Did Enron’s bankers, auditors, and attorneys contribute to Enron’s demise? If so, how?
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The example of Enron shows how an aggressive corporate culture that rewards high performance and gets rid of the “weak links” can backfire. Enron’s culture encouraged intensen competition, not only among employees from rival firms but also among Enron employees themselves. Such behavior creates a culture where loyalty and ethics are cast aside in favor of high performance. The arrogant tactics of Jeffrey Skilling and the apparent ignorance of Ken Lay further contributed to an unhealthy corporate culture that encouraged cutting corners and falsifying information to inflate earnings. |
Explanation
The bankers, auditors, and attorneys have important roles in ensuring the company's financial statements are accurate and provide investors with truthful information about its financial performance.
The law firm with which Company E had transacted were responsible for crafting opinion letters required to support the legality of the company's special partnerships despite its questionable purpose. Without these letters, many of Company E's financial transactions would not have taken place.
Company E's transaction with its banker allowed it to fraudulently record a profit even when there was no actual profit made. Despite the bank's own internal documents suggesting it was a potentially fraudulent deal, the banker pushed on with the transaction.
Company E's auditors are responsible for certifying the accuracy and truthfulness of its financial statements. When the nature of the company's special partnerships were put in question, it should have triggered further auditing and held off certification until the partnerships have been satisfactorily explained.
Sample Response
Company E filed for bankruptcy after an elaborate setup to manipulate financial information was uncovered. There is evidence that, due to the complexity and large-scale nature of the fraud, other entities were also involved in the company's eventual collapse.
Company E's attorneys were responsible for structuring its special partnerships that were used to conceal the company's losses. Despite not admitting any liability to the company's bankruptcy, it agreed to pay a large sum of money as a settlement for the charges.
The company transacted a questionable deal with its banker, which was interpreted by the bank's internal document as a fraudulent income statement manipulation. Upon discovery, the bank agreed to pay a large sum of money to settle the charges.
The bank performed questionable investment practices that contributed to the company's losses that were further exacerbated by the economic recession.
Despite failing to understand the nature of its special partnerships, the auditor continued to certify Company E's financial statements. This lead people to suspect the large consultation fees Company E paid to the auditor influenced its decisions.
The auditor destroyed evidence of its auditing documents related to Company E, resulting in a guilty verdict of obstruction of justice.
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