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How did the corporate culture of Enron contribute to its bankruptcy? The corporate culture of Enron was aggressive and arrogant. The company rewarded high performance and if an employee did not reach a certain achievement mark they were essential thrown out of the company. The executives of the company believed in high risk transactions and that any situation could be turned into a profit, in turn employees of the company also believed this philosophy. Since the employees were put under such scrutiny to turn a profit and perform well, many individuals were willing to cross ethical lines in order to keep their jobs by cutting corners and falsifying transaction to increase earnings. The company also did not hold a high level of concern for their shareholders. Most of the decisions made in the board room were made on account of how the executives could turn more profit into their own pockets. Did Enron’s bankers, auditors, and attorney’s contribute to Enron’s demise? Is so, how? Enron’s bankers, auditors, and attorneys did play a major role in Enron’s demise. Many major banks were guilty of helping Enron manipulate financial records so it looked better to investors. There were also three British bankers who were charged on wire-fraud related to a deal at Enron. They used secret investments to take $7.3 million in income that belonged to their employees. Several attorneys were also involved in the scandal. They approved transactions as legal without question and also helped structure special-purpose partnerships in a way that seemed honest. Enron in fact could not have finalized several of the transactions without the opinions from such attorneys. Arthur Andersen was Enron’s auditor and was responsible for ensuring the accuracy of Enron’s financial statements and internal bookkeeping. Many investors expected the company’s financial records to be accurate due to sound bookkeeping but this was not the case. What role did the company’s chief financial officer play in crating the problems that led to Enron’s financial problems? Andrew Fastow was the CFO of Enron at the time that the company hit the spotlight. He was indicted on 98 accounts for his efforts to help inflate company profits. The charges were fraud, money laundering, conspiracy and one count of obstruction of justice. Federal officials attempted to recover all the money Fastow earned illegally and seized $37 million. Fastow was said to be the brain behind the partnerships used to conceal some $1 billion in Enron debt and that this debt led directly to Enron’s bankruptcy. He was also said to have defrauded Enron and its shareholders through off-balance sheet partnerships, making Enron appear more profitable than it actually was. They also alleged that Fastow made about $30 million by using these partnerships to get kickbacks disguised as gifts from family members, a come himself that should have gone to other entities.
Expert Answer
Q. How did corporate culture of Enron contribute to its bankruptcy?
Enron as company followed an aggressive corporate culture with sense of arrogance. There was a practice of high reward for high performance and those who failed to perform upto the required level, they were simply made to exit the company unceremoniously. Company’ executives believed in high risk high reward philosophy and considered every situation to be profitable no matter how risky it could be. In the footsteps of top executives, employees also believed in the same philosophy. Since employees were under such pressure to turn any situations into profit and at the same time perform the expected level, they started following unethical practices to retain their job. They would report false transaction and cut corners to increase earnings. Another aspect was that the company paid least heed to shareholders concerns. All boardroom decisions were mainly focused on how more profits could be pocketed by the executives.
Q. Did Enron’s bankers, auditors, and attorney’s contribute to Enron’s demise? Is so, how?
One of the major factors in Enron’s demise was the role played by its bankers, auditors and attorneys. A lot of major banks were involved in fudging Enron’s financial records to make them look better to investor. They were proven guilty of their misdemeanour. Three British bankers were also found guilty and charged for their involvement in a fraud transaction related to Enron. These bankers made stealth investments to siphon off $7.3 million which actually belonged to the employees of Enron. This scam also involved a several of the attorneys. The attorneys were accused of approving the scandalous transaction as legal and correct and also create partnership especially for such transactions. Infact these attorneys wielded so much power, that the company could not do certain transaction without their consent. Renowned auditing firm, Arthur Anderson being the auditor of the company, it was expected that its financial transactions and internal book keeping would be accurate and correct and they would work in good faith. But this trust was also broken and they were also found to be involved the fraudulent transactions.
Q. What role did company’s chief financial officer play in creating the problems that led to Enron’s financial problems?
Andrew Fastow, the CFO when the company hit headlines for financial irregularity and eventual bankruptcy was charged with 98 accounts of his involvement in the fraud. He was accused of inflating company profits and charged with fraud, money laundering, conspiracy and obstructing justice. Fastow was considered to be man responsible for the creation of partnership that hid the $1 billion debt of Enron which was eventually the cause of Enron’s bankruptcy. The illegal money earned by Fastow was seized to the tune of $37 million. Fastow was also responsible for creating partnership which was not mentioned in the financial records which made Enron look more profitable that it actually was. Federal officers also accused Andrew Fastow of making $30 million by making use of these partnership to get kickbacks in the form of gifts from family members and pocketing the income himself which was otherwise meant for other entities.
