Summarize in one page or less how you explain Enron’s ethical meltdown
Ethics attempts to establish the nature of morality and to define and distinguish what is right from what is wrong. Drawing from a study by Means (52), ethics refers to principles of right and wrong. In general, every single individual has his or her set of personal ethics. To a large degree, personal ethics are determined by the experiences one goes through in life. They are also influenced by the culture and society he or she grows and learns. On the other hand, morality involves acting correctly when confronted with different situations. A person with good morals can distinguish right from wrong. He or she is thus able to do what is appropriate in any given situation.
Based on the documentary by Altyazılı (1), Enron’s Chief Executive Officer was regarded by many to be ethical and of high moral standing. Sadly, he was unsuccessful in reinforcing important principles that could keep Enron on the right track. Failure to insist on accounting transparency, for example, created room for managers to falsify financial statements to make the company look good before the public.
This raised suspicion and experts outside the organization started questioning the credibility of the company’s financial statements. Unethical culture further caused the company to lose billions of dollars to corrupt employees. In the end, money was lost and people lost jobs. Undoubtedly, the unethical and irresponsible culture at Enron especially in financial statements put the company in a very big mess.
According to Forster (538), every company must understand the negative consequences of unethical behavior. It is quite obvious that the unethical culture at Enron denied the company numerous opportunities to remain at the top. Although Enron’s CEO had a strong conviction about establishing a healthy environment for individuals to reach their full potential, he did not succeed. His original idea was to build a highly moral and ethical culture that would compel people to honor the values of respect, integrity, communication, and excellence. Regrettably, ethical behavior was never put to practice at Enron as intended.
How would you characterize Enron’s culture and what role, and in what way, do you think culture played in the ethical issues at Enron?
Many people described Enron as a company with a culture of arrogance. Ostensibly, this description has been blamed for making people believe that Enron could handle any kind of risk or pressure without fear of loss. According to Ferrell, Fraedrich, and Ferrell (497), the executive team at Enron believed that no single competitor had a chance against it. In addition, the poor corporate culture at Enron did very little to promote integrity and respect.
Anything, good or bad, could be done as long as it brought profit to the company. Throughout the company’s operations, important values such as respect and integrity were greatly undermined. The corporate culture at Enron allegedly encouraged flouting rules in pursuit of profit. Rather than working towards building a committed, reliable, and accountable team, there was a greater focus on making more money for the company’s top executives. The prevailing culture permitted employees to continue cheating and stealing as long as they were not caught.
Another source of the downfall was the company’s executive compensation plan. Instead of increasing shareholders’ profit, the compensation strategy was designed to guarantee maximum benefits for the company’s top executives. Among other wrongs, the compensation plan opened avenues for employees to blow up the value of contracts and make money for themselves through illegal means. To make matters worse, the company also promoted the use of non-standard accounting practices. As pointed out by Niskanen (259), the executive compensation plan at Enron created many problems with negative repercussions.
There were unique peculiarities about Enron’s compensation plan that motivated top executives to manage earnings in deceitful ways. As noted by Ferrell, Fraedrich, and Ferrell (497), Enron’s executive compensation plan was designed to make executives wealthy rather than generating profits for shareholders. Consequently, the company’s shareholders suffered while top executives continued to enjoy undeserved benefits.
Please give three to five specific things that Enron’s CEO could have done to create a healthy and ethical culture
Unquestionably, Enron’s unethical culture led to unethical behavior. At Enron, unethical actions by employees were a result of the company’s unethical culture. It is thus obvious that the company’s culture needed to be changed to positively influence the behavior of employees. Various actions could have been taken by Enron’s CEO to create a healthy culture and make sure the company carried out its operations honestly. As noted by Hill, Schilling, and Jones (374), it is the responsibility of leaders in any company to see to it that a healthy operating atmosphere exists. Several unethical things were done by the CEO and his team that could have led to problems. Five of these are discussed in the following paragraphs.
First, the CEO needed to ensure that the accounting process was completely transparent. Even though the company was not doing well, accounting books were manipulated to make people believe that all was well. Secretly, the company continued to lose while executives continued to draw huge benefits through a fraudulent compensation plan. On several occasions, the company was accused of bribing analysts to give false reports about its operations.
Secondly, the CEO could have endeavored to create a healthy and ethical culture by preaching and practicing truthfulness at all times. Although he did his best to put in place a clear procedure to report unethical behavior and to support ethical training for employees, very little was done to encourage employees to be supportive and condemn any form of unethical behavior. Certainly, doing so would have played a vital role in improving Enron’s culture.
Thirdly, the CEO should have put in place a strict system for ensuring that everyone in the organization was accountable for his or her actions. According to Hill, Schilling, and Jones (374), the CEO failed to discipline subordinates who were guilty of inflating earnings by engaging in corrupt dealings. Condoning such behavior made Enron’s employees believe that unethical behavior would be tolerated as long as it could boost earnings.
Fourth, it was improper for the CEO to delegate important matters such as managing partnerships to his deputy. Although the delegation was intended to improve his efficiency, this was never realized. The company’s unethical culture produced an environment where delegation could not be used effectively. The morality of several employees including the CEO’s deputy had greatly been affected by the company’s unethical culture.
Fifth, it was wrong for the company’s executives to urge employees to invest in Enron’s stock while being fully aware that the company’s stock was slowly losing value. Although it is natural for employees to rely on decisions and choices made by their leaders, they were seriously let down by the leadership at Enron.
Altyazılı, Türkçe. “Enron – The Smartest Guys in the Room.” Online Video Clip. YouTube. 2012. Web.
Ferrell, O. C., John Fraedrich, and Linda Ferrell. Business Ethics: Ethical Decision Making & Cases, Boston, MA: Cengage Learning, 2016. Print.
Forster, Nick. Maximum Performance: A Practical Guide to Leading and Managing People at Work, Northampton, MA: Edward Elgar Publishing, 2005. Print.
Hill, Charles, Melissa Schilling and Gareth Jones. Strategic Management: Theory: An Integrated Approach, Boston, MA: Cengage Learning, 2016. Print.
Means, Thomas. Business Communication, Mason, OH: Cengage Learning, 2009. Print.
Niskanen, William. After Enron: Lessons for Public Policy, New York: Rowman & Littlefield, 2007. Print.