...The Ethics of Enron: A Corporate Disaster Racheal D. Smith Salem International University The Ethics of Enron: A Corporate Disaster Ethics, as stated by Dawn D. Bennett-Alexander and Linda F. Harrison in The Legal, Ethical & Regulatory Environment of Business in a Diverse Society, are considered subjective laws as well as a how-to-guide for businesses in how they conduct themselves with their suppliers, customers, employees, and anyone else they do business with (2012). It is not enough to know how to run and conduct business, it is also important that good judgment, situational experience and common sense be used in order to be successful and remain that way. There have been companies in the past who have not exercised good ethics and have paid the price for their folly. It was not only the CEO’s and the upper echelon who suffered, though they may have received the brunt of it, but also those employed by the company. This is true in the case of Enron. Enron was a company who “marketed electricity and natural gas, delivered energy and other physical commodities, and provided financial and risk management services to customers around the world (Enron Fast Facts, 2015).” Enron was formed in July of 1995, after the merger between Houston Natural Gas and InterNorth out of Omaha with the help of Kenneth Lay and became the sixth largest company in the world that provided energy (Enron Fast Facts, 2015). It was due to Ken’s ambition to turn the stable business from...
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...Ethics is the branch of study dealing with what is the proper course of life in human’s life or throughout society. It is the study of right and wrong in human endeavors. It is the value and pursue we categorize. It is regarding do we pursue for self interest or for the greater cause for society. One main culprit for Enron scandal was Arthur Anderson. It had served as Enron’s outside auditor since 1985. Not only did Anderson do external audits it also provided Enron internal auditing and consulting services. Anderson auditors helped Enron hides its earning manipulation. Arthur Anderson falsifying financial condition of the company and never disclosed it to the public. Anderson did all kinds of services for Enron such as external auditing, internal auditing and consulting services. This not only violates accounting services but because there are conflicts of interest among the services provided by Anderson. What we see from Enron case is that some people performed ethically and while others did not. Margaret Cecani who blew the whistle regarding the scandal Enron’s manipulation of the numbers in its finical report and the data. But, when we look at Kenneth lay the founder and the CEO of the company. Under his leadership he created a company with dishonest and lack of integrity among his employees and throughout company. Lay was not only caused investors to loose billions of dollars but he was also involved in fraud. One case was that telling his employees hard earned money...
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...their corporate culture. Leaders can use role modeling, teaching, and coaching, to reinforce the values that support the organizational culture. Employees look to leaders for cues as to what is truly appropriate behavior. Corporate cultures must reward ethical conduct while penalizing any wrongdoing at all levels in a corporation. Values matter and trying to ignore trouble spots or the blaming of underlings is an unacceptable practice. A company is measured by the traditions they build and the way they manage all their relationships with shareholders, employees, and the communities they live and work in. Enron went bankrupt and disappeared over 10 years ago but the impact it has made on ethical standards have never faded. Thousands of people lost their retirement savings, and the energy industry was greatly affected by the downfall of Enron. The collapse of Enron is now used in many textbooks and research papers as an example of the importance of an organization’s behaviors an how much of impact unethical acts can have from top management all the way to new hires. Company leaders do not always do the right thing, act as positive influencers, or lead the company to do the best thing for all its stakeholders. The actions of the company executives, the culture established, the employee motivations employed, and the company structure all provide signals of whether a company is ethically sound. Enron’s demise sets the stage for a good learning experience for all businesses...
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...The ethical analysis can be conducted with the full understanding of what ethics in fact is. Ethics is all about proper behavior and acting for good; therefore, everyone has his/her own idea of what that means. In any case, the comparison of several ethical scandals should be based on the principles of action and the foundation of ethics. Being a large energy provider, Enron had its good and bad sides. Thus, in 2002 Enron announced its bankruptcy what turned out to be one of the biggest issues in American history. The company’s clients, investors and shareholders lost millions of dollars due to the drop in stock. In addition, many people lost their jobs or even the entire pensions. When and how did the issue start? In fact, there were a number...
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...Summary Enron Corporation is an energy trading, natural gas, and electric utilities company based in Houston, Texas. Formed in 1931, it was originally known as Northern Natural Gas Company. In 1985, Enron was formed by Kenneth Lay after the merger of Houston natural Gas Company and Inter North (Nebraska Pipeline Company). Fortune magazine named Enron “America’s most innovative company for 6 consecutive years. But all that came crashing down in a very bad scandal better known as the Enron Scandal, and it also led to the dissolution of Arthur Andersen, which was one of the five largest audit and accountancy partnerships in the world. Enron’s stock price went down to pennies from over $90. It is ever the most famous company in the world, but it also is one of companies which fell down too fast. The aim of this paper is to analyze how and why the Enron Scandal took place, how the energy giant suddenly collapsed and eventually filed for bankruptcy. I. Special Purpose Entities Enron created partnerships within their own organization which led to them creating new financial instruments, called SPE’s which was used to falsify the accounting. Enron used SPE’s such as LJM Cayman LP, LJM2 Co-Investment LP, and Raptor vehicles, which is designed in part to hedge an Enron investment in a bankrupt broadband company Rhythm NetConnections, to “increase leverage and ROA without having to report debt on its balance sheet” (Journal of Accountancy, 2002). Enron entered into a series of transactions...
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...How did the corporate culture of Enron contribute to its bankruptcy? The corporate Culture at Enron could have contributed to its bankruptcy in many ways. Its corporate culture supported unethical behavior without question for as long as the behavior resulted in monetary gain for the company. It was describe as having a culture of arrogance that led people to believe that they could handle increasingly greater risk without encountering any danger. Its culture did little to promote the values of respect and integrity it instead rewarded ‘innovation’ and punished employees deemed week. The performance evaluation process for employees that was dubbed “rank and yank” utilized peer evaluations, and each of the company’s divisions was forced to fire the lowest ranking employees. This created cut-throat competition not only against Enron’s external competitors but also within the organization. It pitched employees against each other. The internal rivalry created in turn contributed to less communication between operations for fears of being fired. The “survival for the fittest” atmosphere reached the point where illegal activity was deemed necessary to stay on top of the game. Enron’s compensation plans also seemed less concerned with generating profits for shareholders than with enriching officer wealth. Its culture encouraged flaunting the rules and even breaking them. Each Enron division and business unit was kept separate from the others and as a result very few people in the...
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...The activities of the leadership of Enron and its Board of Directors is a virtual how to on how unethical decisions can and will eventually bring a company to the brink of collapse. The short term rewards of unethical activity can be quickly overcome by the destructive force of investigations and market swings. How greed and lack of oversight can cause the disruption of the livelihoods of employees not directly involved with the unethical behavior. We will examine the events leading up to the bankruptcy of Enron as well as the resulting legislation put into place because of the misdoings of Enron and other companies. Before Enron became one of the top ten largest companies in the United States it was formed by the merger of Northern Natural Gas and Houston Natural Gas. Kenneth Lay was the original CEO of Houston Natural Gas and took the reins of Enron 6 months after the merger in 1985. In early 1990, Andrew Fastow, who became the Chief Financial Officer and Jeffrey Skilling, the current head of Finance at Enron, joined forces. This was the beginning of the creative accounting practices utilized by Enron during Fastow’s tenure. Using loopholes in Generally Acceptable Accounting Procedures, these individuals were able to cook the books for Enron for 4-6 years and thus sealed the fate for the employees. From the Board of Directors down to the mailroom employees. To come up with a company’s bottom line you take the liabilities and subtract them from the assets...
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...MGT320 Portfolio Project Post-Enron Era Ethics The time for change is now! CEO’s must continue to be held accountable for the accuracy of their financial statements, and the performance of their company. To assure the accuracy of a publicly traded company’s financial status reporting, an additional requirement of an outside industry experienced auditing firm is needed, as well as performance based pay contracts for publically traded companies’ officers. The goal is simple, change the mindset of CEO’s, boards of directors (BOD’s), and shareholders by teaching them the fundamentals of business ethics. To obtain our goal, we must first have a basic understanding of existing legislation and the willingness to create new legislation for the betterment of America. To begin, a discussion in regards to the Sarbanes-Oxley Act is important for the purposes of an overview of existing legislation. In the past the US government has relied on the states to monitor and enforce the rules of auditors. Typically public accountants were licensed by the states to audit corporate financials; however the states had very little, if any, money to provide the necessary funds for enforcement. “Public accountants were licensed by the states, but states devote few resources to supervising auditors; federal regulation of auditing was light; and no federal agency supervised auditors. A Public Oversight Board for auditors was created in 1978, but it was dominated by accountants, funded by the audit...
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...Enron Corporation Describe how Enron could have been structured differently to avoid such activities. Enron had a code of ethics policy in place but failed to implement it correctly (Bagley, C.E. & Savage, D.W., 2010). An enforced code of ethics policy, which includes required annual ethics training, is crucial in setting standards for employees in regards to their ethical behavior. It reminds all employees that they need to think about how they conduct themselves on the job. Here at NASA, we have a code of ethics policy and annual ethics training. NASA’s ethics training is a required course that all employees must take. Training informs all NASA employees of what is and is not acceptable behavior. Along with the enforcement of a code of ethics policy and training, Enron needed to be structured so that people could safely come forth if they witnessed any illegal or unethical actions. Of course, the Sarbanes-Oxley Act, which makes it easier for employees to come forth, did not pass until after the Enron scandal. Another way that Enron could have been structured differently was to have a better way to scrutinize the activities that went on at Enron. That is, structure the company so that daily activities could be closely monitored. A separate group could have been created to do some internal monitoring of the activities at Enron. The things I mentioned would have been helpful in developing a better culture at Enron and could have helped limit such activities. However...
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...Prescriptive Approaches to Ethics at Enron Enron was a global energy firm that filed for bankruptcy protection in 2001. The firm’s senior managers had engaged in fraud for an extended period through a scheme in which partnerships owned by the managers could receive payment for goods and services never provided to Enron. In addition, the firm’s external auditing firm, Arthur Andersen, was complicit in the fraud by knowingly certifying false financial statements as accurate. Arthur Anderson participated in the fraud because the firm did not want to risk losing lucrative consulting contracts from Enron, which created a conflict of interest situation (Miller, 2004). The events leading to the collapse of Enron can be analyzed using the ethical frameworks suggested by consequentialist theory, deontological theory, and virtue ethics. Such an analysis can provide an explanation of the failure of Enron’s directors, mangers, and auditors to adhere to their ethical duties to the shareholders, employees, customers and suppliers of the firm. Consequentialist theory suggests that an act is ethically wrong if it results in consequences deemed wrong or harmful by the majority of people in a society (Hooker, 2002). The consequentialist theory requires assessing the actual consequences of the act, which includes both direct and indirect consequences. It also requires using some type of evaluative norm for determining whether the consequence is beneficial or harmful. The theory is prescriptive...
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...Ethics Student Name MGT/498 Due Date Instructor Ethics A business must operate with ethics as a guiding principle to be successful and profitable. A company that is publically traded bears a responsibility of being a good steward of the profits the company earns, for the stakeholders, employees, and clients. The social aspect of a company and ethics go hand-in-hand. If a business fails to act ethically responsible, the result of that behavior can affect it socially. “The concept of social responsibility proposes that a private corporation has responsibilities to society that extend beyond making a profit” (Wheelen & Hunger, 2010, pg. 72). When a company is established, it begins with a foundation constructed from an idea. The idea evolves and must blossom for the business to grow and make a profit. When a business attains the soliciting stakeholders phase, there must be strategic plan in place. An effective strategic plan requires that a model is developed in order for the business to operate. Running a business requires the owner to have a plan that will include the mission, vision, code of conduct, and ethics that it will go by. A code of conduct and ethics is what the organization expects from the employees. It should also have a written policy of what the consequences are for violating any of the policies. Code of Ethics “A code of ethics specifies how an organization expects its employees to behave while on the job” (Wheelen & Hunger, 2010, pg...
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...Ethics A business that expects to turn a profit and have sustainability in the market must operate ethically. A company that trades publically has the responsibility of handling the profits of the company for the clients, stakeholders, and employees. The company also has the responsibility of earning money for the clients, stakeholders, and employees. Ethics is the social aspect of business, when a business does not act ethically responsible there are ramifications socially for the company also. A company forms its foundation from the idea of a person and transforms it into a business, and when that idea blossoms the business grows. A business eventually reaches the stage of needing to solicit stakeholders and the company needs to put a strategic plan in place. The company must develop a model the business will operate under. An integral part of running a successful business is implementing a plan that incorporates the company’s vision, code of conduct, and mission as well as a code of ethics. The code of ethics and conduct is the expectation the company has for its employees and the consequences for violating them (McNamara, n.d.). The code of ethics a company implements is a guideline of the expectations for employees and the values the company holds is extremely important. When an employee questions what is right or wrong within the company, the code of ethics and values are a useful guide to answer the employees’ questions. The code of ethics and values also can be used...
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...also wrote in an introductory statement to the revised Enron Code of Ethics that they (officers and employees of Enron Corp.) were responsible for conducting the business affairs of the companies in accordance with all applicable laws and in a moral and honest manner. Lay mentioned that the Enron enjoyed a reputation for being fair and honest and that the company was highly respected. Jeff Skilling, on the other hand, implemented a very rigorous and threatening evaluation process for all Enron employees. Known as the “rank and yank” – this process was aimed at getting rid of the lowest ranking employees – probably an attempt to get rid of all the bad apples. But this too backfired when employees intentionally ranked peers lower to enhance their own position and ranking. So with leaders like these, who harboured only “good intentions” for the company… Enron was sure to be headed for success. Along with Enron’s ethic codes based on respect, integrity, communication and excellence; Enron looked like an excellent corporate citizen, with all the corporate social responsibility (CSR) and business ethics tools and status symbols in place. A company heralded as a paragon of corporate responsibility and ethics – successful, driven, focused, philanthropic and environmentally responsible. Enron appeared to represent the best 21st century organisation had to offer, economically and ethically. With all this in mind, reasonably, Enron employees should have had no doubt regarding the ethical...
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...wrote in an introductory statement to the revised Enron Code of Ethics that they (officers and employees of Enron Corp.) were responsible for conducting the business affairs of the companies in accordance with all applicable laws and in a moral and honest manner. Lay mentioned that the Enron enjoyed a reputation for being fair and honest and that the company was highly respected. Jeff Skilling, on the other hand, implemented a very rigorous and threatening evaluation process for all Enron employees. Known as the “rank and yank†– this process was aimed at getting rid of the lowest ranking employees – probably an attempt to get rid of all the bad apples. But this too backfired when employees intentionally ranked peers lower to enhance their own position and ranking. So with leaders like these, who harboured only “good intentions†for the company… Enron was sure to be headed for success. Along with Enron’s ethic codes based on respect, integrity, communication and excellence; Enron looked like an excellent corporate citizen, with all the corporate social responsibility (CSR) and business ethics tools and status symbols in place. A company heralded as a paragon of corporate responsibility and ethics – successful, driven, focused, philanthropic and environmentally responsible. Enron appeared to represent the best 21st century organisation had to offer, economically and ethically. With all this in mind, reasonably, Enron employees should have had no doubt regarding...
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...Enron Case ACC 304 1. What led to the collapse of Enron under Lay and Skilling? There were various reasons as to why Enron collapsed under Lay and Skilling. One reason Enron collapsed under Lay is because Lay simply did not practice what he preached. Lay did not live by his code of ethics and neither did his corporation. Not only that, but Lay and top management gave Andrew Fastow an exemption to the code of ethics to continue doing business. Another reason that Enron collapsed, under Skilling, is that Skilling had a performance evaluation process for all Enron employees that didn’t express the code of ethics that they should’ve followed which caused employees to rank their peers lower as to enhance their own position in the firm. 2. How did the top leadership at Enron undermine the foundational values of the Enron Code of Ethics? The top leadership at Enron undermined the foundational values by granting an exemption to Andrew Fastow to continue bringing in dirty money through his actions. Also, the top leadership allowed an unethical culture of ethics by promoting to the employees that they had to make the numbers literally any way they could even if that meant to break the law. 3. Given Kenneth Lay’s and Jeff Skilling’s operating beliefs and the Enron Code of Ethics, what expectations regarding ethical decisions and actions should Enron’s employees reasonably have had? Enron had a great and respected code of ethics among its peers. Also, Lay and Skilling had respectable...
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