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Most Organizations Develop

Essay by   •  December 3, 2013  •  Essay  •  765 Words (4 Pages)  •  1,429 Views

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Most organizations develop a Code of Ethics, which are guidelines for its managers and employees to follow to conduct their actions in accordance to the organizations primary values, ethical standards, and within the legal limits. Unfortunately, this is not always the case, for example the Enron Corporation scandal. Enron acted in an unethical manner by falsifying accounting information and misrepresenting accounting from its shareholders and analysts. This was one of the biggest accounting fraud cases the country had ever experienced.

Enron Corporation was an energy trading and services company based in Houston, Texas. In 1985 Enron was established by Kenneth Lay with the merger between Houston Natural Gas and InterNorth, a Nebraskan pipeline company. This merger Enron incurred major debt and no longer had full rights to its pipelines. Enron had to get creative to develop a new business strategy that will generate profits and cash flow. Kenneth Lay hired Jeff Skilling's to assist the company in developing a new business strategy. Jeff Skilling proposed a solution known as the "gas bank."This new innovative strategy involved buying gas from suppliers and selling it to consumers; this strategy guaranteed supply and price. In 1990 Enron created a new division called Enron Finance Corp., and this allowed Enron to dominate the natural gas market. In 1996, Enron expanded its "gas bank" to electricity, and continued to expand its "gas bank" to any products people would be willing buy or trade. By 1997, Enron became the largest purchaser and supplier of natural gas and electricity in the nation.

The controversy was the unethical conduct within the company's accounting department by misleading financial accounts. Enron falsified their balance sheets and would manipulate auditors to sign off on financial information to present to Enron's shareholders, New York Stock Exchange (NYSE), creditors, and its employee's the company was performing better than it actually was. Jeff Skilling's had ways of hiding losses of trading and other operations called "market-to-market accounting." He developed an execute staff, which included Andrew Fastow, whom was familiar with expanding the deregulated energy market, and managed Enron's trading operation and financing by a complicated processes. Andrew Fastow not only performed unethical research behavior but also violated Special Entities Purpose (SPE) by establishing numerous dummy subsidiaries allowing the company to transfer liabilities by creating a maze of careful imaginary transactions between the company and its subsidiaries to manipulate and conceal the company's true financial results.

Enron had become the seventh largest company in the world, named the "America's Most Innovative Company" for six straight years by Fortune, and one the major energy, natural gas, and communications

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