Enron Scandal: Ethical Corporate Governance and SOX Act 2002

This article discusses the Enron scandal in relation to ethical corporate governance and the Sarbanes-Oxley Act of 2002. It explores the fraudulent practices of Enron, the role of corporate governance in preventing such scandals, and the significance of the Sarbanes-Oxley Act in addressing financial fraud. The case highlights the importance of maintaining ethical standards and protecting the interests of shareholders and investors.

Business Law and Ethics

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
Discuss this case in relation to ethical corporate governance and the Sabane-Oxley Act of
2002. ......................................................................................................................................4
CONCLUSION................................................................................................................................5
REFRENCES .................................................................................................................................6

INTRODUCTION
Business laws are the laws that has been helping in formation of an business organization
within legal framework. These laws have prescribed those set of rules which helps in
establishing of an organization in appropriate manner. Such laws has prescribed a common base
with rules and regulations which helps in achieving of goals and objectives set by an business
entity. Ethical laws consists of those points which is important for an organization to maintain
healthy environment at workplace. In it various guidance is given which makes an organization
maintain discipline at working station (Suryanto and Maulidiana, 2019). Scope of both the laws
are wider as they deal with all kinds of activities existing in an business organization. Nature is
dynamic as they cover various elements existing in an business. This file shall deal with the
Enron scandal case with relevance to corporate governance and SOX Act 2000.
MAIN BODY
Enron Fraud scandal: In this scandal, an organization named Enron is an organization that is an
American based company which was formed with the merger of two organisations Houston
Natural Gas and Inter North. The scandal also resulted in the dissolution of the firm Arthur
Andersen, LLP. It is one of the fifth largest audit and accountancy of partnership in world. This
scandal is the largest fraud in American history. Jeff Skilling has been hired over developing
staff with executive that makes development over covering loopholes, special purpose and
formation of financial report is been done by them (Forganni and Reed, 2019). When Enron was
established, natural gas and electricity were under the monopoly of state . Enron started dealing
online due to the deregulation of the energy market which free the organisations to operate free
from the US government scrutiny. The first global commodity trading website was launched as
EnronOnline by the organisation in November 1999. The company also made artificial energy
crisis in California so that there are chances of manipulating power supplies and thereby
charging excessive prices for the same. Enron misrepresented balance sheet of the company to
keep huge debts off. Fraudulent accounting was done which can inflate the profits and the assets.
The corporation even showed fraudulent earnings to its investors so that new investors can be
attracted. The organization hide that it is having poor debts and not delivering projects.
Shareholders of Enron filed legal suit against the company because shares rate was also going
down to one dollar in mid of 2000. In this case investigation started by the agency of U.S.

Securities and Exchange Commission of USA started a formal investigation and special
committee was also formed to examine the financial transactions of Enron Corporation. Also
case was filed under United States Bankruptcy Code. Later on Arthur Anderson was found guilty
for destroying documents that is relevant for investigation.
Criminal investigation began in 2002 as confirmation taken by Justice Department and on
the same day Kenneth Lay also took help from 2 of the cabinet members who were disclosed by
the White House and then he resigned from the office of CEO and the Chairman and it was also
confessed by the company's auditor Arthur Andersen that they destroyed tons of Enron's
documents. In 2002, Cliff Baxter, former head of the Enron Corporation trading unit and later the
Vice President agreed to testify before the congressional committee but was found dead by the
gunshot wound on 25th January 2002.
Discuss this case in relation to ethical corporate governance and the Sabane-Oxley Act of 2002.
Corporate governance: This is considered to be forming of rules and practices that has
been helping in controlling of firm. As per corporate governance balance is being created in
order to protect interest of shareholder in an organization. It prepare a framework in achieving
goals and objectives. It also influences management which has to be focused over forming plan
of action and aspects related to internal control of an organization.
Andrew Fastow was sentenced to 6 years imprisonment with 2 years of the probation.
Kenneth Lay was also charged with 11 counts of fraud, security fraud and making of the false
and misleading statement. Jeff Skilling was too charged with 36 counts relating to the Enron
Scandal and agreed to become the informant regarding the Enron executives for the sake of
reduced sentenced
Sarbanes-Oxley Act of 2002: This act was basically formed to deal with any kind of
financial fraud that has taken place in an organization. It has paved new reforms that are more
strict to punish those who commit crime. Also this act has been formed to help shareholders and
investors trust to be maintained over an organization (Fernandes and et. al., 2019).
Corporate governance if applied in the case in proper manner then factors impacting the
performance of an organization would have been identified at early stage and right action would
have taken. Also it would have helped in maintaining ethical code of conduct in proper manner
which would have saved image of Enron from getting destroyed. SOX Act 2000 has been formed
after various scandals has taken place and urge of an concrete legislation raised. If this legislation

would have existed at that time then interest of shareholders and investors would have been
protected.
CONCLUSION
From the above discussion it can be marked out that both business laws and ethics is
considered to be one of the most important aspect existing in an organization. The file covers
about contract laws which are helping in forming an agreement that has been legally enforced by
law. Further corporate governance has been covered which is there to provide a framework to be
followed in an organization. Then SOX Act 2000 that was formed to deal with aspects of frauds
in more efficient manner. Both the acts has been discuss in relation to Enron scandal case.

REFRENCES
Books and journals
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Goodarzi, S.M., Salamzadeh, Y. and Salamzadeh, A., 2018. The Impact of Business Ethics on
Entrepreneurial Attitude of Manager. In Competitiveness in Emerging Markets (pp. 503-
539). Springer, Cham.
Nestertsova-Sobakar, O and et. al., 2019. Legal Approaches to the Regulation of Cryptocurrency
and Business Ethics of Ico in the European Union. Journal of Legal, Ethical and
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San Saw, P., Chuah, L.H. and Lee, S.W.H., 2018. A practical approach toward teaching ethics to
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Suryanto, T. and Maulidiana, L., 2019. Business ethics, illegal trade practices and rise of e-
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YE, M. and CHEN, G.H., 2017. Problems of and Solutions to Business Ethics in the View of
Anti-Unfair Competition Law. Journal of Southwest University of Political Science and
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