Business Ethics Case

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Structure:
• Company profile
• The ethical point of view
• The guilty parties
• Main “ingredients” of the downfall
• Closing thought

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 Enron Company Profile
• Enron Corporation was an American energy company based in Houston, Texas.
• Enron employed around 21,000 people and was one of the world's leading
electricity, natural gas, pulp and paper, and communications companies, with
claimed revenues of $111 billion in 2000.
• Fortune named Enron "America's Most Innovative Company" for 6 consecutive
years.
• It was formed in 1985 when Houston Natural Gas merged with InterNorth.
• After several years of international and domestic expansion involving complicated
deals and contracts, Enron was billions of dollars into debt.
• All of this debt was concealed from shareholders through partnerships with other
companies, fraudulent accounting, and illegal loans.
Ethical Point Of View
 The Guilty Parties
• These include Ken Lay, Jeff Skilling, and
Andrew Fastow
• Believe Enron was great for economy
• Circulated money, provided jobs, dealt with
international companies
• Did not inform public in order to keep Enron in
business

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 The Guilty Parties
Kenneth Lee Lay
• Born April 15, 1942
Died July 5, 2006 (age 64)
• Charge(s): Fraud, false
statement ;
• Penalty: Could have faced
40 years in prison plus
monetary fines, but died
before sentencing

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 The Guilty Parties
Jeffrey Skilling
• Born November 25,
1953 (1953-11-25)
• Charge(s): conspiracy,
securities fraud, false
statement, insider trading
• Penalty: originally
sentenced to 24 years and 4
months and fined $45
million USD, pending
resentencing
• Status: Incarcerated
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 The Guilty Parties
Andrew Stuart Fastow
• Born: December 22, 1961 
• Charge(s): conspiracy,
securities fraud, false
statement, insider trading
• Penalty: 6 years, followed
by 2 years of probation
• Status: Incarcerated

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 The Guilty Parties
• Arthur Andersen was one of the
world’s five leading accounting firms
(Big Five)
• Was paid $52m in 2000, the majority
for non-audit related consulting
services.
• Type: Limited Liability Partnership Arthur An
branch
dersen’s H
ouston
• Founded: 1913
• Industry: Accounting, Professional
Services,Tax, Consulting;
Licenses of Certified Public
Accountants surrendered in 2002
ing
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 The main “ingredients” for the
downfall of ENRON
DEREGULATION – government decision to let
gas prices float with the currents of the
market

MARK-TO-MARKET – accounting practice that

allowed Enron to book potential future profits
on the very day a deal was signed

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 The main “ingredients” for the
downfall of ENRON
• SPECIAL PURPOSE ENTITIES - is a legal entity
(usually a limited company of some type or, sometimes, a
limited partnership) created to fulfill narrow, specific or
temporary objectives. SPE's are typically used by
companies to isolate the firm from financial risk. A company
will transfer assets to the SPE for management or use the
SPE to finance a large project thereby achieving a narrow
set of goals without putting the entire firm at risk.

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Closing thought…

“Every fraud
could have been prevented
if honest people
had asked the right questions
at the right time”

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