Table of Contents

Executive Summary …………………………………………………………… 04

CSR Analysis …………………………………………………………………… 05

A. Current situation ………………………………………………….. 05

1. Past corporate performance indexes …………………… 06

2. CSR postures of the business …………………………… 08

B. Corporate Governance …………………………………………… 08

1. Board of Directors …………………………………………… 08

2. Top Management …………………………………………… 10

C. External environment analysis affecting social responsibility …… 11

1. Natural environment …………………………………………… 12

2. Societal environment …………………………………………… 12

3. Industry analysis …………………………………………… 13

D. Internal environment analysis …………………………………………… 14

1. Corporate structure …………………………………………… 14

2. Corporate culture …………………………………………… 14

CSR problem, issues, and analysis …………………………………………… 15

A. Statement of Primary CSR Problem …………………………………… 15

1. Evidence of problem …………………………………………… 15

2. Effect of problem …………………………………………… 15

B. Statement of Secondary Problem …………………………………… 16

0
 1. Evidence of problem …………………………………………… 16

2. Effect of Problem …………………………………………… 17

CSR concept/alternatives …………………………………………………………… 17

A. Description of CSR approach 1 …………………………………… 17

1. Benefits/advantage of alternative 1 …………………………… 17

2. Disadvantage of alternative 1 …………………………………… 18

B. Description of CSR alternative 2 …………………………………… 18

1. Benefits/advantage of alternative 2 …………………………… 18

2. Disadvantage of alternative 2 …………………………………… 18

Selection and Implementation of CSR approach/methodology …………… 19

A. Statement and Implementation of CSR approach/methodology …. 19

B. Description of implementation of CSR approach ……………. 19

C. Justification for selection of CSR approach ……………………. 19

Action Plan ……………………………………………………………………………. 20

References ……………………………………………………………………………. 20
Executive Summary

Corporate Social Responsibility, commonly abbreviated as CSR, is defined as the act of

combining social and environmental considerations with a company’s planning and business

operations. To explain deeper, the practice of CSR means that companies are prohibited from

contributing negatively or damaging external elements and are instead expected to operate in

ways that will enhance and be beneficial to its community, society, and environment.

Numerous studies and researches detail and share examples of activities, plans, and programs

that a company may adopt to practice CSR. However, Crowther and Aras (2008) specified that

all CSR activity must adhere to these three principles: (1) Sustainability, (2) Accountability, and

(3) Transparency.

Sustainability, in the general sense, is the capacity to support a process and maintain finite

resources continuously over time. Sustainability sees to prevent the exhaustion of natural

resources for future longevity and prevention of irreparable damage to humans, ecosystems,

and the wider economy. As such, sustainability considers measures at which resources can be

regenerated. An example would be facilitating sustainable operations through the development,

implementation, and planning for alternative sources for finite resources (Kapur, 2020).

Accountability is wherein a company recognizes that its actions affect external environment and

assumes responsibility for it. By its nature, companies are encouraged to report to external

stakeholders of the effects of actions that are put into operation by the company. Kapur (2020)

wrote that accountability is recognizing that one’s company is part of the wider societal network
and as such responsible to all network and not just to the owners and internal stakeholders of

the company.

Transparency, in business, is being visible to external stakeholders in all aspect. As a principle,

transparency means that the external impact of the actions of the company is visible to be read

in the company’s report and pertinent facts are not hidden nor disguised in these reports as

well. Transparency is the access and proper disclosure of the company’s relevant information

and report.

In conclusion, a company may achieve favorable and promising business performance if it

practices and preaches for good CSR in its plans, programs, activities, and business operations.

Consequently, over the years, data shows that malpractice and unethical CSR practices have

caused numerous fall downs and corporate bankruptcy in companies all over the world. A great

example would be the infamous Enron Scandal, wherein due to its improper and unethical

practices cause the multi-corporation its bankruptcy.

Corporate Social Responsibility (CSR) Analysis

A. Current Situation

Enron’s roots can be traced as a domestic natural gas pipeline company known as

Northern Natural Gas Company originally formed in 1930 in Omaha, Nebraska. For the next

30 years, the company remained a domestic natural gas pipeline company. In the 1960s,

the company also began a series of expansions that diversified the company into other

energy markets. In 1986, the company formally changed its name to Enron Corporation,

with Kenneth Lay as its Chief Executive Officer.

During its prime, Enron Corporation employed an estimated 20,000 staff, has approximately

3,500 domestic and foreign subsidiaries and affiliates, and has turned to be one of the
world’s major providers of electricity, natural gas, communications, and pulp and paper

companies.

Enron Corporation eventually went on to be listed as “America’s Most Innovative Company”

for six consecutive years by the prestigious Fortune magazine.

However, Enron Corporation failed to continue upholding the correct and ethical business

practices and ended up filing the country’s biggest bankruptcy. Enron’s downfall caused the

lives and livelihood of thousands of its employees, shareholders, and investors.

In 2001, it was revealed that Enron’s reported financial condition was sustained by an

institutionalized, systematic, and creatively planned accounting fraud. The corporation has

since been a well-known example of willful corporate fraud and corruption. It brought the

study of ethics in business classes and consequently became a factor in the enactment of

the Sarbanes-Oxley Act of 2002.

Past Corporate Performance Indexes

Figure 1: Enron Stock Price Chart and Data

Figure 1 above shows a graphical summary of Enron Corporation’s Stock Price Chart

and Data from September 1999 to March 2002.

A summary of the timeframe, details, and description of the data are as follows:

 (A) 1996 to 2001: Enron was the darling of Wall Street. The share prices

were rising steadily. The prestigious Fortune magazine called Enron,

“America’s Most Innovative Company” for six consecutive years.

 (B) 1999 to mid-2001: Enron executives and directors receive 1.1 billion US

Dollars by selling 17.3 million shares.

 (C) April 17, 2001: Enron reports first quarter profits of 536 million US

Dollars.

 (D) August 14, 2001: Jeffrey K. Skilling abruptly resigns citing “personal

reasons” as Chief Executive Officer. Kenneth Lay reassumed the position of

CEO.

 (E) August 20, 2001: Kenneth Lay sells 93,000 shares for 2 million US

Dollars. At the same time, he urged employees to buy company shares,

sends an e-mail to employees assuring them that the company is on solid

footing, and predicted a “significantly higher stock price”.

 (F) September 26, 2001: In an online chat with employees, Kenneth Lay

assured that Enron stock is a good buy and that the company’s accounting

methods are “legal and totally appropriate’”.

 (G) October 16, 2001: Enron reports a third-quarter loss of 618 million US

Dollars.

 (H) October 22, 2001: The Securities and ExRonnie Change Commission

opened an inquiry into Enron’s accounting.

  (I) December 02, 2001: Enron Corporation filed for bankruptcy protection.

CSR Postures of the Business

Enron’s business postures listed below were taken from the company’s Code of Ethics

dated July 01, 2000:

Statement of Human Rights Principles. As a partner in the communities in

which Enron Corporation operates, the company believes that it has a

responsibility to conduct itself according to certain basic principles that transcend

industries, cultures, economies, and local, regional and national boundaries.

Vision. Enron Corporation envisions to become the world’s leading energy

company – creating innovative and efficient energy solutions for growing

economies and a better environment worldwide.

Values. Respect – treat others as one would like to treat themselves. The

company does not tolerate abusive or disrespectful treatment. Integrity – the

company works with customers, prospects openly, honestly, and sincerely.

Communication – the company has an obligation to communicate and believes

that information is meant to move and that information moves people.

B. Corporate Governance

Board of Directors
In 2001, Enron Corporation’s Board of Directors had 15 members, several of whom has

20 years or more experience on the Board of Enron or its predecessor companies. Many

of Enron Corporation’s Directors served on the boards of other companies as well.

Enron’s board members were described as well educated, “experienced, successful

businessmen and women,” and “experts in areas of finance and accounting,”.

The Enron Corporation Board was organized into five committees:

1. Executive Committee. The committee met on as needed basis to handle

urgent business matters. In 2001, its members include:

o John Duncan, the o Robert Belfer

Chairman o Dr. Charles LeMaistre

o Kenneth Lay o Herbert Winokur

o Jeffrey Skilling

2. Finance Committee. The committee was responsible for approving and

reviewing major transactions, overseeing Enron Corporation’s risk

management, and provided guidance on the company’s financial decisions

and policies. In 2001, its members include:

o Herbert Winokur, the o Ronnie Chan

Chairman o Paulo Ferraz Pereira

o Robert Belfer o Frank Savage

o Norman Blake

3. Audit and Compliance Committee. The committee reviewed Enron

Corporation’s accounting and compliance programs, approved financial

 statements and reports, and was the primary liaison with Anderson, the

company’s auditing firm. In 2001, its members include:

o Dr. Robert Jaedicke, o Dr. John Mendelsohn

the Chairman o Paulo Ferraz Pereira

o Ronnie Chan o John Wakeham

o Dr. Wendy Gramm

4. Compensation Committee. The committee was established to monitor the

company’s compensation, policies, and plans for directors, officers, and

employees. In 2001, its members include:

o Dr. Charles o John Duncan

LeMaistre, the o Dr. Robert Jaedicke

Chairman o Frank Savage

o Norman Blake

5. Nominating Committee. The committee nominated individuals to serve as

directors. In 2001, its members include:

o John Wakeham, the o Dr. John Mendelsohn

Chairman o Jerome Meyer

o Dr. Wendy Gramm

Top Management

The top management is loosely defined as a person or group of people who directs and

controls an organization at the highest level. This means that the top management is

who holds authority, resources, and decision-making power regarding changes at the
company. In addition to leadership, it should also show a commitment with respect to

CSR.

The central management of Enron Corporation include the following people:

 Kenneth Lay. Chairman and Chief Executive Officer (CEO)

 Jeffrey Skilling. President, Chief Operating Officer (COO), and CEO from

February-August 2001

 Andrew Fastow. Chief Financial Officer (CFO)

 Triton Dietrich. Chief Accounting Officer (CEO)

 Rebecca Mark-Jusbasche. CEO of Enron International and Azurix

 Lou Pai. CEO of Enron Energy Services

 Forrest Hoglund. CEO of Enron Oil and Gas

 Dennis Ulak. President of Enron Oil and Has International

 Jeffrey Sherrick. President of Enron Global Exploration & Production Inc.

 Richard Gallagher. Head of Enron Wholesale Global International Group

 Kenneth Rice. CEO of Enron Wholesale and Enron Broadband Services

 J. Clifford Baxter. CEO of Enron North America

 Sherron Watkins. Head of Enron Global Finance

 Jim Derrick. Enron General Counsel

 Mark Koenig. Head of Enron Investor Relations

 Joan Foley. Head of Enron Human Resources

 Richard Kinder. President and COO of Enron from 1990-1996; and co-

founder of Kinder Morgan

 Greg Whalley. President and COO of Enron from August 2021 – Bankruptcy
  Jeff McMahon. CFO of Enron from October 2001 - Bankruptcy

C. External Environment Analysis affecting Social Responsibility

External environment analysis is the process by which businesses objectively assess the

changes made to their industry and broader world that could affect their current business

operations.

The external environment analysis of the Enron Corporation in terms of natural environment,

societal environment, and industry analysis using SWOT analysis are explained the

following paragraphs listed below.

Natural Environment

The Enron Corporation was initially founded by Kenneth Lay for the purpose of

capitalizing the opportunity he saw arising out of the deregulation of the natural gas

industry in USA.

Natural gasses are fossil fuels. Like other fossil fuels such as coal and oil, natural gas

forms from the plants, animals, and microorganism that lived million years ago. It is

formed deep beneath the earth’s surface. Therefore, marking natural gasses as a finite

resource.

The corporate social responsibility lies on the ability of the company to be sustainable

with its products and resources, especially with handling finite resources. Since Enron

Corporation took advantage of the deregulation of natural gasses without considering

switching to alternative energy poses a great concern and threat to environment and its

business longevity.

Societal Environment
The Enron Corporation scandal is said to be one of the most notorious within American

history. At the time of Enron’s collapse, it was the biggest corporate bankruptcy ever to

hit the financial world. It affected various sectors in the society.

The scandal drew attention to the legal accounting sector concerning accounting and

corporate fraud, which led to creation of the Sarbanes-Oxley Act of 2002. It also affected

its shareholders who lost $74 billion US Dollars in the four years leading up to its

bankruptcy. However, the people who were greatly affected by the scandal are the

estimated 20,000 employees who lost billions in pension benefits.

Industry (SWOT) Analysis

A SWOT analysis is a simple, but powerful, framework for leveraging the organization’s

strengths, improving weaknesses, minimizing threats, and taking the greatest possible

advantage of opportunities.

The SWOT analysis of the Enron Corporation is as follows:

Strengths Weaknesses

 Pipeline Infrastructure. The company was

able to establish an elaborate natural gas  Failed Board of Directors. The
pipeline network in the USA. company’s BOD did not execute its
 Positive Reputation. The company was oversight role effectively. This stood
able to manage to attain and sustain clearly in the face of their inability to
positive reputation. Its strength emanated monitor the company’s operations
from the fact that it had attained through its committees. They also failed
monopolistic advantage over its in enhancing moral and ethical practices
competitors by positioning itself as the within the company. As a result, its
largest energy provider. auditors and top management engaged
 Human Capital Pool. The company had in unethical practices.
been very effective in enhancing its  Conflict of Interest. The company’s
employee’s skills, abilities, knowledge, and weakness also stands out given the
capabilities by undertaking comprehensive inability of the management team to
training and development. control conflicts of interest that occurred
 Innovation. The company’s innovation in various transactions that the company
ability enabled the shift from natural gas engaged in during its existence. This
and energy transportation to being a pushed the company into greater losses
trading company. due to the persistent fraud which
  Marketing and Value Delivery. The resulted to eventually lead to the
company has always been committed to company’s collapse.
meeting their customer’s needs.

Opportunities Threats

 Public Reputation. The company

developed a strong public reputation which  Terrorist. They were increasingly
they could have exploited by expanding its targeting major infrastructure in the US
pipeline and other businesses. The such as energy plants in an effort to
company could have ventured into sabotage the country’s economy.
production of clean energy which could  Economic Crisis. Due to the high rate
played a significant role in combatting of globalization, it was likely for US to
climate change – these efforts would have experience another economic recession.
additionally increased the company’s This would affect the company since
reputation. most of its revenue come from
 Formation of mergers and acquisitions. household consumption.
The company could have improved its
competitive advantage by seeking
reputable firms in the industry to form
mergers and acquisitions.

D. Internal Environment Analysis

Corporate Structure

The corporate structure of Enron Corporation was built on attaining a high rate of

expansion. Enron Corporation incorporated this structure through efforts such as

internationalization and formation of mergers and acquisitions.

The company’s success in the international market was all due to its ability to implement

strategic practices such as acquisitions.

Corporate Culture

An organization’s culture significantly affects employees’ actions. This aspect arises

from the fact that the culture nurtured by a particular organization affects its traditions

and customers coupled with how employees execute their duties and responsibilities.
 In Enron Corporation’s case, upon Jeffrey Skilling’s entry, he intended to transform the

company’s culture into a “New Economy”. To achieve this goal, he focused on

transforming the company into becoming an exemplary intellectual capital firm that

would delight its shareholders and stakeholders.

The company eventually nurtured an aggressive culture that led to a high employee

turnover. Employees who succeeded in attaining the set targets received extensive

monetary rewards. This system created a culture of arrogance, fierce internal

competition, and extreme decentralization became the norm.

CSR Problem, Issues, and Analysis

This section illustrates the primary and secondary problems and key issues that the Enron

Corporation faced during its course of operations.

A. Statement of Primary CSR Problem

Evidence of the Problem

The primary CSR Problem faced by the company was the accounting system used by

the firm. The company adopted an aggressive accounting style whereby its accounting

officers inflated figures in the company’s financial reports. In addition to this, the

company also formed special partnerships with purpose of defrauding the firm. These

partnerships rendered the process of complicated accounting. The company’s

accounting officers did not record the actual values in the company’s accounting books.

The fraudulent accounting made the company’s records look attractive which was not

the case. The management team went so far as to manipulate the company’s revenue
 and earnings to sustain the firm’s credit rating. As a result, most investors perceived the

company as a solid and reliable investment partner. The company’ auditors colluded

with the management team in return of huge financial gains.

To add, the company also abused and heavily relied on the “Mark-to-Market” accounting

system which enabled them to succeed in adjusting the value of its stocks and shares by

reflecting the prevailing market value.

Effect of the Problem

The effect of the fraudulent accounting has allowed the company’s auditors and

consultant to earn approximately between $25 million and $27 million US Dollars in audit

and consulting fees. As a result, the company ignored its financial capacity, which made

its shares to rise significantly in the 1990s.

In addition, as a result to the company’s usage and reliance on “Mark-to-Market”

accounting, the company comfortable reported its expected future earnings as current

earnings. These deceived their investors and stockholders thinking that their company is

stable and strong.

With these fraudulent acts, the company has disregarded its code of ethics. As an effect,

existence of conflict of interest between managers and shareholders came clearly given

the fact that the executive mainly focused on maximizing their earnings.

B. Statement of Secondary CSR Problem

Evidence of the Problem

A secondary CSR problem seen with the Enron Corporation is the company’s

overdependence on making deals. Added to the problem is the fact the despite the
 development of a profession risk assessment and control committee, its committee did

not execute its duties effectively.

This can be evidence by the committee’s reluctance to express its opinion regarding

illegal businesses and practices the company was undertaking. This is because the

committee members are afraid of jeopardizing their career due to the fact that the

management team rewards blind loyalty to employees and quash those who raise

questions.

Effect of the Problem

The effect of instigating a negative culture is that the company’s employees mainly

focused on engaging themselves in extreme competitive actions and favored unethical

practices in order to achieve their desired operational efficiency.

These actions resulted to even more company fraud and corruption which ultimately led

to the company’s collapse.

CSR Concepts/Alternatives

This section describes the CSR concepts and/or alternatives of the Enron Corporation.

A. Description of CSR Approach 1

The company should have adopted a progressive adoptive culture. This culture focuses

on generation of new ideas and openness to new ideas. But it does not force employees

to implement the ideas therefore it does not instigate unhealthy competition. It is also
 important for the company to nurture community-oriented culture, which seeks to ensure

a high level of collaboration and cooperation amongst employees.

Benefits/Advantage of Alternative 1

The advantage of redirecting culture among employees is that it provide a new direction

for them to follow – direction that are not against the company’s code of ethics. It also

creates a positive environment and extreme competition will be eliminated. When

employees work on a healthy culture then they are more likely to stir away from doing

fraudulent and unethical practices.

Disadvantage of Alternative 1

The disadvantage of this concept is when the employees do not try to change the culture

themselves. Since the concept is heavily reliant on the perspective, actions, and

attitudes of its employees. It would be unsuccessful if the subject, the employees, will be

non-participatory.

B. Description of CSR Alternative 2

The company may ensure the practice of effective reporting by incorporating accrual

method instead to ensure accurate description of the company’s value. As well as

adopting a more current control system that strictly oversees the review of its policies,

procedures, and rules.

Benefits/Advantages of Alternative 2
 The practice of accrual method does not deceive the investors and stakeholders of the

true value of the company’s stock. By using accrual method, it decreases the chances of

accounting fraud. In addition, establishing a function control system may help decrease

the practice and occurrence of fraud and other unethical practice.

Disadvantage of Alternative 2

The persons in-charge of the accounting and control should be reliable and responsible

to handle their work. It will be useless to incorporate ethical methods and practices,

when the staff and personnel does not practice it well or has an existing conflict of

interest.

Selection and Implementation of CSR approach and methodology

A. Statement of Selected CSR Approach

Due to its bankruptcy, the Enron Corporation was unable to practice any of the

alternative course of actions mentioned in the preceding paragraphs. However, post-

actions were made by the company that is in relation to CSR.

In early 2007, Enron Corporation, after selling all its business and assets, changed its

name to Enron Creditors Recovery Corporation.

B. Description of Selection of CSR

The newly formed Enron Creditors Recovery Corporation’s goal was to repay the

company’s remaining creditors and end Enron’s affairs. In 2008, Enron was able to

obtain nearly $7.2 billion US Dollars to distribute to its creditors as result of sale of
 assets and litigations made by the new board of directors to banks. As of December

2009, claims and process payments were still being distributed.

C. Justification for Selection of CSR

The creation of Enron Creditors Recovery Corporation is a good move to follow after the

bankruptcy of the old company. It is only right for Enron to settle its obligations with its

creditors. In addition, it is mandate by law that even in the case of bankruptcy, a

company pays whatever amount it can accumulate in the following priority, outside

creditor, inside creditors, stakeholders, and owners.

Action Plan

Action Objective Accountable

Reviewing the organization This is to change the negative work Top Management, &

culture culture instigated in the company. Board of Directors

This is to change and fix the problems in Top Management, Board

Reviewing the company’s
the management accounting of the of Directors, &
reporting system
company Committee on Finance

Top Management, Board

This is to change and fix the lack of
Evaluating the company’s of Directors, &
strict management control system of the
management control system Committee on Audit and
company.
Compliance

Reviewing the leadership This is to change and fix the problems in Top Management &

system the leadership system of the top Board of Directors

 management.

References

Aras, G. and Crowther, D. (2008) Governance and Sustainability: An Investigation into

the Relationship between Corporate Governance and Corporate Sustainability. Management

Decisions, 46, 433-488. http//dx.doi.org/10.1108/00251740810863870

Ghost, T. (2016). Enron Corporation: A Case Study.

Kapur, R. (2020). Corporate Social Responsibility

https://www.investopedia.com/terms/c/corp-social-responsibility.asp