engaging in similar
practices can derive encouragement for any suits that might be
terminated in Enron’s favor. The damage to company
reputation through a negative perception of corporate ethics
has already been done. Arthur Andersen violated its industry
specifications as a famous certified public accountant.
From Corporation’s Angle
The acts of a corporation's managers are attributed to the
corporation so long as the managers act within their authority.
However, the shareholders of Enron didn't know and realize
this matter from the superficial high stock price. Therefore, the
whole corporation was not of responsibility for this scandal.
Actually, if the board and other shareholders paid more
attention to those decisions made by the chief, CEO, CFO and
those relevant staffs, ENRON can avoid this result.
Conclusion
In summary, top officials at Enron abused their power and
privileges. They manipulated information while engaging in
inconsistent treatment of internal and external constituencies.
These leaders put their own interests above those of their
employees and the public, and failed to exercise proper
oversight or shoulder responsibility for ethical failings.
Therefore, there is need the directors to follow particular
examples in following matters:
First, there should be a healthy corporate culture in a company.
In Enron’s case, its corporate culture played an important role
of its collapse. The senior executives believed Enron had to be
the best at everything it did and the shareholders of the board,
who were not involved in this scandal, were over optimistic
about Enron’s operating conditions. When there existed
failures and losses in their company performance, what they
did was covering up their losses in order to protect their
reputations instead of trying to do something to make it
correct. Therefore, the “to-good-to-be-true” should be paid
more attention by directors of board in a company.
Secondly, a more complete system is needed for owners of a
company to supervise the executives and operators and then
get the idea of the company’s operating situation. There is no
doubt that more governance from the board may keep Enron
from falling to bankruptcy. The boards of directors should pay
closer attention on the behavior of management and the way of
making money. In addition, Enron’s fall also had strikingly
bad influence on the whole U.S. economy. Maybe the
government also should make better regulations or rules in the
economy.
Thirdly, “Mark to market” is a plan that Jeffrey Skilling and
Andrew Fastow proposed to pump the stock price, cover the
loss and attract more investment. But it is impossible to gain in
a long-term operation in this way, and so it is clearly immoral
and illegal. However, it was reported that the then US Security
and Exchange Commission allowed them to use “mark to
market” accounting method. The ignorance of the drawbacks
of this accounting method by Securities and Exchange
Commission also caused the final scandal. Thus, an accounting
system which can disclose more financial information should
be created as soon as possible. And fourthly, maybe business
ethics is the most thesis point people doing business should
focus on. As a loyal agent of the employer, the manager has a
duty to serve the employer in whatever ways will advance the
employer's self-interest. In this case, they violated the principle
to be loyal to the agency of their Enron. Especially for
accountants, keeping a financial statement disclosed with true
profits and losses information is the basic responsibility that
they should follow
It is worth mentioning that the Enron Corp case was the
biggest in a series of scandals that damaged the reputations of
corporations as a direct result, the Congress passed a law,
called the Sarbanes auditors and made corporate executives
criminally liable for lying about their accounts. The Enron
scandal moved the balance of power away from the company
boards towards the investors. After the scandal there is more
caution among corporate executives about spinning off
accounts that might be inaccurate, as now they face criminal
liability. However, the temptation to boost stock prices has of
booming markets mostly when the rewards for executives are
high. Finally it can be proved that the bankruptcy of the Enron
was because of managerial scandal for the self benefit than
shareholder’s benefit of this company. Therefore through law
which has passed by Congress after this case, the rights of
investors and employees will be guaranteed more.
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37460 Seied Beniamin Hosseini and Dr. Mahesh, The lesson from Enron case - moral and managerial responsibilities