Course: Ethical & Legal Issues in

Business Analytics

Presenter: Muhammad Salman Khan

(21L-7024)

Presented to: Dr. Komal Nadeem

Topic: Enron Financial Debacle-An

Ethical & Legal Dilemma
Enron: The Financial Debacle
An Ethical and Legal Dilemma

Introduction to Enron
Overview The Fall of Enron
Corporation

Unethical
Background Consequences
Practices

Founded in 1985, Enron was an energy,
commodities, and services company
headquartered in Houston, Texas. In its
early days, Enron’s business model
centered on wholesaling electricity and
natural gas along with providing risk
management services for energy
companies.
In October 2001, accounting fraud and
unethical business practices were
revealed, notably the company's
fraudulent attempts to keep debt off its
balance sheet and the executives'
practice of selling their stock at the
expense of the company and the public
investors.
Enron’s bankruptcy filing was the
largest corporate bankruptcy in US
history, spurring multiple legal battles
and causing economic losses in the
billions of dollars.
Ethical Issues In Use of Business Analytics
“
The unethical and illegal
behavior of its leadership
team has resulted in
multiple legal proceedings
for those involved, as well
as extensive losses for its
shareholders and
employees.
“
Enron used complex and
deceptive accounting
practices to hide its losses
and debts, inflated its
profits and stock price,
and evaded taxes and
regulations. violated the
trust and fiduciary duty of
its shareholders.
“
Violated Securities
Exchange Act of 1934, the
Sarbanes-Oxley Act of
2002, the Foreign Corrupt
Practices Act, and the
Generally Accepted
Accounting Principles
Enron Financial Debacle
An Ethical and Legal Dilemma

Accounting Practices
Enron engaged in unethical accounting practices to hide growing debt from
investors and falsely inflate profits.

SPEs
Enron used special purpose entities to shift losses off their balance sheet and
disguise them as investments.

Economic Decisions
Manipulated the market by trading energy contracts, hiding losses, and trading
complex derivatives that violated state regulations.

Legal Problems
Activities led to bankruptcy and civil litigation.
Enron Financial Debacle
An Ethical and Legal Dilemma
Jeffrey Skilling
✓ Former CEO of Enron.
✓ withheld information about the
company’s debt from investors and
omitted facts that could reflect
poorly on Enron's financial status.
Andrew Fastow
✓ Enron’s CFO.
✓ created a complex network of off-
balance sheet partnerships while
deceiving investors and regulators as
to the true nature of Enron’s
finances.
Lay & Skilling
✓ Both Lay and Skilling are accused of
fraud for selling millions of dollars
in stock options before it was
revealed that Enron was
misreporting its finances.
✓ Other executives and board
members were aware of the illegal
activity but failed to notify
shareholders or the authorities.
Enron Financial Debacle
An Ethical and Legal Dilemma

SEC Investigation Findings Conflict of Interest Information Concealment

✓ The Securities and ✓ Enron created special ✓ Conflict of interest between ✓ Executives concealed
Exchange Commission purpose entities (SPEs) that Enron's executives and material information and
(SEC) launched an allowed them to hide employees. manipulated earnings
investigation into Enron's billions of dollars in debt reports to inflate stock
financial records. from investors and analysts. ✓ who profited from stock prices and overestimated its
sales while the company assets while failing to
✓ The SEC's key findings was failing. disclose material liabilities.
include:
Enron Financial Debacle

The Enron Financial Debacle created an ethical and The media widely reported on the scandal,
legal dilemma, leading to widespread public intensifying public outrage.
condemnation.

”
Governments around the world responded directly,
”
The public reaction to the scandal was significant,
holding Mr. Skilling and Mr. Lay accountable for demanding justice for those responsible.
their actions.

” ”
The Impact of Enron Debacle
How the financial debacle created an ethical and legal dilemma for the accounting industry.
The Enron Collapse
Enron lacked accountability
and transparency in its
governance, culture, and
operations, and fostered a
climate of greed, arrogance,
and corruption among its
leaders and employees
Lacked Social
Responsibility
Ethical principles and frameworks,
such as the stakeholder theory, the
utilitarianism, the deontology, and
the virtue ethics, could have
helped Enron to align its business
analytics with its social
responsibility, moral values, and
professional standards
Increased Regulations
Enron’s scandal prompted legal
reforms and initiatives, such as the
creation of the Public Company
Accounting Oversight Board
The Aftermath
Enron’s executives, directors,
auditors, lawyers, bankers, and
analysts were held liable for their
roles in Enron’s scandal, and faced
criminal charges, civil lawsuits,
fines, and sanctions.
Conclusion:
• Enron’s scandal exposed the ethical and legal risks and challenges of business analytics, and revealed the need for more
integrity, honesty, and accountability in the business world.
• Business analytics should be used to enhance the performance, efficiency, and innovation of businesses, not to manipulate,
deceive, or harm the stakeholders and the society.
• Business analytics should be guided by ethical principles and frameworks, and comply with legal laws and regulations, to
ensure the accuracy, reliability, and validity of the data and the analysis.
• Business analytics should be subject to internal and external audits, reviews, and controls, to prevent and detect any errors,
frauds, or irregularities.
• Business analytics should be transparent and accessible, and communicate the results and the methods clearly and honestly,
to build trust and confidence among the stakeholders and the public.