Enron Assignment

Problem Focused Analysis and Recommendations. 1. Brief Case Background. List key events, use timeline. Case Background At one time Enron was one of the world’s largest producers of natural gas, oil, and electricity. It also appeared to be one of the most profitable companies, taking shareholders from $19. 10 in 1999 to $90. 80 by the end of 2000. Enron’s top management answered to a Board of Directors whose responsibility was to question and challenge new partnerships, ventures, and decisions within the company.

On several occasions, Andrew Fastow, the company’s Chief Financial Officer approached the board of directors with new investment partnerships which the board approved with very little questioning. Some of these partnerships created a conflict of interest due to the fact that Fastow was not only managing the partnerships, but he was also an investor in an outside entity that took part in buying and selling assets with Enron. Fastow was able to create and manage several of these partnerships while still maintaining his role as CFO of Enron.

This was due to the rule set in place by the Financial Accounting Standards Board (FASB) which states, “if an outside investor puts in 3 percent or more of the capital in a partnership, the corporation, even if it provides the other 97 percent, does not have to declare the partnership as a subsidiary. Therefore, assets and debt in the partnership can be withheld from the corporation’s balance sheet. ” With this rule and the many partnerships Fastow created, Enron did not have to declare the assets and debts from these partnerships, therefore hiding hundreds of millions of dollars in losses and debt.

The board of directors however did not consider Fastow’s interaction with the partnerships to be a serious problem due to the fact that the financial gain potential to Enron was great. In fact Enron had a 65 page code of ethics that was given to all employees. The code talked about obeying the law, treating customers fairly and honestly, and avoiding conflicts of interest. There was very little in the code about specific ethical principles. It became obvious toward the end of 2001 that the managers of Enron did not believe this code applied to them.

By October of 2001 it became apparent that Enron was headed in the wrong direction. The company reported its first quarterly loss in over four years. The US Securities and Exchange Commission began looking into transactions between Enron and the Fastow partnerships. What they discovered would take Enron from being an American icon to Chapter 11 bankruptcy in a matter of a couple months. It was revealed that Enron had fraudulently stated its financial condition and in fact the company was hiding millions of dollars in debt and losses.

Irregular accounting procedures were discovered which involved not only Enron but also their accounting firm Arthur Andersen. The scandal caused the dissolution of Arthur Andersen, which at the time was one of the world’s top five accounting firms. When the scandal was revealed, Enron shared dropped from over $90 to just pennies. Major credit rating agencies downgraded Enron’s bonds to “junk” status. In addition thousands of employees were laid off by being sent home on the first day of bankruptcy and being informed that they would receive an email as to whether or not they still had a job.

In addition to the layoffs, thousands of employees had their retirement plans invested in Enron stock. One Enron employee had over $700,000 in her retirement plan with Enron and now she has only about $4000. The top managers however had made out financially prior to the Chapter 11 filing. Only days before it filed Chapter 11, over $55 million was paid out in bonuses. In addition, shares were being sold off months prior to the Chapter 11 filing, leaving managers quite comfortable before the fall. The top managers were put on trial for their actions.

Kenneth Lay, former CEO, pled not guilty to eleven criminal charges brought against him. The CEO stated that he had been misled by his staff and others around him. Lay died at the age of 64, in 2006. At the time of his death, the Securities and Exchange Commission was still trying to get $90 million in addition to civil fines. Skilling was indicted for securities and wire fraud and was convicted on 19 of 28 counts. He was sentenced to 24 years, 4 months in a federal prison. In addition he was ordered to pay $26 million out of pocket to restore the Enron pension fund.

The result of Enron’s downfall contributed to the Sarbanes-Oxley Act (SOX) in 2002. This law contains stronger penalties for fraud and requires public companies to avoid making loans to management, report more information to the public, become more independent from their auditors, and to report on and have audited the financial internal control procedures. Now, in public companies, when a manager signs off on a financial document of any kind, they are held responsible for the credibility of that document and its contents.

After Enron, several other companies were investigated for fraudulent financial behavior such as Adelphia Communications, Tyco International, and WorldCom. Enron Timeline 1999 ” Enron’s stock price is $19. 10 2000 ” Enron’s stock price is $90. 80 with revenues of $100. 8 billion (up from $13. 2 billion in 1996) February 2001 ” Jeffrey Skilling becomes president and CEO of Enron. • Debt levels rise to $37. 3 billion, a 91% increase over previous 12 month period. • Share price falls to $68. 50 • EDF Credit Measure climbs to . 35% o *EDF credit measures probability of defaulting within the next 12 months.

A company with a 2% EDF credit measure is 10 times more likely to default than a firm with a . 20% EDF credit measure. March 2001 ” Enron and Blockbuster cancel video-on-demand deal. • Company asset volatility increases to 19. 03% • EDF Credit Measure rises to . 51% May 2001 ” Maharashtra State Electricity Board, Dabhol power plant’s sole customer, stops buying power in a dispute with Enron over pricing. • Market leverage increases to 45. 84% • EDF Credit Measure increases to 1. 14% August 2001 ” Jeffrey Skilling resigns as Enron president and CEO for “personal reasons. • EDF Credit Measure increases to 1. 91%. October 2001 ” Enron agrees to sell Portland General to Northwest Natural Gas Co. for $1. 8 billion. (EDF increases to 2. 05%) • Enron reports its first quarterly loss in over four years after taking charges of $1 billion on poorly performing businesses. • Enron discloses a $1. 2 billion charge against shareholders’ equity relating to dealings with partnerships run by CFO Andrew Fastow. • Enron says US Securities and Exchange Commission is looking into transactions between Enron and the Fastow partnerships. (EDF rises to 4. 7%) • Fastow is replaced as CFO by Jeff McMahon, head of Enron’s industrial markets unit. • Enron announces a $544 million after-tax charge against earnings related to the transactions of some partnerships. November 2001 ” Enron announces it is “revising” its financial statements from 1997 to 2001 to reduce net income by more than $1 billion. **Enron had been reporting income that was not real and billions of dollars in debt were hidden. • JP Morgan and Salomon Smith Barney agree to provide an additional $1 billion in secured credit. Market cap tumbles to $8. 9 billion, a 26% drop in just one week. Enron agrees to a deal in which smaller rival Dynegy Inc. will buy Enron for some $9 billion in stock. As part of the deal Chevron Texaco agrees to inject $1. 5 billion in fresh capital immediately. • Enron discloses that deterioration in its credit ratings could accelerate repayment of a $690 million loan. The company subsequently negotiates an extension of the loan. • Major credit rating agencies downgrade Enron’s bonds to “junk” status. Dynegy terminates its agreement to buy Enron. Enron temporarily suspends all payments, other than those necessary to maintain core operations.

December 2, 2001 ” Enron files for Chapter 11 bankruptcy and hits Dynegy with a $10 billion breach of contract lawsuit. 2002-2005 ” Enron trials continue. 2006 ” Kenneth Lay, former CEO dies at the age of 64. January 22, 2008 ” Supreme Court declines to hear Enron case. 1. List the stake holders, participants, interested & affected parties. Stakeholders: Shareholders, management, employees Participants: Board of directors, upper management (especially Fastow) Interested & affected parties: Enron employees, management, the general public, court system 3.

The Problem(s) (Use separate sub-headings for each item below) A. Is there a problem? Yes/No. – YES B. State the problem(s). ” The problem was the bankruptcy of the company caused by forged financial statements to the public and the Enron employees. The employees did not know the correct financial status of the company therefore never knowing their retirement savings were in jeopardy. C. Whose problem is it? Who suffers what consequences? The bankruptcy of the company is the problem of the managers and Arthur Andersen. These parties were responsible for forging the financial statements.

The employees suffered in the end due to the fact that most of their retirement plans were invested in Enron stock. D. How Serious or important is the problem on a scale of 1 to 10? The seriousness of the problem was rated as a six by the team. The problem affected the employees and management of Enron however did not have the scale of effect that Bhopal had. The employees of Enron have had to pick up and move on, get other jobs, and start over. E. What is your degree of outrage about it on a scale of 1 to 10? The team rated the degree of outrage as a 7.

The managers of Enron were irresponsible and deceptive in their portrayal of the company to the employees and the public. 2. Causes and contributing factors leading to the problem(s), and your search for root cause(s). [pic] 3. Assessment of how management handled the situation, using a +5 to -5 scale on two dimensions Smartness score: -2. In order to get a +5, Enron management should have: • Listened to employee warnings • Set a better example for treatment of business opportunities • Set appropriate incentives for employees Not concentrated on unprecedented continuous fast growth initiatives • Followed the slower-paced comprehensive methods of establishing partnerships Corporate social responsibilities score: -5. In order to get a +5, Enron management should have: • Been more transparent in their reporting • Not forced their employees to keep their 401K in Enron stock • Not taken advantage of stock options like they did • Been honest with the SEC, and not engage in securities fraud 4. Cost/benefit analysis to identify important costs and benefits for relevant groups. All publicly traded businesses |Management |Employees and investors | |Before Enron ” looser regulations,|Costs |Costs | |easier to accomplish short term |Big potential losses |High risk without knowing it | |high growth performance |High risks |Market instability | | |Benefits |More likely to be unethical leadership for employees | | |Energized work environment |Benefits | | |The “charge” of dealing with high risks. |Potential for high short term returns | | |Big wins | | | |Ability to hide short term losses | | | |Creative work ewarded | | |After Enron – more regulated, |Costs |Costs | |cautious investors |Higher cost of doing business due to Sarbanes Oxley |Higher administrative cost of doing business yielding| | |(the burden of complying with regulations) |lower returns for some investments | | |More sensitive market |Easier to get in trouble with the law | | |Less personal bias allowed in management decisions |Harder for smaller businesses to operate | | |Less flexible with creative financing |Benefits | | |Benefits |Lower risk investments are visible | | |Clearer reporting objectives |Growth in accounting field job market | | |More autonomous accounting firms |Information available to understand how a business | | |Incentives more likely aligned with long term |makes its money | | |performance objectives |More stability in the market | 5. Your objectives and Recommendations Solutions. A. Objectives. The overall objective in this case is to improve market stability and investor confidence. In order to do this, steps must be taken to encourage businesses to be transparent with their reporting, and to discourage individual bias and greed in business leadership. To that end, legislative and law enforcement entities need to adopt appropriate legislation and ensure justice is done when laws are broken.

The investing public also needs to see that obstacles to accounting firm unbiased reporting have been removed. B. Solutions/Recommendations What should have been done earlier to prevent bankruptcy? • Ken Lay should have been proactive in being transparent and cleaning up shop when he began to see issues with liabilities within partnerships. • Arthur Anderson should have forced more transparent reporting of activities ” exposing the down side of complex dealings that investors could not see. • Investment community and advisors should have raised a flag before the first write-off was announced, and the SEC investigation began. Recommended actions Enforce regulation so that accounting firms can not be in a position to gain financially or in terms of relationship by overlooking questionable practices • Train managers at all levels of financial responsibility to recognize issues with corporate finance, and be able to report these issues to an entity within their business that can respond • The SEC should pay particular attention to deregulated markets, and individual investors should be wary of highly rated investments that are involved in such markets. If we had total power, we would… • Force publicly traded companies to expose risks the same way pharmaceuticals have to report side affects of the drugs they market. • Watch the bigger donors to influential political candidates (presidents, senators, republican or democratic committees) more closely as far as business operations are concerned. Part B: Issue Focused Analysis And Reasoning In Developing Position. 1. Identify & list the issues involved. Is there a limit to what individuals will try to get away with before they are caught? Do some people try to get away with more than others? • Are people inherently greedy? • Is the combination of bankruptcy of the company and prison time of top executives an adequate enough punishment? • How much power does a deep pocket really wield over other market players or government regulators? • How much does government regulation, or deregulation, contribute to market stability? • To what extent can stockholders effectively regulate and oversee actions of a company if they are not privy to all “public” information? • Does the accountability of business leaders inhibit business development? Does it hinder creativity? 2.

Identify the underlying or fundamental conflicts between different interests, principles and rights. Identify what is in conflict or tension, not just who. • Individual objectives vs. government or non-government regulation: These forces work in opposition at times when an individual’s (or group of individuals) objectives for financial gain and prosperity overstep boundaries laid by government or non-government agencies. For example, the Federal Accounting Standards Advisory Board (FASAB) as well as the American Institute of Certified Public Accountants (AICPA) set forth accounting standards by which companies must abide by to achieve business objectives.

Enron’s inappropriate use of off-balance sheet accounting served as an attempt to manipulate their financial records while appearing to adhere to a generally accepted accounting practice. The AICPA Audit Committee has issued the following statement about the practice of off-balance sheet accounting: An area that has come under scrutiny, and one where the company may be at risk, is off-balance-sheet transactions. Generally accepted accounting principles (GAAP) permit certain kinds of transactions to be accounted for off the company’s balance sheet, and many companies, as a means of managing risk and/or taking advantage of legitimate tax minimization opportunities, create off-balance-sheet transactions.

It is important that the audit committee understand the nature and the reason for each off-balance-sheet item, and ensure that any such relationships are adequately disclosed. (Source: The AICPA Audit Committee Toolkit. Copyright © 2004 by the American Institute of Certified Public Accountants, Inc. , New York, New York. ) • Public appearance vs. internal operations: For many years, the market rewarded Enron with an ever-increasing stock price and a favorable perspective on its business practices. From the outside looking in, Enron was perceived as a major pioneer for energy companies in the 1990’s. Fortune magazine even gave Enron the public glory for 7 years in a row as most innovative company in the United States.

With all its positive public appraisals, Enron had a lot of pressure to continue to out perform economic forecasts. Internally, the top strategists such as Jeffrey Skilling and Andrew Fastow came up with ways to keep their momentum strong. The partnerships that were created and ultimately led to their demise proved very beneficial for Enron’s financials quarter after quarter. Their internal operations produced superficially positive results to their bottom line, which kept them in Wall Street’s good graces during the years before their downfall. 3. Select the issue(s) or conflict(s) you want to address. • Is there a limit to what individuals will try to get away with before they are caught? Do some people try to get away with more than others? How much power does a deep pocket really wield over other market players or government regulators? • How much does government regulation, or deregulation, contribute to market stability? 4. List all of the arguments you can think of on all sides of the issue. Is there a limit to what individuals will try to get away with before they are caught? Do some people try to get away with more than others? Pros: The extent of an individual or company’s determination to achieve a goal is a positive statement about the fortitude of people on a mission. Humans can endure a great deal of opposition and many obstacles to accomplish their objectives. In some cases, pushing the envelope can lead to constructive change.

For example, on the positive side of the Sarbanes-Oxley Act of 2002, investor confidence in public markets was restored due to the new controls surrounding a public company’s accounting practices. Cons: There are always parties who are harmed when a group of individuals take advantage of a situation. Enron’s employees and largest stockholders were left with nothing once the market caught wind of their illicit dealings. The major players themselves were punished for their actions, and thousands of workers were put out of their jobs, all for a few years in the financial sun. Often the majority of the gain to be realized is enjoyed by a few individuals at the forefront of the decision making.

While it is true that Enron stockholders all benefited from their good years, the compensation that top executives enjoyed as a result far exceeded the gain enjoyed by ancillary parties. How much power does a deep pocket really wield over other market players or government regulators? Pros: “Everyone else does it”- if other large corporations are contributing to political campaigns to influence decision making, then you would be remiss if you were in the position to do the same and chose not to. Money talks in almost every aspect of life today. In the big business world, a large coffer can wipe out competition and increase alliance with global market players to make a company bigger, faster.

Sometimes larger companies produce and sell goods at cheaper prices due to economies of scale, which can be good for end consumers. Cons: Large companies with deep pockets often annihilate small businesses who try to compete. The political agendas of large companies are not always in line with what is best for smaller or middle market business, let alone what is good for the majority of the people. A company’s use of financial pressure for economic or political gain demonstrates a lack of concern for anyone other than themselves. How much does government regulation, or deregulation, contribute to market stability? Pros: With respect to the deregulation of the energy industry, increased competition among oil, electric and gas providers gives consumers more choices.

As more companies enter the energy trading market, there is more opportunity for gas, oil and electric procurement to become more efficient. The increase in the number of energy providers will force companies to be creative in their marketing practices, which may include providing incentives to consumers by using such tactics as rebates and promotions. Cons: Deregulation can lead to uncertainty and unpredictability of markets. Prices can fluctuate widely at times due to uncertainty. Energy companies, such as Enron, stand to gain or lose significant value based on the trading business. This can lead to unscrupulous behavior. 5. State your own personal conclusions regarding the issue(s) raised, and state the decisive factors that influenced your thinking.

Is there a limit to what individuals will try to get away with before they are caught? Do some people try to get away with more than others? We, as a team, would like to believe that people will set boundaries for themselves and that even if they take certain liberties in a situation, they will only go so far. Unfortunately, reality displays many examples of individuals breaking codes, rules or laws in an effort to achieve personal gain. Human nature plays a big role in this. Many of us rationalize our behavior to justify that what we do has valid cause. The people who are very good at rationalizing tend to be more likely to bend the rules to get what they want.

Additionally, some rules or laws may not set entirely clear boundaries. For example, certain “white collar” crimes such as wire fraud and extortion may not always be obvious to the perpetrator. The executives in Enron’s case most likely rationalized their actions and defended them by pointing to their auditor or the SEC as controlling parties who never had problems with their practices in the past. How much power does a deep pocket really wield over other market players or government regulators? As a team, we decided to address this issue because many top executives of large corporations contribute to campaign funds and sit on committees that influence public policy.

Kenneth Lay of Enron was the largest contributor to President Bush’s campaign, and also served as an advisor to President Bush. We believe that alliances between business moguls and politicians go hand in hand, since they both have objectives that can be assisted by each other. Many big business players operate under the assumption that everyone has a price at which they can be bought. We also believe that these alliances only take a person so far, and that generosity today does not always translate into permanent favoritism. The person in power is the person who is doing the buying, and that creates tension when the person being sold feels manipulated and decides to push back. How much does government regulation, or deregulation, contribute to market stability?

Government regulation is often a reactionary measure taken to promote market stability. For instance, the Sherman Antitrust Act and the Clayton Antitrust Act was implemented to prevent monopolistic companies from having too much influence and market share, after they had already become behemoths. In an example of the reverse scenario, deregulation of the energy trading industry increased price volatility and uncertainly of supply. The instability of the energy trading market is what lead Enron to realize such large profits, and what contributed to their overzealous growth strategy. They understood that they had great earning potential when they owned a large portion of the market and they capitalized on that opportunity.

The government stepped in once the damage had been done to order the executives, who lined their pockets by selling Enron stock before it tanked, to repay the profits they gained. Government intervention serves to correct unstable market conditions. 6. State a reversal of your conclusion/position on the issue and identify what changes in the situation (facts, factors, variables,) would cause you to change your conclusion. Do not go to extremes in inventing a totally different situation. The intent of this step is to help you understand and make explicit which variables or arguments were critical in you mind, and how much a change is what factors would be necessary to swing you the other way. Is there a limit to what individuals will try to get away with before they are caught?

Do some people try to get away with more than others? A reversal of our position above states that there is a limit to what people try to get away with. Each person has an inner force that prevents him or her from behaving in a way that benefits him or her but causes harm to others. It is hard to defend this position because we live in a society with a legal structure that sets boundaries to curb excessive behaviors. Without these laws we would have anarchy and the most zealous people would take total advantage of less motivated individuals who actually do have a solid moral compass. How much power does a deep pocket really wield over other market players or government regulators?

The reversal of the position above states that a deep pocket does not wield substantial power over government regulators or leaders. People do not have a point at which they can be bought and therefore wealthy businessmen are just as fairly represented as everyone else. Again, this is clearly not reality. Stating the reverse just reinforces how true the original statement is. How much does government regulation, or deregulation, contribute to market stability? Government regulation does not contribute to market stability and government deregulation does. Intuitively, this does not make sense. Although our position states that government regulation tends to be reactionary we do believe that it contributes to a more stable market.

Too much regulation can also serve to suppress a booming market, so it is better that the government steps in only when necessary. Part C: Your Reflections and Learning 1. State lessons, principles, or generalizations which students and managers should learn form this case so that they will be better managers. You may include case-specific lessons, but you must also state some lessons in a more general from such that they apply to any manager or firm. It is important to have open and transparent business practices for your investors to understand what you are doing. When deciding what direction the company will go in, it is essential to think outside of the box and stay ahead of your competitors.

Yet, when entering into new ventures an employee, especially a manager, must have innovative thinking and decision making. This means that the inspiration to make an ethically stable decision has to come from outside sources such as religion, philosophy, or cultural experiences. You should understand the implications of the decisions made within the company. 2. Introduce and discuss an international perspective regarding issues in this case. Investors cannot expect the same transparency in financial reporting of firms that operate in foreign countries, especially when they are traded in foreign markets. International investments and liabilities are more difficult to quantify, trace, and regulate than domestic ones.

Quantifying liabilities and risks is difficult because of currency exchange rates and varying currency volatility in different foreign markets. Tracing liabilities of public firms in other countries could be more difficult because regulation of reporting may not be as stringent and accounting practices vary. Lastly, US regulations cannot always be enforced on foreign entities. Since Enron was an international company and was also traded on the NYSE it had several international stakeholders. The first stakeholders were the employees of the international subsidiaries. The second stakeholders were the customers of those subsidiaries. Finally the third stakeholders were individuals that had investments in Enron and its partners.

Enron found that it was over extending itself in many international areas where the company was not as profitable as it would have been. 3. Relate this case to the model of social control mechanisms: self, market, law. Self: In Enron’s case, not only was the self a seemingly nonexistent force of control, but it was largely the actions of a few individuals that caused the entire debacle. The greed displayed by Ken Lay, Jeffrey Skilling and Andrew Fastow was the pinnacle of their motivation. The only redeeming example of the self’s ability to control (or attempt to control) this situation was Sherron Watkins’ letter to Mr. Lay. Her attempt to bring to light the destructive accounting practices of the firm shows that her conscience was driving her decision.

Market: Since Enron made a majority of its profits in the energy trading market, this control mechanism was also ineffective. The deregulation of the energy trading market contributed to Enron’s business model. Enron was positively reinforced by this new open market that returned such high profits. Free trade often serves to reduce prices and increase the diversity of products, which is viewed as favorable by the consumer; however Enron’s exploitation of the open market lead to California’s energy crises as a result of the lack of controls in place. Law: It is clear now that the law played a role in punishing the key players in Enron’s case. Andrew Fastow was sentenced to 3 years in prison, down from the six years he was sentenced [previously. Jeffrey

Skilling was sentenced to 24 years for his role in the situation. In this case, the law stepped in once all was said and done. Since white collar crimes such as securities fraud, wire fraud and money laundering are not always transparent to the perpetrators, it was probably easy for them to justify their actions, especially since their auditor, Arthur Andersen, failed to execute proper control measures. The law was not enough of a force to be reckoned with in the minds of the top executives. 4. What changes in management systems are needed? This goes beyond the specific firm in the case. Consider changes in organization, structures, processes, systems, corporate governance, etc. hat could be made so that any organization is better prepared to avoid these kinds of difficulties, or is better prepared to deal appropriately with them . The management within Enron seemed to be great at thinking outside the box, walking the line of normal business practices and forced growth, but they didn’t seem to understand how to handle triage. We feel that one of the biggest downfalls of Enron was that the board of directors and upper management were so focused on success that they lost site of many core values of the company. The first core value to be lost was the company’s responsibility to its shareholders. The company did not operate in an open and transparent method and in many cases encouraged the accounting firm to portray a false image of the company.

In addition, management forced the growth of the company by overextending their financial resources in the creation of "partnerships”. Growth is important for a company and in many cases it involves taking risks. Every decision made within a company is a risk of some kind. Where the question lies is when is the risk of what you might lose acceptable and if you do gamble and loose how do you recover from that loss? Part of this goes back to one of the managerial lessons in our previous case, which is to have a contingency plan. 5. Your future prognosis/scenario. Businesses will continue to be more transparent in their reporting of liabilities, and new regulations (Sarbanes Oxley) will continue to be enforced.

In the absence of enforcement, performance to the regulatory standards will deteriorate and some businesses will engage in behavior that is higher risk than expected by their investors. Therefore, the SEC is likely to continue to investigate and prosecute fraud violations in order to enforce new regulations. Because the principles of good regulation dictate that simplifying and deregulation in competitive markets lead to better economic performance, loosening of the Sarbanes Oxley regulation are likely to occur. In particular, because of high costs for administering new regulations, there will most likely be some flexibility given in regulation for small businesses.

In summary, reform in business regulation will remain a continuous process as the markets mature and respond to ongoing changes. Since Enron, there have been several other businesses uncovered to have questionable business practices. Analysts, the SEC, and Accounting Firms are held to a much higher standard and just because things within a company appear to be going well doesn’t mean that they are. Things that at one time could be viewed as ‘cutting edge’ may now be viewed as questionable actions and examined with a fine tooth comb. 6. Linkage/Connections Sarbanes Oxley heightened my personal awareness of financial reporting within the business I work for. It also gave accountants within the company higher visibility and higher-level jobs.

Someone with an accounting degree is more likely to move up through higher-level positions today than before this regulation. 7. Problems=Opportunities The debacle with Enron brought about significant opportunities in the field of accounting and its related businesses. Many accounting jobs and related financial control positions in business have been created to handle the legislation and regulation that came out of the Enron collapse. Investment in these specialties is required for business to comply with the updated regulations and reporting requirements. What was once a quiet slowly growing field became one of the fastest growing professions in the us in the aftermath of Enron. 8.

Identify connections you make to principles or theories in any or all these three areas: • Managerial Principles ” People follow leaders and it is assumed leaders will not abuse that power. There was a critical flaw in the performance incentives offered by Enron to its employees. • Legal principles ” Laws are put in place to help prevent certain behaviors and it did not work in this situation. • Moral, ethical, religious, humanitarian principles ” Enron had a code of ethics that was distributed to all employees. Unfortunately the top management apparently did not feel this code of ethics applied to them. 9. Identify flawed reasoning, lame excuses.

Ken Lay: Enron collapse was due to a "conspiracy” waged by short sellers, rogue executives, and the news media. (Wikipedia) "I firmly believe I’m innocent of the charges against me. ” Jeffrey Skilling: "…I had no knowledge [of the complex dealings that led to Enron’s collapse]…” Seek to identify the many ways and means used by managers, or students, to try to excuse their behavior or escape their responsibilities. Warren Buffett’s criticism of “everybody does it” is on example of such flawed statements. 10. Anything else you want to add. ” No. 11. Reflections on Teamwork. As a team we had good discussions and were able to stay on topic.

We also had efficient distribution of assignments and remained open to constructive criticism of each other’s work. References: “Enron’s Many Strands: A Case Study; A video Study of Enron Offers A Picture of Life Before the Fall”, S. K. Dewan; The New York Times; January 31, 2002 Web Link: http://query. nytimes. com/gst/fullpage. html? res=9404E0DB1F3AF932A05752C0A9649C8B63===print “A study of Enron before the fall”, US News and World Report on line,; May 8, 2006 Link: http://www. usnews. com/usnews/biztech/articles/060508/8bruner. htm Case Study: Enron; Copyright © 2002-4 Veryard Projects Ltd & Antelope Projects Ltd Link: http://www. users. globalnet. co. uk/~rxv/orgmgt/caseenron. htm