Andrew Ney

Morals & Money AV: Professor Keyes

ENRON Paper
The Smartest Men in the Room
The Enron scandal is considered to be one of the most notorious scandals in American history. It
can be described as one of the best examples of white collar crime, which is defined as non-violent,
financially based criminal activity typically undertaken within a setting in which participants retain
advanced education with regard to employment that is considered to be prestigious (Finance Laws).
There are some important key players involved with the scandal that are part of the rise and fall of
Enron. There are also five topics that summarize the fall of Enron. One would think that the outcome
couldve been much different if the Board of Directors or the companies executives acted ethical in
professional decision making. I have two alternative ideas that may have changed the outcome if the
executives applied the Catholic Social Teaching Principles and the Kantian Ethics to decision making.
Before diving into the scandal I think it is important in specify who the key players were in this
catastrophe. The founder of Enron was Kenneth Lay. It all started in 1985 in Omaha, NE; soon after the
company was headquartered in Houston, TX. Kenneth Lay also served as Chairman and CEO. He went
out and discovered Jeffery Skilling with innovative ideas that could change technology. Skilling served as
President for many years. Another person involved was Andrew Fastow who was the Chief Operation
Officer during the fall of Enron (BBC News). The business Enron was active in was energy, commodities,
and services. Enron employed approximately 20,000 staff and was one of the worlds major electricity
and communications companies. It claimed revenues of nearly $101 billion during the year 2000. The
company was named Americas most innovative company for six consecutive years (The Real Scandal).
Have you ever heard of the phrase If it seems too good to be true, it probably is? That can be
applies directly to the fall of Enron. At the end of 2001, there was a report that revealed that Enrons
financial condition was sustained substantially by an institutionalized systematic and creative planned
accounting fraud, which is known as the Enron scandal. The company has become a well-known
example of fraud and corruption in the business world. The scandal brought into questions the
accounting practices and activities of many large corporations in America. This scandal also had a
negative effect on the accounting firm Arthur Andersen. Enron filed for bankruptcy protection in late
2001. The red flag that brought a lot of attention to Enron was when Jeffery Skilling walked out the door
in August 2001 (Time Inc.). Andrew Fastow had also participated in many illegal transactions that
ultimately required him to serve jail time.
There are many topics that attributed to the fall on Enron. I have discovered five topics that
summarize the scandal. First is the deregulation of Enron. The term regulation within a commercial and
corporate setting typically applied to the governments ability to regulate and authorize commercial
activity and behaviors with regard to individual businesses, the Enron executives applied for and, were
subsequently granted, government deregulation. As a result of this deregulation, Enron executives were
permitted to maintain agency over the earnings reports that were released to investors and employees
alike. This agency allowed for Enrons earnings reports to be extremely skewed in nature losses were
not illustrated in their entirety, prompting more and more investments on the part of investors wishing
to partake in what seemed like a profitable company (Finance Laws).
The second topic that can be seen as a factor in the Enron scandal is misrepresentation. By
misrepresenting earnings reports while continuing to enjoy the revenue provided by the investors not
aware of to the true financial condition of Enron, the executives of Enron embezzled funds funneling in
from investments while reporting fraudulent earnings to those investors; this not only proliferated more
investments from current stockholders, but also attracted new investors desiring the enjoyment of
financial gains by Enron (Finance Laws). The company that signed off the earnings reports was
accounting firm Arthur Andersen. When looking at this case, I believe Arthur Andersen should be seen
as a major factor in the downfall of Enron. Arthur Andersen did eventually close business operations and
because of the Enron scandal, accounting practices have received more attention when reporting
earnings. Some good did come out of this scandal in preventing misrepresentations from happening in
the future.
The third topic is the famous fraudulent energy crisis. In 2000, subsequent to the discovery of
the crimes listed in association with the Enron scandal, Enron had announced that there was a critical
circumstance within California with regard to the supply of Natural Gas. Because of the fact that Enron
was a then-widely respected corporation, the general public was wary about the validity of these
statements. However, upon retroactive review, many historians and economists suspect that the Enron
executives manufactured the crisis in preparation of the discovery of the fraud they has committed
although the executives of Enron were enjoying the funds rendered from investments, the corporation
itself was approaching bankruptcy (Finance Laws). I still do not understand how politicians could let this
happen in California. It seems unethical that people running the state, country and the utility services
involving natural gas would let this crisis happen. It shows how influential an established corporation
that supposedly makes billions in revenues can have on anyone in America; money talks.
The fourth topic is embezzlement. An Enron scandal summary of the acts of embezzlement
undertaken by Enron executives may be defined as the criminal activity involving the unlawful and
unethical attainment of monies and funding by employees; typically, funds that are embezzled are
intended for company use in lieu of personal use. While the Enron executives were pocketing the
investment funds from unsuspecting investors, those funds were being stolen from the company, which
resulted in the bankruptcy of Enron (Finance Laws). Embezzlement must be a tough activity to detect,
especially if the top guys are participating in this crime. It makes me wonder how many businesses in
corporate America participate in this. Detecting a person taking one hundred to a thousand dollars for
large businesses may be hard to catch during a short amount of time. Trust is a difficult characteristic to
engage in when doing business in America.
The fifth and final topic worth mentioning is the losses and consequences. Because of the
actions of the Enron executives, the Enron Company went bankrupt. The loss sustained by investors
exceeded $2 billion; this total is considered to be a result of misappropriated investments, pension
funds, stock options, and savings plans as a result of the government regulation and limited liability
status of Enron, only a small amount of the money lost was ever returned (Finance Laws). Many
American investors were hurt financially and emotionally. Some Americans lost retirement and pension
funds that they put money into for many years. It is truly heartbreaking to think that those types of
investors have to work most likely until the day they die or are eligible to social security benefits.
One of the two alternative outcomes that I came up with related directly to the Catholic Social
Teachings Principles. The main component that I thought of was solidarity. This means members of a
community come together to form common responsibilities and interests between its members. The
executives and board of directors shouldve had strict rules and guidelines governing employees and top
executive officers that are to be followed and closely monitored. The board of directors, especially Ken
Lay, had a responsibility to do what is best for their shareholders. The overall result of the bad decisions
made Enron go bankrupt. If Ken Lay was more involved when he hired Jeffery Skilling the outcome of
this company couldve been different. Lay was intrigued by Skillings innovative ideas; however, his ideas
were not necessarily attainable in the time period Enron conducted business. Lay wanted to put Enron
in front of the pack in technological leaders and relied on Skilling to make Enron reach unattainable
goals.
Another part to Catholic Social Teachings Principles that can relate to the Enron Scandal is Care
for Gods Creation. This component is described as making God or some type of faith in part of life and
work. This is important to create a sustainable environment. The three subtopics for a sustainable
environment are human responsibility, common good, and respect for life. The Board of Directors
needed to take action and find out the truth about Enrons earnings reports. If the Board was involved in
the crime patterns involving Enron downfall, then they were not taking responsibility for their company
and deserved everything that happened to the company and probably deserved jail time if this is true.
They would not have been thinking about the common good. Maybe the SEC shouldve had protocols or
guidelines for members on the Board of Directors for companies on the public market. If Enron wouldve
followed this problem solving solution, maybe they would still be in business today because they
wouldve prevented the scandal that started with Skilling and Lay.
The second creative outcome I thought of relates to the Kantian Ethics. The main component or
topic is Duty and Reason; which is described as using reason to do what is right and based on how
members of a community should act. It is right to do what you ought to do. The financial/accounting
auditors needed to do what was right when auditing the earnings reports. The executives needed to be
open and honest about the decisions that were being made especially since Enron was a publicly traded
company and one would think that false reporting would be discovered. The employees of Enron should
not have participated in the California energy crisis. They shouldve known they would be caught of at
least discovered because of the phone calls. If the employees didnt get involved and the board and
executives did what they should do based on what is morally right, Enron could still be around today or
at least not make other businesses and American citizens cringe when they hear the word Enron.
Overall I think Enron could have chosen a different path. If all key players in at Enron made
decisions based what is morally right and just we may not have such a great example of a notorious
white collar crime to talk about in Morals & Money. The deregulation of Enron, misrepresentation,
fraudulent energy crisis, embezzlement, and the losses and consequences all mixed together to make a
downward spiral for Enron into bankruptcy. There are many creative ideas that could have changed the
outcome if Founder Ken Lay or President Jeffery Skilling wouldve made decision based on ethical
theories; maybe they shouldve taken an ethics course in college.

References
"Behind the Enron Scandal." Time. Time Inc., 24 June 2002. Web. 06 Apr. 2014.
"Easy Guide to Understanding ENRON Scandal Summary." Enron Scandal Summary. Finance Laws, n.d.
Web. 04 Apr. 2014.
"Enron Scandal At-a-glance." BBC News. BBC, 22 Aug. 2002. Web. 06 Apr. 2014.
Kantian Ethics (Power Point); Nikko Andriotis, Will Giest, JacobVirning, Nick Fisch.
"The Real Scandal." The Economist. The Economist Newspaper, 19 Jan. 2002. Web. 06 Apr. 2014.
United States Conference of Catholic Bishops. (2014) Seven Themes of Catholic Social Teachings.
www.usccb.org.