The case of Enron is said to be a “smoke and mirrors” act dictated by top executives presenting the positive financial wealth of the company. Shareholders, lower executives, employees, and most American’s were not aware of the grieve financial trouble the company was enduring. Company Culture Enron’s motto was “respect, Integrity, Communication and Excellence” and along with that its Vision was “Treat other as we would like to be treated ourselves…” Both the motto and vision were inconsistent with the actual company procedures. Enron had a much different approach to the company culture and reward system they actually used. Competition was the main concept; which led to numerous financial mistakes in future years.
Enron was described as “House Of Cards” as it was built over a pool of gasoline. It all sort of became smoke and mirror. Louis Borget, former Enron's CEO was also exposed to be rerouting company’s money to offshore accounts. Once their schemes were discovered by the auditors, Kenneth Lay encourages them to "keep making us millions". However, the traders were fired once it was revealed that Enron's reserves were gambled away which nearly destroyed the company.
As Milton Friedman said, the social responsibility of a business is to increase profits, then Union Carbide Corporation’s decision to approve the cost-cutting plan seems appropriate and acceptable. Friedman’s view, however, is far from universally accepted. Many believe that corporations’ responsibilities to their shareholders, employees, customers and communities extend past fiduciary and enter the realms of ethics and Corporate Social Responsibility. Egoism fully applies to Union Carbide because to them no one else matters except for their happiness and profit . What Union Carbide failed to see was without the employees and the local community , there will not be profit because how can a corporation run without people to help it function or run .
Case Studies in Derivatives Securities Case#8: Cephalon,Inc Cohort 6 Group 2 Jin Yi Zhang Sisi Ma Yue Yu Haiyang Risk Management or Speculating Cephalon should take SBC’s offer to buy call options on its own stocks. However, this is not an appropriate risk management decision and Cephalon is simply speculating. To manage its stock price risk, Cephalon should at least take measures to avoid the loss brought by DFA disapproving the projection. Since the possibility that DFA will approve the projection is expected to be as high as 70%, Cephalon bets that its profit will be higher. Thus this measure, to buy call options by selling stocks to SBC, is simply speculating.
Andersen shunted aside accountants who failed to adapt to the firm's new direction. In their place, Andersen promoted a slicker breed who could turn modestly profitable auditing assignments into consulting gold mines. Repeatedly, Andersen rewarded those involved with the firm's most troubled clients, while guardians of the company's legacy were shown the door. The quiet dilution of standards and the rise of auditor-salesmen at Andersen are central to the scandals that have cost investors billions of dollars. Even though the leaders contended that conflicts between its auditing and consulting missions had no impact on the quality of its work but actually they do.
The firm’s senior managers had engaged in fraud for an extended period through a scheme in which partnerships owned by the managers could receive payment for goods and services never provided to Enron. Enron’s executive team was trying to create an enterprise, which would increase wealth among their shareholders. However, when it revealed that their stock prices were less desirable, certain aggressive accounting measures were required. Arthur Andersen, auditor and consultant to Enron, helped to make Enron’s shares look more favorable. Andersen knowingly certified false financial statements as accurate.
As CEO, Keith is determined to figure out why OSI stock is not performing as expected. His research leads him to a newer trend in company analysis called economic value added. EVA is a residual income approach that was modified and trademarked by a firm called Stern and Stewart. It is defined as after-tax profit that exceeds the required minimum return on capital. Computed by deducting the cost of capital from the after-tax profit, it is said to be the best measure of the true profitability of an enterprise because it is tied to cash flow and not earnings per share.
(Daft & Lane, 2011,2008) This did not stop companies from being selfish. When businessmen donated money, it was done as private philanthropists, not representative of their companies. In turn, their companies were guilty of exploiting workers. In attempt to fix this problem, government passed laws and regulations such as the Sherman Antitrust Act, to rein in the large corporations and to protect employees, consumers, and society at large. During the mid-20th Century, things were better, but there were events that caused problems for the working class.
Shareholders and managers became rich off of Welch's vision. In the Welch system, wealth was transferred from workers to shareholders. He insulated himself from the pain this caused, rationalizing that what he did was for the greater good. However, on the other hand, the company pressured cities, counties, and states to lower taxes by threatening to relocate operations, and this lowered budgets for schools. As we all know, education industry is like the lifeline and future in a country.
Unethical Accounting Practices and the Sarbanes Oxley Act In the wake of scandals involving companies like Enron and World Com, investor’s confidence in the accuracy of a company’s financial statements was shaken. Unethical acts such as providing false information regarding expenses incurred, exaggerating business revenue, or misusing business funds are all reasons the Sarbanes Oxley Act (SOX) was implemented in 2002. Prior to SOX companies were not necessarily accountable for questionable accounting practices and company executives would take advantage of these practices for personal gain. Companies would aggressively estimate expenses occurred or exaggerate revenue to entice investors to invest money or creditors to open lines of credit. In some cases executives would misuse company funds for personal use, such as vacations on company credit cards of use of company planes for private adventures.