1.

What led to the eventual collapse of Enron under Lay and

Skilling?

All the fraud activities conducted by Lay and Skilling and bad corporate culture led to the Eventual collapse of Enron. Both were aware of the Enron Code of Ethics but they did not follow it. Kenneth Lay former CEO was indicted on 11 criminal counts of fraud and making misleading statements. Jeff Skilling was indicted on 35 counts of wire fraud, securities fraud, conspiracy, making false statement on financial reports, and insider trading. Hence both were responsible for collapse of Enron. There are a several reasons that led to Enrons collapse namely; a corrupt leadership at the top, violation of laws that were not impose by the companys CEO, and Lack of regulation Enron had one of the best ethics code in the industry.

First, not work out with written ethics and compliance codes clearly describe how was the company collapse, moreover corruption from leaders at the top and middle level of organizations is a recipe for disaster. Second, probably no code or law can prevent the rebel intention with the available means for criminally minded and greedy CEOs, Fastow and other top-level officers from defrauding and stealing from their organizations. Third, effective communication, monitoring, and auditing of the organizations legal and ethical compliance standards and procedures must be enforced.

2. How did the top leadership at Enron undermine the foundational values of the Enron Code of Ethics?

Key players among the top leadership were Andrew Fastow, Jeff Skilling, and Ken Lay. Each of these individuals contributed to undermining Enrons foundational values. Enron numerous executives such as former CEO, former chief financial officer and treasurer who forced company to the bankruptcy were found guilty after the bankruptcy. They were engaged in money laundering, fraud and conspiracy. In this manner Enrons leadership undermine the companys expressed Enron Code of Ethics in example respect, integrity, communication and excellence.

The decentralized nature of Enron also created communications barriers and prevented all but a few people in the organization from seeing the big picture. The communication value was also undermined when Fastow tried to conceal how extensively Enron was involved in trading in order to maintain the high market valuation that was essential to keeping Enron from collapsing. Lays assertion that he lacked any knowledge of what was happening is another action that brings into question the commitment of Enrons leadership to the communication value.

performance appraisal system and the compensation system that enriched executives, encouraged people to inflate the value of contracts, and promoted use of non-standard accounting practices. Both the performance appraisal system and the compensation system were creations of Enrons top leadership.

3.

In retrospect: given Kenneth Lays and Jeff Skillings operating beliefs and the Enron Code of Ethics, what expectations regarding ethical decision and actions should Enrons employees

reasonably have had?

The employees mostly misguided and corrupt strategic and operational dealings of Lay, Skilling, and Fastow. The Enrons employees must had thought that senior management executive and top level management are not concerned about the business ethics since they themselves were doing unethical things such as frauds, money laundering etc. The employees then automatically get the sense of freedom for doing unethical activities. Therefore there must be no value for Enron Code of Ethics in the eyes of the Enrons employees.

4. How did Enrons corporate culture promote unethical decisions and actions?

The employees believed that they could deal with extra risk without any danger until they dont get caught. Even if they got caught then also they could ask for second chance. The corporate culture took very less efforts to promote the code of ethics. Instead the company gave more emphasis on decentralization and there were inadequate operational and financial controls. They inflate the contracts and hided the losses. Enrons corporate culture did little to promote the values of respect and integrity that were articulated in the Enron Code of Ethics. These values were undermined through the companys emphasis on decentralization, its employee performance appraisals, and its compensation program. By keeping each Enron division and business unit separate from the others, very few people had a holistic perspective of the companys operations. Enrons compensation plan seemed oriented toward enriching executives rather than generating profits for shareholders, and encouraged people to inflate the value of contracts and to use non-standard accounting practices. The performance appraisal system and the compensation systems helped define and reinforce a culture that was rife with the potential for unethical decisions and actions. In short, Enrons culture encouraged and reinforced unethical decisions and actions.

5.

How did the investment banking community contribute to the

ethical collapse of Enron?

Enron was engaged with highly reputed firms such as Citigroup, J. P. Morgan and Merrill Lynch and used prepays. Prepays were basically loans that Enron booked as operating cash flow. Enron secured new prepays to pay off existing one and to support rapidly expanding investments in new business. Investment banks were not found legally liable in actively contributing to the Enron scandal. However it continues with regard to whether or not J.P.

Morgan and Citibank, in particular, violated their ethical responsibilities to shareholders and the public in continuing to loan Enron funds while the company lied and defrauded all who were involved during the scandal. Morgan and Citi have let their lending standards slip in order to win investment banking business from Enron, allowing the company to become over leveraged.

Sonia Halim 125100372 FY