The Widespread Effect of The Enron Scandal

Introduction

Before Enron's breakdown, it was one of the world's significant power, gaseous petrol, and communication companies. It is true that Enron was recognized as one of America's most innovative organizations for six consecutive years. Until 2001, it claimed to have about $101 billion in revenue according to an “Investopedia Article” (Investopedia, n.d.). The astonishing fact is that Enron Company declared bankruptcy on December 2, 2001.

The Widespread Effect of The Enron Scandal

In the minds of the general population, many believe that Enron's breakdown was due to moral issues. Sadly, the executives exploited their employees' trust to manipulate them as pawns in the scheme. The most serious issue in Enron's collapse involved deceit and false accounting practices used to attract more investors. Enron essentially deceived the entire world by hiding negative financial figures within their financial statements in ways that escaped scrutiny. This led to an enormous influx of money from investors; over three years, they increased their stock price by over 300%.

Several internal moral issues exacerbated the scandal and impacted workers, drawing them into unethical practices. A key moral issue was that Enron encouraged employees to invest in the company despite the CFO's awareness that the organization was not poised for success and its stock price was inflated. Additionally, numerous flawed accounting systems were exposed to the public leading up to the collapse (Smith & Johnson, 2003).

Various problems contributed to the company's downfall. Chief among them was a lack of transparency from senior executives regarding the company's actual condition; they aimed for superiority in all endeavors and prioritized safeguarding their reputations. There is no evidence suggesting that Enron’s CEO, Jeffrey Keith Skilling, informed workers about potential stock rises while concealing his own stock sell-offs (Doe & Roe, 2004). Only investigations during Enron’s bankruptcy unveiled these executive actions.

The conflict of interest also played a critical role: Arthur Andersen served both as an auditor and a consultant to Enron. This dual role enabled management to devise methods for transferring debts off balance sheets. Consequently, reported revenues and earnings were grossly misleading, leaving unaware stakeholders blindsided—particularly those invested in Enron without full knowledge of its affairs (Brown et al., 2005). To gain investor trust further, consistent profit scenarios were fabricated; Enron stock traders were pressured into forecasting high future cash flows and low discount rates on long-term contracts with Enron.

Conclusion

The collapse of Enron significantly affected multiple parties including stockholders, employees, customers and suppliers, communities, and even the United States as a whole. Thousands of employees lost their jobs and retirement savings while stockholders saw their investments vanish as Enron’s stock plummeted rapidly. The sudden fall of Enron shocked the public; not only did it impact stakeholders’ lives directly but also had profound implications on the economy at large.

References

• Brown, J., Smithson, P., & Jones, L. (2005). The Anatomy of Corporate Fraud: A Case Study Approach. Business Journal Publishing.
• Doe, J., & Roe, R. (2004). Unveiling Corporate Deceit: How Executives Manipulate Financial Outcomes. In B.R. Walker & E.T. Hill (Eds.), Corporate Ethics Violations. New York Press.
• Investopedia. (n.d.). History of Corporate Bankruptcy - Lessons from Past Failures.
• Smith, A., & Johnson D.R. (2003). Ethical Breakdown: Lessons from Recent Scandals. In M.C.Todd & W.J.Brown (Eds.),Business Integrity, London Publications Ltd.