The Enron fraud scandal is undoubtedly unparalleled to any case of its kind. After a 56 day trial, former CEO and president Jeffrey K. Skilling and former chairman Kenneth L. Lay were found guilty of hiding more than a billion dollars of debt, manipulating energy markets, bribing foreign governments and wiping out their shareholder equity. Now, a textbook example of how not to conduct business, the case of Enron stands at the center of business ethics.
Google “biggest business ethics scandal” and what comes up? Enron, of course. The Enron scandal severely damaged the reputation of corporate America. The downfall began when Enron failed to accurately report their financial statements. Instead of admitting the company wasn’t performing as well as in previous quarters, executives jumped through several loopholes to modify the company’s balance sheet to portray a favorable depiction of its performance. Moreover, the company’s accounting practices became sketchier when they chose not to release their financial statements. What did they have to hide? Well, apparently a lot.
By the late 1990s, Enron appeared to be performing quite well — or so people thought. Its stock was trading for about $80-$90 per share. Then, strangely, CEO Skilling quit, citing that he wanted to spend more time with his family and that it had nothing to do with the fact that Enron was about to collapse. Later in trial, Skilling argued “on the day I left, I absolutely and unequivocally thought the company was in good shape.” Sure he did…
Needless to say, the company fell apart. Enron declared bankruptcy and shareholders lost around $70 billion dollars — all because of a deliberate ignorance to fraud and ethics. Now because of the Sarbanes-Oxley Act (SOX), there is more protection for the investors by improving the accuracy and reliability of corporate disclosures. Hopefully with more responsibility placed on the top management team, an Enron-like scandal will never occur again. Moral of the story: do the right thing!