Enron_Business_Law

Assignment #1- Enron Corporation Tikia L. Almon Professor Zara Sette Business Law July 24, 2011 The Enron scandal, eventually led to the bankruptcy of the Enron Corporation, an American energy company based in Houston, Texas, and the dissolution of Arthur Andersen, which was one of the five largest audit and accountancy partnerships in the world. In addition to being the largest bankruptcy reorganization in American history at that time, Enron was attributed as the biggest audit failure. Many executives at Enron were indicted for a variety of charges and were later sentenced to prison. Enron's auditor, Arthur Andersen, was found guilty in a United States District Court. Employees and shareholders received limited returns in lawsuits, despite losing billions in pensions and stock prices. As a consequence of the scandal, new regulations and legislation were enacted to expand the accuracy of financial reporting for public companies. Enron’s corporate culture best exemplified values of risk taking, aggressive growth and entrepreneurial creativity. These are all positive values. But these values were not balanced by genuine attention to corporate integrity and the creation of customer. Because the Enron corporate culture was not well grounded, a single scorecard - maximized price per share of common stock - became its reason for being, and even its positive values became liabilities. Enron’s corporate culture also seemed to embrace a value - massive size - that is not so much a value as it is a strategy through which to achieve a larger mission. This dedication to sheer size, left unchecked, made the company prone to use of its size to bully and intimidate those who, for example, questioned some its balance sheet practices. But even more important, Enron’s corporate culture had evolved so that it only paid cosmetic attention to integrity. That is and was the responsibility of the Board of Directors and the executive officers of the company. Enron failed to disclose facts that there were important for understanding the substance of the transaction. Although they did disclose that there were large transactions that the CFA had interest. Enron did not give the CFO’s actual or expected benefits from these transactions or provide complete financial statements. The organizational structure could have been different by not changing the original structure. When Enron decided to change its structure by hiring people from outside the company and gave them power to make huge decisions that would affect the organization. The reward system within the company changed and gave the Top performers more opportunity for bonus and stock options. Though there are no firm rules on how long accounting firms must retain documents, most hold on to a wide range of them for several years. Any deliberate destruction of documents subject to subpoena is illegal. Shredded evidence is only one of the issues that will get close scrutiny in the Enron case. Criminal charges could result if it can be shown that its executives ordered the destruction of documents while being aware of the existence of a subpoena for them.