The Lessons Learned and Consequences of Enron Scandal


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The Enron Scandal was named to the series of events that resulted in the bankruptcy of the largest energy corporation of US named Enron. Along this, one of the largest auditing and accountancy firm, Arthur Andersen, was also involved in this scandal and therefore both ended up in prison. In 2000s the company became listed on the 7th largest growing company in the United States. But later on they had only be known as the biggest bankruptcy in the united states because of its accounting scandal the company became suddenly fall down. The bankruptcy is because of internal people who just want to make money and only want to satisfy their desired. The Enron collapsed includes either unlawful or dishonest acts.

This news of bankruptcy was shocking for everyone because this corporation and firm has huge reputation in market. And the financial record of this Corporation was very much appealing for the investors. Sudden bankruptcy of this corporation astounded the investors. The reason behind all this was the dubious accounting information and fake profits of the company, shown by the chief financial officer to maintain the reputation of the company. And the audit firm was also working side by side in faking the genuine profits.

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Enron also confronted numerous allegations of building connects to political power. The organization’s association with George W. Hedge and Houston’s nearby governmental issues has gotten much consideration in later past. In 1986, Enron was included with Bush’s organization in joint boring for oil. There are reports that Kenneth Lay and George W. Hedge even shared fellowship. Lay has utilized government officials who have worked under George W. Hedge additionally approved a law that deregulated Texas electrical markets, which unintentionally brought about huge benefits for this organization.


Huston and Inter North Inc. were the two natural gas transmission companies. These two were merged together and name as HNG Inter North. Later it was renamed as Enron Corporation by Kenneth Lay. In late Nineties, the company lost its major right to operate its pipelines. This step was taken by US congress to deregulate the sales of natural gas. Therefore they had to face to face huge loss.

But after that, with the help of a consultant who later became the chief operating officer of the company, Jeffery Skilling, this corporation started to operate as a trader of energy derivative contracts. This means, they started to act as connection between natural gas producers and their customers.

Prosperity under Skilling Leadership:

Skilling changed the faith of the company. His leadership appeared to be very successful. Enron started to dominate the market of natural gas contracts. They started to generate huge profits because of these trades.

Skilling, after that, started to change the culture gradually to promote trading. He also hired the experienced candidates of MBA from all around the world to boost the profits. One of his shinning fresh employee was Andrew Fastow. Later he became the Chief Financial Officer.

They started to expand the company by investing in the building of telecommunication network to experience the high speed trading facility. By the time they had to face huge competition in their energy trading business. Their profits began to fell down. Under the pressure of shareholder and to main the reputation, they started to fake or hide their short comes.

Profit Shrinkage and Faking Data:

They started making illusions of higher current profits so that the shareholders remain calm and investors put faith in their business. Further, they started transferring profits. Which were remain off the books. Therefore, their losses look less severe than they really were. Behind all of this transferring was Fastow himself.

Because of the connections that the organization had with audit firm, it was simply unreasonably simple for both Enron and the firm to cooperate in concealing money related misfortunes and obligation.

On the other hand, throughout these years, Arthur Andersen was not only its auditor but also its financial advisor as in consultant. They played equally in faking and hiding the evidence of losses and didn’t preformed the audit of the company right. This big lie when reveled left the people astounded, and lead to the bankruptcy of Enron.

Consequences they faced

Downfall of share price:

When the accounting frauds published, the company began to face the downfall of share price in stock market. The share price fell from 90 dollars to less than 1dollar by the end of November 2001. At that time, 401k pensions were also tied to the company’s stock. Lay and the Skilling resigned right after this happens. And Andrew Fastow was fired two days after the SEC started the investigation of this scandal.

Moreover, when the cooperation was on the edge of bankruptcy, the management was unable to fulfill the requirements of their employees. Many workers didn’t get their salaries. Pensions were also pending. Even they were unable to provide the basic necessities to their employees.

Bankruptcy and Prison:

On December 2, 2001, Enron filed for chapter 11 bankruptcy protection. Many high rank officials of Enron had to face variety of charges and were later sentenced to prison. Arthur Andersen was also facing severe consequences. They lost the major ratio of their clients because they lost their reputation in market. The damaged reputation was so severe that they started to dissolve addition to federal law suits, hundreds of civil suits were also filed by the shareholders against both the company and the audit firm.

Public believed in the American financial system is devastated. The auditing firm lost his reputation. There is also an impact on the government of George W. Bush because he has a good relationship with the Chief Executive Officer Kenneth lay.

New Legislations and laws:

This scandal compelled the government to make new laws and legislations to increase the sense of protection among shareholders. These laws were made to ensure that the accuracy of the financial reports remains intact for publicly trading companies. The most important act among those were Sarbanes-Oxley Act, 2002. According to this act, if the financials records are fabricated, altered or destroyed, then the companies had to face penalties. Moreover, the act also prohibited the auditing firms to perform the duties of being consultant for the same client.


In a nut-shell, Enron scandal is purely based on the misused of powers and authority. What I learn from it is that we should not misuse the power to our benefit. One should be true and loyal to its work and responsibilities. The top level management is purely responsible for such acts. They should perform their duties faithfully to minimize the chances of such activities. Moreover, as a top manager, we should make work our priority. If we do so, the greed would not take over us.

The mismanagement of Enron Corporation lead to path where they had to hide their short comings. In my opinion, the core responsibility of manager is to provide quality management. The manager should do his best to provide such environment. But in case, as humans make mistakes, if they are unable to manage or maintain the work they should be then courageous enough to face the consequences rather running from it and hiding it. Exactly what was done in Enron Scandal to hide the mistakes of managers.

Other lesson I got from it that the auditors firm should not take part as a consultants. Auditing is very strict and honest job. These jobs are performed by unbiased officials to get best output. Arthur Andersen done it totally wrong. It the greed of money, they overlook their responsibilities and started making money out of it.

I also learned that financial records are the company’s main asset. This means that we cannot bluff in financial statements to hide the debts etc. shareholders and investors had to look them before investing. Faking the data would result in the loss of your credibility. Therefore, a co-operate governance should handle such huge and critical matters. Further it’s clearly unethical to do such act because whenever such activities happen, the public losses faith in the government and bigger organizations. Once a trust is broken, it takes ages to build it back.

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