Enron Corporation is an energy company that was formed in 1985 through the merger of
Houston Natural Gas Company and InterNorth, an Omaha-based pipeline company. The
company quickly expanded its operations and became a major player in the energy industry,
particularly in the natural gas and electricity markets. As a result, Enron was named "America's
Most Innovative Company” by Fortune for six consecutive years: 1996–2001. However, in 2002,
this title changed the company's name to being known as a corporation involved in fraudulent
activities, because of some of the violation of ethical practices which will be thoroughly
discussed below:
Enron company lacks integrity and some of the reasons are the following:
1. Special purpose entities (SPEs) are used by the corporation to keep debt off its balance sheets.
These entities help boost profitability by realizing income that hasn't yet been earned, this act is
known as the mark-to-market accounting or the fair value accounting that recognizing unrealized
revenues in the current income statement of the company. As a result of their dishonest
accounting practices, stakeholders' trust and confidence were damaged.
2. The chief financial officer's legal counsel's instructions to destroy some of the financial data of
the company in order to hide their unethical actions also led to the violations of the principle of
integrity. Shredding audit documents to hide evidences of the company's fraudulent activities
has led to the imprisonment of the several Enron executives, including CEO Jeffrey Skilling and
CFO Andrew Fastow as well as Andersen since their actions shows obstruction of justice.
Enron also lacks transparency; they have presented a strong financial position when in fact the
company's investors have suffered losses. Also, as stated earlier, the destroying of evidences
only shows how the company's unwillingness to cooperate with the government by intentionally
withholding crucial information about its financial health and its true financial position
Moreover, the company shows lack of accountability. One of the frauds in the fraud triangle is
the pressure, pressure coming from the top-level management and from the shareholders. The
financial officer has resorted to deceptive practices to meet the shareholders expectations.
Similarly, incentives was also one of the reasons why the CFO utilizes fraudulent activities, since
were rewarded based on short-term financial gains and stock price performance, rather than longterm sustainable growth which led to manipulation of energy prices.
These unethical acts only show that there is corruption within the organization and that the
management and those charged with governance has failed to employ ethical culture which
would somehow prevent the happening of these unethical practices. In other words, the board of
directors failed in their oversight responsibilities.
As for the corporate social responsibility of the said company, the litigation faced by them has
affected the thousands of employees wherein they have lost their jobs and their retirement
benefits which has affected their quality of lives. Many investors have also experienced financial
crisis due to the bankruptcy of the company. The said company have also affected the country’s
economy since other companies was also scrutinized to see. Whether they follow good
accounting practices. Moreover, the scandal has led to the creation Sarbanes-Oxley Act which
aim to enhance corporate governance accountability and transparency in public companies and
likewise to bring back stakeholders trust and confidence.
As for WorldCom, it is a telecommunication company established in 1983 by Murray Waldron,
William Rector and Bernard Ebbers and with other business partners which provided longdistance discount services to.
As the CEO of the business, Ebber offers exceptionally inexpensive rates to his consumers, whic
h motivates him to buy up to 30 rival telecom firms, transforming the business into one of the top
long-distance phone providers in the country. The business conducted aggressive acquisitions,
purchasing competing firms in an effort to acquire market share. They also engaged in windowsdressing, inflating their profits to conceal their true financial situation and capitalizing their
expenses.
According to George (2021) at the University of South Carolina, the Worldcom business
practices do not adhere to the code of ethics. Worldcom demonstrates dishonest business
practices, such as close personal relationships between company executives to contractors who
were paid rate which are unethical because such relationships could give rise to claims of unfair
hiring decisions and compromise objectivity because you were biased toward the individual you
are having personal relationship.
The company made a poor decision to stop paying vendors on time, which shows that it doesn't
value its connections and risks losing its suppliers, which would be negative for the business's
reputation. Ethical behavior in finance is essential to maintaining investors' confidence and
preserving the long-term health of financial markets.
Employee were asking to do something they know are illegal such as misclassify cost in the
accounting books, shifting labor expenses from one category to another. WorldCom might
fabricate a profit to appear on its balance sheet rather than a deficit which is misleading to
investors. This could be a referred to a fraud committed by high-ranking executives who are
unaware that they are harming their own company because they are oblivious to the serious
consequences to the company they are working for, which could result in major bankruptcy.
The whole telecoms sector was altered by the WorldCom accounting scandal. WorldCom had
exaggerated the rate of growth in Internet usage as part of their overvaluing approach, and these
estimations served as the foundation for a lot of industry-wide decisions. The investors were the
main parties impacted by the deception. The management's bankruptcy announcement hurt the
company investors, who lost millions of dollars invested in the shares. They were unable to sell
their stock or get dividends because the company was insolvent. In order to reduce costs,
numerous employees were terminated as well in the transfer.
The CEO's sole goal is to increase profits, develop the company, meet market growth
expectations, and increase market share, all while violating the company's moral standards and
CSR policies, which are purely optional for the operation. Incorrect accounting procedures and
the use of faults in the accounting methodology to deceive various stakeholders, including
investors and other directors, are at the heart of the fraud. The CEO's obsession with and
gluttony for money blinded him to the wellbeing of other stakeholders who might be harmed by
his dramatic actions, and he was consumed with his own self-interest. The management does not
understand the value of business ethics, which includes moral principles and standards that
govern employee behavior and ensure that businesses operate in compliance with all applicable
laws. For example, committing fraud results in imprisonment, and those people or groups of
people, such as investors who are victims of these fraud, would be sentenced to severe penalties.
By manipulating its financial statements to make it appear as they are in good financial condition
when, in reality, they are in great debt, the company was able to deceive investors, lenders, and
the community. The company only shows that it had failed to follow its corporate governance,
that it had severely abused the accounting standards, which reflects that they are lacking in a
code of ethics, and that they had disregarded the corporate social responsibility to many
stakeholders