Karylle T.

Young
CO1_D
Good Governance and Social Responsibility
Enron Corporation Case
Background:
Enron Corporation is a company dealing with energy, commodities, and services.
It acted as an intermediary between producers and customers by helping producers fix
a selling price for their products through contracts negotiated by the company. It first
handled trades from natural-gas producers and slowly widened its scope by creating
trading markets for a wide variety of commodities. The problem started when Enron’s
investments in building a broadband telecommunications network went awry. These
investments did not realize returns and impacted the company heavily. Because of this
and the company’s accumulated debt, Enron’s executives hid their financial losses
from shareholders and claimed false profits by adapting poor accounting practices. As
time went by, Enron’s unethical actions were found out and they were forced to
declare bankruptcy.

Who were affected?

1. Producers - The producers relying on Enron to create trading contracts and close
deals were adversely affected. Enron was known to be one of the top companies in
trading commodities. Once its unethical practices were made known to the public, the
producers of these commodities must have also suffered a loss because of their
affiliation with such a company. They may have gained a bad reputation and lost the
trust of their customers, making these customers look for a more reliable business
partner and company to facilitate their deals.

2. Customers - Customers who trusted Enron were adversely affected. They could
have been forced to look for another company who can facilitate their deals, or even
be forced to trade with higher prices because of the lack of a company who will serve
as their intermediary.

3. Partnered companies - Arthur Anderson LLP was a public accounting firm who
was in a partnership with Enron. This firm failed to detect or declare accounting
frauds for large clients paying lucrative consulting fees, which included Enron. Once
Enron was audited and it was found that it had erroneous financial statements, Arthur
Anderson LLP took a massive blow. Previous clients abandoned the firm as they
wanted to assure their investors that their financial statements could meet the highest
accounting standards. Thus, the firm and its employees suffered major losses and
weren’t able to fully rebound from the scandal.

4. Government - The government collects taxes from companies’ revenue. Enron was
the 7th largest U.S. corporation at that time and would have been paying a very
lucrative amount of tax. A major chunk of tax revenue must have been deducted when
the company collapsed. In addition, the government must have also had to implement
a stricter legislation concerning the honesty of companies in reporting financial
information.

5. The community - A lot of employees lost their jobs and this would have affected
the whole community. The residents’ spending power at that time must have declined,
thus affecting other sectors and institutions in the community negatively since they
have less money to spend on commodities.

References:
Bondarenko, P. (2016). Enron scandal | Summary, History, & Facts. Retrieved
from https://www.britannica.com/event/Enron-scandal

Collins, D. (2016). Arthur Andersen | American company. Retrieved from

https://www.britannica.com/topic/Arthur-Andersen

Segal, T. (2020). Enron Scandal: The Fall of a Wall Street Darling. Retrieved
from https://www.investopedia.com/updates/enron-scandal-summary/