The Ethical Issues and Argumentation Related to Enron Case

Introduction and Situational Analysis

The lessons from the collapse of Enron on ethical standards will never fade. In its prime, the company stock was selling at $90, and it had assets worth sixty-five billion, a growth that had taken almost sixteen years. However, in just three months all the gains were lost culminating in the biggest bankruptcy case of the time.

The Enron scandal was caused by a business culture that promoted unethical practices (Jennings, 1999). On top of that none of the responsible parties – i.e. management, SEC, accountants, employees raised any obligations to how business was being conducted. Taking into account that the company had the Enron code of ethics that clearly pointed out what was and was not ethical business practice. They all did not want to believe that Enron could be too good to be true and just went along (McLean & Elkind, 2003).

The atmosphere at Enron under the leadership of Jeff Skilling was extremely competitive. Skilling initiated the performance review committee that ranked employees on respect, integrity, communication, and excellence. However, it was extremely biased towards the amount of profits an employee could produce (McLean & Elkind, 2003). Employees with a good rating got closer to Skilling while those with a bad one were fired. It led to fierce internal competition that encouraged employees to break the rules so as while signing contracts.

Stakeholder Analysis

The executives at Enron, mainly Kenneth Lay, Jeff Skilling, and Andrew Fastow had the most to gain or lose from the rise or fall of Enron. They instituted many complicated schemes meant at hiding loses and giving the impression the company was doing well (Swartz & Watkins, 2003). The executives were led by greed and pride to committing their unethical acts. Andrew Fastow ran LJM2 Co-investment LP that saw him getting paid $30 million in management fees; the companies ethics code prevented employees from being associated with business outside Enron that had business with Enron.

The employees at Enron enjoyed many corporate perks and for the traders production was rewarded with bonuses that had no caps. On top of that, the employee pension scheme was heavily invested in Enron stock. All this factors created a situation where employees kept quiet on the illegal activities that took place in the company and also muffled any whistleblowers (Swartz & Watkins, 2003)..

Authur Anderson was the CPA firm that handled Enron’s external auditing. Authur Anderson also provided internal auditing and consulting services to Enron. This created a conflict of interest that saw them covering up the accounting malpractices for five years.

Ethical Theories

As long as there is money to be made, people will develop schemes that stretch the rules or even break them; this is a business culture that has always been there and still exists (Jennings, 1999). Enron was not an exception; however, they were a fast growing company and as revenue streams decreased so did the unethical behavior increase. The company had grown so large that the pride of the executive could not allow it to admit it was failing; it resulted in doctoring of financial statements (Swartz & Watkins, 2003). In the Utilitarian theory, a person should consider how their actions might affect all parties involved and choose a decision that maximizes benefits. In the case of Enron, all the parties concerned should have blown the whistle much earlier since the company could not maintain the same path forever. It would have been better for everyone if the truth had been discovered much earlier. The parties involved also had a moral obligation to report actions that they saw were not ethical.

Conclusion and Recommendations

The Enron Code of Ethics with its foundational values of integrity, respect, communication, and excellence obviously did little as a guide in creating an ethical environment at the company. The company allowed itself to concentrate on short-term goals with little regard for the long term (McLean & Elkind, 2003). Their culture, which put emphasis on profits, encouraged cronyism where the company paid little attention to realities beyond themselves. Hence, below I have recommendations for businesses in today’s world.

My first recommendation is that companies should choose their corporate culture carefully; the aspects they put emphasis on will have an enormous impact on the company’s future. My second recommendation is that companies should make a point of following its code of ethics. As seen with Enron, having the codes is not enough; they have to be followed to the letter. Thirdly, companies should devote resources in training employees on ethical theories; employees and management should know to put the interests of all parties before their own.