Enron Scandal

A. Introduction
Enron, a corporation headquartered in Houston, operated one of the largest natural gas
transmission networks in North America, totaling over 36,000 miles, in addition to being the
largest marketer of natural gas and electricity in the United States. Enron managed the
world's largest portfolio of natural gas risk management contracts and pioneered innovative
trading products. The company was on Fortune's "Most Innovative" in the United States
listing for several years running and reached #7 on the Fortune 500 list in 2000. The board
members of Enron were Kenneth Lay as chairman and chief executive officer (CEO),
Andrew Fastow as chief financial officer (CFO), and Jeff Skilling.
B. Problem
On November 28, 2001, Enron's credit rating was reduced to junk status. Systemic
consequences were felt, as Enron's creditors and other energy trading companies suffered the
loss of several percentage points. Some analysts felt Enron's failure indicated the risks of the
postSeptember 11 economy, and encouraged traders to lock in profits where they could.
Early calculations estimated $18.7 billion of Enrons failure.
Enron was estimated to have about $23 billion in liabilities from both debt outstanding and
guaranteed loans. Citigroup and JP Morgan Chase in particular appeared to have significant
amounts to lose with Enron's bankruptcy. Additionally, many of Enron's major assets were
pledged to lenders in order to secure loans, causing doubt about what if anything unsecured
creditors and eventually stockholders might receive in bankruptcy proceedings.
C. Root cause
The company invested several billion dollars on the trading side of the business over just a
few years in the late '90s. The trouble was, it wasn't earning much of anything on those
investments. A major factor in Enron's collapse seems to be the partnerships the company
created for some of its trading operations. Through its chief financial officer Andrew
Fastow, new entities were created, with their debts kept separate from Enron's books. In
October 2001, the firm's auditor, Arthur Andersen, announced that some of those
partnerships' debts and losses should have been included on Enron's financial statements.
Adding them back, along with other charges, forced the company to report losses of more
than $1 billion.
D. Ethics side
From the ethics side, i can say that there are combination of the failure of top leadership, a
corporate culture that support unethical behavior. Top leadership of Enron dont have good
morals, they deceive the investors by providing false data that has been manipulated (modify
the balance sheet to indicate favorable performance). They also dont have integrity, greedy
for money , manipulate market for get big profit and do not have a sense of responsibility.
Corporate culture of Enron is like culture of arogance that push the employee to do immoral
job that source from its top leadership.