Monday, March 28, 2011

Enron and Corporate Scandal

When analyzing Enron’s collapse, it is important to keep in mind the specific action that landed it into trouble. Enron’s main wrongdoing was their use of “creative” accounting schemes. In an attempt to boost their financial records, it created subsidiary companies and subsequently transferred liabilities to those companies. Enron’s accounting scandal ultimately led to its demise. Thus, it seems reasonable to place the blame of the debacle on the people directly responsible for overseeing and approving the legitimacy of these accounting records. The people I am referring to are Jeffery Skilling and Kenneth Lay (CEOs), Andrew Fastow (CFO), and Arthur Andersen (auditing firm).

The Enron case is one of many corporate scandals, and it is unlikely to be the last. Corporations’ primary mission is to earn profits for its shareholders. This objective often comes in conflict with legal and moral standards. Sometimes the desire to earn money outweighs the risk of legal consequences. As long as businesses are greedy, there will always be cases of this scenario.

I do believe, however, that good leadership can reduce instances of corporate scandal. For instance, a morally conscious CEO/CFO will not sign an accounting document with the knowledge that the document is untrue and misleading. Enron may not have gone down had Skilling and Fastow been honest with their business dealings. It amazes me how easily the bad leadership of a few people can destroy a corporate. Conversely, the good leadership of a few people may not be enough to save one.

-Jack Sun

1 comment:

  1. I agree with you that the Enron case is most likely be one of the many corporate scandals that will take place in the 21st century. But, is there absolutely no way to eliminate bad leadership in corporate America? In what other ways, aside from detecting fraudulent documents, can an executive demonstrate good leadership?