To go from having more than sixty-five billion dollars in assets and being called “the most innovative company of the year” in 2000, to being the largest Chapter 11 filing in U.S. History to declare bankruptcy, Enron will forever be known as the stain on the American business world (Gibney, 2005). From the outside, it was Wall Street’s beautiful baby, a company that every CEO aspired to copy, on the inside though, it was an empty hole full of cheating, deceit, and selfishness. Even though the demise of Enron was over ten years ago, its impact on ethics in the business world is still remembered today. Enron’s collapse affected the daily lives of thousands of employees, their pension funds, and shook Wall Street to the absolute bone (Seabury, 2011). In this paper, the ethical dilemmas that took place at Enron will be analyzed, and as well as solutions so that we can avoid anything like Enron happening again.
Founded in 1985, Enron was a power supplier to utilities. Enron quickly expanded with its merger of Houston Natural Gas and Omaha’s InterNorth, and soon became the largest energy trader in the world, earning multiple titles and praises. It soon prided itself on calling itself not only the “world’s leading Energy Company,” but also “The World’s Leading Company.” (Gibney, 2005). With the increase of competition in the market shortly thereafter, Enron started to branch out into different markets and also international areas so it would be able to keep its market position. Instead of gains, these activities cost Enron huge losses and in 1999, after a descent into the broadband market, Enron suffered more losses and started to lose valuable amounts of money quickly (Gibney, 2005).
Even though this happened in 1999, Enron did not disclose any negative information until October 2001. Alternatively, they overstated revenues and hid any kind of liabilities, with revenue numbers increasing every year from $40 billion in 1998, to $101 billion in 2000 (Gibney, 2005). Not only did the executives of Enron not warn or tell their investors of the risks like they should have, they gave off an impressive earnings forecast and encouraged investors to purchase Enron stocks and invest their pensions. With the help of their audit company Arthur Anderson, this fraud was hidden for five years, while Enron put money in Anderson’s pockets as well (Greenwald, 2001). When an analyst or Enron employee would try and speak the real truth of what was going on, they were kept quiet and then fired. Because of the fraud, from 1998 to 2001, the stock price went up to $90, also while their employees had their 401K’s heavily invested in Enron’s stock (Gibney, 2005). CEO Jeff Skilling used mark-to-market accounting as a way of hiding financial losses, where he would have Enron build an asset like a power plant, and claim projected profit on the books, even though Enron hadn’t made any profit on it yet (Seabury, 2011). If the actual revenue was less than the projected amount, instead of writing down the loss, Enron would transfer the assets to an off-the-books corporation, where the losses would then go unreported and disappeared (Seabury, 2011).
In 2001, the curtain dropped. In February of 2001, Ken Lay retired as Enron CEO and turned the position over to Jeff Skilling. A short six months later in August, CEO Jeff Skilling resigned from Enron for “personal reasons.” In October, Enron reported a loss of $618 million dollars. Also in October, it closed its “Raptor” SPE, so it wouldn’t have to distribute fifty-eight million shares of stock, which further reduced their profits, which caught the SEC’s attention (Seabury, 2011). CFO Andrew Fastow was shortly thereafter fired, and the SEC began to dive into the deep hole of Enron. In November, the SEC found a debt of $618 billion dollars, as well as overstated revenues, off-the-books entities, and the company’s stock went down to less than one dollar.