Free Essays, Term Papers, Research Papers at Anti Essays

Employee Investment Risk Matt Peay
Philosophy 243
12/4/07

During the 1990’s, Enron, a company specializing in the trade of energy experienced extreme financial growth along with soaring stock prices. With over 21,000 employees, Enron was “one of the world’s leading electricity, natural gas, pulp and paper, and communications companies, with claimed revenues of 111 billion dollars in 2000” (Wikipedia, Enron). Because of this Enron was named “America’s Most Innovative Company” six years running by fortune magazine. On the other hand, however, the vast majority of Enron’s financial growth was not legitimate whatsoever. This is because Enron’s accountants employed the lawful practice of “mark-to-market” accounting which is defined as “the act of assigning a value to a position held in a financial instrument based on the current market price for that instrument or similar instruments”(University of Chicago Graduate School of Business). In other words, Enron was able to record potential future gains as immediate profits on their balance sheet. This, in turn, led many company employees to invest all of their assets in Enron stock without even considering the risk of their investment. These employee-investors were not even concerned “when Enron used company stock as the sole unit of deposit in employee 401 (k) earnings” (Ethical Theory and Business 7th ed). As the scandal was made public, Enron’s shares dropped from almost one hundred dollars per share to just pennies. It was made evident that much of Enron’s profits were the result of “deals with special purpose entities which it controlled. The result was that much of Enron’s debts and losses were not ever reported in the financial statements“(Sorkin, Andrew Ross. Risks Too Great). Inevitably, Enron met its demise in late 2001 when its accounting practices were made public leading the company to file for...