.
Ethic Business Paper
Melissa Malcolm
PHL 323
January 13, 2015
Instructor Ashram Chooniedass

Ethic Business Paper
Enron started out in 1985 as a merger between InterNorth and Houston Gas Company, the company’s innovation leads to huge success. By 2000 Enron announce revenue of one hundred million dollars in profit. This huge increase was due to the trading energy sector of the company, shortly after it announced that Enron had become the sixth largest energy company in the world. In 1996 Jeffery Skilling became the new CEO while In 2001 Kenneth Lay held the title of chairman of the board. Skilling made it very clear that his focus is on revenue and profit increase margin and had no interest in Enron’s cash flow (Houston Chronicle, 2002).
Skilling created a competitive atmosphere driven by huge bonuses, under his leadership the human resources department provided cheat sheet to recruiters to hire individuals who portray the image of sharp-dressing extrovert. They focus on graduates from Harvard, Yale, Princeton, Rice, Northwestern, and other leading universities. (Houston Chronicle, 2002). Unethical behavior such a falsifying transaction to boost volume was done by traders frequently, hide huge losses from shareholders, they encourage employees to buy stocks and discourage them from reporting poor accounting practices.
Enron issue had brought a lot of businesses down due to the unethical actions that took place in that organization. Enron, an energy firm in Texas, it was a company of high demands and a success to the economy. Its stocks had accumulated over the years which caused staffs and the board of directors satisfied with management. Later on throughout the years, it was confirmed that management was securing two sets of books, they were holding on to billions of dollars worth of dept. Arthur Andersen, who is a part of a major accounting firm had been alienable in this deceiving act and with Enron to business infamy. This issue revealed weaknesses in the American way of doing business. One of the most immoral act from the board of directors was being quiet about the scandal situation because it was not affecting the profits because the stock prices were gradually increasing, so they didn’t question the management. The board of directors viewed itself alone as the representative of the stockholders without any real obligation toward the general public or the employees of the firm. The big ethical issue is the role of the board in controlling management. Management seeks to enrich itself while the board seeks to enrich its stockholders. After the scandal, the role of the board in overseeing management has been reevaluated. (Johnson, Walter 2001)
What really started the losses that brought the company down were the accounting practices. By misusing and hiding the profits. Enron went down not so much because it had gotten too big not all the way because it was viewed by people to be much bigger than it really was in the beginning. By decentralizing its operations into numerous subsidiaries and shell corporations, Enron was able to hide huge derivative losses that would have halted its growth much sooner if widely understood. Publicly traded corporations are required to make their financial statements public, but Enron's finances were an impenetrable maze of carefully crafted imaginary transactions between itself and its subsidiaries that masked its true financial state. In other words, losses were held off the book by subsidiary companies, while assets were stated. (Theodore F. Sterling; 2002[->0]) This huge problem in Enron drove a lot of businesses away and created liability for accounting firm Arthur Anderson that forced him out of business. By this time, the true value of the company had been exposed and the stock prices collapsed, leaving employees with fewer options and pension packages. Of course, executives that understood the real picture sold their shares in advance of the collapsed and waltzed away with billions.
 Ground rules are the basic or governing principles of conduct in any situation or field of endeavor (Dicionary.com, 2014).The situation with Enron has open the eyes of many business people, of the importance of ground rules within an organization. Investors and the general public have been affected directly and indirectly by the callous move made by the executives of this company. Enron, a huge organization has made an irreversible decision that benefits them initially, but eventually has proven to be detrimental to their clients and themselves. Rules even though they are vague and complex, they are used as guide for individuals and companies. Ground rules are sometimes used to make ethical decision. Accountability and honesty are two important factors of ground rules. The executive members are held accountable they have to give an account of their actions. They were not honest in their actions and not forth comings with their words. Integrity and respect is also another ground rule that if practice by the executive members of Enron, there would have been little or no problems. Situations or issues that occur within an organization can sometimes be detected before it becomes a real problem. It is up to the executive body to quickly identify and stop the problem before it escalates. If the executive body knowingly causes the problem because of greed, it is a breach of the law and ethical ideation. In this case some serious and costly rules were broken thus the catastrophe.
According to Manual Velasquez of Santa Clara University (2002), one of the clear systemic causes of the Enron scandal is the legal and regulatory structure that exists in the United States. The Securities and Exchange Commission (SEC) regulations and recent laws allow firms like Arthur Andersen accounting firm to provide consulting services to a company and then turn around and provide the audited report about the financial results of these consulting activities (Velasquez, M. 2002). This is a clear conflict of interest that is not illegal because it was built into the United States legal structure. As a private company Enron hires and pays its own auditors again this is a conflict of interest, which is also built in the legal system because the auditors will not issue an unfavorable report on the company that is paying them. “Most large companies like Enron in the United States was allowed to managed their employee pension funds themselves, and again this is a conflict of interest that was built in the legal system because the company can use these funds in ways that can be of an advantage to the company and may be of a disadvantage to the employees” (Velasquez, M. 2002).
According to Petrick & Scherer (2006), managers are expected to maximize investor revenues while obeying the regulatory standards, avoiding key agent of conflicts of interest, and would increase reputable wealth of their firms. The Enron scandal was comprised of both illegal and unethical activities which led to the demised of the organization. The neglect of managerial integrity was the moral issue of Enron’s legal and financial problems. “By succumbing to greed in secretly exercising stock options and to dishonesty in falsely reporting the performance reality of the firm to other stakeholders, top Enron managers abandoned the basic standards of process integrity capacity” (Petrick, & Scherer, 2006). “Employees were deceived about the firms actual financial condition and deprived of the freedom to diversify their retirement portfolios; they had to stand by helplessly while their retirement savings evaporated at the same time that top managers cashed in on their lucrative stock options” (Petrick, & Scherer, 2006).

Organizational leadership functions at the peak of the organization's information system. Seeking information allows leaders to discover changes, identify difficulties and build organizational knowledge to make sense of their informational environment. The outcome of information explains how and why an organization operates as it does. Such understanding is key to both the successful and responsible management of the organization.(Seeger, M. W., & Ulmer, R. R. (2003). Explaining Enron. Management Communication Quarterly). There were questions regarding what leaders knew, and when and what knowledge was official or unauthorized, often arise following accusations of wrongdoing although leaders clearly cannot know all that goes on in their organizations, particularly with large organizations, they are responsible for maintaining a fundamental knowledge of operations and activities. In some instances, however, leaders appear to seek conditions of arguable denial which they can claim ignorance regarding their actions .Such schemes are clearly unethical in their efforts to avoid responsibility by avoiding knowledge.
How did ethical behavior and responsibility differ between employees and management?

Managers and leaders are faced with organizational decisions that impact policies and procedures every day. Managers and leaders are required to make decisions that support the fair treatment of their employees and act in ways that are ethical and responsible. There is a pressing need to develop strategies for increasing organizational justice and promoting responsible and sound judgment. Begin with a discussion of leadership, accentuate their differences. Implement different styles that have been validated by investigation and put into practice in many other organizations. Managers hid massive losses from shareholders, workers were told to buy stock when executives were bailing out and created an atmosphere that discouraged workers from speaking up about questionable accounting practices. (Palazzo, G., Krings, F., & Hoffrage, U. (2012). Ethical blindness. Journal of Business Ethics, 109).
Pay particular attention to the role of middle management and executive management in causing or resolving the issue.
To cope with the issues and resolve the problems in the roles of middle management and executive management with their growing business woes , Enron needed to borrow a substantial amount of money and yet maintain an acceptable debt to equity ratio. The organization was reluctant to show the growing amount of debt on its balance sheet. It succeeded in hiding its debt by resorting to off-balance sheet financing. Enron saw a creative use of exceptional entities similar to that of gas bank. (Chandra, G. (2003). The Enron implosion and its lessons*. Journal of Management Research, 3(2), 98-111).Though absurd the idea of depositing losses somewhere else and taking them out when Enron earnings could bear them Those involved were formed with outsiders' investment of as little three percent of their equity. The prevailing account standards from Enron which the majority were stockholder was not required to consolidate financial statements as long as the outsiders held at least three percent equity. Enron followed the letter of the accounting standards and did not consolidate financial statements with its own. However, this became a convenient vehicle to unload losing trading contracts and to borrow money from outside for Enron which helped the organization resolve the issue.

[->0] - http://books.google.com/books?id=t4iOueDsNXoC&printsec=frontcover&source=gbs_ge_summary_r&cad=0#v=onepage&q&f=false