Business Law Enron/WorldCom Essay

1. IntroductionThe name and address of a large number of sad acts is to obtain as much as profit for the mortal or group that carries out the act. Just like bribery or robbery, accounting scandals that shock telecommunications industry within the past two years, also have similar intention that is to make money to pull in a mortal or a group of people through un faithfulnessful acts while disguising their penal origin.Concerning the accounting scandals in Enron, in this paper, we bequeath elaborate the story of Enron and World Com scandals discussing how the caller-ups function relates to bankruptcy, insurance, and/or employment law.2. Accounting ScandalsEnron, Global-Crossing, and WorldCom recent causal agencys have become a history in finance and telecommunication areas. The history tells us how fragile the monitoring process of the caller-outs financial clay is. The situation leads to accountancy scandals that hurt investors, employees, and the industries.In many rep orts on Houston Chronicle, we can conclude that the case of Enron emerged as the confederation and its auditor cooked up the books to show bogus profits. This is done so to attract the public so that they are interested to invest their money during the companys initial public offering (IPO). Previously, the company has already performed manipulation of commodity prices in order to obtain huge profits due to unregulated energy derivative market.Moreover, the bankers also join this bogey as they have been giving loans and would like to cringe their risk hoping that Enron would obtain much money from IPO so that Enron can fulfill their obligation to the bank.Therefore, in this accountancy scandals there are at least three actors the first is Enron, the company that has a mussiness of debt that was off balance sheet. The second actors are auditors they acted as consultants that helped the Enron to write a fake figure of the companys profit in the book. The third actors are bankers th at issued good analyst reports for Enron financial performance and acted as underwriter.By doing so, Enron can raise much money to pay their loans to banks and back to the evil business when Enron leave out of money again. Amazingly, within three years, the fake report gives Enron over $10 billion of investors money. The illegal action like cases of MicroStrategy and Xerox has caused the declining public trust on stock markets and auditors (AFL-CIO, 2007 Turner, 2002).3. Bankruptcy and InsuranceThe case of Enron, WorldCom and other accounting scandals til now leave public with many questions regarding the way the companies try to recover from the scandals peculiarly when it comes to fair treatment for the hurt employees.The term fair refers to equal treatment for CEO and their workers. Remember the frightful Enron case a some months ago that many of people fail to recognize what went wrong at Enron, an energy-trading giant and once the seventh-largest company in U.S.The lawsuit s and official investigations on Enron show that the bankruptcy has sent much than 6,100 of Enron employees into unemployment. In addition, it also causes serious fault at workers health care and retirement savingsfor many, their conduct savingsbecause worker 401(k) plans were halted while the company stock price tumbled (AFL-CIO, 2007).Although the companys performance went bankrupt, however, the Enrons executive still obtain bonus checks for more than $55 cardinal, in addition to $50 million in bonuses just weeks earlier. The Enrons case is one instance of increasing pay gap amongst CEOs and workers (AFL-CIO, 2007).Moreover, she also points out that the Project 911 turned out to give many benefits for Enrons management quite of giving benefits for workers. In the Project 911, Enron was to pay the companys executives $105 million worth of bonuses earlier to the companys bankruptcy filing in December 2001 (Steffy, 2005).However, according to the new bankruptcy law, which ele ctric chair Bush signed in April, a company might give their executives excessive compensation in the form of retention bonuses only if they have some other job offer. It means that under new law, executives impart not be paid to stay until they show proof they intend to leave (Steffy, 2005)The new law had determined the bankruptcy court to approve $38.2 million in additional retention bonuses in 2002 and another $29 million in 2003. The situation soon raises critics since the come with an inherent paradox. At the management level, the company took questioned decision to reward the very few people who drove the company into collapse. In other words, Enron was enticing a failed management to stay (Steffy, 2005).This situation refers to moral crisis since the company was paying attention to bonuses for the companys executives instead of taking care of their employees. Although the case of Enron has become symbol of wrong model of corporal America, few observers expect it to becom e a lasting symbol (Ivanovich, 2002).In short, the first thing American companies should do is providing variable compensation scheme in which employees benefits will increase as the companies benefits increase as well. Therefore, employees will fee fairly treated and in turn increase their motivation.4. Employment LawThe cases on Enron and WorldCom comprise new atmosphere regarding the employment law since it involves peach blower, a person who disclose the scandals. Since let the cat out of the bag blowing leads to ostracize impact for the blower, it is imperative that any person that intends to whistle blowing to do it proceedingively. Sherron Watkins, the person who discloses the scandals at Enron, is one example of whistle blower.In addition, whistle- blowing also greatly affects the executives of a company who are given information from an employee. In order to protect the whistle blower, Sarbanes-Oxley Act rule out there should be no unlikeness against employees who di sclose the wrongdoing in a company (Hails, n.d.).Amidst the fierce situation at Enron, Congress is still busy passing new laws in response to the latest news about corporate misdeeds. In fact, this is really not the best solution to the problem of corporate fraud at Enron.Considering that whistle blowing leads to negative impact for the blower as it happens at Enron case, it is imperative that any person that intends to whistle blowing to do it effectively. below is guideline that helps an employee to determine whether a situation merits whistle blowinga) Magnitude of consequencesA person intends to conduct whistle blowing consider the impact of a action that he consider as wrongdoing. If only one person will be harmed by an action, it does not call for any whistle blowing action (England, 2007)b) Probability of effectThe person must be sure that a wrongdoing happens or will happen that requires for whistle blowing. If he is not sure about the situation, he had better not perform w histle blowing (England, 2007)c) temporal immediacyThe person must think the urgency to whistle blowing. If he considers it is urgent to prevent great losses, he can conduct whistle blowing immediately (England, 2007)In addition, lots of accounting scandals incidences have driven NYSE to issue new guidelines intended to enhance the accountability and integrity and of NYSE-listed companies by strengthening the corporate governing and disclosure practices of those companies. Harvey Pitt, SEC chairperson, the person behind the birth of the guidelines, asks NYSE to review its corporate governance listing standards.Based on the facts, since around scandals involve insider, therefore senior managers should personally liable for criminal charges and damages. Concerning this issue, congress also has passed the Sarbanes Corporate Accountability Bill that one of its main provisions includes the fact that the chief executive officer and chief financial officer now have to sign off on a com panys financial records and may assume criminal liability if they are wrong. on a lower floor such circumstances, in the event that such scandals exist, investors and employees should not bear the responsibility for their own actions. This is because in this unquestionable economy, people from all over the world have been willing to invest in pieces of paper because of a basic trust that there are systems in place to make the pieces of paper valuable. Therefore, it is the governments responsibility to maintain people trust to invest in a piece of paper by providing an oversight system that works to protect the investor.Learning from these events, it is governments responsibility to improve standards, controls and accountabilities. magical spell companies should improve their employees moral in order to prevent any financial scandals in the future. This is imperative since most business schools lack of morality in their curriculum.