Business

Enron was founded in the year 1985 by Kenneth Lay following a merger of Internorth and Houston natural gas. After the merger, the company had an ownership of 37.000 miles of interstate and intra state pipelines which were being used to transport natural gas. This company grew and established itself as an international company through out the 1990s. However, towards the closure of year 2000, the company began to experience financial crisis leading to its bankruptcy in the year 2001 (Healy  Palepu, 2003).
Where and why did Enron go wrong
    Things at Enron Company began going wrong in the year 2000 when it recorded losses of over 638 million, a factor that made its market share to drop by 44. Earlier, its chief executive officer Jeffrey Skilling had quit unexpectedly citing personal reasons. There were many reasons that led to the fall of Enron Company ranging from legal to governance problems. The legal and regulatory structure of the United States was a major contributor towards the fall of Enron Company. The SEC regulations and laws permits companies such as Arthur Andersen to offer consulting services to entities while at the same time offering auditing report on financial reports pertaining to consulting activities. This is a major flow in the legal systems that contributed to the failure of Enron Company (Healy  Palepu, 2003).
Arthur Andersen was the external auditing firm of the company as well as its consulting firms. This in turn had led to conflict of interest thus hindering effective and transparent auditing activities. Lack of autonomy of external auditors made it difficult for Arthur Andersen to accurately review and assess the accounting processes of the company. Investigations revealed that Enron Company had previously misrepresented its true financial reports with an aim of attracting and retaining investors. Inadequacies in the regulatory and legal structures created loopholes for Enron Company eventually leading to its failure in the year 2001.
How did Enrons corporate governance fail to prevent their collapse
    The governance of Enron Company had a big stake towards the demise of this company. Enron corporate governance wanted to continue operation even when they knew the company was in great financial problem. The flaws in the accounting system allowed the company to take advantage of the limitation to hide its financial status. Arthur Andersen had subsequently reported about the inefficiencies of the accounting process as well as the risk susceptibility of the company to internal auditors who are said to have passed on the concern to the management team. However, the top management is not reported to have taken any corrective measure for this. Instead, the company had hidden such information from investors to ensure that they did not withdraw their investment. Had the corporate governance of this company taken earlier reform measures, the company could have not failed (Healy  Palepu, 2003).
    Also, the mode of compensation that the company was using had raised several questions with analysts. The managements stock options were used to heavily compensate the management of Enron Company. This mode of compensation has the ability of motivating managers into making decisions that lead to short term performance of stocks that have no ability of creating long term or even medium term value to an organization. At Enron Company, compensation based on stock options was the major form of motivating employees and this had adverse effects on the company since no long term value was being added. Though corporate governance had been warned on this, it did little to correct it thus leading to failure of the company.
What ethical considerations did Enrons executives violate
    One of the greatest violations of ethics on part of executives of Enron Company is failure to disclose the true financial information or status of the company to its investors and potential investors. Enron Company was using market to market accounting systems that allowed it to convert future cash flows to current market flows. While this method of accounting is allowed, making projections that are unrealistic so as to attract investors is unethical. This was what executives of Enron did during most of the contracts they were entering into.
    It is also reported that the companys executives never used to give full details while engaging in Special Purpose Entities. Enron had used many Special Purpose Entities to purchase contracts but only very little information was disclosed for accounting purposes. These entities were vital in assessing the true worth of the business and the executives failed to disclose such details. This was unethical of them and a violation of ethical consideration (Healy  Palepu, 2003).
    Failure to reveal the true financial status of the company was another violation of ethical consideration on the side of Enrons executive branch. Employees especially those in accounting department had warned the top management on the inadequacies of accounting procedures. Executives were overestimating the balance sheet of the company so as to entice investors. This was a violation of accounting standards and ethical considerations by executives.