...ORGANIZATIONAL CULTURES POISON COMPANIES THE RISE AND FALL OF ENRON, WORLDCOM, HEALTHSOUTH, AND TYCO INTERNATIONAL David R. Lease, Norwich University Abstract This paper presents an analytical and comparative study of four recent corporate scandals involving organizations that had previously been recognized as both ethically and organizationally sound. Based on these case studies, the following issues are discussed: (1) The role of leader behavior and organizational/leadership styles in shaping the corporate organizational culture of an organization, and (2) The extent to which this culture renders the organization and its members (including the top executives) prone to ethical misbehavior. The four companies selected for this case analysis are: Enron Corporation, WorldCom, Inc., Tyco International, Ltd., and HealthSouth Corporation. Each case is considered individually. The basic elements in the scandal are outlined and the principal aspects of each organization’s corporate culture discussed, with special emphasis on the influence of leadership styles and leadership behavior/practices on organizational culture. The four cases are then compared and contrasted in the light of the existing evidence on the relation between corporate culture and ethical misbehavior. PRELUDE “We were doing something special. Magical. It wasn’t a job – it was a mission. We were changing the world. We were doing God’s work.” – Jeffrey Skilling, former Enron COO, President and CEO in the immediate aftermath of...
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...Case Paper 4 Danielle Long Indiana Institute of Technology Enron, World Com, & Tyco Scandals Three of the biggest frauds in American history, were committed by the companies Enron, World Com and Tyco. All three CEO/CFO’ks of these companies’ indulged in malicious intend to create a better financial standing within the company and for themselves. All of them were ethically wrong, regardless of the details. These individuals violated many different ethical principles which lead them all to be charged with criminal offenses and jail time. Enron used an accounting method known as “mark to market.” With this practice, the price or value of a security was recorded on a daily basis to calculate the profits and losses. Using this method allowed Enron to count projected earnings from long-term energy contracts as current income. This was money that might not be collected for many years. It is a thought that this was used to inflate revenue numbers by manipulating projections for future revenue. Sherron Watkins, an Eron VP, wrote an anonymous letter suggesting that the CEO had left the company because of improprieties and other illegal actions. She questioned the accounting methods and specifically citied certain transactions. Once Enron’s stock began to fall below a certain point, the results started to show on the financial statements. Finally in November of 2001 Enron officials admitted to overstating company earnings and filed for bankruptcy. This resulted...
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...What do Enron, Tyco, and World-com have in common Intro The purpose of this work is to show you what happens when you try to cheat the system. the reason the government does audits and checks for so many frauds is because people nowadays will do whatever it takes to make a little extra money. What these companies did not only hurt themselves in the long run but hurt the millions of workers and families that were connected with them. The Companies Enron was formed in 1985 by two gas companies, Houston Natural Gas and Nebraska InterNorth.Enron incurred massive debt and, as the result of deregulation, no longer had exclusive rights to its pipelines. In order to survive, the company had to come up with a new and innovative business strategy to generate profits and cash flow. To try to fix this Enron came up with the idea of becoming a “gas bank” to try to fix its problems. They would buy gas from a network of suppliers and sell it to a network of consumers, contractually guaranteeing both the supply and the price, charging fees for the transactions and assuming the associated risks. This became so successful that they decided to apply this to other things instead of just gas like, coal, paper, steel, water and even weather. In 2001 CEO Kenneth Lay retired and named Jeffrey Skilling president and CEO of Enron. On October 16th 2001 They reported their first quarterly loss in over four years and went downhill until the company filed for bankruptcy on December 2 2001. Tyco labs...
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...Examining a Business Failure - Tyco International Ltd Organizational behavior is defined as the study of the behavior of individuals, groups and structure and the impact to an organization. Organizational behavior uses the information gathered from this study to improve the organization’s effectiveness (Robbins, 2011). Organizational behavior focuses on a number of areas including the behavior of leaders, inter-personal communication, processes and structure within the organization, conflict and employee motivation. The behavioral disciplines of psychology, social psychology, sociology and anthropology form the basis for the study of organizational behavior. Psychology and social psychology studies the impact of conditions in the workplace and the impact to the employees’ performance. Within these sciences, learning theorists also studies the impact of change and how to reduce the challenges of change in the work environment [ (Robbins, 2011, p. 12) ]. According to the authors, sociology, and anthropology contributes to the study of organizational behavior by focusing on the relationship of employees as a group and the impact to the organizational structure. The culture and group dynamic of the employees will direct the level of motivation that in turn will negatively or positively impact the performance of the organization [ (Robbins, 2011, p. 12) ]. Psychology evaluates changes in individuals’ behavior and the impact to learning, Emotions, leadership, and decision-making...
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...function for which it was created. In addition trust directly affects the well being of employees as well as their ability to perform their tasks. Recent historical events suggest that trust between employees and management has been negatively affected however, with the enactment of new laws and ethics policies has there been a strengthening of this trust relationship in recent years? This paper discusses the history effecting trust between employees and management and the related changes that have been implemented in attempts to improve this relationship. This examination suggests that although there has been improvement in the recognition of the importance of improving trust between the employee and management within many organizations, there has been little overall improvement in the trust of management by employees. However, this observation recognizes that many companies value building trust between employees and management more than other companies and that it will take additional time before this concept is globally accepted. Why the Topic is Important The topic of our research paper is the evolution of employee trust with corporate management. We will specifically discuss the history of management and employee trust relationships, give examples of scandals which led to distrust in management, and subsequent legislation and ethics policies that were created as a result of these scandals. Trust is invaluable in the organizational environment. Organizational behavior...
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...99) to improve investor confidence and the auditing function’s ability to detect material frauds. The intent of this thesis was to look at the fraudulent factors associated with several recent corporate frauds and compare them to the standards set by SAS No. 99. Through the analysis conducted, this thesis looks at the relationships between pressures, opportunities, and rationalizations made during the act of fraud. Table of Contents ABSTRACT ii INTRODUCTION 1 Sarbanes – Oxley Act of 2002 (SOX) 1 Statement of Auditing Standards Number 99 (SAS No. 99) 4 Parts of the Fraud Triangle 5 Types of Fraud 11 INSTANCES OF FRAUD 13 Enron Corporation 13 Adelphia Communications Corporation 17 AOL Time Warner, Inc. 20 Bristol-Myers Squibb Company 25 Global Crossing Limited 27 K-Mart 30 Tyco International, Ltd. 34 WorldCom 37 HealthSouth Corporation 41 CONCLUSION 45 Appendix: SOX Titles and Sections List 48 Works Cited 52 INTRODUCTION Between the years 1998 and 2002, the United States suffered a time in which several large companies engaged in...
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...Prevention, and Notable Cases Kristin A. Kennedy University of New Hampshire - Main Campus, kaj79@wildcats.unh.edu Follow this and additional works at: http://scholars.unh.edu/honors Part of the Accounting Commons Recommended Citation Kennedy, Kristin A., "An Analysis of Fraud: Causes, Prevention, and Notable Cases" (2012). Honors Theses. Paper 100. This Senior Honors Thesis is brought to you for free and open access by the Student Scholarship at University of New Hampshire Scholars' Repository. It has been accepted for inclusion in Honors Theses by an authorized administrator of University of New Hampshire Scholars' Repository. For more information, please contact scholarly.communication@unh.edu. An Analysis of Fraud: Causes, Prevention, and Notable Cases University of New Hampshire Honors Thesis in Accounting Kristin Kennedy ADMN 799 Professor Le (Emily) Xu Fall 2012 Table of Contents I. II. III. IV. V. VI. VII. Background……………………………………………………………........1 a. What is accounting and what role does financial reporting serve?..........1 b. History of accounting standards………………………………………..2 c. Role of auditing………………………………………………………...5 Fraud……………………………………………………………………….6 a. Two types of fraud……………………………………………………..6 i. Misappropriation of Assets…………………………………….7 ii. Misrepresentation of Financial Statements…………………….7 b. Fraud Triangle………………………………………………………….8 c. What to look for in a fraudster…………………………………………9 Past Cases of Fraud……………………………………………………….10 a. WorldCom……………………………………………………………...
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...THE NATION’S NEWSPAPER BS2003-01a Collegiate Case Study Enron law firm called accounting practices 'creative' By Greg Farrell www.usatodaycollege.com Accounting fraud Part I: The problems “Creative accounting” is not a new technique, but it can certainly be a costly one. Businesses feel the pressure to appear profitable in order to attract investors and resources, but deceptive or fraudulent accounting practices often lead to drastic consequences. Are these so-called creative practices always illegal or can they ever be justified? This case study will present examples of companies who have used inappropriate accounting practices, the results of their deceptions and the government's plan to avoid future incidents. Did banks play role in Enron scandal? By Edward Iwata Banks face accusations in Enron case By Edward Iwata Banks defend e-mail about Enron By Edward Iwata WorldCom finds accounting fraud By Andrew Backover, Thor Vladmanis, Matt Kranz and Michelle Kessler Former controller comes up more often By Andrew Backover and Chris Woodyard Cover story WorldCom’s bad math may date back to 1999 By Jayne O’Donnell and Andrew Backover CFOs join their bosses on the hot seat By Jim Hopkins Capitalizing on oldest trick in book How WorldCom, and others, fudged results By Matt Krantz USA TODAY WorldCom's accounting game is stunning investors who thought the loophole the telecom firm used was sewn shut years ago. Bros. "How was this overlooked...
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...around the world and sometimes they can happen over periods of time without being noticed. While doing research for this paper it is amazing to learn all of the lengths people will go to in order to get what they want. We all know about Enron and the things that happened there, but I also found an ethical issue concerning Wal-Mart. An ethical issue I have never even considered is one that is talked about with Wal-Mart. Apparently they have a favoritism thing that happens with the department managers and even the General Manager of the corporation. It would seem that they only choose to promote people without higher education’s and those that haven’t spent their entire life working for them. It would appear that they have a conflict of values. An ethical issue witch really shocked me to read about was one with the Coca-Cola Company. Their issue seems to fall in the labor violations area. It would seem that most of this started in Guatemala. It looks like the workers at the bottling plant should not be in any type of Union or face violence to themselves and possible their loved ones. With talks of people getting murdered and beating the case was brought to court. Coca-Cola has been sued by union workers in Columbia for this violence against its union workers. Coca-Cola denied all claims and was found not guilty, so who knows? These two cases do not involve any type of accounting issues,...
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... | . ------------------------------------------------- ------------------------------------------------- ------------------------------------------------- ------------------------------------------------- August 17th, 2013 3 The year was 2002 and Tyco International LTD chairman of the board and also serving as the Chief Executive Officer, Dennis Kozlowski announced his resignation due to soon to be accused of 30 counts of fraud to the amount of $150 million. That wasn’t the only thing that Kozlowski took in addition he embezzled over $400 million dollars between private stock sales, unauthorized loans, unapproved bonuses and frivolous spending during his hierarchy (Kaplan 2009). Kozlowski was employed with Tyco for over 27 years and was an intricate force of their development of becoming one of the most successful U.S companies with a worth of over $100 billion. Kozlowski was becoming a leader to watch due to his success at leading Tyco. Kozlowski was also second highest paid CEO in the U.S at 170 million annually (Kaplan 2009). Kozlowski quoted about his leadership style “I really believe in finding the best people in the world to run our businesses. We are very decentralized and leave them alone…But we really believe in putting out trust in the people we’re hiring and helping them through the difficult times and rewarding...
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...made up of people, being separate or apart from its members also equals unaccountability. The question of “who pays when a company goes under” is at the forefront of discussions today. Corporations are developed to serve society, meet a need or provide a service. Over the years, however, the good intentioned corporation has evolved into a greed machine that has lost site of the community that it serves and the people employed who ultimately perform the work. The steady parade of top executives confessing to engage in price gouging, tax dodges, accounting shams, employee rip-offs, and other shady unacceptable acts are coming to light daily. Unethical and illegal practices are documented from the RJR Nabisco scandals in 1988 to today’s Enron, WorldCom, Merrill Lynch, Arthur Anderson, Xerox, and endless other corporations. The world realizes now that corporate greed is not about one-bad company, but large companies in general that have adopted unacceptable guidelines for corporate behavior and an overall attitude that greed is acceptable. The bottom line, insatiable need for growth, amoral corporate behavior, expendable and exploitation of employees, and the corporate culture of classes have all led to the current issues of corporate greed that is running rampant throughout companies today (Corporate Power, retrieved April 26, 2003). The first rule of corporate behavior is the bottom line. Nothing else matters except the profit, it is above all else, the measure of whether or not...
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...made up of people, being separate or apart from its members also equals unaccountability. The question of “who pays when a company goes under” is at the forefront of discussions today. Corporations are developed to serve society, meet a need or provide a service. Over the years, however, the good intentioned corporation has evolved into a greed machine that has lost site of the community that it serves and the people employed who ultimately perform the work. The steady parade of top executives confessing to engage in price gouging, tax dodges, accounting shams, employee rip-offs, and other shady unacceptable acts are coming to light daily. Unethical and illegal practices are documented from the RJR Nabisco scandals in 1988 to today’s Enron, WorldCom, Merrill Lynch, Arthur Anderson, Xerox, and endless other corporations. The world realizes now that corporate greed is not about one-bad company, but large companies in general that have adopted unacceptable guidelines for corporate behavior and an overall attitude that greed is acceptable. The bottom line, insatiable need for growth, amoral corporate behavior, expendable and exploitation of employees, and the corporate culture of classes have all led to the current issues of corporate greed that is running rampant throughout companies today (Corporate Power, retrieved April 26, 2003). The first rule of corporate behavior is the bottom line. Nothing else matters except the profit, it is above all else, the...
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...Examining a Business Failure Paper Rhonda Ellis-Thomas LDR/531 May 30, 2012 Dr. Felicia A. Bridgewater Examining a Business Failure Paper 2002 has witnessed its share of scandals. Enron, WorldCom, Tyco, and Global Crossing are just a few names to mention. WorldCom, the nation’s No. 2 long-distance phone company, filed for Chapter 11 bankruptcy protection in July 2002, approximately one month after it publicized that it had indecorously booked $3.8 billion in expenses (Beltran, 2002). The purpose of this paper is to describe how specific organizational-behavior theories could have predicted or explained the company’s failure and compare and contrast how leadership, management, and organizational structures contributed to the failure. From 1991 to 2002, WorldCom has efficaciously acquired 65 companies in which 11 of the companies were established in the first six years. WorldCom was the second largest long distance telecommunication company being succeeded by AT&T. The company has accrued over $40 billion of debt (Moberg & Romar). During this time, WorldCom was headed by Chief Executive Officer (CEO) Bernard Ebbers and Chief Finance Officer (CFO) Scott Sullivan. The CEO and CFO generated a structural philosophy, or belief, where the leaders and the managers are not to be suspected or questioned (Scharff, 2005). These behaviors lead to unethical and deluded activities that would later cause the fall of...
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...has been written in my own words.” Article Citation Pendse, S. (2012). Ethical Hazards: A Motive, Means, and Opportunity Approach to Curbing Corporate Unethical Behavior. Journal Of Business Ethics, 107(3), 265-279. doi:10.1007/s10551-011-1037-0. Retrieved from http://ezproxy.bellevue.edu:80/login?url=http://search.proquest.com/docview/1523896341?accountid=28125 Main issue of the article This paper is about unethical business behavior and the factors that can encourage one to participate in it. Ethics refers to standards of wrong or right in relation to responsibilities, benefits or obligations to others and society in general. They set standards or guidelines for acceptable beliefs and interactional behavior. The Enron, WorldCom and Tyco financial debacles devastated many investors and employees and brought a lot of unwanted attention and questions about business ethics. The improprieties in their accounting books revealed to the world the crooked unethical accounting practices practiced by some seeming reputable organizations. Wondering why the Enron and WorldCom executives got involved in the scandal, the author of this article asserts that “a conjunction of motive, means, and opportunity creates ‘an ethical hazard’making questionable executive decisions more probable” (Pendse 2012). He continues to conclude that corporate unethical actions can be minimized by creating a process to identify and remove such ethical hazards, and by appointing a qualified individual...
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...Business Failure: ENRON LDR 531 Organizational Leadership December 5, 2011 . Examining a Business Failure Effective managers and leaders contribute to the organizational success of an organization. Companies lacking strong managerial leaders failing to enforce the ethical code of conduct of an organization are prone to organizational failure. Yukl (2006), states, “One viewpoint is that leadership occurs only when people are influenced to do what is ethical and beneficial for the organization and themselves” (p. 4-5). The notorious Enron scandal created a historic impact to the organizational culture and processes of businesses in the United States. The following paragraphs will address organizational behavior theories, which could have predicted Enron’s failure. Furthermore, a comparison of management, leadership, and organizational structures is scrutinized to determine the influence each had on Enron’s failure. Who was ENRON? Enron was founded in 1985 when Kenneth Lay merged Houston Natural Gas and InterNorth creating Enron (CBCNews, 2006). In the early 1990s Kenneth Lay commenced the sale of electricity at reasonable prices. However, Congress deregulated sales of natural gas. As a result, Enron’s earnings increased and became the largest retailer of natural gas. To expand, Enron diversified and incorporated gas pipelines, pulp and paper, broadband services, water, and electricity plants. Furthermore, the deregulation allowed Enron executives full control...
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