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Enron Case Answer

Question 1. What lead to the eventual collapse of Enron under Lay and
Skilling?
We can conclude that the illegal or fraud activity conducted Lay and Skilling are
lead to the eventual collapse of Enron. Even though there is Enron Code of Ethics
applied in Enron
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.
1)There are several reasons that eventually led to Enrons collapse: a) A corrupt leadership at the
top. Numerous Enron executives were charged with criminal acts, including fraud, money
laundering and insider trading. Ben Glisan, Enrons former treasurer was charged with two dozen
counts of money laundering, fraud and conspiracy. Andrew Fastow, Jeff Skilling and Ken Lay were
among the most notable top-level executives implicated of Enrons collapse. Fastow, former
Enron chief financial officer (CFO), faced 98 counts of money laundering, fraud and conspiracy in
connection with the improper partnerships he ran, which included a Brazilian power plant project
that was aided by Merrill Lynch, an investment banking firm. Skilling was indicated on 35 counts
of wire fraud, securities fraud, conspiracy, making false statements on financial reports and insider
trading. Lay was indicted on 11 criminal counts of fraud and making misleading statements. He
died in 2006 (Weiss, 2009).
b) A corporate culture that supported unethical behavior. Enron listed its core values as:
Communication, respect, integrity, excellence (Enron Annual Report, 2000). Examples revealed
that the culture stood opposed to these core values. Instead of reinforcing the code of ethics and
the list of core values, the actions of leadership established a culture of greed and pride.
Examples: Skilling implemented a very rigorous and threatening performance evaluation process
for all Enron employees. Known as rank and yank, the annual process...

The eventual collapse of Enron under Lay and Skilling was due to
leadership of top management and corporate governance issue that lead
to the corporate culture of the company. It was not the doing of one
person but a group of them and an ineffective system. The exercises done
by Lay and Skilling is hard to prove that they were violating laws, but it is
the two of them that created the corporate culture that portraits their
beliefs and in Still them into the corporation. But it would be safe to say
that the two were the one who were portraying as pushing the envelope.
What Lay and Skilling practices in the corporation is a total contrast with
the code of ethics of Enron. Enrons ethics code was based on respect,
integrity, communication and excellence. The core of these values was to
enhance trust and transparency to the public by gaining their confidence
through the integrity of its workforce. The activities of top management,
Lay and Skilling, not only did not adhered to the values of respect,
integrity, communication and excellence articulated in the Enron Code of
Ethics but totally undermine the foundational values of Enron Code of
Ethics. The problem does not lie within the Code of Ethics of Enron; in fact,

the code of ethics of Enron is well structured and strong, but is that the
top management did not walk the talk. Lay and Skilling sidestep to the
Code of Ethics and conducted the business of Enron under their own
corporate culture. That is with greed and intimidation. The top
management was constantly pushing its employees to meet the sales
target regardless of ethical behavior. The unspoken message was, Make
the numbers if you steal, if you cheat, just dont get caught. If you do, beg
for second chance, and youll get one. This aggressive earnings
management style forces employee to try to achieve targets regards of
any moral and ethical value. To the employees understanding is that if
the top management and other employees are doing it, then it must be
alright. The leadership of Enron plays an important part in defining it
employees ethical behavior. A perception that if everyone is doing and is
being rewarded then it is alright, it is not about illegality but about the
morality and ethics of all of those involved. Lay and Skilling has made it
culture where it influenced employee into believing that what they were
doing was legal although it was immoral and quite unacceptable in normal
circumstances. Besides that, Skilling also implemented a very rigorous.

The main points of bad leadership that explains the demise of Enron are as follows:
1. The working environment Enron favored a system called yank and rank, in which the employees who had
the best credentials, who earned the most, and were the most noticeable in the eyes of the management, were
promoted very quickly with no regard to the amount of experience they had or whether they were suited for the
leadership role. This created an environment which harsh competition, in turn making it hard for employees to
develop other important business skills, such as working in a group, or seeing things beyond immediate profit.
Also, the yank and rank system caused people who were not necessarily suited for leadership roles to get to
the top very quickly, creating a vicious cycle in which the company was not led by people who knew the
importance of good followership, an important factor to the smooth running of a company.
2. Dishonesty I think that probably the thing that led to such a huge downfall was the general dishonesty of the
company. Even if there was a problem, it is astonishing how no one in the company attempted to do something
about it, until one employee was brave enough to point it out in a memo. Part of this is the work environment that
I discussed above, but the fact that the leaders of the company were not competent enough to do what was good
for the company must also be considered. A good leader would have recognized that not addressing the
problems and covering over would eventually lead to the demise of the company yet the Enron management
failed
to
do
so.
I think that another Enron can very well happen it is incredible how blind people can get when they attain huge
power and have so much more to lose than the average person. The Enron case served as a good lesson to
many for a decent period of time, yet we still have corruption in business and government. Obviously, not enough
people have learned from Enrons disaster.

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

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 i.e. respect, integrity, communication and excellence.

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 i.e. respect, integrity,
communication and excellence.

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