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Enron Case Study | Assignment Help | Essay Help

This report is mainly aimed at analysing the important aspects related to Enron case and the concept of Whistleblower and its applicability in the context of Australian legislation. The case of Enron is an important case of corporate fraud that explains the accounting frauds that have bee carried out in the books of accounts. These fraudulent practices have resulted into the collapse of Enron and have raised significant level of questions. There are various parties that are directly involved in the failure of Enron and they have contributed in a significant manner. This case analysis is therefore aimed at analysing different aspects of the Enron case initially. As for instance, there would be an analysis of the role played by the corporate culture in Enron’s bankruptcy and this is followed by an analysis of the role played by different important stakeholders of the firms in the demise of Enron’s collapse (Ferrell and Fraedrich, 2014). Apart from this, the analysis in this report also includes an assessment of the concept of whistleblower and the form and extent of current institutionalised whistleblower protection in Australia. The analysis is also focused towards evaluating the effectiveness of Australian whistleblower in achieving protection and this would be analysed through the application of relevant case examples. The findings from the entire analysis would then be summarised in the conclusion section of the report.

Role of Corporate Culture in Enron’s bankruptcy

The role of corporate culture is significant in respect to the performance of an organisation, as the corporate culture as prevalent across the organisation guides the actions and behaviour of employees working within it. The case analysis of Enron indicates that it has been a major corporate collapse in the corporate history, and an important factor that has contributed significantly towards the collapse of Enron is mainly the corporate culture as prevalent across it. An analysis of the cultural conditions as prevalent across Enron indicates that the organisation has a culture of arrogance whereby employees have the belief that they can handle greater level of pressure without facing any kinds of danger. It is mainly the corporate culture of an organisation that has to promote integrity within employees and promote the values of respect to each other in the organisation. However, in respect to the given case of Enron, its corporate culture has failed to promote the values of respect and integrity and this has contributed in an adverse manner towards the collapse of the entire organisation (Salehi and Rostami, 2009).

            For a corporate culture to be highly efficient, it is essential that the values of integrity and respect should be highly promoted. However, in respect to Enron, these important aspects were ignored completely, as there has been a decentralised structure being followed which allowed the top level managerial people in easily indulging into frauds in the books of accounts of the company. In addition to this, there are certain major areas that seemed to have undermined the corporate culture values at Enron and these are mainly the employee performance appraisals within the organisation and the compensation program. The decentralised organisational structure has been a major contributory factor towards such easy involvement of the top management in the fraudulent practices. This organisational structure has resulted into each of the major division at Enron being kept separate from others, and this led to very few people aware about the big perspective with regard to company’s operations. Such lack of operational and financial controls has allowed the top management to indulge into fraudulent practices with the firm’s auditor Arthur Andersen.

 In addition to this, the compensation plan that has been devised across Enron was focused towards benefitting the senior level executives rather than enhancing the profitability for the shareholders. This has resulted into adequate level of power and authority within the members at top management in breaking rules and inflating the earnings of the company. The application of non-standard accounting practices have been possible at Enron because of the bonus program which allows for inflating the earnings in the books as well. The ineffectiveness of the corporate culture at Enron is also identified from the fact that when the fraud has become widespread, the top managerial executives have started creating partnerships in order to hide losses. This indicates the loopholes in the corporate culture of Enron, as the top level executives were not feared about revealing their fraudulent activities, and they have started involving other members with a view to perform frauds further within the organisation (Healy and Palepu, 2003).

The analysis above indicates that the corporate culture has been significant at Enron in contributing towards its failure, as it has allowed the top management in taking actions themselves without involving other employees or members from the organisation. In order to function in an efficient manner, it is essential that there should be close co-ordination that should be encouraged within employees, and managers and employees should be promoted to perform discussion on the major organisational activities. This implies that the employees should be provided with necessary authorities to question their managers in case when they feel that anything wrong has been carried out across organisation. But these aspects were lacking in respect to the corporate culture that has been followed across Enron. The coordination between the lower level employees and senior executives was lacking and there were no one to question the activities of senior level executives. This has provided them with necessary opportunities in indulging within fraudulent activities and finally, corporate fraud has been accounted in the form of misstatements in the books of accounts of the company.

The unethical decisions and actions were mainly promoted by the corporate culture that was prevalent across Enron. The role of senior management is highly important in respect to ensuring the fact those businesses activities are carried out in an ethical way. The policies and procedures are mainly implemented by the senior level management in an organisation, and it is therefore essential that they should behave in an ethical manner. In order to ensure that higher overall ethical values within organisation, it is essential that the senior level managers should contribute their maximum overall efforts and encourage the lower level staff to follow ethics with respect to their decisions and actions. However, the case analysis of Enron indicated that the management itself engaged in unethical practices, and as a result, there is nothing to expect from lower level of employees within organisation. The performance of such unethical practices by managerial level people at Enron clarifies that the corporate culture lack sufficient integrity in fostering right business practices within the managerial level people, and as such, the organisation ultimately has to face the collapse as a result of it (Marx and Els, 2010).

The analysis above therefore clearly indicates that the role of corporate culture has been significant at Enron in fostering towards the situation of bankruptcy.

Role of Bankers, Auditors and Attorneys in Enron’s Demise

The stakeholders of an organisation have a significant role to play in the overall performance of an organisation. The stakeholders are mainly those parties that have a direct level of impact from the performance of an organisation. Some stakeholders have the potential to impact the performance level of an organisation in a significant way. An analysis of the given case of Enron’s demise indicate that it is affected by large number of stakeholders that have a played a direct role in its collapse. The specific parties such as bankers, auditors, and attorneys are directly associated with the performance of Enron, and the case analysis in detail indicated that these parties have played an active role in the process of demise of Enron. The ways in which they have played an active role in the process are analysed as follows:

            The banker has facilitated towards the failure of Enron and this is mainly identified from the fact that the banker of Enron i.e. Merrill Lynch has allowed Enron in selling Nigerian Barges. This has therefore allowed the Enron in making a record of $12 millions in earnings, and this has ultimately resulted into the better possibility to the company in meeting out its earning goals at the end of 1999. This has been a major way in which banker has contributed towards the Enron demise, as it allowed Enron in performing frauds in its financial statements in terms of manipulating its income statement. This is done in the form of entering a deal which indicated that Enron would buy Merrill Lynch’s investments in 6 months period with a guaranteed 15% rate of return. This deal has been accepted by Merrill Lynch despite knowing that the transaction allows Enron in performing fraudulent manipulation of its income statement. Merrill Lynch was also faced allegations with respect to replacement of a research analyst after the coverage of Enron as performed which displeased Enron executives. All these aspects give an indication of the fact that there has been an active involvement of Merrill Lynch in the corporate fraud that has been carried out at Enron. Despite an active role of Merrill Lynch in the fraud at performed at Enron, it indicated that it did nothing improper in Enron business dealings (Levine, 2012).

            Apart from the active role of banker, the auditors of Enron i.e. Arthur Anderson also played a crucial role in the demise of Enron. The auditor of a firm is mainly responsible for checking the books of accounts with a view to ensuring accuracy and authenticity of the matters as present in it. They are required to identify any errors as existence within the financial statement of the company. But in respect to the given case of Arthur Anderson, the auditing firm seems to have not performed its responsibility in an ethical manner. The case analysis of the failure of Enron indicated that there has been active role being played by Arthur Anderson in the fraudulent activities that were carried out in its books of accounts. It is essential that the auditing firm should act in an independent manner, because there are various important stakeholders of the organisation that directly makes use of the opinion as provided by the auditors. But the analysis of the Andersen in respect to Enron indicates that it has not acted in an independent manner, and there are some executives of Andersen that have accepted jobs from Enron. Andersen also failed to ask Enron in explaining its complex partnerships before certifying the financial statements. All these acts of Andersen indicate that it has contributed towards Enron’s demise (Sikka, 2009).

            The Attorneys have also played a critical role in the demise of Enron. The attorneys in respect to Enron i.e. Vinson and Elkins have played a crucial role in helping Enron in structuring some of the special purpose partnerships. The legality of such deals has been supported by the firm and Vinson and Elkins acts as a great facilitator in supporting these deals through transaction opinion letters. These deals have played a contributing role in the demise of Enron. Thus, the analysis indicates that bankers, auditors and attorneys played a crucial role in the demise of Enron. Although these stakeholders have been identified as the major contributor towards the demise of Enron, yet an analysis in detailed indicates that they were not in a position in questioning the senior executives at Enron. This is mainly because of some senior officials holding the major authority that have entered into corporate frauds. This was unethical because as being the auditor of the firm, Arthur Andersen have the requisite authority as well as the right to examine the books of accounts in detail. But they failed to do so partly because of their own interest in the firm.

            On the basis of analysis, it is believed that they have adopted the same unquestioning attitude to Enron’s accounting because of their personal interest involved in it. The case analysis of the auditing firm Arthur Andersen indicates that they are prohibited from carrying out any audit because their active involvement in the Enron’s fraudulent practices has been identified. This indicates the personal interest of these stakeholders and also their lower overall authority in questioning the matters at Enron has resulted into their adaptation of such unquestioning attitude.

Form and Extent of Current Institutionalised Whistleblower Protection in Australia

            In order to analyse the form and extent of current institutionalised whistleblower protection in Australia, it is essential to initially analysed the concept of Whistleblower. Whistleblower is an important concept that indicates the protection of an organisation from any corrupt practices or fraudulent practices by way of disclosing the information in the interest of the public. A whistleblower is mainly a person that is responsible for exposing the misconduct that is taking place in an organisation. Any kinds of alleged activities, dishonest or legal activities that are taking place in an organisation are being disclosed with a view to ensure that they do not have a major impact on the performance level of the organisation (Dawson, 2000).

            An analysis of the whistle blowing practices in Australia indicates that this concept has been given higher level of importance because it is mainly intended to ensure the protection of corporate from any major kinds of fraudulent practices. In respect to the form and extent of institutionalising whistle blowing practices in Australia, an analysis indicates that there are certain important forms of whistle blowing practices that have been adapted by most of the Australian states so as to eliminate improper and unlawful conduct. The protection of whistle blowers in Australia is performed under certain forms of legislations including the criminal or civil liability, dismissal or breach of confidentiality and there has been confidentiality being maintained with respect to their identity (Australian Security and Investment Corporation, 2014).

            As indicated above, there are different forms of whistle blowing protection legislations that are there across different major states in Australia. As for instance, the major ones include the South Australian Whistleblower Protection Act 1993, The NSW Protected Disclosure Act 1994, the Queensland Whistleblower Protection Act 1994, the Act Public Interest Disclosure Act 1994, Official Corruption Commission Act 1988 and many more. This indicates that there are different important forms of Whistle blowing acts that are aimed at ensuring the protection from corrupt or fraud practices within workplace. However, an important aspect that has been noted with regard to the extent to which they ensures protection is that majority of these Acts are aimed at ensuring the protection of public officials and companies at large. Even though their aim is to ensure the protection of whistleblowers in Australian public companies, these legislations sometime fails to ensure the complete protection of whistleblowers (Dawson, 2000).

            Apart from the different forms of whistleblowers institutionalised in Australia currently, an important area of analysis is mainly the extent to which they are being institutionalised. As far as the extent to which these different forms of whistle blowing practices are being deployed, an analysis of the existing literature indicates that there adaptation has been lacking in certain major states across Australia. As for example, a study as conducted in respect to 800 public sector employees in NSW in order to analyse the awareness of mechanism for reporting corruption, and the findings of the study indicated that two third of the employees surveyed said that they had not heard of the Protected Disclosures Act. This indicates the extent of institutionalising of whistleblower protection has not that been effective, as the employees that are claimed to be protected are not aware of such legislation. This signifies the loopholes of the legislations that are being introduced for the protection of Whistleblowers (Dawson, 2000).

Effectiveness of These Protections through Legislations: The analysis above indicates that there are various important legislations that are existent in order to ensure the protection of whistle blowers. These legislations as enacted are mainly aimed at protecting the whistle blowers from the disclosures as made by them with regard to the corrupt practices at workplace. However, the main question is mainly with regard to the effectiveness of these legislations in ensuring the protection of whistleblowers. Even though there are legislated protections for Whistleblowers for their protections, but an analysis of their current conditions in respect to US indicates that it is not highly efficient. The whistleblowers have to face significant level of personal difficulties as a result of disclosing fraudulent practices on the part of their top management. The personal price of disclosing wrong doing has been devastating to whistleblowers across US despite having protective legislations aimed at ensuring their protection. As a result, the effectiveness of these legislations for the protection of whistleblowers is highly in question (Cohan, 2014).

            The case analysis above with respect to the form of whistleblower protection in Australia revealed that there are various such legislations, but an analysis of the effectiveness of these protections across Australia implies that they are not that effective. This is identified from the case example at NSW whereby a study indicated that the employees are not aware of the legislative measures that are being adapted in their organisation for their protection. In addition to this, the case analysis in the context of Australia implies that there are possibilities of performing the manipulation of the whistle blowing legislation or they can be used as a device for further damage or control. This signifies that there can be the personal usage of such legislations that are being enacted for the purpose of protection of employees. This has therefore been the major weakness with regard to the effectiveness of these legislations in ensuring the protection of whistle blowers (Australian Security and Investment Corporation, 2014).

            The case analysis of the legislations as available for the protection of whistleblowers in Australia implies that it has historically been weak in ensuring the complete protection of whistleblowers. The legislations are not that effective which in turn leads to cost to be borne by the whistleblowers. As for instance, in respect to the Australian conditions, it has been well established that the whistleblowers have to face the cost for making any disclosures of corrupt or fraudulent practices of others. They have to face with the personal attacks from those to whom they have exposed and sometimes, they are being threatened by the government themselves. The often faces the problems of losing their jobs because of disclosures as made by them, and they are sometimes prosecuted as well. The current laws and legislations in protecting whistleblowers indicate that there has been higher overall costs that whistleblower have to faced from making disclosures of the fraudulent practices by their management. All these aspects give a clear indication of the fact that the legislations for the protection of whistleblower across Australia have not that been effective. Instead of providing protection, the whistleblowers are to face with adverse situation from disclosing any frauds within their organisation (Democracy in Australia- Protection of Whistleblowers, 2013).

            Overall, the analysis above indicated about the different important forms of legislations that are there for whistleblowers and they claims that they are effective enough in ensuring the protection of whistleblowers. But the analysis of the case in the context of Australia indicates that these legislations are not that effective from the point of view of ensuring the actual protection of employees, rather it is evaluated that they causes further problems to the whistleblowers that have made an attempt of disclosing unacceptable information at the workplace.

Conclusion

            This report involved a critical analysis of the case of Enron initially which is followed by an analysis of the forms and effectiveness of the whistle blowing practices that have been carried out across Australia. The case analysis of Enron as performed initially has indicated that it is mainly the corporate culture at Enron that has contributed positively towards the demise of the entire organisation. The corporate culture at Enron has not that been effective from the point of view of promoting integrity and this has therefore contributed towards its failure. The analysis indicated that the lack of critical questioning of the accounting practices have contributed in an adverse manner towards the failure of the entire organisation. The case analysis with respect to Enron as performed above has also indicated that the important stakeholders of the organisation such as bankers, auditors, and attorneys have positively contributed towards the demise of the organisation. Their involvement in the process has supported top management at Enron in performing the fraudulent practices in a positive manner.

            Apart from the case analysis of Enron, the whistle blowing legislations and their form and extent to which they are being deployed across Australia has been analysed and the performance of analysis indicated that there are various important forms of whistle blowing legislations that are being deployed across Australia for the purpose of ensuring the protection of whistleblowers. These are mainly in terms of South Australian Whistleblower Protection Act 1993, The NSW Protected Disclosure Act 1994, the Queensland Whistleblower Protection Act 1994, the Act Public Interest Disclosure Act 1994, Official Corruption Commission Act 1988 and many more. Although these whistle blowing legislations are being enacted for the purpose of achieving protection of the whistleblowers, yet the case analysis in the context of Australian economy indicated that these legislations are not that effective from the point of view of performing the protection of whistleblowers across the economy. This similar situation has also been identified in respect to US economy, as the legislations as applied are not effective in ensuring the protection of whistleblowers. 

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