Enron Scandal and the Implementation of Sabane-Oxley Act 2002

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BUSINESS LAW AND
ETHICS

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TABLE OF CONTENTS
1. INTRODUCTION.............................................................03
2. MAIN BODY
(i) Facts of the Case......................................................03
(ii) Enron Scandal.........................................................03
(iii) Ethical Principles which Should be Followed by Companies..04
(iv) Enactment of Sabane-Oxley act 2002...............................05
3. CONCLUSION.................................................................06
4. REFERENCES.................................................................07

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1. INTRODUCTION
A business is formed primarily to gain the profit from the transactions which the business
is carrying on. There is a long debate going on regarding that how a business should maximize
its profit. The general principle is that a business must not do some unethical acts for the purpose
to increase their profit. The ethics plays a very important role in carrying out the business
activities. If the business organization will do the business by following certain ethics towards its
customers and shareholders, the brand image of the business will increase which will lead in the
growth and success of the business organization. Nowadays it has been seen that companies for
getting more profit, are adopting various unethical modes. These companies are doing fraud or
misrepresentation of their accounts to hide the actual condition of the company to the general
public. The one of the famous corporate scandal which was done by Enron in the early 2000s
which is commonly known as Enron Scandal. In this essay the researcher will be focusing upon
this corporate scandal and how this corporate scandal lead to the implementation of Sabane-
Oxley Act 2002.
2. MAIN BODY
Facts of the Case
Enron Corporation was an American Company which was having its headquarter in the
Houston, Texas. The Enron was founded in the year 1985 when two American companies
merged that were Houston Natural Gas & Internorth. Before this company went through
bankruptcy, it was showing that it is making huge profit. The Enron Corp was a major electricity
and natural gas company. In the year 2000 it has claimed that its revenue is around $200 billion
which was later found that, it was misrepresented to attract the investors. It is also the fact that
the Fortune has named the Enron as the “America’s Most Innovative Company” from 1996 to
2000(Abd Rahman, 2019).
Enron Scandal
In the end of 2001 it was found that all the accounts which were showing the profit of
Enron Scandal were misrepresented and due to this the company’s value of shares fell down
drastically. This resulted in the bankruptcy of the Enron Corp and through this only this
corporate scandal was disclosed. From that time Enron scandal has been regarded as one of the
most important example of willful corporate fraud and Corruption. This scandal which was
done in the year 2001 had also questioned the accounting practices and business activities of
many companies in United States of America as this was the time period when many such
corporate scandals had happened. These corporate scandals are regarded as failure of corporate
governance in the company. In Enron Corp. also the same has happened where some of the
directors of the company were directly involved in this fraud and others were negligent, due to
which only this corporate scandal was happened. This scandal was done by the upper officials of
the company for the purpose so that their personal financial greed could be satisfied. When this
scandal was disclosed in the year 2001, it was found that the financial statements of Enron were
highly institutionalized and it was very creatively planned to do such financial fraud(Allen and
Kraakman, 2016). The auditors who were auditing the accounts of the Enron Corp were also