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Case Study Example: Ethics and Governance Failures of the Enron Company

3 pages
643 words
Carnegie Mellon University
Type of paper: 
Case study
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The case study on Enron has exposed many critical ethical violations for which its managers were culpable. The management had failed to uphold transparency and accountability in the corporate operations. There was outrageous dispatch of false information on the financial position of the entity, pronouncedly characterized by inadequate cash flows. Lay, for example, lied during his lecture at California that Enron was a model of business ethics when the company had already been plunged into problems. Figures were manipulated to give an impressive exaggeration on the profitability of the company, which in reality, was not the case.

Furthermore, the firm managers colluded with other prominent accounting firms such as the Arthur Andersen to commit grave accountancy malpractices which eventually compromised the clients. The company management misinformed the stakeholders on the secret funding to give way to their self-interest of economic greed. The chief finance officer amassed wealth as the firm suffered from financial distress.

As far as corporate governance is concerned, ethics plays the role of establishing a fruitful trust between a firm and its stakeholders (Sezek & Koufopoulos, 2012). Mutual trust between the parties enhances flourishment of the firms profitability, and also maintains corporate goodwill. From the case study, roles of ethics that the Enron Company neglected include strategic management, formulation of clear goals shared with the key stakeholders, transparency and accountability, and judicious use of organizational resources. The essential corporate responsibilities highlighted above are pillars upon which unwavering trust is built and consequently lead to the success of any business (Sezek & Koufopoulos, 2012).

Had the financial manager of Enron chosen to disclose the exact financial position of the company, he would earn more trust from the shareholders and other interested parties. Being transparent on his part would have saved the company from the adverse consequences it found itself in. Had he exposed the problems at the early stage, effective corrective measures would have been taken by the stakeholders to bring the company back to a healthy business operation, and it would even be more profitable in the long run.Having found themselves in a mess, the Enron managers appear to have four options to help them avoid bankruptcy. First, they would opt for debt settlement where they could negotiate with the creditors to reduce the debt amount. They could settle the debts either on their own or through aid from professional settlement services (Sezek & Koufopoulos, 2012). Second, they could adopt debt consolidation program where all the outstanding obligations are merged into a single secure monthly payment by borrowing a lower-interest loan to settle debts. Alternatively, the managers could liaise with debt management firms to help them minimize interest rates and penalties. Finally, the company could embrace a strategy known as do-it-yourself plan. This is an arrangement which involves direct negotiation with the creditors to allow the debtor to make monthly payments that it can comfortably and consistently afford (Sezek & Koufopoulos, 2012).

As the Chief Executive Office of the Enron Company, I would institute some corrective measures that will help the firm revive and improve its operations. First, I would propose for the changing of the top management by firing the accountants and chief finance officers found liable for the corporate malpractices. Moreover, I would effect restructuring of assets, debt covenants, and business operations. Also, I would impose layoffs of employees especially in areas that multiskilled personnel can work on to cut down on the remuneration cost. Dividend cuts would also be a sound action as it equally reduces the burden of depriving the company of its available funding (Sezek & Koufopoulos, 2012).



Corporate Governance Failure: The Case Of Enron And Parmalat. (2016). European Scientific Journal, 12(16).

Sezek, S., & Koufopoulos, D. (2012). Corporate Ethics Governance - The Role of Stakeholders in a Framework beyond Codes and Borders. SSRN Electronic Journal.


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