Don't Ask Don't Tell: Ethics Case Study (Enron) Case Studies Example

Type of paper: Case Study

Topic: Company, Enron, Finance, Business, Strategy, Wall Street, Accounting, Ethics

Pages: 5

Words: 1375

Published: 2020/12/21


Enron advocated and introduced “mark-to-market accounting” on their energy trade in the 1990 facilitating the execution of extraordinary balance for the transaction. The rules for these accounting “policy” provide an analogy where companies violate some accounting normal policies. Jeff Skilling, Ken Lay, and Andrew Fastow are the leaders that witnessed the rise and fall of Enron Corporation Weil (2001). The policy advocates a situation where if these corporations have stupendous balances or energy-related imitative contracts which can be assets or liabilities they must adjust the balances on their financial statements within the specific quarter. It can be done by forecasting unrevealed losses or gains to the income displayed in the period statement. The policy provides predicaments and a conflict with the normal accounting policies on long-term projections based on the variations if the market does not offer the predicted gains.
The auditors and accountants in Enron made the projections and registered different figures upon attainment of the projected gains. The pressure from internal environments for high gaining led to the company making overstated assumptions that could out do the estimated earnings. The company lacked accountable auditors and accountants. They violated the company’s mission and values. The outcome was a business where transactions were carried out under their name yet the funds were channeled through individual accounts. The failure of Enron to incorporate some of SPEs that traded with, in their transactions proves how sluggish their accounting strategy was. These implied that the transactions that the company executed with these companies were not accounted for in the records. The firm ignored and failed to apply system checks and balance. They indicated figures that reflected profits based on liabilities which were not relative to the investments. The company enjoyed what reported indicated as too good to be true. The strengths that the company possessed were misused by the managers within the company generating weaknesses that led to the downfall. The company management is blamed for the loopholes that corrupted the company’s leading to the collapse. The company lacked ethical and moral behavior among the employees and auditors engaging in fraudulent and unlawful acts.

Ethical Issues

According to (Backett, 2002), Enron’s competitive advantage and huge profits enjoyed earlier started eroding by the end of 2000. There are various factors that attributed to the occurrence. In the earlier part of 1990, Enron was enjoying monopoly based on their strategy, however; companies such as Dynegy, Duke Energy, El Paso and Williams enacted the Enron’s lead Jonathan (2001). The consequences led to the marginal decline in the company’s profit. The external environment in 2000 was very competitive with firms duplicating Enron strategies. The market experienced new entrants squeezing profits leading to a massive reduction in the total revenue. Energy prices reduced drastically by the end of the year leading to projected by the economic recession that followed; this reduced their chances of recovering. These led to minimal and fall of the huge profitable plans that Enron depended on in the tenure. The consequences based on the circumstances led to the firm running on leverage becoming a fund hedge. The transactions that were made with other companies were made on haste decisions Beckett et al. (2002). These led to some of the financial contracts failing to reflect on the company’s strategic goals. Another external factor that led to the failure and collapse of the company is the deals that the firm engaged in fulfilling. The most controversial deal being that of LJM Cayman LP and LJM2 Co-Investment LP, managed by Fastow himself Brown (2002). These companies were projected to have been paying him more than Enron did. Concurrently, LJM partnered with an SPE group known as Raptor vehicles that designed in part to hedge Enron investment in a bankrupt broadband company Rhythm NetConnections.
Enron mistakably issued and increased receivable notes and stakeholders’ equity to reflect the transactions Browning (2002). This was a direct violation of the accounting principles and general business ethics. To degenerate the vice Enron didn’t reflect or consolidate the LJM and Raptor SPEs to their financial statement. Interactions with the external environment led to the downfall and collapse of Enron. The violations of accounting and business ethics in relation to transactions conducted by the company directly or indirectly stimulated the downfall. Business ethics advocates against these vices. Employees and the managers should be honest and avoid fraudulent and wrongful acts. The employees in Enron lacked the ethics on how to treat the organization. The next major weakness that facilitated the failure of Enron was the company’s management team lack of control. The management could not avert and enact measures to curb the failure. The management facilitated and encouraged conflicts of interests on the transactions conducted by the firm. The consequences were transactions executed on the company name while the revenue generated was channeled through individual employees Smith (2001). Enron culture expected success financial statement at any cost. The employees were expected to make up for the costs that the losses the company made. The financial and accounting officers failed to project and avert the downfall. They failed to balance their liabilities with the actual assets the consequences were a company with huge financial statements built on liabilities. Enron leadership lacked competence in the operations. These factors among other numerous attributes contributed to the downfall of the company.

Personal Position

One of Enron popular slogan was their success based on “outdistance on the competition” as expressed in their financial report of 2000 (Enron 2000). Enron was built on liability base in the corporate-level strategies enacted generated short-term benefits. The strategies didn’t project the future outcomes that could lead to the collapse of the company. The analogy of innovating and engaging in multiple deals executed with minimal considerations led to the downfall. The strategy of producing huge financial statements with no core background created the loopholes that led to the collapse of the company. Through some of the strategies used by the company were beneficial and produced marvelous outcomes, they required more scrutiny on both long-term and short-term outcomes. I would not utilize Enron strategy, these is based on the multiple risks that the company engaged on. The company is engaging in transactions with the firms that were managed by the same managers that run Enron was also a huge mistake that the company ventured. The company advocated on values such as; respect, integrity, communication, and excellence. However, most of the employees used the values in the contradictory manner. They turned their opposite meaning to their daily virtues.
Jeff Skilling, Ken Lay, and Andrew Fastow are the leaders that witnessed the rise and fall of Enron Corporation Paul et al. (2002). They facilitated the growth by enacting strategies and policies that generated huge profits on the Enron financial statement. As much as these managers are credited for the period that Enron thrived in the financial world, its downfall was attributed to their unlawful acts. They were controlled by the vices of self-interest by channeling the profits derived to their individual accounts. They developed bankrupt strategies aimed at squeezing Enron accounts to their pockets. The values, vision and the mission of the company ironically acted as their core virtues in the business. The failure of the Enron is credited on their violations of business ethics. There is no assumption that can credit their acts either on the current economic world or the previous. The business ethics does not provide platforms where they can be amended on personal gains. They should have been accountable and responsible for the welfare of the company and the employees.

Possible Resolutions

Enron advocated increase profit at any cost. The mission is evident based on their greed for producing large financial statements. The company enacted strategies that were aimed at generating profit without employees’ empowerment. The business level strategy had positive projections but failed to administer the core values of honest business. Though the company was able to enact strategies that generated massive profits on their financial statements, the outcomes were based on mere analyze. The strategies that the company used, its mission required effective and innovative scrutiny before enactment. The strategies should have been evaluated and analyzed to ensure all the possible challenges generated are averted. Providing firm baseline on the structure of the business provides an effective internal environment within the business. The firm talked about missions yet the activities that the company indulges in were way out the projections. I would utilize their mission the benefits were aimed at providing a positive outcome for every consumer. However, upon enacted of these strategies some of the measure should be administered to avert the catastrophic outcomes experienced by Enron.

Work cited

Lee, Susan. “The Dismal Science: Enron’s Success Story.” Wall Street Journal. December 26, 2001: A11.
Oppel, Richard A. Jr. and Stephen Labaton. “Enron Hearings Open, Focusing on Destroyed Papers.” New York Times. January 25, 2002.
Smith, Rebecca and John R. Emshwiller. “Fancy Finances Were Keynto Enron’s Success, and Now to Its Distress.” Wall Street Journal. November 2, 2001:A1.
Swartz, Mimi. “How Enron Blew It.” Texas Monthly. November 2001:136–139, 171–178.
Weil, Jonathan. “After Enron, ‘Mark to Market’ Accounting Gets Scrutiny.” Wall Street Journal. December 4, 2001: C1.
Weil, Jonathan. “What Enron’s Financial Reports Did—and Didn’t—Reveal.” Wall Street Journal. November 5, 2001: C1.
Beckett, Paul, et al. “PNC Shakes Up Banking Sector; Investors Exit.” Wall Street Journal (Heard on the Street). January 30, 2002.
Berger, Eric. “The Fall of Enron/Like Enron Employees, Lay Could
Lose Nearly All/Vast Fortune from Stocks, Bonuses Susceptible to Lawsuits.” Houston Chronicle. January 25, 2002: A19.
Brown, Ken, et al. “Andersen Fires Partner It Says Led Shredding of Documents.” Wall Street Journal. January 16, 2002.
Browning, E.S. and Jonathan Weil. “Stocks Take a Beating as Accounting Worries Spread Beyond Enron.” Wall Street Journal. January 30, 2002.
Eichwald, Kurt (New York Times). “Exec Abuses Criticized in Enron Report.” Waco Tribune-Herald. February 3, 2002.

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Don't Ask Don't Tell: Ethics Case Study (Enron) Case Studies Example. Free Essay Examples - Published Dec 21, 2020. Accessed July 21, 2024.

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