Introduction

Business ethics is a major are of the major concerns in the corporate world. Most business executives must be taught on how to make ethical decisions on matters about the organizational performance. Despite the sole obligation of profit maximization, executives have a moral duty as they exercise their rights. This should be in accordance to Friedman’s assertion that profit-driven business has to meet its social responsibility by accepting imposed legal and ethical constraints. Principles of deontology must guide profit maximization and prosperity of the entrepreneurs. It is imperative for business executives to act on self-regulation measures besides to the legal provisions to have the overall success of the company entity. Sense of personal morality should be cultivated among the business executives to realize the desired ethical standards. Ethical responsibility in the business world must be developed and exploited to the fullest. Lack of moral behaviors by business executives brought about one of the most infamous global accounting scandals at Enron.

Enron scandal

This is an American company based in Houston, Texas.  The company had an excellent performance in its early years before its bankruptcy in 2001. The fall of Enron has been used as a critical case study to teach ethics in the business front. Enron had a successful past where it registered a tremendous growth in assets from 10 billion dollars to more than 65 billion dollars in 16 years. However, greed, deception, and extreme pressure brought the company down to its bankruptcy within 24 hours. The company filed bankruptcy protection on 2nd of December 2001 which is regarded as the biggest bankruptcy case in the American history.

The company was ranked the 7th largest company on the Fortune 500 and sixth energy company globally. Enron’s stock had reached its peak at $90 US by November 2001 but dropped drastically to less than $1 US within one day. This resulted in the largest disaster where employees lost their jobs and pensions while the investors lost billions of dollars as their equity.

What transpired?

Enron Company had registered tremendous growth over the years to a point that it was the most envied company in The United States. It was the leading company in energy and communication since 1985. The increasing competition levels forced the company in diversification and international investment strategies to maintain competitiveness. This is where the companies downfall began since this brought about more losses than profits to the company. The situation deteriorated in 1999 when it ventured into fiber optics and a broadband market where it again suffered immense losses. Nevertheless, the company failed to report this in their financial statements until October 2001. All through this time, the company overstated revenues and hide liabilities t cover up for these huge losses.

Besides manipulated financial statements, the company failed to disclose these risks to the investors. However, the corporate executives opted to disclose excellent earning forecast through the media and also encouraged investors to purchase the company’s stocks. As if this was not enough, they also deceived the employees to invest their pensions in the stock options or the company’s stocks.   Employees trying to raise conflicting issues would be threatened, and other fired. The company’s top management also embezzled a lot of funds through trading stocks whose prices had already been inflated.

Continued fraudulent activities resulted in an increased stock price that reached its peak at $90 US. It is alleged that the company’s shares traded at $85 each by December 2000. The company’s employees had invested heavily in the company’s stock. This was a very frustrating situation for the company’s employees and the investors at the collapse of the company.

The company executives under dealings reached a point where they could not be concealed anymore. Jeffrey Skilling, the company CEO, departed in August 2001.  In October of the same year, Enron reported a loss of 618 million dollars. This was followed by the replacement of the company’s chief financial officer Andrew Fastow. This brought about the investigation of the company by the Securities and Exchange Commission (SEC). SEC findings revealed that the company had overstated revenues and that the value of the company’s stock was less than 1 US dollar. This resulted in bankruptcy protection filing and the employees and investors losing a lot of money.

After the bankruptcy filing, all the people involved in this fraudulent practices were put in a trial with Arthur Andersen bearing the greatest burden. The company’s cash financial officer, Andrew Fastow, agreed to take the plea to the charges and sentenced to ten years imprisonment. Enron’s CEO, Jeffrey Skilling, was also sentenced to 24 years in prison. The court also decided to punish Arthur Andersen for his actions of stopping the auditing work. Nevertheless, Arthur Andersen also filed a bankruptcy case and later fled.

Ethical issues at Enron

The fall of Enron Company was as a result of unethical behaviors by some of the company’s executives as well as the employees.  Arthur Andersen, the company’s external auditor, was instrumental in the collapse of the company. He provided consulting as well as internal auditing services to the company. In his capacity as the external auditor, Andersen, overstated the company’s profits by 568 million dollars.  Andersen helped the executives in manipulating the organization’s earnings. Despite his knowledge of the undoings in the company, Andersen decided not to disclose this information to avoid losing his client.  As an external auditor, Andersen had the capability of stopping these fraudulent activities early enough and save the employees and investors from such huge losses. Conflict of responsibilities and violation of independence have been critical to the unethical behavior of the auditor. Destroying of essential papers made it difficult for the SEC to conclude its investigations.

Another unethical person in the Enron case is Kenneth Lay, who is the founder and the CEO of the company. The largest blame for the fall of this company lies squarely on the dishonesty and lack of integrity of the company’s CEO. He had the responsibility of protecting the employees and investors from losing the billions of money lost through fraudulent activities. The CEO encouraged investors and employees to invest in the company despite his awareness of the actual status of the company. He was among the executives who sold their stocks at inflated prices. His perceived investors’ confidence resulted in increased stock prices that accelerated the company’s bankruptcy.

Just like Lay, Jeffrey Skilling is another executive whose unethical behavior contributed to the bankruptcy of the company. He sold over 500,000 shares on 17th September 2001 with proper knowledge of the company’s situation. Skilling had an opportunity to serve as a CEO from February to August 2001 and failed to disclose the financial problems of Enron to relevant authorities. He also failed to disclose the essential financial position of the company to the media as he left the company.

Enron’s cash finance officer (CFO), Andrew Fastow, played a significant role in the death of the company. His actions were responsible for the Enron disaster as he manipulated financial statements. He said, “Within the culture of corruption that Enron had, that valued financial reporting rather than economic value, I believe I was a hero. I thought I was a hero for Enron. At the time, I thought I was helping myself and helped Enron to make its numbers” (Jennings, 2009, p.293). Andrew earned a lot of money for his unethical behavior.

Sherron Watkins and David Duncan were also unethical and instrumental to the collapse of the company. Duncan was audit partner, and he chose profit and violated the set auditing standards promoting lies at the Enron. His actions were also instrumental in collapsing of the company.

Factors contributing to unethical behaviors

The unethical behavior at Enron Company could have been fueled by the Enron’s culture.  The company had strong goals and objectives that ensured competitiveness and profit maximization. For instance, the company required rating of employees annually and those who failed to meet the threshold to leave the company. The rating system, however, brought more harm than good to the company. This system cultivated a deception culture where employees would do anything to make their performances look good. Ethical issues were ignored and achieving organizational goals and objectives took center stage.

The competitive nature of the organization also contributed to unethical behaviors at the organization. Cheating became prevalent as cooperation was missing thus less communication among the employees. The employees rarely asked questions since asking questions was regarded as a total humiliation. This ensured a quiet relationship where everything disclosed was treated as gospel truth. On this note, Kant’s theory is evident. Employees freedom to act n a moral way is not guaranteed since they want to look good. Decision making is guided by personal interest rather than the moral principle.

Moreover, Enron put more emphasis on achieving financial goals. Anybody hitting the financial goals at the company was regarded as the hero. As a result, employees and executives focused on profit maximization with little concern for the economic value of the company. Needs, desire and well-being of the employees and executives of the company were not a primary concern in the company. Fr instance, Jeffrey Skilling had to overstate revenues and other financial manipulation to portray a strong financial position to the shareholders and stakeholders. Self-interests were more evident than ethical and moral values at the company.

It is also paramount to understand that employees and outside parties at Enron were to remain quiet. They were discouraged from expressing doubts regarding the financial position of the company and decisions made by the executives. Employees who dared questioning the executives were threatened and in extreme cases faced the sack. Enron cultivated a culture where employees worked blindly and had no moral authority to question their bosses. For instance, Clayton Verdon was fired for posting comments relating to overstated revenues in an employee chart room. This resulted in employees keeping quiet to safeguard their interests. The long-term consequences of their actions were least considered and acted on ways to fulfill their greedy culture.

Preventing Future Enron

Enron case study is a very emotional situation where investors and employees suffered immensely as a result of increased unethical behaviors in the organization. It is, therefore, prudent that measures are put in place to ensure that such a disaster does not happen again. Such measure can only be reached at after a critical analysis of how the fraud occurred and the factors that contributed to the successful manipulation of figures. Ethical dilemmas at the company are evident and played a significant role in making the fraud lucky.

In dealing with such an issue, utilitarian theory, as propagated by J.S Mill, will be instrumental. The theory states that “resolution of ethical dilemmas requires a balancing effort in which we minimize the harms that result from a decision even as we maximize the benefits” (Jennings, 2009, p. 6). The theory is an advance of deontological decision making where business executives must always make decisions that ensure justice for all. They should consider the interest of all affected parties and take actions that maximize benefits. For instance, Sherron Watkins made decisions that benefited majority by ignoring the corrupt deals of the senior management for the sake of the employees and the investors in the organization. It is, however, imperative to understand that handling self-interests is too impractical, and people will tend to make decisions that that favor them disregarding the long-term consequences of their actions.

Immanuel Kant’s theory is another crucial theory in the prevention of another Enron case. Kant does not allow the minority to suffer for the benefit of the majority. Kant’s deontology argues that decision-making must be guided by the consequences. The freedom to act in a morally upright way is provided for in the Kant’s deontology. It is, however, prudent to note that this freedom was lacking in the Enron case. Business students must be taught to create a legal and ethical environment for an effective working condition. Ethical decision making should be trained in learning institutions if the urge to prevent an occurrence of similar cases is a matter of concern.

Conclusion

In conclusion, the Enron case is a good illustration of how one can easily turn a fortune into misfortune. Enron Company had been built to a world class company for 16 years. However, greed, deception, and unethical behaviors brought the company down in a flash. The bankruptcy situation was a disaster since the investors and employees of the company suffered huge losses. It is prudent to understand that the cause of this menace was the lack of idea on what business ethics entails.

It is imperative for commercial entities to strive and ensure that a repeat of Enron case is avoided at all cost.  This will only be achieved if corporate bodies cultivate a strong entrepreneurial culture that promotes business ethics. Organizations must also ensure that they a well-written code of ethics that is strictly followed by all the employees in the organization. On this note, the organization must also ensure that the employees are conversant with business ethics and repercussions of not following them to the letter. Federal states and other regulating bodies must also put in place measures and legislations that will promote values and non-fraudulent in a corporate world.  Lastly, learning institutions must also teach business ethics in the curriculum to enhance the topic knowledge.

Do you need an Original High Quality Academic Custom Essay?