Enron Corporation - Fiduciary Essay Example
Describe how Enron could have been structured differently to avoid such activities - Enron Corporation introduction. Enron could have been structured differently to avoid bankruptcy by putting safeguards in place and examining its ethical climate. They should have kept their original structure which was based on ideas of constructivism which encouraged employees to thrive and challenge themselves to achieve more. Enron chose to make changes within their organization by employing external members. Those members were given the authority to make financial decisions that affected the organization and its’ future.
Enron’s management team lost sight of its fiduciary duty by trying to maximize its’ own profits quickly as opposed to those of the company. “Loyalty, obedience, and care are the hallmarks of the fiduciary relationship”(Bagley, C. E. , & Savage, D. W. (2010). Managers and the legal environment: Strategies for the 21st century: Selected chapters: 2010 custom edition pg. 157 (6th ed. ). Mason, OH: South-Western Cengage Learning). “An agent has a duty to act solely for the benefit of his or her principal in all matters directly connected with the agency undertaking”(Bagley, C. E. , & Savage, D. W. (2010). Managers and the legal environment: Strategies for the 21st century: Selected chapters: 2010 custom edition pg. 157 (6th ed. ). Mason, OH: South-Western Cengage Learning). Under the federal securities law, Enron was required to provide various disclosure documents to its shareholders and the members of the investing public when transactions were incurred. Enron should have disclosed complete financial documents to all parties involved in order to come up with a solution to save the company.
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Enron needed to have honest members and shareholders working within the company to ensure things were happening in a legal manner. Enron should have put safeguards in place and also hired internal auditors who were open and honest about their financial standings. The internal auditors would have ensured that company employees were following company policies. Each company has a code of ethics that they should adhere to. Discuss whether Enron’s officers acted within the scope of their authority. Enron’s officers did not act within the scope of their authority.
The actions of Enron were unethical and dishonest which allowed them profit over their members and stakeholders. Due to the actions of the officers they were no longer in the scope of their authority. Alliances were formed because people of the same level were in control. The employees were afraid to report the dishonest acts of their superiors in fear of causing more chaos. Management intentionally structured the affairs of Enron to create false financial statements of growth, misled their employees, investors and the general public of its financial affairs.
The auditors of Enron accepted the financial structure that was enforced by its management. Enron’s directors and officers failed to adequately perform their duties in protecting the investments of its shareholders economically, legally and ethically. Enron gave its inexperienced managers too much authority which caused the company to fail poorly. Describe the corporate culture at Enron. The corporate culture at Enron was supposed to be respect, integrity, community and excellence. However, it was just the opposite fraud and insider trading.
Insider trading is material based on non public information that is usually traded within an organization by officers and directors. “Rule 10b-5 of the Securities Exchange Act of 1934 prohibits insider trading, that is, trading securities based on material nonpublic information in violation of a duty to the corporation or its shareholders or the source of the information”(Bagley, C. E. , & Savage, D. W. (2010). Managers and the legal environment: Strategies for the 21st century: Selected chapters: 2010 custom edition pg. 534 (6th ed. ).
Mason, OH: South-Western Cengage Learning). Enron had a large amount of undisclosed activity that was off the books, risky accounting situations, and conflicts of interest. The corporate culture of Enron changed so that it would coincide with its lavished trading business. The reputation of Enron grew externally while they struggled internally when their associates realized their performance was measured by the amount of profits they could produce. While reporting earnings and growth Enron was unable to generate sufficient cash flow from operations.
The scandals of Enron eventually led to its downfall of an unstable culture. Discuss two alleged irregularities in the actions between sellers of securities and Enron. One of the alleged irregularities in the actions between sellers of securities and Enron is the financial statements that were not disclosed which obtained billions of dollars, liabilities and losses. The auditors that were within the Enron Corporation destroyed files and auditing material before reporting billions of dollars. The other alleged irregularity is how the executives of Enron were pressured to hide their debt.
According to (Bagley and Savage 2010) Enron hide debt, invented profits, and concocted capital. Which were all illegal acts of the law. Discuss whether or not Enron was liable for the actions of its agents and employees. I believe that Ken Lay and Jeffrey Skilling were liable for the actions forced upon its agents and employees. Skilling hired a staff of executives whose special purpose was to hide enormous amounts of debts from projects and failed deals. The agents and employees were only doing as they were instructed to do.
However, once they realized what was going within the organization they could have used their own judgment and removed themselves from the company before they were caught or went bankrupt. The entire scam of Enron was planned and executed by top performers and included its agents and employees. According to the Sarbanes-Oxley Act of 2002 which was created because of the fraudulent activities of Enron, a corporation is liable for the actions of its executives and employees. The top management of the Enron is responsible for mismanagement and the poor business decisions that were made within organization.