ENRON: QUESTIONABLE ACCOUNTING LEADS TO COLLAPSE

1. How did the corporate culture of Enron contribute to its bankruptcy?

The death of the company and Enrons collapse became as inevitable as its true believers
had once presumed its success to be. However, it is the culture and practice of its superiors that
was unethical or illegal individual actions are sometimes symptoms of systemic problems, and
Enrons systems of accountability, oversight, ethical disclosure and corporate priorities were
seriously flawed.
In the case of Enron, its corporate officers seem at best to have been neglectful of their
responsibilities for oversight, or, at worst, outright criminal and abusive in their levels of greed and
deception.
In my analysis though, all of this could have been prevented, long ago, but Enron failed to
create a sustainable successful corporate culture that included values such as customer service, or
maximizing customer loyalty and satisfaction, which would have balanced the companys
overemphasis on pure, short-term stock price.
2. Did Enrons bankers, auditors, and attorneys contribute to Enrons demise? If so, what was
their contribution?
In reading the case of Enron, I have realized the importance of looking at this case from a
different vantage point, that is, to concentrate primarily on the character of the individuals in
question: Kenneth Lay, Jeffrey Skilling, and Andrew Fastow. Character ethics focuses on the ethics
of the person rather than the ethics of the action in question. It distinguishes between individuals
who might be called good or virtuous and individuals who might be called bad-at the extreme, evil
people or people who are vice-ridden or vicious.
The Enron scandal has its own legal and regulatory structure that lead to its bankruptcy.
First, current laws and SEC regulations allow firms like Arthur Andersen to provide consulting
services to a company and then turn around and provide the audited report about the financial
results of these consulting activities. This is an obvious conflict of interest that is built into the legal
structure. Second, a private company like Enron currently hires and pays its own auditors. This
again is a conflict of interest built into the legal system because the auditor has an incentive not to
issue an unfavorable report on the company that is paying him or her. Third, most large companies
like Enron are allowed to manage their own employee pension funds. Again, this is a conflict of
interest built in the legal system because the company has an incentive to use these funds in ways
that advantage the company even when they may disadvantage employees. And fourth, most
companies like Enron have codes of ethics that prohibit managers and executives from being
involved in another business entity that does business with their own company. But these codes of
ethics are voluntary and can be set aside by the board of directors. The legal structure today
largely allows managers to enter these arrangements, which constitute a conflict of interest. The
managers and executives, of course, have a fiduciary duty to act in the best interest of the
company and its shareholders, but the law leaves considerable discretion to managers and

executives to exercise their own business judgment about what is in the best interests of the
company.
3. What role did the chief financial officer play in creating the problems that led to Enrons
financial problems?
In the history of American business, the collapse of Enron is probably one of the most
significant events. Within six months, the company went from one of the most respected in the
United States to bankruptcy. This seems unbelievable but certainly this happened because of the
neglect of its chief financial officer which had not considered on revealing the real condition of the
company.
One of the lessons of the business sector in the United States is that it's often
difficult for analysts to understand and evaluate new kinds of businesses. And executives like Mr.
Skilling, who once swore at an analyst during a conference call for asking a pointed question about
Enron's balance sheet, don't do much to foster the kind of open inquiry that could lead to better
information.
If there had been open disclosure on the part of the company about its real financial
condition, then there could have been enough time for the other specialists in the business to save
the company from bankruptcy. Its chief financial officer was not able and insignificantly applies
significant reforms in accounting and corporate governance, as well as for the close look at the
ethical quality of the culture of their business enterprise and the concerns of its other people in the
business.

TYCO INTERNATIONAL LEADERSHIP CRISIS

1. What are the ethical and legal issues in this case?

Understanding from the case of Tyco, the ethical and legal issues range from accounting
fraud and discrimination among its employees which is very evident that lead to its crisis. Aside
from these problems that are evident in the case presentation, the top executives swallow up
accounting scandals and white-collar crimes.
The companys leader and CEO were also accused of mishandling of funds, fraud,
conspiracy and grand lancery charges, which lead to the leadership crisis of the company.
These massive issues had affected the culture of its people that led them lost their confidence
on the leadership of Kozlowski.
2. What role did Tycos corporate culture play in the scandal? What roles did the board of
directors, CEO, CFO, and legal counsel play?
The scandal was played up and it is attributed to the behavior of individuals within the
company culture especially its heads and officers. In this environment, Tyco International
employed a strict top down management approach that led to the lost of confidence of the
employees.
The board of directors had not so much courage to disclose the problems of the company
after being bribed by the executives of the company to be mum about their issues in the
company, and most importantly the way the CEO and the CFO mishandled the funds of the
company. The CEO and the CFO enjoyed misappropriating hundreds of millions in company
funds that led them to live very extravagant lives and the company paid most of the bills such
as parties and gifts they enjoy.
Tyco's former chief executive, L. Dennis Kozlowski, systematically created a corporate
culture of greed and excess, secretly authorizing the forgiveness of tens of millions of dollars of
loans to dozens of executives to keep their loyalty
3. Have Tycos recent actions been sufficient to restore the confidence in the company?
What other actions should the company take to demonstrate that it intends to play by
the rules?
In its attempt to revive and conceal the real issues, the recent action of the company was
not sufficient to restore the confidence of the company especially when the silence was
brought to a scandal in the economic business. But with the take-over of its new CEO, the
company rose to revive its prime status in the business industry, making drastic changes,
including replacing board members and hiring an executive vice-president for corporate
governance, in the wake of the recent management scandal at the company.

4. How will the implementation of the Sarbanese-Oxley Act of 2009 prevent future dilemma
in Tyco?
Tyco continued to thrive after the scandal because of the implementation of the
act in 2009. The Sarbanes-Oxley Act of 2002 (SOX) contains significant
protections for corporate whistleblowers. Given its diverse civil, criminal and
administrative provisions, the statute may be considered, over time, one of the most
important whistleblower protection laws.
Because of these benefits, there was a time for the company to correct its culture and
continue thrive in its business. In this case, Tyco was committed to the highest standards of
integrity, which begins with making sure that everyone across the Tyco organization
understands the companys core values integrity, excellence, teamwork, and accountability.

WORLDCOM: ACTIONS LEAD TO CORPORATE REFORM

1. What are some things that WorldCom executives could have done to prevent the accounting
scandal?
WorldCom is a business organization that caters telecommunications. Unlike the scandals
that let to the economic conditions in the past in the American economy, the executives could have
prevented the accounting scandals should have thought off well the merging of the company to
other companies.
In this case, the WorldCom executives could have prevented the fiasco if its accounting
system, ways and means were properly handled by its officers. Likewise, when well conceived and
executed properly, a growth-through-acquisition strategy is an accepted method to grow the
business enterprise. The executives of the company must also have needed to put in place
protections to insure stakeholders benefit.
2. How could corporate ethics have played a part in this failure? How could they help to bring
about a new and successful WorldCom?
While the ethical quality of enthusiasm and sociability is debatable in this case, the
company must have observed well and practiced fully corporate ethics especially its provisions on
accounting stipulations and balanced reporting. Fair and real accounts must have been observed
or put into practice so as not to have cause jeopardy in the business enterprise.
Instead of a real entry in its accouting stipulations, it appeared that the company was
attempting to represent operating costs as capital expenditures in order to make the company look
more profitable that lead for the investor community to be of suspicion.
In the outset, when one considers how stakeholders affect organizations, secondary
stakeholders may be viewed with more urgency by executives than primary stakeholders. The
government can shut down a business in a matter of hours; it takes much longer for disgruntled
customers to have such a drastic effect.
3. Give a thorough update on WorldComs struggle to reorganize. What penalties have
WorldCom executives paid for their part in the fiasco? Do you think these penalties are
sufficient?
There was a 100-day plan to re-organize the company since it was dragged into an
accounting fiasco. It is unclear though after the accounting fiasco whether Bernie Ebbers will be
held responsible for the accounting irregularities that brought down his second in command. Jack
Grubman's final legal fate is also unclear. However, as part of their re-organization, the
management has to report directly to the audit committee any transactions made by the company.
There was also a change in the management especially on the installations of new members of the
board of directors of the company. The managers at that time were fired and were charged with
the irregularities they have committed that led to the filing of the companys bankruptcy.

ARTHUR ANDERSEN: QUESTIONABLE ACCOUNTING PRACTICES

1. Describe the legal and ethical issues surrounding Andersens auditing of companies
accused of accounting improprieties.
The auditing firm of Arthur Andersen was constantly accused of wrong doing starting in
1998. This is despite its struggled to balance the need to maintain its faithfulness to accounting
standards with its clients' desire to maximize profits, particularly in the era of quarterly earnings
reports. Andersen has been alleged to have been involved in the fraudulent accounting and
auditing of several companies that led to the filing of bankruptcy of these companies like Enron and
the rest.
The firm actually can be considered greed in its aim in enriching its people in the
management by the means of concealing the irregularities of their clients, despite the presence of
ethical standards on accouting practices.
2. What evidence is there that Andersens corporate culture contributed to its downfall?
The auditing firm Andersens culture on greediness led to its downfall. After the company
had been dragged with the downfall of the considered big companies in American business
enterprises, the company found its way to the downfall.
Andersen had helped in many ways by their accounting techniques that they have
employed to conceal their clients companies staggering losses by spinning off the truth in the
records of these businesses. As a matter of fact, the auditing company had its knowledge on the
reports of their clients not representing an accurate view of the companies assets compared to
their liabilities.
Because of the opportunities that led the company to be consultants of the big companies
in America, the Andersens auditing firm became so enamored with making money that the
corporate executives consumed them with great under the table pays. This greed coupled with the
risk of exposure to the public and to the SEC propagated more aggressive accounting and more
deception that bound the directors of the company in a partnership of necessity, whereas turning
away from the downfall of all involved.
3. How can the provisions of the Sarbanes-Oxley Act help minimize the likelihood of auditors
failing to identify accounting irregularities?
For the reason that many companies were into their downfall cause by irregularities, the
Sarbanese-Oxley Act of 2002 was passed by congress which established new guidelines and
directions for corporate and accounting responsibility.
The act was enacted to fight securities and accouting fraud and includes, among other
things, provisions for a new accounting oversight board, stiffer penalties for violators, and higher

standards of corporate governance. The act also emphasizes auditor independence and quality
restricts accounting firms ability to provide both audit and non-audit services for the same clients.

SUNBEAM CORPORATION: CHAINSAW A1 AND GREED

1. How did pressures for financial performance contribute to Sunbeams culture where
quarterly sales were manipulated to influence investors?
2. What were A1 Dunlaps contributions to the financial and public relations embarrassments
at Sunbeam that caused investors and the public to question Sunbeams integrity?
3. Identify ethical issues that A1 Dunlaps management team may have created by adopting a
short-run focus on financial performance. What lessons could be learned from the
outcome?