Name : Vynica Septariani

Class : YP51B
NIM : 29114772

ENRON CORPORATION
Enron was founded in 1985 through the merger of Houston Natural Gas and Internorth, a
natural gas company based in Omaha, Nebraska. It was a pioneer in trading natural gas and
electricity in the newly deregulated utilities markets. In its earlier years, Enron made its
money from hard assets like pipelines. However, by the end of the 1990s, 80% of Enrons
earning came from a more vague business known as wholesale energy operations and
services. In 1999, Enron became the largest online trading exchange in natural gas,
electricity, crude oil, petrochemical, and plastics. Then Enron diversified into coal, shipping,
steel and metals, pulp and paper, and trading of weather securities. In August 2000, the
shareholders of Enron Holdings were riding high. Enron was the next Microsoft. Enron was
named Americas Most Innovative Company by Fortune magazine for six consecutive
year, from 1996 to 2001. During the 1997-2000 period, Enrons share price quadrupled as
investors saw remarkable revenue growth. Enrons price was up to $90 per share, the
company was profitable, and the investment seemed solid. Management was promising share
prices of $130 per share in the near future. With such a solid record and blue chip status,
thousands of other investors and pension management funds had holdings in the company as
well. Actually, after diversification activities brought Enron an unexpected large amount of
losses rather than profits. Enron suffered too many substantial losses and began bleeding
quickly. However, Enron had never declared any information about its losses until October
2001. Instead, in these years, Enron achieved a phenomenal bottom-line through overstating
revenues and hiding liabilities. For example, the revenue numbers for 1998, 1999, and 2000,
were $40 billion, $60 billion, and $101billion respectively. Besides manipulated the financial
statements, Enron never mentioned the risks which it should disclose to its investors. On the
contrary, the executives of Enron disclosed a great earnings forecast through the media and
encouraged investors to purchase Enrons stocks. They also suggested their employees invest
their pensions in Enrons stock or stock options. Arthur Andersen, the audit company for
Enron, helped Enron hide these frauds for five years. Every time when analysts or Enrons
employees expressed their doubts about Enrons financial condition, Enron would try to keep
them quiet and fired them later. Meanwhile, top executive embezzled. The executives also
drove up the stock price and put a large amount of money into their own pockets through
trading stocks.
Then in October 2001, Enron reported a loss of $618 million. Following that, Chief financial
officer Andrew Fastow was replaced, and the Securities and Exchange Commission (SEC)
began investigating the company. Then, on November 28, 2001, Enrons stocks tumbled to
just pennies per share when news of the losses went public. The SEC found off-the-books
entities and overstated revenues, and then the companys stock was down to less than $1 US.
Finally, on December 2, 2001, Enron filed for bankruptcy protection. Investors lost billions
of dollars. The bankruptcy of Enron Corporation, at one time the nations largest energy
wholesaling company, represent the biggest corporate collapse in American history. Despite
being listed as No. 7 on the Fortune 500 list with a market capitalization of $75 billion before
its collapse, the melt down of Enron was rapid. Enron collapsed as the result of unethical
management practices such as the equivocation of taxes and fraudulent accounting practices.
It was very broad implications of the global financial market. The scandal of Enron has been
the largest corporate scandal in history because of illegal and unethical activities; well-
planned corporate fraud. Enron manipulated its financial statement about $600 million profit
when company suffered losses. Enrons top level management has violated several
accounting laws, SPE laws, and bent the accounting rules to satisfy their own desires of profit
in the short term but ignoring long term repercussions for investors, stockholders, employees
and the business itself. The close relationships that were formed among top leading
executives and the board of directors grew arrogant, thinking they were invincible and
causing them to act in an unethical manner. Enron also parked some of its debt on the balance
sheet and kept it hidden from analysts and investors. When the extent of its debt burden came
to light, Enron's credit rating fell and lenders demanded immediate payment in the sum of
hundreds of millions of dollars in debt. It means that Enron's decision makers saw the
shuffling of debt rather as a timing issue and not as an ethical one. Enron and Arthur
Anderson, as an auditor and also as a consultant, work together in covering up financial
losses and debt. Anderson was also responsible for Enrons internal bookkeeping, with some
of Anderson employees eventually leaving to work for Enron. The result of the accounting
scandal was that many of company losses were not reported in its financial statement, so
Enron could still attractive to investors.
Due to the accounting frauds that occurred in the Enron scandal, several accounting firms
should reorganize their employees towards remaining loyal to the ethical standards demanded
by the SEC. There needs to be supervision over managers and executives as they exercise
their own business judgments about what is in the best interest for an organization. On the
other hand, when accounting firms have been moving to sever in both auditing and consulting
services for their consulting businesses, the SEC should probably adopt additional disclosure
requirements.
Enrons culture was unethical. Because of Enrons competitive environments, employees
were nervous about losing their jobs, they only focused on how to make their performances
look good. They ignored the ethical standards, and only focused on the achievement of their
financial goal. This competitive environment contributed to the covering of the errors and
cheating because employees tended to be uncooperative and seldom communicated with each
other. Besides that, they were also less willing to share resources and information because
they competed with each other. As a result, they just tried to hide errors and made their work
look good. The culture of Enron emphasized too much on the financial goals. The person
who can achieve the budget numbers would be the hero of the company. Both executives and
most of employees focused on making profits for themselves through making good financial
numbers instead of a real increase of the companys economic value. In such a company,
ethical standards were just window dressing. No one followed them. Therefore, employees in
Enron were pressured to work blindly, keep silent, protect their own short-term interests, and
try to achieve their goals even if it was an obvious cheat.
Every business has a moral obligation to serve its stakeholders. Every business should follow
ethic, not just earn money by providing goods or services that have real value in the new
economic. Moreover, executives who are paid too much can think they are above the rules
and can be tempted to cut ethical corners to retain their wealth and perquisites. Every firms
need to demonstrate that they have eliminated all off-books accounts which distort the
public's understanding of the financial health of the organization and they should to pledge
that they will not suspend the company's code of conduct, or at least report to the public when
they do. The fundamental cause of Enron is that they lack the idea of the business ethic. So,
companies should consider whether they have a healthy business culture, whether they have a
well-written code of ethics and also follow the code, and whether the employers and
employees have enough knowledge about business ethics.