Is it right for entrepreneurs to take advantage of their clients, or on what basis should business people decide to hike their prices? These forms of daily musings constitute moral and ethical aspects. Ethics is an integral component of everyday life (Dirks & Ferrin, 2002). The same case is leadership and company ethics. Ethical leadership entails encouraging one’s subjects to do what is right. In the past, people attributed moral leadership to organizational profit. However, people have come to learn that some leaders may work towards improving organizational performance without considering the wellbeing of their employees and clients. Such an effort does not constitute moral and ethical leadership. An ethical leader needs to work toward transforming his or her employees’ life. Dirks and Ferrin claim, “Ethical leaders distinguish themselves by doing that which is inconvenient, unpopular, and even temporarily unprofitable in the service of long-term health and value” (2002, p. 614). The leaders see the globe as unified and come up with multidisciplinary solutions to deal with challenges facing their organizations. Besides, they put the plight of all organizational stakeholders, including the suppliers, into consideration. This paper will focus on moral and ethical issues that led to the collapse of the Enron Company.
Enron was an organization that specialized in selling energy products. The company sold natural gas and electricity. It also offered services like risk control and network bandwidth. Enron enjoyed an outstanding development in the 1990s and recruited the best employees (Papa, Daniels, & Spiker, 2008). It embraced a growth-oriented culture where employees were rewarded based on their contribution to its success. Those found unproductive were replaced with others. Enron concentrated on immediate monetary objectives and not lasting worth. The growth-oriented culture helped the company to increase its profit margin.
Nevertheless, the culture led to intensified competition among the employees. Rather than working together to achieve organizational goals, voracity became a core component of the organization as every employee tried gaining recognition (Papa, Daniels, & Spiker, 2008). Each employee had the desire to earn more. Hence, some started to organize clandestine business deals with suppliers and clients to increase their production.
Distrust between the staff intensified, making it hard for them to work together towards common business goals. Eventually, managers started to publish overstated figures of the company’s revenue and to hide losses (Papa, Daniels, & Spiker, 2008). The executives came up with fabricated foreign investments as a measure to cover up losses. The move made the company appear to be faring well while, in the actual sense, it was making significant losses. When the management realized that the company was bound to collapse, they took advantage of its “excellent performance” to sell their shares, deceiving the shareholders that all was well. Kenneth Lay, Enron’s chief executive officer, traded millions of his shares with unknowing investors. The company’s management team went to the extent of attacking a Wall Street market analyst for alleging that Enron’s financial reports did not tally with its performance. The company’s shares recorded the highest value in august 2001, and the executive team promised that the value would still go up. The unexpected happened during this time. Sherron Watkins, one of the executive members, informed Kenneth that whatever they were doing was unethical (Papa, Daniels, & Spiker, 2008). However, Kenneth did not consider his concerns. His attitude prompted Watkins to go public on the financial mismanagement and scams in Enron. The company’s shares lost value tremendously, and later Enron was declared bankrupt.
One of the ethical problems that led to Enron collapsing was greed. The success of any organization depends on teamwork and honesty among the employees. Stansbury (2009) argues that the partnership not only promotes organizational efficiency, but it also enhances employee growth and development. It is not bad for an organization to embrace a success-oriented strategy. However, when organization leaders apply a “win by all means” technique in their daily operations, the company loses track of its goals. This was the case with Enron. Rewarding employees based on their performance led to them focusing on accumulating money at the expense of the shareholders. Leaders were no longer concerned about the future of the company and were out to enrich themselves. Stansbury posits, “business leaders must make decisions that will not only benefit them but also they must think about how the other people will be affected” (2009, p. 52). He argues that ethical leaders evaluate their principles and ideals and share them with employees for the benefit of the company. Kenneth and others were blinded by their desire to make money. They opted to make judgments that favored them without caring whether their actions serve the shareholders.
Potential investors use the organization’s financial report to decide on whether to invest in the organization. Hence, corporate financial reports ought to reflect the correct position of the respective business in the industry (McQueeny, 2006). It is unethical for accountants to collude with the management team and publish wrong financial reports. Such an act is a fraud and gross misconduct aimed at luring potential investors or raising the businesses’ share value. What many people do not understand is that such actions help an organization to achieve short-term goals, and their long-term effects are devastating (McQueeny, 2006). The act of hiding Enron’s financial performance by publishing wrong figures amounted to deception, which is a violation of accounting ethics. When Enron’s management team resulted in fraud and deception, it never considered the long-term effects of its deeds. Shareholders were bound to discover its theft since business continued to run out of financial resources. Chances of Enron surviving were minimal as executives had drained it financially.
Accountability is critical to organizational growth. Ethical leaders portray a degree of responsibility, which is essential to arouse a sense of leader dependability. Ethical leaders take full responsibility for their actions, thus encouraging employees to support their visions (Reilly, 2006). Enron collapsed due to a lack of accountability among the employees as well as conflict of interest. As each executive member sought recognition, there was no internal accountability among the different institutions. It allowed some members to engage in other business activities that put Enron in jeopardy. There needs to be internal accountability for the sake of the smooth running of the enterprise. Moreover, there needs to be a single book that shows the financial performance of the different institutions within an organization. Maintaining different books of account makes it hard to tell which systems are unproductive, and it opens room for fraud.
Lack of accountability in Enron paved the way for the executive members to engage in other businesses that threatened its survival. In some instances, the executive members lowered the prices of their products and services so that their departments appear to perform by attracting more customers. The members gained recognition while the company’s profit decreased. Enron’s culture of making money, by all means, was encouraged across the different departments. Hence, it was hard for the executive members to hold their junior managers accountable for their actions. Everyone, from the executives to the junior managers, was involved in frauds. Therefore, they all worked together to cover up for their dishonesty.
Lack of ethical courage and smugness are some of the factors that inhibit organizational growth (Reilly, 2006). At times, some organization members may know that their leaders are engaging in fraudulent deals but fail to confront them for fear of intimidation. Additionally, some may be aware that there are problems within the business, but fail to address them because they feel that the problems do not affect them directly. Reilly (2006) alleges that employees always need to ensure that their leaders carry themselves with a high level of integrity. Failure to do this not only affects the organization, but it also affects the employees since they are part of the enterprise. The board of directors and shareholders are supposed to monitor organizational performance regularly and question where they find not to go well. In many cases, shareholders question the organizational performance only when their dividends go down (McQueeny, 2006). Hence, they never know when employees enrich themselves at the expense of the organization.
There was a lack of ethical courage and smugness among the directors of Enron. The company was performing well, as reflected by the value of its shares. All that the directors and shareholders wanted was to make money, and the executives met this objective. They allowed the managers to reap without caring about the future of the company. The board of directors had no reason to question the officials. After all, the business was doing well, and they could receive their monthly pay without failure or delay. Some managers were aware of the unethical practices that went on in the company. However, they lacked the moral courage to confront the perpetrators, despite not being part of the scam. Only Watkins dared to confront the chief executive officer. However, his move came late when the company had already lost a lot of money. Responding to unethical leadership behaviors on time would save the organization from collapsing. Watkins could have saved Enron had he confronted the scam in time.
From the case of Enron, it is clear that fidelity, transparency, and honesty are critical virtues for organizational success (McQueeny, 2006). They not only enhance organizational efficiency, but they promote employee motivation and protect shareholder value. Corporate leaders are obliged to uphold a high level of integrity when discharging their leadership duties. Despite the laws that govern ethical leadership, it is a matter of commonsense for leaders to know the cost of unethical leadership. Among the immoral traits that led to the collapse of Enron Company were greed, fraud, smugness, deception, and lack of accountability among the leaders. The company came up with a success-focused reward system, which elicited greed among the leaders. Everyone was out to make money at all costs. The executives went to the extent of concealing losses by publishing exaggerated figures of the company’s profit. Leaders were not accountable for their actions because there was no one to monitor their activities. Complacency among the shareholders and board of directors gave the executives ample time to pursue their heinous motives. Moreover, executive members that never participated in the corrupt deals lacked the moral courage to confront the evil ones or to report them to the board of directors.
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McQueeny, E. (2006). Making Ethics Come Alive. Business Communication Quarterly, 69(2), 158-170.
Papa, M., Daniels, T., & Spiker, B. (2008). Organizational Communication: Perspectives and Trends. Los Angeles, CA: SAGE Publications.
Reilly, E. (2006). The future entering: Reflections on and challenges to ethical leadership. Educational Leadership and Administration, 18(1), 163-173.
Stansbury, J. (2009). Reasoned Moral Agreement: Applying discourse ethics within organizations. Business Ethics Quarterly. 19(1), 33-56.