Essay: Enron Scandal - High Risk Account Practices In Business Communication.

Describe about the Business Communication For High Risk Account Practices.

Background of Enron Scandal

The leaders of Enron were immensely responsible for the financial scam that shook the level of confidence of all the stakeholders of the company (Dibra). The senior level leaders of the company were able to hide billions of dollars which were in debt due to failed projects and dealings with other business organizations. Andrew Fastow who was the chief financial officer, making pact with other major leaders of the company misled the directors of the company and the audit committee regarding high risk account practices and also pressured Aurther Andersen to ignore the escalated issues related to the scandal. The key persons who were responsible for this major financial scam are Jeffrey Skilling, Andrew Fastow, Kenneth Lay and Rebecca Mark (Bennett).

Jeffrey Skilling pursued his career in applied science from South Methodist University in 1975, followed by MBA from Harvard University in 1979. He utilized his graduation skills in executing the business activities of McKinsey and Company. 1990 was a turning point in Skilling’s life as he was appointed as the chief executive officer of Enron Finance Corporation. The following year, he became the chairman of Enron Gas Company in 1991. 1997 was the era, when he encountered enhancement in his professionalism. Major drive behind this was the promotion to the position of President and chief operating officer of Enron (Brands). 

The financial statements of Enron became confusing to the shareholders of the company as well as to the employees of the organization (Bennett). It was found that unethical practices which were present in the organization and the complex business model of the company required that the management should have a limited accounting capability but the management of the organization back then misrepresented the earnings of the company and unethically modified the balance sheet of the business organization so that the employees and all the shareholders believe that the company is doing good business (Dibra). In this regard, it is worthwhile to mention that the key persons of the company who are Rebecca Mark, Kenneth Lay, Anfrew Fastow and Jeffry Skilling created off balance sheet vehicles and financial structures which are very complex in nature and dealings which were so bewildering that very few people who are the employees and the shareholders could have the capability to understand them (Brands).

Security and Exchange Commission accused Skilling of violating the federal securities law. The basis of this charge was indulgence in defrauding schemes through the manipulation of the financial results. The complaint stated that Skilling and others made improper use of the resources for carrying out the retail energy business. Along with this, the report charged Skilling of producing false and misleading statements regarding the financial performance of Enron. Strategic approach of Skilling proved beneficial in restoring the organizational culture of Enron. Typical examples in this direction are role modelling, teaching, coaching, which involved the employees within the mainstream business activities (Carlson and Sullivan). 

When the employees and the stakeholders of Enron found that the stock prices of the company fell from 90 Dollars per unit to below 1 dollar they filed lawsuits immediately. In between the years of 2000 to 2002 the share prices of the company experienced the huge downfall and the employees were till then miss leaded by the management of the business organization (Markham). When the employees of the organization got a clear picture of the scenario, more than 20000 employees of the company won a law suit of 85 million dollars in the year of 2004 as a compensation of the 2 billion dollars they lost from their pensions. Each of the employees were granted more than 3000 US dollars and   the management of Enron had to held auctions to sell off the assets of the company and those include the logos, art and even the pipelines of the company (Dibra).  

Key Persons Responsible for the Financial Scam

Upon investigation by US Securities and Exchange Commission, it was found that one of the rivals, Dynergy wanted to purchase the company at a very low price. Unfortunately, the deal failed and the charges of bankruptcy was bestowed on the company. In spite of possessing $63.4 billion assets, this was the biggest bankruptcy in the US history (Markham). 

When the scandal of Enron came into public awareness it was seen that the management or the leaders of the business organization paid a fortune to sustain their high flying image in front of the media so that the image of the company earns them a good profitability. The leaders lavished money on the Washington insiders and even on the financial opinion makers and the financial predictors of that time (Bennett). They used money to maintain an extensive relation between the investors and public (Brands). The above mentioned information is enough to exhibit how the unethical leaders of the business concern managed to keep away the media from covering their scandal (Dibra).

The shareholders of Enron lost $74 billion in four years. This was before the bankruptcy. Limited assistance from the creditors and shareholders adversely affected the business of Enron. Auctions formed an agent for clearing the dues of the creditors. 2004 was the era when most of the employees received suit if $85 million for compensation. Of this, $2 million was lost from the pension (Roy). 

In the preliminary stage the communication in Enron was downward and that reveals that the directions flowed from the chambers of the directors and the subordinates had to follow or obey the orders that has been forwarded to them (Roy). In this way the orders start at the upper most level of the business organization and maintain the hierarchy and get forwarded to the subordinate staffs and they do not have anything other things to do or say apart from obeying the orders (Carlson and Sullivan).

On the other hand, later the communication in Enron changed to upward communication style and it was seen that in this process information started to flow from the lower levels of the hierarchy to the upper most levels and in this way the subordinate staffs gets the opportunity to share their views and therefore this strategy became more popular (2015). In this way, the managements of the business organizations will be able to sustain a healthy work environment as the employees will have a greater satisfaction as their feelings and views are given more priority. In this way the organizational performance also gets upward (Brands).

At Enron, the staffs are entrusted with the responsibility to disseminate appropriate values for preserving the moral climate of the workplace. This is done through the means of adopting effective and effective communication channels. The managers and the Directors of Enron needs to be informed about the channels. Transparency is an important component for achieving effective solutions for the potential risks and problems. Strikingly, the leaders failed to execute their responsibility, which stalled the productivity. The result of this is the collapse of financial parameter, which degraded the reputation (Dibra). 

It is a matter of fact that Enron scandal did not take place accidentally as it was facilitated by the corporate culture of the company. The specific corporate culture which was introduced by Jeffrey Skilling encouraged fraud and greed as it was seen by the energy traders who were extorting the energy consumers of California (Bennett). The focus of the management was rather on creating real value and the focus of the management of the business organization was to sustain the appearance of the value and the rising stock prices. In this regard, it is worth mentioning that it was intensified by a corporate culture which was aggressive and competitive and rewarded the results which were achieved at any cost (Carlson and Sullivan). The internal integrity of the business organization was challenged and the scandal was opposite in nature. The CEO of the company back then leveraged political connections in the administrations of Bush and Clinton’s era and also influenced Wall Street for favorable treatment (Brands).  Therefore it can be said that the corporate culture introduced by Jeffery Skilling was significantly responsible for the downfall of one of the most innovative business organizations of America (Roy).

The financial scandal of Enron was a tragic one, which lowered the status of the company, which was once trading at the top most position. Lackadaisical approach of the leaders nullify the tag of “innovative’ from the products and services of the company. By 2000, Enron encountered decline. Concealing the losses was the weakness of Skilling, which contradicts the true essence of the aspect, “market to market accounting”. Incorporating the technique in the actual business proved disastrous for Enron in terms of enhancing the productivity. Mention can be made of Andrew Fastov, who came up with the plan of modify the financial parameter of the company. This was an addition to the pre-existing complexities towards losing money in case of the subsidiaries (Carlson and Sullivan).

References

Bennett, C., 2018. Bad Blood Has the Goods on Theranos. Genetic Engineering & Biotechnology News, 38(13), pp.1-22. 

Brands, M., 2016. The influence on goodwill impairment: the factors behind the tool. A comparative research in the EU.

Carlson, S.C. and Sullivan, G.F., 2018. ETHICS AND THE 2003 MUTUAL FUND SCANDAL. Current Topics in Management, 10, p.195.

Dibra, R., 2016. Corporate Governance failure: the case of Enron and Parmalat. European Scientific Journal, ESJ, 12(16).

Markham, J.W., 2015. A financial history of the United States: From Enron-era scandals to the subprime crisis (2004-2006); From the subprime crisis to the Great Recession (2006-2009). Routledge.

Roy, M.N., 2015. Statutory Auditors' Independence in the Context of Corporate Accounting Scandal: A Comparative Study of Enron and Satyam. IUP Journal of Accounting Research & Audit Practices, 14(2), p.7.