Case_08_Enron_TN - Teaching Note: Case 8 Enron: On the Side...

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Teaching Note: Case 8 – Enron: On the Side of the Angels Case Objectives 1. To help students understand how the ethical orientation of leadership is a key factor in promoting ethical behavior among employees. 2. To examine the interplay between organizational culture, reward mechanisms, and ethical behavior. 3. To discuss the degree to which creative application of financial or accounting policies and procedures can affect business results. 4. To help students understand the role of corporate governance mechanisms in aligning the interests of managers, owners, employees and other stakeholders. 5. To encourage discussion of the effectiveness of external regulations in constraining corporate malfeasance. See the table below to determine where to use this case: Chapter Use Key Concepts Additional Readings or Exercises 11: Strategic Leadership Leadership; organizational culture; ethical orientation; integrity-based vs. compliance-based ethics; whistleblowing See video link embedded in this section, and NOTE - additional reading assignments about accounting and financial topics. Also see the Case Financial Discussion Supplement. 9: Strategic Control & Governance Corporate governance mechanisms; stakeholder management; external governance control mechanisms See video link embedded in this section. See web links at the end of this teaching note for updated information. See also the Case video on DVD. Case Synopsis Enron, originally a gas and oil distribution company, was one of “America’s Most Admired” companies from 1994 until its bankruptcy in 2001. Future Enron CEO Ken Lay assumed the Chair and CEO positions at Houston Natural Gas (HNG) in 1984. He would use this position to execute the merger that created Enron. Enron’s move to derivative trading began with a recommendation by Jeffrey Skilling, then a consultant with McKinsey & Company, and later Enron’s President and CEO, to establish a subsidiary, GasBank, later renamed Enron Capital and Trading Resources (ECT). When markets deregulated, this entity engaged in derivatives trading as part of its energy business. Lay, Skilling, Andrew Fastow (CFO), and Michael Kopper (managing director, Enron Global Finance) were the principals leading Enron in 1991 when the first legitimate special-purpose entities (SPEs - financial devices designed to give companies greater flexibility in finance and risk management) were developed. The culture was extremely aggressive. Emblematic of this culture was the Peer Review Committee (PRC), or “rank and yank” process. This was a forced ranking system, where 15 percent of all employees
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were graded as unsatisfactory and either redeployed throughout the company or terminated. Special purpose entities (SPEs) were constructed to disguise debt as revenue through a
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This note was uploaded on 10/11/2011 for the course BUSINESS A 474 taught by Professor Thompson during the Spring '11 term at Ill. Chicago.

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Case_08_Enron_TN - Teaching Note: Case 8 Enron: On the Side...

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