Wk2 Assignment: The Enron and WorldCom Scandals
Instructors Name[Page Break]
1. Which segment of its operations got Enron into difficulties?
The guaranteed loans that were intended to bridge the financing for investments from outside investors that could not be found would be the segment of operations that caused Enron difficulties.
2. Did Enron’s directors understand how profits were being made in this segment? Why or why not?
Enron’s directors did not understand how profits were being made in this segment because they were kept out of the loop of everything until all the issues became public.
3. Ken Lay was the chair of the board and the CEO for much of the time. How did this probably contribute to the lack of proper governance?
Key Lay allowed many things to happen that were not ethical. He was in charge of all of Enron’s activities. Because Ken Lay allowed deals to go on that were unethical and did not think about the consequences, it caused a sever lack of governance.
4. What aspects of the Enron governance system failed to work properly, and why?
Enron’s board members only allowed a slight amount of informations on the company’s earnings to be seen by the public and the investors of the company. Because the board members did not question management when needed it failed to protect the interests of the shareholders of the company.
5. Identify conflicts of interests in:
• SPE activities
Enron was not reporting their losses off the end of the year reports, so to offset their other dealings that were not profitable.
• Arthur Andersen’s activities
Arthur Andersen’s did not report all of the earnings and helped Enron cover up losses that caused a conflict of interest.
• Executive activities
While the company’s employees were...
References: Brooks, L. J. (2007). Business & professional ethics for directors, executives, & accountants (4th ed.). Mason, OH: Thomson Southwestern.
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