Running Head: The Fall of Enron
The downfall of Enron Corporation shocked the whole financial world in the history of mankind. Additionally, the corporation’s reverberation was felt globally. Prior its collapse, the company was among the famous companies in United States where every person would to work. According to the Fortune magazine, Enron’s Board of Directors was highly recognized and respected for its proper management. By 2000, the corporation has employed more than 30,000 people in approximately 20 countries around the world (Matiur et al, 2009).
Enron Corporation had been praised by the outsiders following its success; however, the company was facing internal problems that emanated from its highly decentralized financial control and decision-making structure. This structure rendered practically impossible for the management to acquire coherent and explicit view on various business operations and activities taking place. Critically, the problem is not associated with ineffective managerial performance but all the departments within the entity fully participated in paralyzing the entity’s ethical values, principles, concepts, rules and regulations. However, the top managers and supervisors should be held accountable for poor corporate culture. They bear primary responsibility for lack of accountability and transparence in the company. Therefore, if the corporation had adopted a more centralized financial control and decision structure and management work properly and it its full force, there are high chances that it could escape the tragedy (Healy & Krishna, 2003).
Directors, managers, supervisors and other persons acting in the same capacity owe several duties to both corporation and the shareholders. In most cases, this duties are often referred to fiduciary obligations which imply that the officers have a duty of loyalty and a duty of due care in their daily business undertakings. The corporation officers failed to deliver their duties within the scope of authorities, and this undermined various business operations. In 2000, the corporation’s reputation was marred by numerous briberies perpetuated by its officers. The political pressures became apparent in 200 with intentions of securing relationships with the rests of the world i.e. South and Central America and parts of Africa. Fundamentally, scope of corporate authority is limited by what is considered legal. The corporate officers cross the line and performed illegal things hence failed to act within the required and expected scope of authority. The series of scandals experienced in the company were related to irregular accounting techniques which bordered mainly on fraud. The officers falsified accounting and financial figures and trading volumes, and this amounted to fraud. Therefore, Enron’s officers failed to act within the scope of authority (Thomas, 2002).
Enron valued risk taking, aggressive growth and entrepreneurial creativity as basis of success in the global economy. These are positive aspects; however, the entity did not genuinely attend to the corporate integrity. The company’s culture was not well grounded, and officers were focus on maximization of price per share of common stock without considering shareholder value. Thereby, the positive values turn out to liabilities in the long run. Enron’s corporate culture emphasized so much on value in massive size as a strategy to attaining larger mission, goals and objectives. However, this turn out to be a stepping stone for the officers to pursue their personal interests. The mere dedication and devotion to the sheer value size was utilized by officers to bully and intimidate those who tried to questioned rationality of some accounting and financial practices (Thomas, 2002).
Between January 1999 and November 2001, Royal Bank of Canada in conjunction with its affiliates and subsidiaries was involved in execution of deceptive devices purposely to inflate Enron’s profits and financial conditions as reflected in the accounting standards. In addition, the seller and the corporation jointly participated in a scheme with intent of defrauding various business operations to deceit purchasers of the entity’s traded securities. Royal Bank Corporation participated in numerous fraudulent transactions with the Enron. As alleged by the plaintiff the Regents of the University of California, Caribou, an affiliate of RBC utilized swap agreements with Enron’s affiliates which resulted in creation of substantial off-balance sheet debt exposure for Enron Corporation. In another case, State Street Bank and Trust (RBC affiliate) securitized lease of $720 million deal, and this was guaranteed by Enron (Healy & Krishna, 2003).
According to Healy and Krishna (2003), common law states companies are liable for acts committed by their employees. Corporations and companies are legal entities like actual human beings. However, they cannot act or perform operations except in presence of agents such as directors and other officers. In law, companies and corporations can be sued and prosecuted before court of law for the wrongful actions of employees or agents. Enron Company should be sued and prosecuted for agents’ actions that constitute crimes. Of course, there exist a close relationship between the action and the duties of the corporation agents. Fraud on behalf of the company can result to charges and conviction of both the company and the employees. The company’s officers defrauded the company through accounting and financial techniques. Consequently, the injured parties have a right to sue the company for damages suffered (Healy & Krishna, 2003).
Healy, P. & Krishna G. (2003). The Fall of Enron. Journal of EconomicPerspectives, Vol. 17 (2), pp. 9-10.
Matiur R., Daryl V. & Muhammad, M. (2009). Accounting Scandals and StockPerformance: Life after Enron. Retrieved October 23, 2010, from
HYPERLINK “http://www.cluteinstitute-onlinejournals.com/PDFs/1482.pdf” http://www.cluteinstitute-onlinejournals.com/PDFs/1482.pdf
Thomas, W. (2002). The Rise and Fall of Enron. Retrieved October 23, 2010, from
HYPERLINK “http://www.journalofaccountancy.com/Issues/2002/Apr/TheRiseAndFallOfEnron.htm” http://www.journalofaccountancy.com/Issues/2002/Apr/TheRiseAndFallOfEnron.htm