Enron Failure Analysis
Tyshawn I. Toney
University of Phoenix
February 26, 2009
Enron was a global energy firm that filed for bankruptcy protection in 2001. The firm’s senior managers had engaged in fraud for an extended period through a scheme in which partnerships owned by the managers could receive payment for goods and services never provided to Enron. In addition, the firm’s external auditing firm, Arthur Andersen, was complicit in the fraud by knowingly certifying false financial statements as accurate. Enron executives even arranged financial transactions with leading investment banks in order to remove unprofitable investments from Enron’s financial statements (Gibney, 2008). Arthur Anderson participated in the fraud because the firm did not want to risk losing lucrative consulting contracts from Enron, which created a conflict of interest situation. Enron’s directors, managers, and auditors failed to stick to their ethical duties to the shareholders, employees, customers and suppliers of the firm.
The actions of the managers and the auditors of the firm were unethical because they established private partnerships that were intended to benefit Enron by giving commodities and services to the organization such as purchasing wholesale energy and reselling it to Enron. The unethical behavior occurred when managers directed Enron’s purchasing towards these commodities without competitive bidding which is the norm, this in turn allowed the managers to receive higher compensation at the expense of shareholders. Enron may have been able to get cheaper energy less expensively from companies that had no relationship with its managers. The managers continued the unethical behavior and grew the scheme out further though the partnerships in reality had no real assets and but were receiving payment from Enron for goods and services that were never provided. The scheme negatively impacted a large number...