Case StudyThe Rise and Fall of EnronI. Viewpoint: Kenneth Lay Jeffrey Skilling Andrew Fastow Auditors from Arthur Andersen LLP

II. Time Context: 2001

III. Statement of the problem: The main problem here is the abuse in power and privileges, the lack of transparency, and the incapability to shoulder responsibilities for ethical failures of the top officials at Enron. A minor problem which resulted from the statement above is; the unhealthy and unethical competition between co-workers.

IV. Objective: To identify the organizational flaws of the company and address those problems properly by providing logical assumptions as solutions.

V. Areas of Consideration: Skilling instituted the PRC, which became known as the harshest employee-ranking system in the country. The lack of transparency using the mark-to-market accounting. In order to satisfy Moodys and Standard & Poors credit rating agencies, Enron had to make sure the companys leverage ratios were within acceptable ranges. For a company such as Enron, under continuous pressure to beat earnings estimates, it is possible that valuation estimates might have considerably overstated earnings. Deals, especially in the finance division, were done at a rapid pace without much regard to whether they aligned with the strategic goals of the company or whether they complied with the companys risk management policies. Enrons foundations were developing cracks and Skillings house of paper built on the stilts of trust had begun to crumble. Enron, like many other companies, used special purpose entities (SPEs) to access capital or hedge risk. As one knowledgeable Enron employee put it: Good deal vs. bad deal? Didnt matter.

VI. Alternative Courses of Action:SolutionAdvantagesDisadvantages

Develop a healthy corporate culture in the company. Instead of covering up for their losses to protect their reputation, the top officials will try to do something to make it correct. Since the managers in the company have been used to the system, sudden change in their principles might overwhelm and confuse them.

Careful selection of accounting approach and financial structures to use.

Annihilation of mark-to-market accounting and SPEs. A more transparent and efficient report in financial affairs. May lead to build the foundation of trust between the company and its investors.

May result to some losses of investors due to the current decreasing financial reports of the company. May decrease the credibility of the company.

Build an ethical climate in the work place founded by trust, cooperation and coordination. Workers will work cleanly because they respect each others rights Workers work more efficiently when they coordinate with one another instead of when they compete with each other.

Like some managers, some workers may be incapable to catch up with the sudden change in the environment. Less individual incentives would be given.

VII. Conclusion / Recommendation Conclusion Enron has many internal and external problems that is causing its downfall. The following problems are; the mark-to-market method, the competitive working environment and the use of special purpose entities. Not to forget is the importance of the people behind this; Lay, Skilling, and Fastow. Enron culture was heavily influenced by competition and since the employees were motivated by fat bonuses and scared of getting laid off if they did not perform well, and in effect resulted to an unhealthy competition between the co-workers. The colleagues would rather stab each other in the back than help one another to close a deal. Our objective was to identify the organizational flaws of the company and address those problems properly by providing logical assumptions as solutions. Recommendations Develop a healthy corporate culture in the company by providing top level managers with proper training of modern and innovative managing and implementing them in the work place. Careful selection of accounting approach and financial structures to use. Build an ethical climate in the work place founded by trust, cooperation and coordination. Accountants and Auditors should present a financial statement disclosed with true profits and losses.VIII. Plan of actionProject Period Goal: A new and improved system and working environment for Enron.

Long-term Impact or Outcome: The debts of Enron will be paid and their credibility as an efficient trading and electricity company will recuperate.

ObjectivesMeasure of SuccessActivities(limit 4 activities per objective)Q1Q2Q3Q4Completion Date

To develop a healthy corporate culture in the company204060Q1 Make managers attend modern managing seminars

Q2 Make managers develop an organizational chart

80100Q3 Conduct quarterly outings and seminars

Q4 Publicly commit to being an ethical organization.

To innovate the accounting approach and financial structures to use.204060Q1 Have accountants and auditors research about improved and ethical accounting and financial structures

Q2 Conduct the proper presentation of financial statement disclosed with true profits and losses.

80100

Q3 Separate auditing from consulting functions.

Build an ethical climate in the work place204060Q1 Make leaders/managers communicate and interact with the workers

Q2 Build a robust ethics infrastructure that is self-sustaining.

80100Q3 Have examinations of your ethical climate and put safeguards in place.

Q4 Establish an Ethics Committee to constantly keep the organization focus.