Business_Failure

Running Head: BUSINESS FALIURE Business Failure University of Phoenix Business Failure A business situation that I find very unethical is the Enron situation. Enron was a large corporation with hundreds of hard working employees. People trusted this company with their life savings. Management was not being responsible with their employee’s money. These hard working employees lost all of their life’s savings because of the unethical decisions of management. People were forced into foreclosure because of their inability to pay their mortgage. I think that the Enron experience is a perfect example of how you can question organizations ethical values. Enron Corporation was an American energy company based in Houston Texas and employed approximately 22,000 employees. It was one of the world's leading electricity, natural gas, pulp and paper, and communications companies, with claimed revenues of nearly $101 billion in 2000. At the end of 2001 it was revealed that its reported financial condition was sustained substantially by institutionalized, systematic, and creatively planned accounting fraud. As the scandal unraveled it was revealed that much of its profits and revenue were the result of deals with special purpose entities or limited partnerships (which it controlled). The result was that many of Enron's debts and the losses that it suffered were not reported in its financial statements. Enron underwent the largest bankruptcy in history by mid-November 2001 (the largest chapter 11 bankruptcy until that of the investment bank Lehman Brothers on September 15, 2008). Enron had created offshore entities, units which may be used for planning and avoidance of taxes, raising the profitability of a business. This provided ownership and management with full freedom of currency movement and the anonymity that allowed the company to hide losses. These entities made Enron look more profitable than it actually was, and created a dangerous spiral in which each quarter, corporate officers would have to perform more and more contorted financial deception to create the illusion of billions in profits while the company was actually losing money. This practice drove up their stock price to new levels, at which point the executives began to work on insider information and trade millions of dollars worth of Enron stock. The executives and insiders at Enron knew about the offshore accounts that were hiding of losses for the company; however the investors knew nothing of this. Enron had created offshore entities, units which may be used for planning and avoidance of taxes, raising the profitability of a business. This provided ownership and management with full freedom of currency movement and the anonymity that allowed the company to hide losses. These entities made Enron look more profitable than it actually was, and created a dangerous spiral in which each quarter, corporate officers would have to perform more and more contorted financial deception to create the illusion of billions in profits while the company was actually losing money. This practice drove up their stock price to new levels, at which point the executives began to work on insider information and trade millions of dollars worth of Enron stock. Only the executives and insiders at Enron knew about the offshore accounts that were hiding of losses for the company. Enron’s failure was because of the poor organizational behavior displayed by its top officials , a corporation is suppose to be organized by a group of individuals with knowledge of the industry they are working in and bound under the United States’ securities laws and corporate governance system. Corporations are ideally run by several people that make up what is called Board of Directors who supervise the management of the entire corporation. With several members working in separate but equal departments they are able to each focus one key aspect of the company as not to be overwhelmed by it all and thus make sound judgments and motivate their respective department to fully achieve the goals of the company. Special divisions like an Audit Committee are created to work as a check and balance within the company. A department like this would be have responsibilities such as “recommending the selection of the company’s external auditors… recommending the fees payable to external auditors…reviewing the firm’s annual financial statements, including whether the firm’s accounting and management systems and reports comply with GAAP” (Sridharan & Dickes & Caines, 2002). The importance of the Audit Committee extends even further as it is the primary contact with the SEC and is the entity in charge of keeping the corporations books legal. When poor management is placed in the Board of Directors, there is a very likely chance that a corporation will fail because of poor decision making and pressure from the top to succeed at all cost. If the board of directors are applying extreme pressure for those below them and are making very bad judgment decisions then those under them are likely to start making equally or greater bad decisions and justify it was doing whatever it takes to keep their job. Many of the key decisions makers went out of the way to falsify records and omit anything to make it look like they were making a huge profit. It could be said that they were under pressured to raise revenue and make the board of directors’ and stockholders happy. It can be assumed that after they first started falsifying records they released that it was easier than they though because those self regulating measures was not being used or not used correctly so they continued to do so. The very individuals that were suppose to lead their employees and look after the best interest of the shareholders were devising both and making a huge profit in the process. They even had the account firm Auther Anderson validating the false records. Any one of the executive that knew what was going on for years could have stepped up and said something but none of them did, they choose to look the other way and allow government rules and regulations to be broken thus causing thousands of individuals their jobs, and even more people a life of investment money. It was this total lack of judgment and low moral standards that brought the company to a fall. If they had of but half the effort into correcting the things that were causing them to lose profit each year they may have been able to turn things around but they chose the lowest road possible.