How the Enron Scandal Could Be Avoided

September 30, 2017 | Author: Warda Khawar | Category: Enron, Corporate Law, Corporations, Accounting, Shareholders
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How the Enron Scandal could be Avoided?




Warda Khawar




Sir Uzair Farooq


1st March, 2012

COMSATS Institute of Information and Technology , Lahore

How the Enron Scandal Could be Avoided? First of all the strong culture could have helped avoid the scandal. This kind of mishap would never have happened in a culture with honesty, integrity, and ethics as its major building blocks. Ethical management on the part of Kenneth could have prevented the scandal. Managers and CEO are the catalysts in the implementation of the ethics. If Kenneth Lay had developed a strong organizational culture based on ethics and would have induced ethical values in each and every employee of the company then this dilemma could be avoided. There should have been better ethical oversight and stronger management from the C.E.O. Next, I believe that Skilling should have informed Kenneth Lay about the actual situation of the company. Kenneth Lay depended on Skilling to manage details of the company's partnerships, but Skilling used to inflate profits and improperly hide debts. If the effective corporate code of conduct were in place and were properly enforced, Enron could have saved itself from this humiliation. There should have been a mechanism in place to keep an eye on the activities of the accounting firms like Arthur Andersen which approved Enron's fraudulent partnerships because of playing the dual role of the 'Auditor' and 'Consultant' to Enron. These two kinds of businesses should not have been allowed to a same accounting firm as the conflicting interests induce them to indulge in such kind of acts. If not, then there should have been a penalty or fine on such financial institutions where the corporate clients and investors were exploited. Proper disclosures, accountability and transparency could have prevented the problem. Enron should have been fair and honest to its partners and shareholders alike. If the partnerships were taken away or removed from the financial statements, the shareholders could have been informed in the notes accompanying the financial statements or by making some memorandum entries of the partnerships. In addition the Enron should have told their partners about the exact figures of the earnings and profits instead of the inflated ones. Plus there should have been a mechanism or some regulations to make Market regulators aware of the sophisticated accounting practices that firm could use to hide losses from investors and report unrealized profits. And unethical accounting tricks that could keep the debt and such practices unreported. Another important thing linked to Enron's scandal is the Alignment of the employees' goals with that of the organizations goals. This case is one of the biggest examples; how the Enron's employees valued and preferred their self interest to that of the interest of the stockholders and the stakeholders.

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