Scope: 5 pages (1250 words), double spaced, 12-point font.
This material may consist of step-by-step explanations on how to solve a problem or examples of proper writing, including the use of citations, references, bibliographies, and formatting. This material is made available for the sole purpose of studying and learning - misuse is strictly forbidden.The foundation of Enron Corporation dates back to 1985 when Kenneth Lay had engineered a merger with Internorth Incorporated to create a new energy company (Free et al, 2007). The company benefited from the series of deregulations of the natural gas market during mid to late 1980s and it emerged as the energy giant during that period. As reported by Culp & Hanke (2003), it was the market maker in the natural gas derivatives market and was known as one of the most successful and innovative energy giants of those times. The company declared bankruptcy in 2001 when it was burdened with debt and cash flow crisis to meet its payments.
The key ethical issues that led to the debacle were the principal agent conflict, lack of independence of the board members and the auditors and the use of deceptive financial policies to inflate the profits of the company. The company had been using special purpose entities to remove the leverage from its balance sheets and these off-the-balance sheet transactions were not adequately disclosed which led to inaccurate representation of the true profitability of the company. Enron was known for its creativity and innovation and its culture promoted these aspects. However the top management used negative strategies to innovate which led to piling of debt and ultimate failure of the company. Information was held back from the stakeholders and they were kept in dark about the true financial position of the company.
Enron claimed to have an independent board of directors which was headed by Kenneth Lay. It had fifteen members but there were conflicts of interests amongst the board members....