LEARNINGS FROM ENRON

Enron was clearly the biggest business scandal of its time. Officials swore that such a disaster
would never occur again and passed legislation like Sarbanes-Oxley Act to prevent future
business fraud. Yet, did the business world truly learn its lesson from Enron`s collapse? The
answer would be resounding no, as the 2008-2009 financial crisis attested.
However, Enron does not have to be reduced to a mere page in a history book. Although it did
not prevent future business misconduct, Enron still has lessons to teach us. Along with the
business scandals of the financial crisis, Enron demonstrates that, first, regulatory bodies must
be improved so as to better detect corporate misconduct. Second, the warnings of concerned
employees and whistler-blower should be taken more seriously. Third, CEOs must have a better
understanding of the financial instruments their companies are using, as well as a thorough
knowledge of the inner workings of their companies.
Other lessons from the Enron Case:
1. You make money by providing real goods and services i.e. real value for money.
2. Financial cleverness is no substitute for a good corporate strategy.
3. Executives who are paid too much can think they are above the rules and can be tempted to
cut ethical corners to preserve their wealth and perquisites.
4. Government regulations and rules need to be updated not relaxed and eliminated.
5. Conflict of interest: Enron claimed to generate profits and revenue from deals with SPES that
were actually limited partnerships that Enron controlled.
6. Creation of false confidence i.e. Enron covered up the debt under the separate accounting
financial statements of the SPEs that showed growth of business: growth of asset value: rise in
Enrons share price: rise to shareholders income. So long as the share price does not fall, the
growth of business can be tremendous, but such cover-up sows the seed of hidden disaster as
the asset value of business depends primarily on the investors.
7. Collusion: the auditing firm was a partner, internal and external auditor failing to provide
complete disclosure, and unfair financial reporting.
8. Transparency in reporting is not an objective

CONCLUSION
Enron shows how an aggressive corporate culture that rewards high performance and gets rid
of the weak links can backfire. Enron`s culture encouraged fierce competition, not only among
employees from rival firms, but also among Enron employees themselves. Such behavior
creates a culture where loyalty and ethics re cast aside in exchange for high performance. The

unhealthy corporate culture encouraged cutting corners and falsifying information to inflate
earnings.
The scandal made the authorities realize the importance of ethics and importance of Internal
Control.