Enron and the role of tone at the top in fraud

Enron and the role of intonate at the drop dead in mockeryResearch and polish up the Enron parapraxis against the concept of tone at the top. Produce a referenced report and bibliography which demonstrates specifically how the conduct of the senior leadership in Enron shaped the dominant dead endture of the club and how this contributed towards an acceptance of the use of Fraud for individualised gain within Enron.The central purpose of this report is to examine and re guess the Enron case the most profiled, serious white collar crime reported in the world today. The report shall specifically look at the how the companies tone at the top contributed to their failure and in addition how the demeanour of the senior leadership within the conjunction shaped the refining of the company and how this contributed towards an acceptance of the use of Fraud for face-to-face gain within Enron.In the business atmosphere it is important for there to be a trust between management and em ployees, and that either party does non abuse their positions for personal gain, as doing so stooge often generate detrimental effects on a business as proved by Enron.The yettual demise of the Enron Corporation was a result of a lack of honourable corporate behaviour, corporate greed and the utilisation of special purpose entities, which were utilise to hide fiscal debt. A large contributing factor to the fall of Enron was down weak tone at the top of the company. However other factors much(prenominal) as mismanagement of risk and over extension of capital resources, philosophical differences in management, involvement in mark to trade accounting, earnings to as effectuates failures and the tone entrap by the management of the company to overestimate assets to meet targets for greater bonuses besides contributed to the failure of the company.To remove competition Ir. in Jacobs? He was bought out using the employees pension fund, a move which is morally wrong.People to mentionJeffrey skilling CEO of enron good deal Lay background? Little management experience and qualifications1999 annual report Ken Lay we support employeesCressey fraud 3 elements shakeure, opportunity and rationalisation. Arthur Anderson their accounting company desperate to gain contracts in the competitive market. They became involved in the Enron scandal and even shredded important documents which were requested by investigators later on. looking at at the top out1 refers to the moral construct which is formed in a workplace. The tone is set by top management, the corporate environment within which reporting occurs.2 Tone at the top is described as. ACFEExamples of good tone at the top following the code of ethicsZero tolerance to crime and fraud within a companyGood tone at the top of an composition reduces the likelihood of rationalisation for unethical behaviour, creating an honest and trustworthy work environment. Good tone at the top doesnt always lead to a fa vored business, however it gives a business a better chance.Dont cover anything up.ExampleIBM suffered a bad spell, were honest and open about it and discussed how they could break the situation.Enrons code of ethics, which integrity, respect, communication and excellence.Enrons bad tone at the topEnrons foundigital audiotapeions wernt based on the marketing of a successful product, but a free market which they thought they could abuse.poor business ethics including the rank or yank scheme which enron employed, employees were ranked on their performance and would dismiss the bottom 15% if they didnt improve within the consecture 6 months. This strategy meant that employees were scared of loosing their jobs, therefore didnt question business practises and were even often forced to make unethical decisions for themselves. Employees rationalised their actions, as they had to commit fraud in order to meet targets and keep their job safe.Enron recruited young employees who had just grad uated, who were impressionable and who conveyed the job, therefor would not question or report the operating style of the company.Enon needed contant funding to provide tall returns with little risk.It has been discovered that an plaque can be dictated on the upper berth managements attitude towards integrity and ethical take accounts this suggests that if the managers outlook can dictate employees views, it therefore can addition or decrease the chance of fraud occurring within the business.Corporate greed often destroys a company,3 as it did with the Enron Corporation. In the mid 1990s Enron was the dominant muscle company in the United States, and one of the leading companies in the world and later on in 2001, they went onto filing for bankruptcy.Enron went bankrupt the way that most companies fail, invest in projects that are too risky, and therefore they were unable to keep up with the debt obligations of the firm. (niskanen, 2005, p. 2).High level managers in mark and skillings teams were taking advantage of huge pay packages for having completed deals through questionable practises., however the firms success was down to an elaborate scam ran by executives of the company. The rapid success and the positive scrutiny the company was receiving from the press and financial analysts, supplemented fuel to the companys competitive culture.Jefferey Skilling a company executive ran a staff of executives who used loopholes, mislead financial nurture and used deception to hide billions of pounds of debts they were in from previous failed projects and deals. The culture at Enron was that any ethical wrongdoing is to be hidden at any court deny, play the dupe, claim ignorance, lie, quit.4Enron used a technique called mark to market this is an accounting technique which is used by recording the price/value of a security on a daily basis to calculate the pays and losses, this allowed Enron to project earnings from long term energy contracts as their true income, this was how they distorted their balance sheets to inflate their revenue by manipulating projections for future revenue. This technique made it difficult to see how the company was making money, and therefore stock prices re main(prenominal)ed high for the company however Enron wasnt paying high taxes, therefore this method allowed the company to make money without bringing in taxable money, by doing this the company had wiped out $70 billion of shareholder value but in like manner defaulted on tens of billions of dollar of debts5 This approach increased the pressure at the top of the company, the company used bonuses to push employees to keep the business going.The organisational culture for the company was seen as a dysfunctional corporate culture whose main focus was on profit gains through the means of bonuses. send was carried out at all levels of the organisation, disregarding the quality of cash flow or profits, in order to achieve a better rating for their performa nce tables. This meant that stakeholders and lenders saw inaccurate figures.fraudulent reporting and accounting was to ensure that the business kept up with the stock price value. This practice enabled employees within the organisation and executives to receive large bonuses.6These are common features that indicate that tone at the top failed in the Enrons business environment and it also produces evidence that moral ethics can affect a whole organisation. If corporate leaders encourage rule defiance and foster an intimidating, aggressive environment, it was indisputable that the ethical boundaries at Enron eroded away to nothing.In 2001, Richard Grubman an Analyst from Wall Street discovered that Enron werent producing their balance sheets or financial statements. The CEO of Enron Jeffrey Skilling responded to this by saying, Well, thank you very much. We appreciate it ahole7 This comment made gives a picture of the culture ran within the organisation and also gives an idea of the tone at the top of the company, that executives who ran the company didnt have high standards of civility or integrity. When their malpractice was discovered Lay and Skilling argued that they were participating in normal business practice,8 however their defensiveness towards the situation intensified the awareness of much(prenominal) Gaming the system.9The failure of the Enron Corporation identified certain judgements which need to be considered with regards to business ethics, the issue isnt the fact that fraud was classed as acceptable in that business environment. The occurrence of disreputable practices and the systematic temperament of the misinterpreting and reporting of financial reports in the case lead the UK and US to implement regulations to stop this behaviour happening in other businesses.According to Schein (1985) there are five pribloody shame mechanisms that a leader can use to influence an organisations culture attention, reaction to crises, role modelling, allo cation of rewards, and criteria for selection and dismissal. Scheins assumption is that these mechanisms rein, force and encourage behavioural and cultural norms within a business environment. However the executives at Enron used the five mechanisms to reinforce a working culture that was morally indecent, exposing the company and employees to degeneration, lying, cheating, and stealing.Rafraf commented that the executives in the company were solely focused on profit and gains in the shortly term and not achieving long sustainable business goals or profits,10 he suggested this was their main focus, regardless of business ethics.11 A previous employee commented that executive Jeffery Skilling was driven by the almighty dollar.12 It was intelligible in the Enron case that employees were overconfident therefore it has been suggested that this behaviour can often lead to fraudulent behaviour to become or stay successful.13The company went low investigation after scrutiny from its own employees who whistle blew as they didnt like the way that the business was being ran as the activities that were undertaken to stay successful were unethical, morally wrong and illegal. A former employee commented, We are such a crooked company.14 Executives such as Kenneth Lay soon started to sell off their own shares whilst also pocketing some money.15 Whilst in the meantime Lay was telling workers in company to buy shares as they were incredibly low, this supports that it was executives within the company who determined this crooked culture within the organisation. The company executives were charged for fraud and money laundering.Tone at the top failed at Enron, as business procedures show that morale ethics can affect the whole organisation. Business ethics were not evident in the company, regardless of position in hierarchy. Tone of the Top allows a business to have control over itself, the stronger the tone at the top, the more likely the business is to be successful, howev er it has been suggested that organisations who rely too much on tone at the top give businesses too much independence. The reason for Enrons failure was due to the lack of tone at top, ethical values and morals also didnt play a role in the decisions which were made at the expense of the business, employees and customers. This particular case of failure in business highlighted the fact that when tone at the top is not implemented into a business, employees often follow the decisions made even if they are ethically immoral, this can be down to personal circumstances and a need for the job. There are regulations in place that deter organisations and employees from committing this white collar crime and also the criminal law prosecution. The Enron case highlights how an organisation can quickly sink if they lack tone at the top, however the case failed to provide a message against gaming the system16. Tone at the top is imperative in a business that wishes to be successful, as otherwi se the company can be led astray by an individual who has no business morale and lead the company into committing fraud to make the company successful. ConcludeThe poor tone at the top at Enron allowed the management to profit through their illegal business practises. This was also the case for many employees who were taught in an environment that allowed for personal gain, from illegal activities. Enron had a code of ethics, which was patently not followed.code of ethics, Honesty and integrity. Followed by all ranks of a company to set a good tone at the top, ethical behaviour. internal commission on fraudulent financial reporting suggests identify and understand the factors that lead to fraudulent financial reporting, design and implement internal controls within the company, which detects/prevents this behaviour. faithfulness is an important characteristic to behold, as compliance goes hand in hand. This attitude encourages whistle blowers and deters staff from using rationalis ation and justification to commit fraudulent behaviour. The main element in the fraud triangle, therefore reducing the likeliness of fraud within a company. A culture of narcissm fostered at Enron, rewarding individuals for unethical practises, such as CFO chief financial advisor Andrew Fastow who created an illegal scheme Chewco to hide enrons mounting debt.Mark and skillings dispute to which business model to follow, accounting scandals emerged to the state-supported in 2001, finally brought Enron to the ground.Enron culture developed trait theoryStogdill found leadership changed depending on situations encounted,5 major leadership traits intelligence, self confidence, determination, integrity and sociability (northhouse, p. 19)Traits worked together to provide effective leadership, balance between individual leader n situational factors needed to influence group member behaviour and develop well-grounded organisational culture. One or more of the traits are lacking in the lead er, problems can arise in the social exchange between leader and group members. Impacting in a negative manner the development of organisational culture.Enron absence of key trair integrity.Enrons leadership did not live out the ethics they claimed to have valued.Mixed deontology and universal ethical egoism help to understand how the culture of narcissm at enron developed from an ethical framework.Trait and transformational theories help us to make sense of what went wrong at enron from a leadership perspective.BibliographyJournalsKershaw. D, Evading Enron Taking Principles Too Seriously in Accounting Regulation 2005 The Modern Law Review 594-625, 596King. A, Tone at the Top Why Investors Should carry on 2013 Strategic Finance 25-31, 28McBarnet. D, After Enron Will Whiter Than White comprehend Crime Still Wash? 2006 British Criminology Journal 1091, 1098Rafraf. T, From Thriving to Surviving The ruffianly Apple Conduct at Enron 2002 Journal of Business Ethics 1-19.Schrand. 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