enron corruption at its best

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Enron: Corruption atits Best

One of the largest corporate bankruptcies in the history of United States - $63.4

billion. This paper will illustrate Enrons corrupt accounting practices, arrogant

attitude, greed and executive power.

2010

Zeeshan Rajpute

Professional Writing - 3430

5/11/2010



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Zeeshan Rajpute

Prof essor: Charles Alcor n

Prof essional Wr iting: 3430

10 May 2010

Enron: Corruption at its Best

Natur al gas is der ived from the r emains of microor ganisms, plant and animal matter.

These r emains ar e com pr essed in the ear th¶s surf ace over a long per iod of time under intense

tem per atur es cr eating methanogens which tr ansforms into natur al gas. Its low density r ises

through the ear th¶s surf ace sealing itself within im per vious rock s formulating a r eser voir on to p

of oil deposits. To p r ated natur al gas production com panies such as BP, ConocoPhillips,

Chesapeak e Ener gy, EOG Resources, Newf ield Ex plor ation and Range Resources specialize in

extr acting gas from clastic sedimentar y rock r ef err ed to ³Shale´. In 2008, BP gener ated r evenues

of approximately $365 billion. Chesapeak e Ener gy declar ed r evenues of approximately $11

billion same year (³Fr edonia Group, Inc.´ 2). Exxon Mobile is in the process of diver sif ying by

develo ping shale gas production to captur e additional sources of r evenue. In 2008, United States

was the second lar gest natur al gas producer following Russia at 21%. Dur ing that year United

States aver age consum ption was 21.74% tr illion cu bic f eet. In 2008, 83% of consum ption was

produced domestically. United States is the dominant user of natur al gas.

Once natur al gas is produced and tr anspor ted via pipelines to local distr i bution com panies

(LDC). Natur al gas then passes through com pr essor stations and processing plants. LDCs

tr anspor t the gas through tr ansmission and distr i bution point to city gates. From city gates, then



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gas is distr i buted to consumer s. LDCs ar e str uctur ed in var ious formations. Four classif ications

ar e Investor-Owned, Pr ivately Owned, Municipal and Coo per ative. A pr ime exam ple of

Investor-Owned Com pany is Center point Ener gy. Enron Cr editor s Recover y Cor p (³ECR C´)

formerly k nown as Enron Cor p. was actually a provider of electr icity and natur al gas wholesale,

r etail purchasing and consulting ser vices. Enron produced, stor ed, tr anspor ted, electr ical

gener ation, commodity tr ading, f inancial, Inter net, commodity r isk management and com plete

r etail and f acility management (OneSource).

K en Lay was the CEO of Houston Natur al Gas who purchased InterNor th. In 1985,

Enron mater ialized through the coalition of Houston Natur al Gas and InterNor th. Now, Enron

controlled gas pipelines throughout southeaster n United States. By 1987, fr audulent activities

within the cr ude oil division r esulted in $150 million loss. Enron¶s shar es declined signif icantly

r esulting in limited cash flow bar ely a ble to maintain em ployee payroll. Enron¶s successf ul

perception allowed K en Lay to gener ate f unds through new loans from investor s in New York. In

1989, der egulation o f natur al gas made it possi ble to become one of the most powerf ul

cor por ations in the world (Slocum 8).

In 1990, Jeffr ey Sk illing was hir ed by K en Lay to become the new CEO of Enron

.Sk illing¶s back ground in cor por ate f inancing and investment bank ing cr eated o ppor tunities to

capitalize a der egulated natur al gas mark et. Sk illing cr eatively r estr uctur ed the accounting

methodology. He im plemented mark to mark et accounting system, r evenue r ecognition process

was r e-modif ied and cr eation of special pur pose entities (SPE) escalated. These unpr ecedented

accounting pr actices gave Enron a com petitive advantage. In 1992, Enron was the lar gest dealer

of natur al gas in Nor th Amer ica (Wik ipedia contr i butor s). Throughout the er a of 1990, under

Sk illing¶s manipulation, Enron¶s stock pr ice incr eased 311%. In 2000, Enron¶s stock pr ice



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escalated another 87% from 1999. Fur thermor e, Enron claimed r evenues of approximately $101

billion and em ployed nearly 22,000 peo ple.

Andr ew Fastow was another k ey executive who was r ef err ed to as the ³Fall Guy´. He

was hir ed in early 1990s to work in its tr easur y depar tment (Biogr aphy Resource Center Online).

Befor e tak ing his position as CFO, Fastow was head of Enron Capital Management. He was

highly sk illed in manipulating number s and brok er ing loans. Fastow cr eated special pur pose

entities (SPE) to shelter de bt. This tactic would incr ease Enron¶s r etur n on asset (R OA), ear nings

per shar e (EPS) and r educe its de bt to asset r atio. Higher the EPS, mor e capital the com pany is

gener ating. EPS is one of the most im por tant indicator s of a com pany¶s str ength and prof ita bility.

Fastow¶s talent for f inancing, pack aging and r estr uctur ing curr ent tr ansaction allowed

him to cr eate countless SPE to conceal Enron¶s de bt (Biogr aphy Resource Center Online). Mark

to mark eting and r evenue r ecognitions ar e two accounting methods if applied with a malice

intention can manipulate a cor por ation¶s f inancial via bility. Mark to mark eting method is used

typically to tr ade secur ities or mutual f unds. Financially, accounting pr inciples can determine an

actual value to a secur ity based on amor tization, depr eciation and curr ent mark et value

(Investo pedia 2009). In a merchant or r etail business setting, appr aising assets at its curr ent

mark et value and not book value can have a ser ious backlash. In essence, Enron was r ecording

assets f utur e value instead of cost minus depr eciation.

Revenue r ecognition pr inciple was another cunning technique incor por ated by Enron.

Revenue r ecognition is gener ally r ecorded when r evenue gener ation is com plete or has occurr ed,

Enron was r ecording r evenue using a ³merchant model´ ver sus an ³agent model´. Agent model

only r ecords brok er age f ees r evenue commonly used for investment brok er age f irms. Enron,



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being a merchant, buying and selling var ious forms of ener gy and gas products r ecord r evenue

minus cost of goods sold (Investo pedia 2009). However , Enron combined both models to their

advantage. They would enter r evenues as brok er age f ees in order not to deduct cost of goods.

This scheme would gr ant Enron lever age to am plif y their r evenue, dilute lia bilities r esulting

immense net prof its. Fur thermor e, Enron would cr eate SPE to minimize lia bilities. S pecial

pur pose entities such as limited par tner ships cr eated to hedge r isk or acquir e capital (Thomas 4).

These entities would obtain the sponsor ing com pany, Enron¶s de bt and convey hard assets in

r eplacement for consider ation (Thomas 4). Now, Enron was lever aging these SPE for additional

f unds from lender s. This method would incr ease Enron¶s cash flow, curr ent r atio, quick r atio,

r ate of r etur n on assets and lower their de bt to total assets; r esulting a higher ESP (ear nings per

shar e) r atio illustr ating a via ble, prof ita ble and equita ble com pany.

This paper will attem pt to posit the foundation for Enron¶s downf all. The application of

unethical business pr actices such as mark to mark et accounting, r evenue r ecognition and special

pur pose entities. This paper will attem pt to illustr ate how to p executives lik e K en Lay, Jeffr ey

Sk illing and Andr ew Fastow br eaded a cor por ate cultur e esta blished on gr eed, extr eme

com petitiveness with an arrogant attitude. This paper will convey Enron¶s influence, par ticularly

K en Lay, within the Bush Administr ation. How cam paign donations to pu blic off icials

throughout the nation f ueled Enron¶s mark et ex posur e. How K en Lay¶s influence over

gover nment off icials to im plement r egulations in the ener gy and gas industr y to adher e Enron¶s

corr upt ideology.

Enron¶s pr ime ob jective to der egulate the ener gy mark et and commodity tr ading was

accom plished between 1997 through 2000. This inclination was gear ed towards diver sif ying

mono poly controlled ener gy mark et by local utilities (Wayne 1). About 24 states accepted some



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form of ener gy der egulation. Enron contr i buted approximately $1.9 million to 700 diff er ent

candidates over 28 var ious states by 1997 (Wayne 1). Der egulation would allow Enron to bypass

pr ice r egulation .Enron¶s r evenues multiplied boundlessly, mak ing it one of the most powerf ul

cor por ations in the world. Lawmak er s and r egulator s justif ied this der egulation as fr ee mark et

capitalism. Gover nment should not dictate pr ices and allow the natur al cour se of supply and

demand to stimulate economy. Gover nment off icials wer e too influenced by Enron¶s cam paign

contr i bution and lost sight of consumer ¶s inter est. Enron ex ploited the weak ness that evolved

through der egulation for the sole pur pose of manipulating pr ices and supply.

Mark-to-Mark et (MTM) accounting emer ged in the 1980s. Com panies star ted to r ecord

assets based on their f air mark et value and not cost. Eventually, com panies with malice

intentions such as Enron could book hypothetical number s to account for their hard to value

assets (Inveto pedia 2009). A r ecent exam ple of mark-to-mark et f ailur e is Washington Mutual

Bank in September 2008. Washington Mutual declar ed billions of assets on their balance sheet.

Then, suddenly the bank was sized by f eder al r egulator s. This was the lar gest bank f ailur e in

United States histor y. Washington Mutual was bought for $1.9 billion wher e as the por tfolio

declar ed $307 billion. Pr imar y f actor associated to their downf all was the application of MTM

accounting pr inciples. Washington Mutual¶s secur ity value was r ecorded at curr ent mark et value

r ather than book value. Basically, Enron was r ecording f utur e prof its on their curr ent balance

sheet in the same manner. For exam ple, Enron build a power plant and r ecord hypothetical f utur e

prof its on curr ent f inancial statements.

S pecial Pur pose Entities (SPEs) wer e another contr i buting f actor towards Enron¶s

fr audulent activities. Enron¶s MTM methods wer e detecting f inancial concer ns; Andr ew Fastow

incor por ated SPEs to hedge lia bility.



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³Under Fastow¶s leader ship, Enron took the use of SPEs to new heights of com plexity and so phistication, capitalizing them with not only a var iety of hard assets and lia bilities, but also extr emely com plex der ivatives f inancialinstr uments, its own r estr icted stock , r ights to acquir e its stock and r elatedlia bilities´ (Thomas 4-5).

Enron was o per ating business through mor e than a thousand SPEs. Fastow per sonally managed

LJM Cayman LP and LJM2 Co-Investment LP. Fastow collected, per sonally over $30 million in

management f ees from 1999 to 2001 (Thomas 4). Raptor was another group of SPEs designed to

hedge bankr upt investments. Enron issued stock s to these SPEs in r etur n for notes r eceiva ble up

to $1.2 billion which inflated the balance sheet. SPEs would allow Enron to tr ansf er these

loosing assets off their f inancial statements.

Author Ander sen LLP was em ployed by Enron to perform inter nal and exter nal audits.

Author Ander sen assigned a permanent staff at Enron¶s off ices. Yet fr audulent activities wer e

not detected. Major ity of accountants, controller and CFOs em ployed at Enron wer e pr evious

Author Ander sen executives (Thomas 9). This r elationship between Author Ander sen as inter nal

and exter nal auditor s consoled Enron to conduct their black box o per ation. Author Ander sen has

accepted their ack nowledgement of corr uption but not unethical accounting pr actices. Author

Ander sen was terminated as Enron¶s auditor in early 2002.

Enron¶s cor por ate cultur e lack ed com passion and integr ity. The only com passion Enron

executives ex pr essed was per sonal gr atif ication. The most ³Innovated Com pany´ or ³World¶s

Leading Com pany´ at its peak bar ed sign of arrogance. From to p executives, manager s, tr ader s

and entr y level em ployee or iented a sense of pr ide which led to r isk tak ing r esulting in fr audulent

activities. Em ployees wer e r ank ed and com pensated based on performance. And ther e wer e no

leeway for mistak es. Mistak es wer e br ushed under the r ug. This pr essur e r esulted in def ying the

r ules.



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Sk illing cr eated an atmospher e of r uthlessness. He im plemented a system of forced

r ank ing for em ployees. Any em ployees r ank ed in the bottom 20% would be terminated (MeLean

1). Em ployees endanger ed one another for f utur e em ployment at Enron. Sk illing¶s attem pt to

cr eate excellence came with a cost. A cost that would lead to Enron¶s destr uction. Sk illing sole

pur pose was to maximize pr ice per shar e of common stock r egardless of str ategy. Enron

em ployees divulged into unethical pr actices. Enron had 874 su bsidiar ies r egister ed in for eign

countr ies to avoid taxation (Slocum 25). In com par ison to Duk e Ener gy who had only six

su bsidiar ies all r egister ed in US. ExxonMobil has 9 com panies r egister ed over seas for tax

shelter. Sk illing and Fastow¶s disr egard for cr iminal consequences, obligations to shar eholder

and em ployees, cr eated an environment neglecting r esponsi bilities, f alsif ying f inancial

statements, inflating contr act values and many other unethical pr actices. Corr uption could be

tr aced in the hear t of Enron, their Board of Dir ector s.

³Mr. Power s testif ied befor e this Su bcommittee. He was commissioned as a new member of the Board of Dir ector s of Enron, to do a study of what was happening inside the Enron Cor por ation. They did a study of only

thr ee par tner ships or SPEs, only thr ee. Mr. Power s sat at the ta ble and saidwhat they found inside the Enron Cor por ation was ³appalling.´ This, r emember , would be the best possi ble light put on this com pany because was done by a member of the Board of Dir ector at the r equest of the Boardof Dir ector s. He found something inside the com pany that was appalling.Off icer of that com pany, and peo ple in the com pany, for exam ple, invested $25,000 of their money and took out $4 million 60 days later.What we discover ed with r espect to this cor por ation is, in f act, a cultur e of corr uption´ (OneSource).

Deception and corr uption with outr ight negligence can descr i be the cor por ate cultur e of Enron.

Enron was a pr imar y contr i butor , lobbing for der egulation of natur al gas. They wer e so

determined br eak the mono poly, Lay and Sk illing would meet utilities commissioner s, testif y

befor e statehouse committee and call politicians (Wayne 1). In 1997, according to National



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Institute on Money in State Politics r epor ted Enron contr i buted over $1.1 million in cam paign. In

2000, Enron gave $1.1 million candidates and state legislator s throughout the nation. Gover nor

Gar y Davis of Califor nia r eceived $97,500, Gover nor Rick Perr y of Texas r eceived $212,000,

Gover nor Geor ge E. Patak i of New York r eceived $9,000, Phil Gr amm r eceived $97,350,

Senator K ay Bailey Hutchison r eceived $99,500, and Repu blican senator Conr ad Bur ns of

Montana r eceived $23,200. Enron cr eated a r eputation as the ener gy industr y¶s leader in f inance

contr i bution (Pu blic Citizen).

Due to these contr i butions, K en Lay¶s influence r eached the highest level of gover nment.

K en Lay¶s r ecommendations wer e heavily consider ed by the Bush Administr ation. The Ener gy

Policy Act of 1992 was customized to f it another one of Enron¶s manipulative schemes. This

plan incor por ated the flow of gas through utility pipelines to endor se Enron¶s product. Enron was

going to capitalize on ever y tr ansaction occurr ing within wholesale and r etail of electr icity tr ade.

When K enny Boy said Jum p, Geor ge Bush said how high. Another pr ime exam ple was Lay¶s

r ecommend of seven candidates to the Feder al Ener gy Regulator y Commission.

³One such document was a Januar y 8, 2001, letter wr itten to Bush¶s per sonaldir ector , Clay Johnson, r ecommending seven candidates to the Feder al Ener gy Regulator y Commission. Two of the candidates Lay r ecommended, Pat Wood and Nor a Brown, wer e appointed to FER C by Bush; Wood was appointed chairman´ (Leo pold 3).

This letter along with thousands of other pages was su b poenaed in May of 2002 illustr ating the

r elationship, r espect and influence K en Lay r etained over the Bush Administr ation. Fur thermor e,

Bush¶s to p economical advisor , Lawr ence Lindsey, was com pensated $50,000 for consulting

work r ender ed to Enron in 2000. Ther e wer e many to p White House off icials who wer e

somehow r elated to Enron besides Geor ge Bush. One individual stands out a bove the crowd was

K arl R ove. He was the senior White House political str ategist who sold 1,000 shar es of Enron



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stock s in June 2001 just six months pr ior the Enron¶s bankr uptcy. This is a perf ect exam ple of

inter nal corr uption. K en Lay and Enron¶s success is signif icantly r elated to influencing

corr uptive behavior for per sonal gain.

How did K en Lay become a dominant f igur e with the Bush Administr ation? He was

po pular among other political off icials away from the Washington, but how the White House?

Well shor tly af ter ear ning his PH.D. in economic from Univer sity of Houston, K en Lay enrolled

as an off icer in the U.S. Navy. In 1971, Lay was chief assistant to the Feder al Power

Commission wher e he im pr essed many peo ple with his work. In 1972, He held a position as

Deputy Under secr etar y of Ener gy of the U.S. Depar tment of Inter ior. K en Lay also held as

position as Technical Assistant to Commissioner of Feder al Ener gy Regulator y Commission.

Befor e leaving the political ar ena, K en Lay develo ped r elationships with k ey political f igur es.

Political f igur es such as Geor ge H. W. Bush. This r elationship passed on to Geor ge W. Bush.

This bond between the Bush Family and K en Lay was ver y prominent and loyal. K en Lay

ex per ienced f ir sthand, how to ex ploit per sonal agenda within the gover nment.

³Enron gave mor e than $1.1 million to Bush¶s pr esidential cam paign: $127,525dir ectly to his cam paign and $713,200 to the Repu blican National Committee, which ser ved as an arm of the Bush pr esidential cam paign. Enron and Lay alsogave $300,000 to the Bush-Cheney 2001 Pr esidential Inaugur al Committee´ (Pu blic Citizen).

Once Bush was elected as Pr esident, K en Lay initiated his per sonal agenda without hesitation.

Under Bush¶s administr ation, with the assistant of Phil Gr amm, another pu blic off icial. Under

Lay¶s conf idence, Gr amm introduced the Commodity Futur es Moder nization Act of 2000. The

verbiage in this Act stated der egulation of ener gy tr ading by excluding com panies lik e Enron

under the jur isdiction of Commodity Exchange Act and Commodity Futur es Tr ading

Commission. This bill would em power Enron to deviate r egulated tr ading auctions, exclusively



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New York Mercantile Exchange. Meaning, Enron can o per ate its own unr egulated ener gy tr ading

auction. Enron¶s wholesale ser vice division heightens its r evenue from $35.5 billion in1999 to

$93.3 billion in 2000. In com par ison, 1st quar ter of 2000, r evenue r ecorded $12 billion, but 1st

quar ter of 2001 r egister ed $48.4 billion (Pu blic Citizen). Once Enron esta blished EnronOnline´,

they captivated solid control over Califor nia¶s ener gy mark et. Without owning a power plant,

Enron manipulated Califor nia¶s ener gy supply. Enron¶s gr eed steer ed unethical pr actices. Such

as withholding ener gy supply, which stimulated bogus shor tage r esulting in pr ice incr ease.

Enron¶s influence and power laid a foundation for success. If only K en Lay and other to p

executives lack ed the attr i bution of gr eed and arrogance, this corr upt com pany might have

become a titan in the ener gy industr y.

K enneth L. Lay was r ef err ed to as a ³f ather f igur e´ in Enron. He is a prominent exam ple

of r ags to r iches with a touch of corr uption. K en Lay was bor n on A pr il 15, 1942 in Tyrone

Missour i. He was bor n in pover ty. As a child, Lay work ed on a f arm plowing f ields. Lay was

ver y dedicated to his education. He ear ned a scholar ship to Univer sity of Missour i. While

attending U of M, he would work par t-time painting houses. An economics prof essor , Pink ney

Walk er inspir ed him to major in Economic. Walk er ¶s influence motivated Lay to com plete his

master ¶s and doctor al degr ee. Through Walk er ¶s connections, Lay was on his way to the White

House. Af ter his ser vice to the pu blic in 1973, he decided to tak e a cor por ate jour ney. He was

em ployed at W. J. Bowen as vice pr esident of cor por ate planning (Biogr aphy Resource Center

Online). In 1982, he marr ied Linda A. Herrold af ter divorcing his childhood sweethear t (Judith

D. Ayer s). In 1984, Lay cor por ated the mer ger of Flor ida Gas and Houston National Gas. In

1985, Houston Natur al Gas purchased InterNor th. By 1986, this mer ger was named Enron.

Der egulation occurr ed in 1989 r esulting in enormous cor por ate growth. In the 1990s er a, with the



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assistance of a f ew k ey political f igur es, 1Enron was r ecognized as the most innovative com pany

in Amer ica. Towards the end of 1990s, manipulation and corr uption was slowly star ting to

emer ge. By December 2, 2001, Enron declar ed bankr uptcy. In July 2004, K enneth Lay was

indicted by f eder al gr and jur y on 11 counts of f elony, r anging from wir e fr aud, secur ities fr aud

and f alsif ying bank statements (Biogr aphy Resource Center Online). Lay¶s $40 million in sof t

and hard assets wer e seized. K en Lay passed away on July 5, 2006 of a massive hear t attack. He

was tr uly a genius based str ictly on his accom plishments of maneuver ing gover nment decisions

in f avor of Enron.

Jeff Sk illing was k nown as the ³Idea Man´ or ³Thr ill Seek er ́ . Sk illing was bor n on

November 25, 1953 in Pitts bur gh, Pennsylvania. He was r aised in New Jer sey and Auror a. He

gr aduated from West Auror a High School. In 1975, Sk illing gr aduated from Souther n Methodist

Univer sity in applied science. In 1979, he r eceived his MBA from Har vard Business School.

Sk illing was named CEO of Enron by K en Lay in 1990. Throughout the 1990s, Sk illing

produced exem plar y prof its by diver sif ying their mark et segment and im plementing r isk tak ing

accounting ideologies. By 2001, Jeff Sk illing was ear ning $132 million annually. In March 2002,

Jeff r emarr ied to Re becca Car ter. Fe br uar y 19, 2004, Sk illing was char ged with fr aud and insider

tr ading. In May 2006, Sk illing was convicted of 19 counts of f elony. October 2006, Jeff er y

Sk illing was sentenced to 24 year s and November 2006 r epor ted to pr ison (Biogr aphy Resource

Center Online). Sk illing by f ar por tr ayed a per sonality diff er ent then Lay. Sk illing was cr eative,

but f ull of corr upt ideas, arrogant and had a lack of r emor se for other s.

Andr ew Fastow was r ef err ed to as the ³Fall Guy´. Andr ew Fastow was bor n on

December 22, 1961 in Washington D.C. Fastow ear ned his degr ee in Chinese and economics

from Tuf t Univer sity. Then Fastow gr aduated from Nor thwester n Univer sity with a master s¶



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degr ee. He marr ied Lea Weingar ten in 1984 and had two childr en. Fastow¶s back ground was

r elated to asset-back ed secur ities (Biogr aphy Resource Center Online). This is the samepr actice

used by su b pr ime lender s when the housing mark et was booming. This ex per ience was pr epping

Fastow for a gr eater challenge to come. In 1990, Sk illing hir ed Fastow to im plement his ³asset-

back ed secur ities´ model into Enron. In 1998, Andr ew Fastow was named CFO. Fastow was

r ecognizes by his cr eation of SPEs to shelter lia bilities and hedge assets. In Januar y 2004,

Fastow and his wif e pled guilty to fr aud. On March 7, 2006, Fastow testif ied against K en Lay

and Jeff Sk illing. On September 26, 2006, Fastow was sentenced six year s. Per sonal information

a bout Andr ew Fastow is ver y limited. He was a low prof ile individual. Fastow¶s attr i butes

consisted of contr act brok er aging and de bt consolidation, basically a number s guy. Fastow was

not an out spok en individual but ver y eff ective. Enron¶s accom plishment for lasting as long it did

should be cr edited to Andr ew Fastow.

In ever y cor por ation, ther e is a degr ee of corr uption, a thin line between r ight or wrong. It

is the ethical r esponsi bility of cor por ate leader s to distinguish the diff er ence between appro pr iate

or immor al conduct. Cor por ate cultur e and business ethics ar e cultivated by exam ple.

Consequences ar e enforced for br eak ing the r ules. K en Lay¶s leader ship gr atif ied success

through unr estr icted degr ee of corr uption. K en Lay¶s used his influence over the gover nment to

str ategically positioned Enron to captivate mor e mark et shar e. Lay¶s use of influence according

to my def inition was accepta ble. Cor por ations who ar e capa ble of , tr y to use executive contacts

to secur e their inter est. This is a form of fr ee mark et capitalism. However , if ulter ior motive

demonstr ate malice intent, then one has crossed the line of immor al conduct. Lay and Sk illing¶s

intentions wer e never to benef it the well being of Enron but their per sonal gains. Jeff Sk illing



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cultivated arrogance, gr eed and corr uption. If both of these individual would have conf ined their

gr eed and degr ee of manipulation, Enron could have evolved into a mega cap com pany.

A signif icant cr edit for Enron¶s br eakdown can be contr i buted to Bush Administr ation

and a f ew other k ey f igur es, such as Phil Gr amm. These pu blic advocates wer e im pr essed by

Enron¶s f ictitious image and inde bted to its cam paign contr i butions; they overlook ed the

consequences. Control and power to this magnitude can never be bestowed to arrogant, gr eedy

and manipulative individuals.

According to National Bur eau of Economic Research in 2006, Amer ica has encounter ed

seven r ecessions from 1959 to 2003. If we tr uly did have seven r ecessions then we must have

embr aced seven boom per iods. Meaning, since 1959 Amer ica has under gone seven business

cycles. Ther e ar e sever al theor ies justif ying r ecession or ³boom´.

³One of the f ir st business cycle theor ists, Joseph Schum peter (1934/1989; 212, 214) speculated that r ecurr ent business fluctuations (cycle) wouldoccur initially as a r esult of ´swarms´ of entr epr eneur s who cr eate spik es

in productivity, followed by a panic or shock which dr ives output downward´ ( Conroy, and Emer son 905-911).

Amer ica¶s levels of ethical standards have diminished. Conroy and Emer son¶s study also showed

that ther e is no patter n between ethical attitudes when com par ed linearly to business cycles. Due

to the r ecent br eakdown of corr upt com panies such as Enron, WorldComm and Author

Ander sen, ethical attitudes cycle patter ns may mirror economical cycles. The thr eshold for

accepting diff er ent degr ees of corr upt behavior may intensif y or decline. In summar y, Amer ica¶s

thr eshold for accepting corr upt behavior is low. However as time heals all wounds, our toler ance

level as a society will incr ease allowing other cor por ations to follow the same path as Enron.



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One positive outcome evolved from this misfor tune. The commencement of Sarbanes-

Oxley Law. This law r equir es CEOs and CFOs of cor por ations to per sonally validate the

authenticity of their f inancial statements. For any f allacious act committed to misr epr esent their

cor por ation¶s f inancial well being, CEOs and CFOs will be held accounta ble civically and

cr iminally.



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Works Cited

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Conroy, Stephen J., and Tisha L. N. Emer son. "Ethical Cycles and Tr ends: Evidence andIm plications." Jour nal of Business Ethics. 81.4 (2008): 905-911. Business Source Com plete. EBSCO. We b. 3 May 2010. http://search e bscohost.com.r u by2.uhv.edu/login.aspx?dir ect=tr ue&db= bth&AN=33281746&site= bsi-live&sco pe=site>.

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