Business Ethics –ENRON

 

Introduction

Enron Company started with trade in natural gas. The company had grown to an international multibillion corporation by late 1990s. It looked very lucrative when it started partnering with other companies and operating in other countries. However what happened later what a shock in the American history (Sims & Brinkmann , 2003). Skilling took over the company when he was bearing a picture of a business intelligent person who won regardless of the obstacles and business environment. The company made several deals with other companies and grew in assets and worth to be ranked the seventh biggest company in the American soil. Through the 1990s it experienced a positive growth, a favorable reputation and maintained an ethical painting of itself. Its shares were being sold at $90 in 2000 (Carson, 2003).

However one year later in 2001, the greatest collapse of the time happened. The company was reported bankrupt after its application following American laws. Investigations later revealed massive money laundering activities; trade ins and corruption involving millions of dollars. Money had been lost through collaborations, manipulation and planned loss of audit documents. Investigations followed to reveal the rot in the business ethics that were cultivated for short cut benefits (Silverstein, 2013).

The treatment the company gave its employees was evidently unethical. The employees in what can be described in business as immorality, were used against each other. What followed was an unhealthy competition. Employees who did better were promoted whereas those who did not perform were fired. According to Thomas (2002), during the period of Skilling, up to 15% of the workers got replaced. Embracing short term rewarding of employees for immediate benefits rather than growing the careers was their motive. The company could sell to anybody as long as they made money. This practice, how the company handled employees and the frauds that happened proved that the company had engaged in an extreme business unethical behavior. The ENRON Company and its activities were unethical (crimeradius.com, n.d).

The rise of ENRON

Prior to the takeover of Skilling the company had not experience any accusations about ethics. The company had well spelt rules about morality and ethics. The former CEO Kenneth Lay said severally that he was tied by moral, legal and ethical behavior as it was the stand point of most successful businesses (Sims & Brinkmann , 2003). In a 64 page ENRON code of ethics issue of 2000 Lay wrote “ as officers and employees of ENRON Corp. , its subsidiaries, and affiliated companies, we are responsible for conducting the business of this companies in accordance with all applicable laws and in a moral and a honest manner.”   The ethics also specified that employees could not engage in a behavior that would be detrimental to the best interest of the company or engage in a behavior that will suggest their financial gain or lose a direct consequence of their employment in that company.  The code of ethics were based on respect, integrity, communication and excellence (Johnson, 2003).

The company had begun as a merger of two companies back in 1985. The first stages saw the company struggle to keep up due to financial difficulties. In 1988, when deregulation of power markets happened, Enron took advantage of it changed and started thriving. It had changed from delivery of energy to broking. It became a broker and leveraged from the difference in selling and buying price. This new change of things opened the field of creativity for Enron (Npr, 2014). A company that was locked with operational lines now had a chance to increase earning though expanding activities and doing more. Jeffrey Skilling actively cultivated the culture of “Do it right, do it now, do it better.”

The culture that was hence being promoted by Skilling was that an employee was supposed to continue producing better or at least at the standards they found things.  It did not matter how it was done, it was supposed to be done. The only thing that mattered in that culture was adding value. Untamed ambitions can make people to go wild. This is how the employees of Enron came to start breaking the law. According to Sims & Brinkmann (2003), explained that breaking the law was ‘allowed,’ you can ask for a second chance. The atmosphere began to change when somehow the company could allow overlooking business ethics. During the late 1990s, Media and the public had already started to notice the explosive growth on Enron. The reputation even encouraged Enron to keep up its competitive culture and explosive growth (Sims & Brinkmann , 2003).

Ethical failures in ENRON

The leadership of Enron can be noticed as having taken part in steering the company into extreme violation of business rules, morals and ethics. After the November 2001 declaration of Enron bankrupt various executives of Enron were arrested and charged. Ben Glisan was charged with twenty four counts of money laundering, fraud and conspiracy. He was the Enron treasure during its fall. During investigations Glisan had described Enron as “the house of cards.” The chief accountant of Enron Andrew Fastow faced 98 counts of fraud, conspiracy, money laundering and improper partnerships. Jeffrey Skilling was indicted on 35 counts of wire fraud, securities fraud, conspiracy, making false statements on financial accounts and inside trading. Lay was also indicted on eleven counts of false statements and fraud. These clear several counts of fraud, money laundering corruption, inside trading and improper partnerships raise questions whether business ethics were followed to any extent (Healy & Palepu, 2003).

Before the collapse happened, Bethany Mclean an investigative reporter with the fortune magazine had called Skilling seeking clarification for incomprehensible financial statements. Skilling declared the call unethical and hang up. However, later they travelled to New York City to answer the questions clearly. Their actions were clear violations of ethics contained in the Enron code of conduct. It was irresponsible and violation of not only morals but also legal regulations (Johnson, 2003).

Lay denied all the charges. However, Sherron Watkins the Enron debacle whistle blower maintains that Lay was also responsible. Whether the claims of Lay are true or false, he failed in business ethics as a leader to oversee all the activities of the business and was reluctant to act when he trivialized some matters (Ferrel & Fraedrich, 2014).

The Enron organizational culture was another issue that lacked business ethics. The Enron vice president Sherron Watkins who raised alarm said the business environment in Enron was add value, cheat and steal but don’t get caught. If you get caught ask for a second chance. The Enron business culture did not promote integrity and ethics (Sims & Brinkmann , 2003). Through the rewarding system and motivation methods, they did not uphold or reflect any business ethics. Through the method of firing employees who did not perform, the culture ceased to be one promoting cooperation to one promoting competition within employees. Employees started rating others lowly in order to promote their own ratings. On another business violation schemes, Skilling targeted at generating benefit for the executives and not for the shareholders. He employed mechanisms that decentralized departments and separated divisions and units and kept the chairman distracted. He inflated deals to hide losses. This was a gross conduct in a business environment against shareholder and rights of employees (Healy & Palepu, 2003).

Enron’s involvement in illegal partnerships and deals was an unethical practice. Complicity played a big role in Enron’s loss of funds. It was unethical for a company highly regarded to do illegal partnerships with Wall Street companies. Among the firms that Enron engaged with include J. P morgan and Citigroup. Such dealings included selling assets during a season they were doing badly and buying them back at a profit. Enron’s executives finally admitted they had overstated their earnings by $586 million. It also finally revealed that it owed over $6 billion in debt. They had inflated their earning to keep their value high in the market to continue surviving. This was very unethical since they engaged in manipulation of many accounting documents, cheated the public and shareholders about their worth (Sims & Brinkmann , 2003).

Conclusion

Enron violated business ethics to an extent that they could no longer support their claims to continue thriving in the market. Through their leaders, organizational culture and business activities they never supported their own code of conduct or business ethics. When ambitions are not controlled by ethics they can lead to devastating activities. Big companies are built in a foundation of ethics, morals and legal regulations hence as depicted by the research and findings of the Enron case the company failed due to engagement in extremely immoral and unethical business culture. Most executive members as a consequence were arrested and sentenced long time imprisonments while the company failed and its assets were frozen. The incident of Enron ethics resulted to a historical collapsing of the company (Ferrel & Fraedrich, 2014).

 

 

References

Carson, T (2003). Self Interest and business ethics: Some lessons on the recent corporate scandals. Journal of Business ethics. 43 (4). 389-394.

Crimeradious.com (n.d) Enron: A disaster years in the making. Retrieved from http://www.crimeradius.com/Enron_A_Disaster_Years_in_the_Making

Ferrel, O. & Fraedrich J. (2014). Business Ethics: Ethical decision making and Cases. Stamford. Cengage Learning

Healy, P & Palepu, K. (2003). The fall of Enron. Journal of economic perspectives. 17. (2)3-26

Johnson, C. (2003). Enron’s ethical collapse: Lessons for leadership educators. Journal of leadership education.  2. (1). 45-54.

NPR. (2014). The fall of Enron. Retrieved from http://www.npr.org/news/specials/enron/

Silverstein, K. (2013). Enron , ethics and today’s corporate values. Forbes. Retrieved from http://www.forbes.com/sites/kensilverstein/2013/05/14/enron-ethics-and-todays-corporate-values/

Sims, R. & Brinkmann, J. (2003).Enron Ethics (Or: culture matters more than Codes). Journal of Business ethics.  45. (3). 243-256.

Thomas, W. (2002). The rise and the fall of Enron. Journal of accountancy. Retrieved from http://www.journalofaccountancy.com/Issues/2002/Apr/TheRiseAndFallOfEnron.htm

Velasquez, M. (2014). What really went wrong with Enron? A culture of evil? Retrieved from http://www.scu.edu/ethics/publications/ethicalperspectives/enronpanel.html