The Enron Goldmine

The Enron Scandal is a goldmine of case study fodder for business instructors everywhere. Finance, Management, Law, Policy, Ethics—this one touches them all. The complex and twisted corporate meltdown of Enron Corporation fireballed so rapidly that there may always exist a wealth of questions inquiring as to what happened and what otherwise SHOULD have been done.

While an unnamed number of employees were certainly participants in the events leading to Enron's downfall, there are specific names which generally are held to some degree of responsibility: Kenneth Lay, Jeffrey Skilling, and David Duncan—to name a few.

The accounting profession as a whole, however, may be the real underlying cause. Colin Boyd is quoted in Ethical Theory and Business as saying that "ethical tensions, like pressures between tectonic plates in geology, had built up over decades as the structure of the accounting profession evolved" (364). These tensions in turn, were a major influence in the decisions made by Enron's auditing firm Arthur Anderson.

Global growth via international mergers, the demise of long-term auditor-client relationships, and the price-shopping and opinion-shopping practices of the client pool combined to force the accounting industry to reshape its normative business methods. Similar to the Sears Auto Center case, auditing firms turned the audit itself into a loss-leader; lowballing prices so as to get an inside look at the processes of client businesses and then seize opportunities to offer consultations for discovered problems.

The ensuing cross between auditing and consulting produced conflicts of interests which "placed intolerable pressures on the ethical judgments of experienced professionals" (Ethical Theory 365). As accounting firms fought to survive, or in Arthur Anderson's case to continue to stand among giants, standards were flexed more and more to convey the desired result. On the cuff, such practices were beneficial to parties on either side of the deal—Audit/Consultant Companies (ie. Arthur Anderson) and Client Businesses (ie. Enron Corp.) were both happy.

The type of business relationship between AA and Enron at its heart was a legitimate one—morally adhering to the contemporary norm—although compounded over time with the numerical results, they were the ones to "get caught."