7/31/2019 23107349 Enron Scandle

1/11

Page 1

http://www.enron.com/index.php

7/31/2019 23107349 Enron Scandle

2/11

Page 2

Scandal how it is starts?

A city boy, Kenny, moved to the country and bought a donkey from an old farmer for $100.00.

The farmer agreed to deliver the donkey the next day.The next day the farmer drove up and said, "Sorry son, but I have some bad news, the donkey died last

night."

Kenny replied: "Well then, just give me my money back."

The farmer said: "Can't do that. I went and spent it already."

Kenny said: "OK then, just unload the donkey."

The farmer asked: "What you goanna do with him?"

Kenny: "I'm going to raffle him off." (Note: To raffle is to sell a thing by lottery - draw lot - to agroup of peopleeach paying the same amount for a ticket)Farmer: "You can't raffle off a dead donkey!"Kenny: "Sure I can. Watch me. I just won't tell anybody he's dead."A month later the farmer met up with Kenny and asked, "What happened with that dead donkey?"Kenny: "I raffled him off. I sold 500 tickets at two dollars apiece and made a profit of 998.00."Farmer: "Didn't anyone complain?"Kenny: "Just the guy who won. So I gave him back his two dollars."Kenny grew up and eventually became the chairman of Enron.

7/31/2019 23107349 Enron Scandle

3/11

Page 3

Enron-Introduction

Enron began in 1985 and it started as inter state pipeline company.

Enron is formed by the merging of Houston Natural base and Obamabased InterNorth.

In 1988 it opens an office in UK & further extended to Gas Bank in 1989.

http://www.enron.com/index.php

7/31/2019 23107349 Enron Scandle

4/11

Page 4

Enron-Rise and Fall

Long term suppliers of natural gas

Holdings in U.K., Europe, South America and India

Broadband unit with natural gas business Mark to Market Accounting practices

Constant losses

Largest bankruptcy in U.S. market

Suicides and imprisonments

Accountancy firm given maximum obstruction

4000 employees lost job

Charges against trading lay

11 criminal charges, including security and wire fraud, making false statements

Former EnronCEO Jeff Skilling

Enron founder Ken Lay

http://www.enron.com/index.php

7/31/2019 23107349 Enron Scandle

5/11

Page 5

What went wrong?

Accounting and corporate governance in the United States, ethical quality of the culture of businessgenerally and of business corporations in the United States.

Change of business strategy and corporate culture to satisfy false means.

Lack of efficient board of directors.

Off book accounts.

Excessive stock options and excessive corporate compensation.

Financial cleverness.

Misuse of Government rules and regulations.

7/31/2019 23107349 Enron Scandle

6/11

Page 6

Unethical practices & Culprits

1993-2001: Enron senior management used complex and murky accounting schemes to reduce Enronstax payments

to inflate Enrons income and profits

to inflate Enrons stock price and credit rating

to hide losses in off-balance-sheet subsidiaries

to engineer off-balance-sheet schemes to funnel money to themselves, friends, and family

to fraudulently misrepresent Enrons financial condition in public reports

Lax accounting by Arthur Anderson (AA) Co?

Rogue AA auditor David Duncan (fired 1/15/02)?

Enrons management for hiding losses in dubious offbalance-sheet partnerships?

CFO Andrew Fastow for setting up these partnerships (10 year prison sentence 1/14/02)?

CEO Jeff Skilling (24 year prison sentence 10/23/06)?

CEO Kenneth Lay (died 7/23/06 with charges pending)?

Media exaggeration and frenzy?

Stock analysts who kept pushing Enron stock?

7/31/2019 23107349 Enron Scandle

7/11

Page 7

Business Ethics violated

Auditing companies consult for the companies they audit.

Auditing companies often accept jobs from their client companies

Appointment of accounting company by shareholders in practice but bysenior management in actual.

Board of directors are paid largely in stock

Directors can sell early on the basis of insider information

7/31/2019 23107349 Enron Scandle

8/11

Page 8

What needs to be done to avoid these scandals?

Strong laws to avoid money laundering

Government control over corporate governance

Accounting practices need to be monitored by Government

Auditors to be changed every three years

Executive accountant shall not be from the auditing firm

Proper regulations on stock options buying and selling

7/31/2019 23107349 Enron Scandle

9/11

Page 9

Conclusion and Questions remaining

How to bring accounting firms and financial analysts tointegrate CSR norms ?

guarantee that these norms represent reality ?

ensure company governance ?

make companies responsible not only towards shareholders ?

de-co-opt media and other organizations ?

increase the integrity of business students and managers ?

diminish the phenomenon ofethical leveling, denounced by

Kierkegaard in 1850 !?

7/31/2019 23107349 Enron Scandle

10/11

Page 10

7/31/2019 23107349 Enron Scandle

11/11

Page 11