Enron’s ride is quite a phenomenon: from a regional gas pipeline trader to the largest energy trader in the world, and then back down the hill into bankruptcy and disgrace. As a matter of fact, it took Enron 16 years to go from about $10 billion of assets to $65 billion of assets, and 24 days to go bankruptcy. Enron is also one of the most celebrated business ethics cases in the century. There are so many things that went wrong within the organization, from all personal (prescriptive and psychological approaches), managerial (group norms, reward system, etc.), and organizational (world-class culture) perspectives. This paper will focus on the business ethics issues at Enron that were raised from the documentation Enron: The Smartest Guys in the Room, from cognitive moral development to group norms, etc.
Enron scandal overview
The Enron scandal was a financial scandal involving Enron Corporation and its accounting firm Arthur Andersen, that was revealed in late 2001. Many of Enron's recorded assets and profits were inflated, or even fraudulent and nonexistent. Debts and losses were put into entities formed "offshore" that were not included in the firm's financial statements, and other sophisticated and hidden financial transactions between Enron and related companies were used to take unprofitable entities off the company's books. This practice drove up their stock price to new levels, at which point the executives began to work on insider information and trade millions of dollars worth of Enron stocks. The executives and insiders at Enron knew about the offshore accounts that were hiding losses for the company; however, the investors knew nothing of this. As the scandal was revealed, Enron shares dropped from over $90 to less than $.50. Enron filed for bankruptcy on December 2, 2001.
Stakeholders and Conflicts of Interest
Modern corporations like Enron usually have multiple stakeholders with often conflicting interests and expectations. The company’s stakeholders include primary groups of customers, employees, shareholders, owners, suppliers, etc. and secondary groups of community. All stakeholders have their own self-interests. While employees want secure jobs with high earnings; customers want quality products with cheap prices, which may eventually result in the company and employees’ low income. Being said that, the corporation owes all stakeholders the obligations to meet their interests. That brings in the ethical issue of conflicts of interest, one of key problems at Enron. CFO Andrew Fastow created financial partnership to hide Enron debt, from which he allegedly collected $30 million in management fees. The action obviously made Enron financial data look good, but at the same time deceived the company’s investors about the real performance. Many investors may make their investing decisions based on those false data. And that’s when the collapse begins.
Prescriptive Reasoning Approach
According to the documentation, those Enron people who faced ethical issues used different prescriptive reasoning approach to resolve their dilemma. Take Andrew Fastow as an example, he might not start all the fraudulent financial activities in the first place; however, he decided to do so in order to please the boss, when Ken Lay wanted to see neat financial disclosures. It seemed that Fastow chose the obligations and principles approach to justify for his actions. He put his duties as an employee first when considering options to solve his ethical issues. On the other hands, Sherron Watkins, the whistleblower, chose the consequential and virtual ethics approaches to resolve her dilemma. She knew deeply that Enron accounting activities were wrong and couldn’t stand the facts that the company was deceiving its investors. Watkins could either be a team player and do nothing or a whistleblower and raise the questions. Her morality won the situation; she decided to follow her ethical self.
Psychological Approach –...
Please join StudyMode to read the full document