Enron Ethics Issue PDF

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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. Corporate managers are expected to maximize investor returns while complying with regulatory standards, avoiding principal-agent conflicts of interest, and enhancing the reputational capital of their firms. The recent arrests and resignations of top U.S. managers, however, indicate an increasing level of managerial negligence and corporate irresponsibility on Main Street and on Wall Street that has eroded domestic and global trust in U.S. markets. The U.S. stock market volatility has added to the political pressure to bring 1930s-style regulatory reform to businesses. Corporate irresponsibility in the Enron scandal, for example, has provoked multiple lawsuits and unprecedented outrage from a range of stakeholders with demands for democratizing structures of corporate power, improving managerial accountability, and legislating regulatory reform. The Enron scandal involves both illegal and unethical activity and the courts of law will determine the precise extent of civil and criminal liability that accrues to the perpetrators. People commit fraud, for instance, for a wide range of motives including perceived lack of effective deterrent punishment and rationalization of acceptability of illegal activity (Albrecht and Searcy2001). To control fraud by focusing on only one dimension, such as more effective deterrent punishments, is like trying to put out a skyscraper fire with a garden hose. In addition, people harbor myths, such as organizations cannot proactively detect or prevent fraud, which only result in disempowered resignation to the inevitability of corruption and more future Enron’s. The Enron scandal is one that left a deep and ugly scar on the face of modern business. As a result of the scandal, thousands of people lost their jobs, some people lost their entire pensions, and all of the shareholders lost the money that they had invested in the corporation after it went bankrupt. I believe that Kenneth Lay, former Enron CEO, and Jeffrey Skilling behaved in an unethical manner without any form of justification, but the whistleblower, former Enron vice president Sherron Watkins, acted in a way that upheld moral principles. Sherron Watkins is most famous for being the whistleblower in the Enron downfall back in 2001. She was viewed as a hero and as the standard for ethics. She pushed for the truth in spite of the pressures she faced from executives and relented in her pursuit. It was this type of character that was admired enough to be asked to come speak at our commencent back in 2003. It was a very big deal to have her as the speaker. That was

back in 2003, and over 10 years later, it has stayed with me as a very unmemorable speech, because I cannot remember but one thing she said. I recall feeling like the speech was dull and unmotivating, given her great fame in character. And that one thing I remember was her advice, “to think twice before we take the office supplies.”

A lot of people have suffered, not the least of whom are the shareholders and pensioners who lost it all. It was a sad "ending" to what had appeared to be a promising beginning to the New Economy in which the internet age would spread wealth and create jobs throughout the social spectrum. While Enron may be the crown jewel of corporate prosecutions, it was preceded by guilty verdicts for top execs at Adelphia Communications, Tyco International and WorldCom. Punishment serves as a deterrent. But a clear-cut mission and a corporate code of ethics is crucial. It's the foundation to which boards, managers and workers rely when they reach a fork in the road. It's the principles they use when deciding whether to emphasize short-term gain or long-term stability. Economist Milton Friedman has argued that it is the social responsibility of corporations to increase profits thereby putting more people to work and paying more taxes to support programs that benefit the general public. But business ethicists caution against a myopic pursuit toward earnings. The quarterly reporting syndrome that pressures companies to meet earnings expectations promotes temptation that can push some to distort the truth. But the desire to satisfy shareholders must be balanced with the need to service all corporate constituents -- all of whom contribute to a company’s worth. That structure must be reinforced with values that build trust, as well as by more cognizant oversight and notable penalties for egregious acts. “So, even if you can't really regulate ethics, the fact that more people are more closely scrutinizing board behavior encourages directors to be more responsible,” says Mary Driscoll, an analyst with Standard & Poor’s. "But, there is no panacea, and I think we will continue to see abuses and excesses -- but hopefully fewer.” Certainly, ethical dilemmas are not always black and white. And the situations that can lead to hard choices can be as complex as the options themselves. Some companies therefore struggle with how to manage and measure ethics and particularly in cases where they have worldwide offices that operate in diverse cultures. Those decisions have a direct bearing on their public identities and will affect their share prices. Unethical companies will eventually get exposed: Witness Enron. Companies that live and breathe their missions, by contrast, will get recognized by both the retail and capital markets. Stock values, of course, are a function of multiple factors. But solid principles are good for business, and ultimately good for corporation valuations.

Corporate codes are not charades. They are practical approaches to everyday situations. Meaningful cultures will implore workers to do the right thing. That means individuals are encouraged to come forward with their concerns and know they will be heard and acted upon. Such a system allows management to address and handle issues in a holistic way to ensure strong ethical health. Most individuals are raised with a sense of ethics that begin in their families -- values that have been driven home through their schools and religious institutions. "Honesty" and "decency" have typically been applied in interpersonal communications. But such characteristics can get lost during business dealings. Enron is the poster child for such distorted behavior. Enron didn’t start out as an unethical business. As we have seen in this case study, what introduced the virus was the pursuit of personal wealth via very rapid growth. This led to the introduction of quite extreme incentive schemes to attract and motivate very bright and driven people, which, in turn, led to an unhealthy focus on short term earnings. The next step was, naturally, to look at how earnings could be massaged to achieve the aggressive revenue and earnings targets. Since the massaged figures for growth in earnings still left a shortfall in cash, Enron quickly maxed out on its borrowing abilities. But issuing more equity would have hurt the share price, on which most of the incentives were based. So, schemes had to be created to produce funding secretly and this funding had to be hidden. In this way, an amoral and unethical culture developed in Enron in which customers, suppliers and even colleagues were misled and exploited to achieve targets. And the top management, who were rewarding themselves with these same incentive schemes, boasted that a pure, market-driven ethos was propelling Enron to greatness and deluded themselves that this equated to ethical behavior. Lay even lectured the California authorities, whom Enron was cheating, that Enron was a model of business ethics. Finally, the respected Arthur Andersen allowed greed for fees to over-rule the strong business ethics tradition of its founder and caused it to succumb to bending and suspending its professional standards, with fatal results.

References Albrecht, W.S. and D.J. Scarcy, 2001. “Top 10 Reason Why Fraud is Increasing in the US”, Strategic Finance, (May): 58-61. http://connection.ebscohost.com/c/articles/4377246/top-10-reasons-why-fraud-increasing-u-s Sources: Wxiaom The Fall of Enron-An Analysis of Ethical Issues, April 29, 2012 https://blogs.bgsu.edu/wxiaom/author/wxiaom/ BRYAN HORWATH

Enron whistleblower Sherron Watkins: The tone at the top matters, August 19, 2015 https://www.kansas.com/news/business/article31519685.html...