When asked who was at fault for Enron’s downfall, it is important to note that there is no single right answer. There are many different people and groups at vault all to varying degrees. Kenneth Lay and Jeffery Skilling are most certainly at fault, but I do not think you can blame a man for acting in his own best interests and for doing what he “thought” would protect a the company. However, you can blame an organization whose sole job is to audit the books, for screwing up the auditing of the books. For this reason I put Arthur Andersen most (but by no means completely) at fault. As a separate entity from Enron, the firm was the only check put in place on Enron’s’ accounting. However it failed to properly report those findings as evidenced by not only the tragedy that was Enron’s finances, but also by the shredding of documents. Arthur Andersen not only had the information to stop the Enron train wreck, it also had the means of doing so. They were expected to remain objective in the auditing of the finances but by instead became too invested in the company and the fees it generated. Whereas Ken Ley faltered in his attempts to keep the company afloat, he still “tried.” The job of Enron was to produce earning for its investors and they attempted to do so. Arthur Andersen’s job was to keep the books clean and they failed at just that.
Monday, March 28, 2011
Arthur Andersen’s Fault
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During the past few weeks, we focused on bad leadership in business, more specifically corporate frauds. To truly understand the nature of business, we first have to understand how a corporation works in this country. People start businesses, people invest in business, and people govern the regulatory departments. Enron, in this example, collapsed because of a fundamental flaw in its operations: the executive officers, the board of directors, and the auditing firms were not supposed to share a conflict of interest.
ReplyDeleteIn my opinion, all business roots back to the people who run the company. So the ultimate blame goes to the executive officers who took advantage of the system - the Black Box - and lied to the public, including its own managers, who probably did not “get a straight answer from executives as to what [the] transactions were all about” (52). In short, Skilling, Lay, Fastow, the board of directors, and even auditors from Arthur Anderson, had no clear boundary between “their personal interests and their corporations’ interest”. Needless to say, this fallacy mercilessly brought down the company and the employees.
As we read in the article, auditors “made a fat living selling letters that were intended to shore up [Enron’s] schemes” (20). Basically, the checks and balances system was not existent, thus contributing to the expansion of The Big Lie. But then again, the federal government and its major regulatory, the SEC, had little influence over corporations. In this reasonably-free market, the corporations established their own laws and thus created systems that were prone to failure, which brings us to the importance of heavy regulation in the economy. With regard to bad leadership in finance and corporations, any leadership has its fallacy; if an executive can slightly modify a variable in its expense sheets, the company can “gain” millions out of nowhere. Because we are focusing on business leadership, I am arguing that any leadership can fall into bad leadership if there are no strict laws to follow. Another question that relates to business leadership is: If bad leadership is never caught, is it still bad leadership?
In response to Ben's post, I could not agree more that Arthur Andersen failed to properly audit the finances of Enron. Interestingly, though, you mention that you do not fully blame the executives of Enron for acting in their own best interests. In a similar manner, do you think that the Arthur Andersen employees should not be entirely blamed for their actions since they also acted in their own best interests, as they benefited tremendously from their relationship with Enron?
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