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The Enron bankruptcy of 2001

Topic: The Enron bankruptcy of 2001

Areas to be addressed in your paper:
-What are the lessons for investors?
- Enron has demonstrated how easy it is to cook a firm's books. Can the manipulation of financial statements be avoided? Is ethical conduct consistent with good business sense?
- Is corporate greed (deceit) consistent with profit maximization and/or the enlightened self interest of management and employees?
- What are the lessons from Enron for the auditing profession - is there a need for radical audit reform?
- What is the impact of the Enron collapse on energy deregulation in the U.S.?
- What is the impact of the new set of corporate-governance rules (approved by the SEC under the 2002 Sarbanes-Oxley act) on "boardroom excesses"?
- What were the roles of the CEO/CFO in the Enron crisis?
- Is there something in common between the Enron & WorldCom scandals?

Solution Preview

The response address the queries posted in 2115 words with references.

// The most disastrous, devastating and largest bankruptcy case in the history of US was Enron Corporation in 2001, which is the seventh largest Corporation in the United States. We will discuss about corporate greed, need for radical audit reforms and impact of the new set of corporate-governance rules, the CEO/CFO in the Enron crisis, the ambiguities of the Company and its Top Management, the effect of the fraud on the employees, investors and the shareholders. //

The Enron bankruptcy of 2001

Lessons for Investors

The Enron scandal in the United States exhibits the need for the change in the book-keeping practices and the corporate governance. It also requires having a change in the ethical behavior of the employees of the corporation. The fraud and the conspiracy affected the employees as well as the investors and the stakeholders (Aiyar, 2001).

It was tough for the investors who were saving the money for retirement. The financial information should be clear and truly understandable. The investors should be clear of the myriad rules and regulations and the strategy. The investors learnt that they should maintain higher codes of conduct. There should be set accounting standards, and if the company fails to meet them, proper punishment should be given (Weinstein, 2002).

// Avoidance of manipulations on part of the Company would have helped it fight with the situation of crisis. Value-based, globally-consistent codes for ethical understanding and appropriate decision-making at all levels, needs to be developed. //

Manipulation of Financial Statements

The Enron Corporation could have avoided the manipulation of financial statements. The company should have showed the right income and profit statements to the investors. This could have helped Enron in coming out of the situation of crisis. Kenneth Lay, CEO of Enron should have projected wrong book-keeping practices.

Corruption in the industry is a major by-product of the degradation of values and ethics. It is also related to the inability of industry to stand up in the discretionary powers of a regulatory system designed and administered by an unholy alliance of bureaucrats and politicians. The importance of strategy is that they are the custodians of immense economic power vested in business organizations of a society. Business ethics have traditionally been considered to integrate core values such as respect and fairness into strategic management, policy-making, decision-making etc. Companies are formulating value-based, globally-consistent codes for ethical understanding and appropriate decision-making at all levels even as they face immense external challenges.

Corporate greed Consistent with Profit Maximization

// Personal interest gives rise to greed. Globally consistent codes for ethical decision making face, 'immense external challenges'. //

Corporate greed is not consistent with profit maximization Greed increases due to personal interest of management. There are several companies which are generating high profits and revenue; in spite of this they follow professional ethics and social responsibility. It is the management & employees who want to increase their profits quickly and they decide to adopt wrong methods.

There are many examples of top companies of the world as Microsoft, Wal-Mart and Toyota which are operating in different sectors but are complying with the rules and regulations. These companies have shown ethical financial reporting and publicly report all the key information ...

Solution Summary

The response address the queries posted in 2115 words with references.