Analysis Of The Business Case On Enron †MyAssignmenthelp.com

Question: Discuss about the Analysis Of The Business Case On Enron. Answer: Main ethical violations that had been done by Enron managers Analysis of the business case on Enron helps in understanding the main ethical violations that had been carried out by the Enron managers. The chase for personal wealth by the managers through attainment of rapid growth can be observed as the primary cause behind the collapse. The pursuit by the managers for individual wealth subsequently led to the in introduction of extreme incentive scheme for luring as well as motivating very bright as well as driven individuals. This in turn led to inadequate concentration on the earnings of the firm in the short term. The current case also reflects the fact that earnings could have been manipulated for attainment of aggressive revenue as well as targets for earning (Brigham Daves, 2014). As the worked out figure for earnings growth left a deficit in cash, the managers of Enron utilized the borrowing capabilities. Again, managements decision to issue greater number of equity would have hurt the price of share on which majority of the incentives were founded. Therefore, schemes were generated to generate financing secretly and this financing had the need to be concealed. Thus, these actions undertaken by the managers created a dishonourable along with unethical culture in Enron that in turn exploited and deceived different stakeholders of the firm for the sake of achieving targets. Furthermore, managers in the upper echelon of the organization also rewarded themselves using the same incentive plan and tried to show off that market driven approach led to greatness. Again, the revered Arthur Anderson was also permitted greed for payments to over-rule of the tradition of strong business ethics of the company that in turn met with fatal outcomes (Lasher, 2013). Main roles of ethics in corporate governance The main role of ethics in corporate governance is to maintain an ethical tactic, set balanced objectives, establishment of decision making procedures and equal concern for different stakeholders (Brooks, 2015). SEC is trying to get corporations to notify the investment community more quickly when a material change will affect the forthcoming financial results The SEC is trying to get corporation to notify the investment community more quickly regarding material alteration that can affect the overall financial outcomes of the firm. Essentially, it was primarily reported that the SEC (Security and Exchange Commission) of US permitted the company to utilize the mark to market method of accounting. In itself, the unawareness of the shortcomings of this particular method also led to financial scam. The main task is to make certain that the commodity futures as well as options markets function in both an open and economical way, while the Federal Energy Regulatory Commission (FERC) necessarily controls the interstate broadcast as well as market for diverse energy products. Evidently, the main basis of federal oversight for specific publicly traded corporations is the Securities and Exchange Commission (SEC) (Bekaert Hodrick, 2017). Thus, SEC in order to ensure optimum profits of firms can act for detecting different wrong doings such as accoun ting fraud that in turn can violate the interests of shareholders. Options that was available for ENRON managers to avoid bankruptcy The inadequacy of transparency and truthfulness by Enrons management regarding the actual health condition of the corporation is one of the causes of the bankruptcy of the corporation. Essentially, the senior management of Enron could have maintained a good ethical culture that could have protected the reputations and compensation as the most successful executive in the United States for averting bankruptcy. The management of the company could have avoided the conflict of interest and maintained adequate independent oversight of management for averting collapse of the corporation. Additionally, the compensation policies provoked greater concentration on the growth of earnings of the firm and price of stock. However, regulatory alterations concentrated on enhancement and strengthening internal accounting as well as control systems (Petty et al., 2015). Essentially, the conflicts of interests between two different roles played by Arthur Anderson as an assessor and a consultant could also have been averted for avoiding bankruptcy of the firm. In addition to this, magnitude of assumed accounting errors, together with Andersons role as the firm Enrons assessor along with the extensive attention of the media delivered a setting regarding influence of reputation of the auditor on market prices of the client on failure of audit. In itself, analysis of the case reveals that Enron was not generating enough flow of cash, whilst spending expensively on business expansion that ultimately led to collapse of the corporation (Arnold, 2013). Nonetheless, this could have been avoided by emphasizing more on generation of greater flow of cash. Furthermore, the use of mark to market system of valuation on agreements generated artificially large amount of earnings that essentially concealed the poor financial health of the firm in terms of profitability. Therefore, a different system of valuation could have been used for better presentation of financial results and avoiding bankruptcy. As such, the financial incentives led to necessary inad equacy of transparency. Again, deception and trick for delivering reliable above average rate of growth in market could also have been avoided for averting liquidation. Actions that would be undertaken The flaws in operations have the need to be detected quickly and indeed periodically need to be commented by different observers. Again, ethical surveys as well as corporate governance surveys can be undertaken by different independent parties for emphasizing the growing issues. The advantage of hindsight that began as an imaginative as well as ground breaking notion, that necessarily transformed the entire natural gas supply sector, swiftly evolved into a dictatorial vision of generating a world leading corporation. In this case intellectual self-confidence mainly transformed into contempt for traditional business models and generated an environment in which top management got disconnected from reality (Petty et al., 2015). Therefore, maintenance of clear insight regarding the reality before framing innovative business designs is essential for enhancement of business. Thus, analysis reveals that it is important to maintain basic dimensions of control and yardsticks and avoid progres sive dishonesty for generation of revenue and earnings that can in turn deceive the entire stock market and management. References Arnold, G. (2013).Corporate financial management. Pearson Higher Ed. Bekaert, G., Hodrick, R. (2017).International financial management. Cambridge University Press. Brigham, E. F., Daves, P. R. (2014).Intermediate Financial Management. Cengage Learning. Brooks, R. (2015).Financial management: core concepts. Pearson. Lasher, W. R. (2013).Practical financial management. Nelson Education. Petty, J. W., Titman, S., Keown, A. J., Martin, P., Martin, J. D., Burrow, M. (2015).Financial management: Principles and applications. Pearson Higher Education AU.