BUSI 472 Liberty University The Enron Bankruptcy Case Study

BUSI 472CASE ASSIGNMENT INSTRUCTIONS
OVERVIEW
The student will write two separate Case Assignments from the Ferrell textbook. There must be a
clear thesis statement with an introduction that provides a clear overview of the paper’s contents.
The issue(s) raised in the topic must be treated objectively. The conclusion must offer a robust
summary of the issues treated in the paper and suggestions for further study. The paper will be
written to cover the topic to sufficient depth for an upper-class research paper and provide a
substantive evaluation of the ethical issue(s).
INSTRUCTIONS
You will research what the literature says about the issues in each case and what the secular
worldview suggests would be the course or courses of action that decision makers within the
organization should have taken to remedy the dilemma. You will also research the Bible for
remedies that a Christian or follower of God should have taken. Make recommendations from
both worldly and biblical views that decision makers should have implemented to avoid the
ethical situation. Support your recommendations using content from the selected scholarly
resources.
Your assignment must include evidence of the following:
• Identify Ethical Issue(s) and Stakeholders, Evaluation of Ethical Implications,
Develop Plan of Action, Integrate Biblical Worldview in Value Judgments, Research
Support in Application of Ethical Solution(s), and Writing Style (APA formatting),
grammatical errors and sentence structure.
• Each assignment should be between 5-6 pages not including the title and references
pages
• Each assignment must be written in current APA format
• Each assignment must include 5 peer reviewed, scholarly sources. All sources must
be of a scholarly nature, either textbooks or journal articles from peer-reviewed
journals and the Bible. All citations should be in the References section and included
in-text. As this is a paper that requires research, it must be written in third person.
Case: Enron Assignment can also be found in the Ferrell textbook, “Enron: Questionable
Accounting Leads to Collapse.” The paper must use the following (3) Level 1 headings that
correspond to the case points:
•
•
•
•
Enron’s Ethical Culture, Stakeholders, and How it Contributed to its Bankruptcy?
Evaluation and Implications of Enron’s Unethical Behaviors
Recommended Plan of Action
Integration of Biblical Worldview and Value Judgments
Note: Your assignment will be checked for originality via the Turnitin plagiarism tool. The tool
is a starting point for instructors to check overall Academic Integrity and higher scores generally
indicate a higher probability of Academic Misconduct. The higher a score the higher the
BUSI 472
probability that there are too high a percentage of quotations included in the narrative, and/or
there are passages that have not been properly cited.
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Chapter 9: Enron: Questionable Accounting Leads to Collapse : 9-1 Introduction
Book Title: Business Ethics: Ethical Decision Making and Cases
Printed By: Zuleika Budgett (zlbudgett@liberty.edu)
© 2017 Cengage Learning, Cengage Learning
9-1 Introduction
Once upon a time, there was a gleaming office tower in Houston, Texas. In front of that
gleaming tower was a giant “E,” slowly revolving, flashing in the hot Texas sun. But in 2001,
the Enron Corporation, which once ranked among the top Fortune 500 companies, would
collapse under a mountain of debt that had been concealed through a complex scheme of
off-balance-sheet partnerships. Forced to declare bankruptcy, the energy firm laid off 4,000
employees; thousands more lost their retirement savings, which had been invested in Enron
stock. The company’s shareholders lost tens of billions of dollars after the stock price
plummeted. The scandal surrounding Enron’s demise engendered a global loss of
confidence in corporate integrity that continues to plague markets today, and eventually it
triggered tough new scrutiny of financial reporting practices. In an attempt to understand
what went wrong, this case will examine the history, culture, and major players in the Enron
scandal.
Chapter 9: Enron: Questionable Accounting Leads to Collapse : 9-1 Introduction
Book Title: Business Ethics: Ethical Decision Making and Cases
Printed By: Zuleika Budgett (zlbudgett@liberty.edu)
© 2017 Cengage Learning, Cengage Learning
© 2023 Cengage Learning Inc. All rights reserved. No part of this work may by reproduced or used in any form or by any means graphic, electronic, or mechanical, or in any other manner – without the written permission of the copyright holder.
2/11/23, 11:18 AM
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Chapter 9: Enron: Questionable Accounting Leads to Collapse : 9-2 Enron’s History
Book Title: Business Ethics: Ethical Decision Making and Cases
Printed By: Zuleika Budgett (zlbudgett@liberty.edu)
© 2017 Cengage Learning, Cengage Learning
9-2 Enron’s History
The Enron Corporation was created out of the merger of two major gas pipeline companies
in 1985. Through its subsidiaries and numerous affiliates, the company provided goods and
services related to natural gas, electricity, and communications for its wholesale and retail
customers. Enron transported natural gas through pipelines to customers all over the United
States. It generated, transmitted, and distributed electricity to the northwestern United
States, and marketed natural gas, electricity, and other commodities globally. It was also
involved in the development, construction, and operation of power plants, pipelines, and
other energy-related projects all over the world, including the delivery and management of
energy to retail customers in both the industrial and commercial business sectors.
Throughout the 1990s, Chairman Ken Lay, CEO Jeffrey Skilling, and CFO Andrew Fastow
transformed Enron from an old-style electricity and gas company into a $150 billion energy
company and Wall Street favorite that traded power contracts in the investment markets.
From 1998 to 2000 alone, Enron’s revenues grew from about $31 billion to more than $100
billion, making it the seventh-largest company in the Fortune 500. Enron’s wholesale energy
income represented about 93 percent of 2000 revenues, with another 4 percent derived
from natural gas and electricity. The remaining 3 percent came from broadband services
and exploration. However, a bankruptcy examiner later reported that although Enron had
claimed a net income of $979 million in that year, it had really earned just $42 million.
Moreover, the examiner found that despite Enron’s claim of $3 billion in cash flow in 2000,
the company actually had a cash flow of negative $154 million.
Chapter 9: Enron: Questionable Accounting Leads to Collapse : 9-2 Enron’s History
Book Title: Business Ethics: Ethical Decision Making and Cases
Printed By: Zuleika Budgett (zlbudgett@liberty.edu)
© 2017 Cengage Learning, Cengage Learning
© 2023 Cengage Learning Inc. All rights reserved. No part of this work may by reproduced or used in any form or by any means graphic, electronic, or mechanical, or in any other manner – without the written permission of the copyright holder.
2/11/23, 11:19 AM
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Chapter 9: Enron: Questionable Accounting Leads to Collapse : 9-3 Enron’s Corporate Culture
Book Title: Business Ethics: Ethical Decision Making and Cases
Printed By: Zuleika Budgett (zlbudgett@liberty.edu)
© 2017 Cengage Learning, Cengage Learning
9-3 Enron’s Corporate Culture
When describing the corporate culture of Enron, people like to use the word “arrogant,”
perhaps justifiably. A large banner in the lobby at corporate headquarters proclaimed Enron
“The World’s Leading Company,” and Enron executives believed that competitors had no
chance against it. Jeffrey Skilling even went so far as to tell utility executives at a
conference that he was going to “eat their lunch.” This overwhelming aura of pride was
based on a deep-seated belief that Enron’s employees could handle increased risk without
danger. Enron’s corporate culture reportedly encouraged flouting the rules in pursuit of
profit. And Enron’s executive compensation plans seemed less concerned with generating
profits for shareholders than with enriching officer wealth.
Skilling appears to be the executive who created the system whereby Enron’s employees
were rated every six months, with those ranked in the bottom 20 percent forced out. This
“rank and yank” system helped create a fierce environment in which employees competed
against rivals not only outside the company but also at the next desk. The “rank and yank”
system is still used at other companies. Delivering bad news could result in the “death” of
the messenger, so problems in the trading operation, for example, were covered up rather
than being communicated to management.
Ken Lay once said that he felt that one of the great successes at Enron was the creation of
a corporate culture in which people could reach their full potential. He said that he wanted it
to be a highly moral and ethical culture and that he tried to ensure that people honored the
values of respect, integrity, and excellence. On his desk was an Enron paperweight with the
slogan “Vision and Values.” Despite such good intentions, however, ethical behavior was not
put into practice. Instead, integrity was pushed aside at Enron, particularly by top managers.
Some employees at the company believed that nearly anything could be turned into a
financial product and, with the aid of complex statistical modeling, traded for profit. Short on
assets and heavily reliant on intellectual capital, Enron’s corporate culture rewarded
innovation and punished employees deemed weak.
Chapter 9: Enron: Questionable Accounting Leads to Collapse : 9-3 Enron’s Corporate Culture
Book Title: Business Ethics: Ethical Decision Making and Cases
Printed By: Zuleika Budgett (zlbudgett@liberty.edu)
© 2017 Cengage Learning, Cengage Learning
© 2023 Cengage Learning Inc. All rights reserved. No part of this work may by reproduced or used in any form or by any means graphic, electronic, or mechanical, or in any other manner – without the written permission of the copyright holder.
2/11/23, 11:19 AM