Enron Company’s Business Ethics

Introduction

White collar crime refers to the peaceful offense committed with the intention of gaining unlawful monetary benefits. There are several white collar crimes that can be committed. They include extortion, insider trading, money laundering, racketeering, securities fraud, and tax evasion. Enron Company was an American based energy company. It was the largest supplier of natural gas in America in the early 1990s. The company had a stunning performance in the 1990s.

Despite the excellent performance, stakeholders of the company were concerned about the complexity of the financial statements. The management of the company used the complex nature of the financial statements and the weaknesses in the accounting standards to manipulate the financial records.

The white collar crime was characterized by inflating the asset values, overstating the reported cash flow, and failure to disclose the liabilities in the financial records. This paper carries out an analysis of the Enron scandal as an example of white-collar crime as discussed in the video, The Smartest Guys in the Room.

Discussion

People responsible for the scandal

Members of top management of the company were closely involved in the crime. The first person was Kenneth Lay. He was the chairman of the company during that period. He permitted actions of the other management without getting to know the nature of the transactions. The second person was the Chief Operating Officer, Jeffrey Skilling. He was involved in negotiating dubious investment deals for the company (Enron, 2005).

The third person was the Chief Financial officer, Andrew Fastow. He had the overall responsibility of ensuring that the books of accounts reflected the true and fair view of the company. In addition, he also created a special purpose company knows as Chewco Investment limited partnership (Enron, 2005).

The debt for the company was guaranteed by Enron. Besides, he did not disclose losses arising from the company in the financial statement of Enron. The managers did not exercise professional due care in handling the shareholder’s funds.

Type of the crime

The crimes committed by the top management were of different types. They can be categorized into four these are a conspiracy, securities fraud, false statement, insider trading, and fraud. The managers involved in the scandal were competent but they did not exercise professional due care and apt professional behavior. Also, the three managers did not exercise integrity when preparing financial statements. They also lacked integrity in running the organization.

Further, the three managers lacked objectivity. They deviated from the main goal of the business and failed to take into consideration the shareholders’ interests. Profit without honor was evident in the actions of the managers who were involved in the crime (Enron, 2005). The managers made gains without taking into account the underlying professional code of conduct and ethics.

Theories of white-collar crime

It is explained in the documentary that the white-collar crime is different from blue-collar crimes such as arson, rape, vandalism among others. The white collar crimes are committed by people in the upper class who are opportunistic and would like to take advantage of situations to make monetary gain. In the Enron scandal, it is evident that the crime was committed by wealthy, smart and high profile individuals trusted with the responsibility of running the organization as top managers.

In addition, their jobs lacked close supervision since those involved in the scandal were the overall bosses in the company (Enron, 2005). In addition, it is evident that their sole intention was to enrich themselves without taking into account the integrity of their actions.

Enron scandal resulted in a massive loss that had never been experienced in the history of the United States of America at that time. First, shareholders of the company lost about $74billion as a result of the falling share prices in four years. Secondly, Enron’s creditors and energy entities incurred hefty losses. Finally, over 20,000 jobs were lost.

The employees also suffered losses resulting from the loss in value of the shares because over 50% of the amounts in the savings plans were used to purchase the company’s shares. The total market failure that resulted from the Enron scandal amounted to over $100billion (Enron, 2005).

Recommendations

In the case of Enron Company, a number of recommendations can be made to mitigate the possible recurrence of the crime. First, the composition of directors of a company should include independent directors as the majority. Such directors are necessary for their decisions will be in the best interest of the company and not for individual gains.

Secondly, all important committees such as audit committees, human resource committee should have independent directors. Finally, committees dealing with financial issues such as audit committees should comprise of competent and experienced personnel (Enron, 2005).

Conclusion

From the documentary, it is unfortunate that the top management of the Enron Company conspired to commit fraud. The fraud caused a serious ethical dilemma at the company and eventually led to its closure. The ethical dilemmas included conspiracy, securities fraud, false statement, insider trading, and fraud.

Reference

Enron. (2005). The smartest guys in the room. Web.