• King Fahd University of Petroleum & Minerals

• MGT 551

1.0 Introduction Enron scandal initiate chain of events, which occurred at the start of the twenty-first century, represented a wake-up call for the booming “American” corporate world. Among sequence of corporate and financial failures - such as Parmalat, WorldCom, Adelphia Communication and Tyco, the most astonishing - contributed to cast doubts on the real merits and effectiveness of the American corporate governance system was Enron collapse (See http://www.forbes.com/2002/07/25/accountingtracker.html). Currently, so many literatures in the academic have studied Enron financial scandal case and they represent the case as classical example in the fields of Economy, Management, Law, Finance and Accounting. In this paper, Enron Financial scandal analysis conducted from management prospective by studying the effect This study source was downloaded by 100000874968972 from CourseHero.com on 03-26-2024 07:18:57 GMT -05:00 https://www.coursehero.com/file/17506264/Enron-Financial-Scandal-v9/ ENRON SCANDAL 3 of the principles of organizational behavior that led to Enron financial scandal using a qualitative literature-based approach. Enron formed in 1985 through the merger of two gas companies, Houston Natural Gas and InterNorth, which gave way to the USA’s largest gas pipeline system. Enron was at the peak of its growth and repetitively acclaimed as one of the most innovative firms on the market by the Wall Street financial press (See N. Stein “The World s most admired companies. How do you make ‟ the most admired list? Innovate, innovate, innovate!”, Fortune magazine, October 2, 2000). Enron stock prices continued a spectacular rise until late 2001, when a series of revelations concerning accounting frauds and executives misconducts led the way to the historical fall of the seventh largest corporation of the United States (See J. Armour and J.A. McCahery “After Enron: Improving Corporate Law and Modernising Securities Regulations in Europe and the US”, Amsterdam Centre for Law and Economics, Working Paper no. 2006-07). In consequence, Enron Financial Scandal has become a case study of how unethical acts might lead to closure of a company. The collapse of Enron represented a remarkable event from many points of view. It was probably the biggest bankruptcy in history, its magnitudes and consequences being exceptional (Big Guy). The crime committed by Enron top management explained by Edwin Sutherland in what referred to as the theory of white-collar crime. This theory refers to “a crime committed by a person of respectability and high social status in the course of his occupation" (Harrison & Wicks, 2013, p. 67). Besides, the Santa Clara University and many other academic institutes used the case as part of learning material to help students grasp the effects of real life financial scandal (Harrison & Wicks, 2013). The financial scandal at Enron resulted costing 4.000 employees their jobs and leaving an estimated of $23 billion in liabilities as the stock price falling from over $90 to $0.61 (“The 15 Largest Bankruptcies 1980 – Present”, This study source was downloaded by 100000874968972 from CourseHero.com on 03-26-2024 07:18:57 GMT -05:00 https://www.coursehero.com/file/17506264/Enron-Financial-Scandal-v9/ ENRON SCANDAL 4 www.BankruptcyData.com). As indicated in the Santa Clara University, the market failure from the scandal estimated to be over $100 billion (Harrison & Wicks, 2013). 2.0 Review of independent variables related to Enron Scandal By analyzing Enron scandal from organizational behavior perspective, it is possible to highlight seven independent variables contributes to the corporate failure. The most effective factor is the corporate governance failure, especially concerning the role of gatekeepers, who in their different functions, did not prevent the frauds and sometimes even contributed to the structuring of fraudulent transactions. Alternatively, irrational and risky managerial strategies (corroborated by a deficient governance structure) led to serial applications of financial transactions that eventually l