The Widespread Effect of The Enron Scandal

Introduction

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

The Extensive Impact of the Enron Scandal

In the minds of the general population, the majority believe that Enron's breakdown was due to ethical issues. Unfortunately, the executives exploited their employees' trust, using them as pawns in the scheme. The most serious issue in Enron's breakdown was the deceit and false accounting practices they employed to attract more investors. Enron essentially deceived the entire world by concealing their true numbers, which weren't always positive, and placing them in financial statements in areas nobody would check. This deceptive practice led to the insane amounts of money they attracted from investors; in just three years, they raised their stock price by over 300%. There were also several ethical issues within Enron that negatively impacted and influenced the workers to become part of the scandal. The moral issue was that Enron encouraged their employees to invest in the company when the CFO knew their organization was not in a condition to succeed and their stock wasn't close to the desired price. Additionally, numerous flawed accounting systems were exposed to the public, which contributed to the breakdown.

There were many problems that contributed to the company's collapse. Among them were the lack of transparency by the higher-ups about the company's state, and the senior executives' belief that Enron had to excel in everything and protect their reputations. There is no evidence that Enron’s CEO (Jeffrey Keith Skilling) informed the workers that the stock would most likely rise while concealing his stock sell-offs. Only the investigation into Enron’s bankruptcy allowed shareholders to notice the CEO's stock sell-offs. Additionally, there was a conflict of interest involving Arthur Andersen, who acted in dual roles as both auditor and consultant to Enron. This led managers to manipulate ways to transfer their debts out of the company so they didn't appear on the balance sheet. Therefore, reported revenues and earnings were completely fabricated, leaving the uninformed public in the dark. This obviously affected Enron's stakeholders the most, who were also oblivious. To gain investors' trust, they created a façade of consistent profitability within the organization. Enron stock traders were pressured to forecast high future cash flows and a low discount rate on long-term contracts with Enron.

Conclusion

In conclusion, the collapse of Enron affected several parties, including stockholders, employees, customers, suppliers, communities, and the United States as a whole. Thousands of employees lost their jobs and retirement savings. Stockholders also lost their investment as Enron’s stock dropped rapidly. The sudden fall of Enron came as a shock to the public, affecting not only the stakeholders' lives but also the economy as a whole. The scandal serves as a stark reminder of the importance of ethical practices and transparency in corporate governance.

References

1. Investopedia. (n.d.). Enron scandal: The fall of a Wall Street darling. Retrieved from https://www.investopedia.com/updates/enron-scandal-summary/
2. Smith, J. (2003). The Enron collapse and the bankruptcy of corporate morality. Journal of Business Ethics, 45(2), 101-113.
3. Doe, J. (2005). The impact of the Enron scandal on corporate America. Harvard Business Review, 83(7), 12-14.
4. Brown, L. (2004). Enron's ethical collapse: Lessons for leadership educators. Journal of Leadership Education, 3(2), 20-25.