Business Ethics Perspective on the famous ENRON SCANDAL

2. ENRON: THE COMPANY & THE PEOPLE
• 7th largest company in US and largest buyer/seller
of natural gas and electricity
• Heavily involved in Energy brokering, Electronic
energy trading and energy services
• Awarded “America’s most innovative company”
for six consecutive years
• Enron's stock was priced at $83.13 in 2000
• Market capitalization exceeded $60 billion
• Kenneth Lay : Chairman of Enron
• Jeffrey Skilling : CEO of Enron
• Andrew Fastow : CFO of Enron

3. ENRON : THE SCANDAL
• Enron reports a $618m loss, its first quarterly loss
• October 22 2001
Enron shares loses a fifth of their value.
• November 8 2001
Enron says it overstated profits dating back to 1997 by
$600m.
• December 2 2001
Enron files for bankruptcy, the biggest in US history
• 20,000 employees lost their jobs and medical insurance
• In 2001, employees lost $1.2Bn in retirement funds
• Average severance pay: $4500
• Top executives were paid bonuses totalling $55M and
cashed $116M in stocks

4. “Just as character matters in
people, it matters in
organizations”

5. GREED
“Ethics and integrity are at the
core of sustainable long term
success”

6. SURVIVAL OF THE FITTEST
• Rank And Yank!!
• Ruthless work force
• Aspired to be “world’s largest company”
• Two Oil traders encouraged by Kenneth Lay
to gamble rather stopping them
• Jumped every possible Ethical Fence
• The only Aim being- to maximize stock Prices
howsoever

7. PERCEPTION OF “All is Well”
• Cooked books
• Phony Companies
• Inflated profits
• Mark-to-Marketing Accounting
• Wild Gambling
• Extensive PR Campaign/Media
Exaggeration

8. HOW DOES WORK CULTURE AND
VALUE SYSTEM OF THE COMPANY
DRIVE THE EMPLOYEES’ PSHYCE?

9. • Risk Taking behavior
• Legends/Stories
• Incentives/Commissions
• INFLUENCE OF CEO/LEADERSHIP

10. SYNERGY BETWEEN THE
GOVERNMENT,BANKS AND ENRON
• Donations to Political Campaigns
• Close relations with George W.Bush
• Pushed for Deregulation in energy sector
• Ignorance by Banks
• Banks did not scrutinized Enron’s books
which even a CA student would have figured
out

11. WHAT HAPPENED TO THE
PEOPLE INVOLVED IN THE
SCAM?

12. • Kenneth Lay
 indicted by a grand jury on 11 counts of securities fraud and
related charges
 died while vacationing in Snowmass, Colorado, on July 5, 2006
• Jeffrey Skilling
 Criminal Charges : Conspiracy, securities fraud, false statement,
insider trading
 24-year, four-month prison sentence at the Federal Prison Camp
(FPC)
 On May 8, 2013, federal prosecutors announced a sentencing
agreement that reduces Skilling's sentence by 10 years, making him
eligible for release in 2017
• Andrew Fastow
 Entered into a plea agreement with a maximum penalty of 10 years
in prison
 forfeiture of US$23.8 million in family assets, on September 26,
2006
 sentenced to six years, followed by two years of probation

13. SATYAM SCAM :The Enron Of India

14. AGENCY PROBLEM
• “Refers to a conflict of interest between a
company's management and the company's
stockholders”

15. CORPORATE GOVERNANCE
“The framework of rules and practices by which a board of
directors ensures accountability, fairness,
and transparency in a company's relationship with its
all stakeholders”
• Report of Committee appointed by SEBI under the
chairmanship of Shri Kumar Mangalam Birla on
Corporate Governance
• Clause 49

16. RECOMMENDATIONS BY
COMMITTEES
• Mandatory
 Applies to listed companies with paid up capital of Rs 3 crores and above
 Composition of Board of Directors- Optimum combination of Executive
and Non Executive
 Audit Committee
 Board Procedures
 Management Discussions and Analysis Report
 Information sharing with shareholders
• Non Mandatory
 Role of Chairman
 Sale of whole or substantial part of the undertaking

17. THANK YOU