Enron: The Smartest Guys in The Room

Recka Marie L. Aquino        BS Accty – 3

ENRON: The Smartest Guys in the Room

Enron as the America’s seventh largest corporation and most innovative company shocked the entire world to being America’s biggest corporate bankruptcy at its time. It reflects a complete illusion of a steady company with high revenue and good profit concealing morally questionable acts of its executives and traders. The company’s big problems finally emerged as it declares bankruptcy in early 2001 for its enormous debt and surfacing information about hiding losses.

        Enron started as an energy company to a trading company for its search of innovative ways of finding money which expound its business and attract top graduates from best universities making it more competitive and eager to strive forward. It was the first non-financial company to use mark-to-market method wherein estimated income were included in the accounts even though money was not yet received. The deviation of estimates misleads information and subsequently backfired because the company was far too optimistic for assuming future profits which leads to cash crisis that get them struck for cash is a necessity for a company. Special purpose entities were also created to hide debts and manipulate earnings which were later found out that they were not independent for they were run by its employees and should have been disclosed.

        Enron’s culture is another factor which created an unhealthy competition between co-workers because their incentives and bonuses is in the form of cash and stock options encouraging them in hurrying to close deals, good or bad, to raise stock price and their own money regardless of the result of the deal. This disrupts its working environment for instead of cooperation, employees would rather stab each other in the back – greed taking over than to help and support one another. They were more concentrated on increasing revenue in order to earn rewards than achieve a desirable outcome and secure the long – term financial health of the company. It influenced ethical decision making of employees due to pressures of achieving sales and profit goals overriding their ethical values and moral characteristics to manipulate situations for personal gain.

        The top management is the primary one responsible for Enron’s downfall because instead of setting as good examples and reflect ethical management, they neglect to communicate the true status of the company withholding information to make them believe that everything works well. Its leadership lacked balance in managerial style for they only focuses on their planned goals and objectives on making high income to develop an excellent external outlook despite of internal problems without realizing future outcomes and consequences. It failed to integrate competing values and behavioral complexities to encourage diversity of ideas and thoughts not just hire someone who’s like them. A balanced approach to management is important to influence and motivate individuals in their unit not just to be competitive but also to observe and practice moral values.