Financial Management and Business Ethics: The Enron Corporation Case

This report analyzes the financial mismanagement of Enron Corporation, highlighting the critical role of financial management, business ethics, and corporate governance. The case study examines Enron's use of off-balance sheet debt and its impact on the company's financial stability, ultimately leading to bankruptcy. The report emphasizes the importance of ethical conduct, transparency in financial reporting, and the protection of stakeholder interests. It discusses how corporate governance mechanisms can prevent fraud and ensure responsible financial practices. The analysis draws upon academic sources to underscore the significance of adhering to ethical standards and regulatory compliance in maintaining a company's reputation and long-term viability. The report concludes that strong corporate governance and ethical business practices are essential for building trust with investors and ensuring the sustainability of any business entity.

Financial management

Contents
Introduction......................................................................................................................................4
Main Body.......................................................................................................................................4
Conclusion.......................................................................................................................................6
References........................................................................................................................................7

Introduction
Financial management is essential part of business unit. It includes planning, directing
and controlling over financial activities. One of the main objectives of managing financial
resources well is to ensure adequate supply of funds and making capital structure of the firm
sound (Crane and Matten, 2016). Present study is based on Enron Corporation. From the balance
sheet of year 2000 shows that company has long term debts and have other financial obligations.
Due to poor financial management this entity has become the first US Company which have filed
for bankruptcy. There are many firms which are suffering from off-balance sheet debt obligation.
Current study will discuss concept of business ethics and its importance to corporate governance.
Main Body
Finance is life blood of enterprise. Each firm aims to generate more revenues by utilizing
existing resources well (Carroll and Buchholtz, 2014). Financial management activity is related
with effective planning, controlling and administration of funds so that organization can generate
sufficient profit. It ensures adequate supply of funds and optimum funds utilization. As per the
given case Enron corporation is facing the long term debt and many other financial obligations.
In such condition investors are not taking interest on the business unit because it is unable to give
them good return over their investments. Due to poor management of financial activities entity
has become bankrupt. Off balance sheet debt is the serious issue that is faced by many other
entities such as airline firms, pacific gas and Southern California etc (Du Plessis, Hargovan and
Harris, 2018). These all organizations are facing the same problem from off balance sheet debt
obligations.
Corporate governance is the body that directs business regarding conducting the
operation and controlling over financial transactions. Corporate governance (CG) represents
value frameworks and ethics that need to be followed by business unit in order to conduct
operations in accurate manner (Bowie, 2017). It is responsibility of business owner of Enron
Corporation that whenever investment occur with international entities then manage has to take
care of capital handled and has to ensure that this investment create wealth to the firm. But they
have to also ensure that they take all decision legally there should not be any kind of illegal deal
that can impact on brand image and affect its functioning (Corporate Governance - Definition,

Scope and Benefits, 2018). Business ethics ensure that whenever entity plans investment then it
makes correct entry in its financial reports without any failure.
CG denotes rules and regulations and work for protecting public interest. It circulates
essential laws that help in protecting rights of investors and support in enhancing productivity of
the corporation (The Importance of Corporate Governance., 2014). As in the present case Enron
is not liable to repay debts because it has not followed ethical aspects of business properly.
Corporate governance deals with the wealth of shareholders and takes care of welfare of these
involved people.
Business ethics are the concepts that are essential to be followed by each entity. Firms
can not harm to the rights of any person, if investors are investing in the firm by looking at
expected profit then firm is required to disclose all the details about financial position of business
unit with the investors so that they can make their decision carefully (Du Plessis, Hargovan and
Harris, 2018). Business ethics are important to corporate governance because it assist in building
strong brand reputation of business unit and help in gaining economic profit to the business unit.
It provides accurate inducement to the owner that they have to protect interest of stakeholders
and have to profit them committed benefits. The main objective of corporate governance is
enhancing value of shareholders in the business units. But if firm is unable to maintain its
records in ethical manner then it may enhance its liabilities to great extent. Each investor looks at
the financial condition of the corporation by looking at the annual report of the entity (Carroll
and Buchholtz, 2014). But when company is involved in off balance sheet liability that means it
has not included it’s all liabilities in the balance sheet then it creates confusion in the mind of
profit. This is unethical, because investor invests in the entity by thinking that it is able to earn
more profit. But when individual later on realises that firm has made cheating by not prepareing
the actual financial report, it may affect overall brand image of the firm and investors can pull off
their money from business (Crane and Matten, 2016).
Enron Corporation is engaged in the same case because it has engaged in off balance
sheet liabilities this has affected level of debt of the firm and monitory obligations have been
increased to great extent. Now investors do not believe on the firm which has created situation
on bankruptcy. Corporate governance is important to keep interest of stakeholders. It
acknowledges value of stakeholders in the company. Thus, indicate all firms regarding the way
of conducting operations (Bowie, 2017). They ensure that each business unit follow concept of

business ethics and prepare their report by following standardised methods. They cannot hide
anything in the reports. It is very important for the companies that to show their all kind of
obligations in their financial records so that stakeholders can make their decision.
Business ethics explains that it is essential for the companies that to behave equally with
the all stakeholders. It is the key principle of corporate governance. It is very important to have
high level integrity in corporate offices. This ethical behaviour supports the firm in gaining tust
of share holders and earning more revenues. Corporate governance is important for maintaining
transparency in the entity (Corporate Governance - Definition, Scope and Benefits, 2018). As in the
case of Enron Corporation, cited firm has disclosed its all liabilities in its balance sheet which is
completely wrong and unethical. Thus, it is unable to generate revenues and profit committed
benefit to the investors. By following business Ethics Company can maintain transparency in the
transactions. This is helpful in keeping stakeholders accountable. It is responsibility of board that
to evaluate each transactions and there should be proper entry of each cash or non cash
transactions (The Importance of Corporate Governance., 2014).
It is importance for lowering risk and mitigating the consequences. By following
principles of corporate governance company can avoid frauds and can generate more revenues in
the business unit. Business ethics are the standards that guide business regarding working of the
business unit (Du Plessis, Hargovan and Harris, 2018). Corporate governance has become more
effective because of high profit scandals. Enron Corporation has made fraud and has not
disclosed its all liabilities. By following business ethics entity can manage its business well and
can provide more benefits to the stakeholders.
Conclusion
From the above report it can be concluded that corporate governance makes rules and
regulations that are essential to be followed by the entity. CP practices helps in minimizing
frauds and chances of failure of business units. Governance practices allows firms to prepare
clear statement and disclosing all necessary detail in annual report so that investors can make
their decision effectively.

References
Books and Journals
Bowie, N. E., 2017. Business ethics: A Kantian perspective. Cambridge University Press.
Carroll, A. and Buchholtz, A., 2014. Business and society: Ethics, sustainability, and stakeholder
management. Nelson Education.
Crane, A. and Matten, D., 2016. Business ethics: Managing corporate citizenship and
sustainability in the age of globalization. Oxford University Press.
Du Plessis, J. J., Hargovan, A. and Harris, J., 2018. Principles of contemporary corporate
governance. Cambridge University Press.
Online
Corporate Governance - Definition, Scope and Benefits. 2018. [Online]. Available through <
https://www.managementstudyguide.com/corporate-governance.htm >
The Importance of Corporate Governance. 2014. [Online]. Available through <
https://blog.udemy.com/importance-of-corporate-governance/ >