M7A1 Case Analysis: Enron’s Ethics Policies
The object of this case analysis examined the ethics program of the Eron Corporation. The case analysis examines the Enron’s organizational culture that led to multiple counts of security fraud and its bankruptcy, in December 2011. Although, there are many contributing factors to the demise of the gas company, the major factor was its unethical practices and its financial scandal to its shareholders.
This analysis will address the cultural elements within Enron organization that supported and did nothing to stop unethical behavior. Additionally, this analysis examines changes in …show more content…
To sustain their rapid growth, Enron began exploiting revenue recognition accounting rules in which; they treated energy contracts as financial contracts, allowing Enron to report expected benefits from future transactions as current income; and adapted an aggressive accounting interpretation of what constitutes revenue (Dharan & Bufkins, n.d., p. 101). These unethical practices can be attributed to Enron’s CEO, Jeffry Skilling, actively cultivating an organizational climate that considered “pushing the limits” as a survival skill. (Sims & Brinkman, 2003, p. 244) These practices masked company shortfalls, but in 2001 cracks in its financial reports became transparent. In August of that year, Jeffrey Skilling, the CEO departed after only 6 months. In October 2001, Enron reported its first quarterly loss, of $618 million, in four years (CBC News, 2006).
Enron’s stock price fell to less than $1 and shareholders lost billions of assets and retirement funds. On Dec. 2, 2001, with Enron filing for bankruptcy protection. Afterwards, top Enron executives were charged with numerous counts of fraud. Skilling would be sentenced to 24 years in prison. Lay, on the other hand, having been convicted of six counts of securities and wire fraud, faced a maximum total sentence of 45 years in prison, died prior to …show more content…
Anytime a company values profit more than corporate responsibility to direct and indirect stakeholders, they advocate an environment that thrives on unethical behavior. In this case, I do not believe there a way for Enron to survive this scandal. However, if they were able to survive, the culture would have to have been gutted out and changed quickly to support an ethical climate with leadership committed to this change.
CBC News (2006, May 25). The rise and fall of Enron: a brief history. Retrieved from http://www.cbc.ca/news/business/the-rise-and-fall-of-enron-a-brief-history-1.591559
Dharan, B. G., & Bufkins, W. R. (n.d.). Red Flags in Enron 's Reporting of Revenues and Key Financial Measures. Enron: Corporate Fiascos and Their Implications, 97 - 112. Retrieved from http://www.ruf.rice.edu/~bala/files/dharan-bufkins_enron_red_flags.pdf
Frontain, M. (2010, June 12). ENRON CORPORATION | The Handbook of Texas Online| Texas State Historical Association (TSHA). Retrieved from https://www.tshaonline.org/handbook/online/articles/doe08
Schein, E.: 1985, Organizational Culture and Leadership
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Sims, R. R., & Brinkman, J. (2003). Enron Ethics (Or: Culture Matters More than Codes). Journal of Business Ethics, 45, 243 -
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Take Enron for example, in the later 1990s its stated worth was estimated to been around $70 billion dollars, but after internal review it was found that much of its debt was allocated to falsely created businesses leaving its stated assets to be significantly lower than its actual debt. The scandal was such an issue for all its investors and the government predominantly because its net value decreased radically and by December 2, 2001 the company declared bankruptcy. One of the main issues of this scandal that investigators found was that the company hired auditor, Arthur Andersen, was conspiring with the CEO and CFO to falsify the financial documentation. Had the SOX Act been implemented prior, these falsifications would have been addressed long before the company declared bankruptcy. Of the eleven sections in the SOX Act, Title III Section 802, address what constitutes as fraud and would have held the Enron and Arthur Anderson accountable for submitting proper documents.
another ethics issue involving McCallister and Frank Bascombe was when they had Dick promoted and then have him take the fall for them on national television this was unethical because it made an employee who was otherwise a very competent man turn into a scapegoat for the misdeeds of the executive officers and tarnished his reputation within the job market. The next ethics issue involving McCallister and Frank Bascombe was the bribery of Frank by Jack to keep quiet about the falsification or the balance sheets in exchange for 10million dollars. There are two sides to this unethical issue the first being that fact that Jack is doing everything to cover all the possibilities of being caught. Then next part of was that fact that Frank took the bribe knowing that he was hurting all of those people and doing it for his own personal
The financial scandals in early 2000s caused the Sarbanes-Oxley Act of 2002 to be created. Enron, WorldCom and the accounting firm, Arthur Andersen, to intentionally mislead their shareholders by exaggerating their profits and understating their expenses. The scandals had raised the importance of internal control for enhancing corporate governance. Therefore, the government established the SOX to protect the interest of the investors and employees and to monitor the companies and auditors.
In this case, Lay as chairman of Enron makes fraud and then tried to defraud this agreement and transaction through selling company shares in a larger amount than expected amount. So, in this case, Lay must pay entire loan amounts to creditors and debt amounts recollection both as a company official receiver and internal liquidator. He tries to resolve and run the Enron with beneficial terms but not get success on this because of excess fraudulent activities and external winding-up court
By the time the company declared bankruptcy, it had owed a whopping $22.1 billion to banks and its other investors. The company was tainted with corruption and deceit. Enron also had an external partner to carry out its unlawful actions. Arthur Anderson LLP, one of the most efficacious auditing companies in the US at the time , was under inspection for their involvement in the Enron Scandal. Before news of the bankruptcy had unraveled, the SEC (Security and Exchange Commissions) conducted a detailed investigation of the bank statement and financial of Enron.
It is the responsibility of leadership to decide what culture is ethically acceptable and what is not. Good culture is promoted by shared ethical values. Ethical leadership recognizes the behavior which is inconsistent with the desired organization cultural values. The management of ethical behavior in corporate culture is also a practice of ethical leadership. A company’s leadership is also involved training to handle the unethical dilemmas.
Review of Literature Unethical behavior can tarnish a company’s image and reputation. If a company is unethical, they may have to spend additional money to improve their public image, as well as gain back as many customers as possible. The reason I have chosen to use articles that are quite a few years old and that are not so recent is because I feel that they are very good examples of what I am trying to prove in the terms of ethical behaviour within companies and these specific articles relate well to my chosen topic.
Enron Analysis Enron is a great play which presents a dry story about business in a colorful and cartoonish way and impressed me with a variety of elements, including video, music, choreography, and dance. This is a play depicts the spectacular collapse of a Texan energy giant-Enron. As an audience, I witnessed how a business empire was built on shadows, accruing debts of 38 billion dollars and finally going bust in this two hours and thirty minutes play. In the following passage, I will describe, analyze, and interpret this play both about its script, including characters and plots, and its production, such as the videos, stage props and customs.
As a result, the corporate players, practitioners, and scholars in the ethical field have helped to shape, and communicate ethical behavior at the work place (Terris, 2005, p.48). Mechanisms such as punishment and reward systems have been historically used to inspire ethical behavior, and acceptable group behavior norms amongst employees at the work place (Mayer et al., 2012). In the event that unethical behaviors become part of an organization’s group norms, a successive sequence of ethical problems is likely to follow. This arises from the fact that employees in the organization will lack insightful directive from their leaders, and therefore pursue the unethical behavior without fear of reprimand. Importantly, the organization has to continually consider coming up with long-term ethical solutions to such oversights to keep employees from engaging in unethical
In this Enron Scandal ,several moral issues and values are being discussed .The moral issues is the misconduct of code of ethics by management level of a corporation , violation of code of professional ,ethical dilemma that faced by a management level when involved own interest . The first moral issues that discussed in Enron Scandal is misconduct code of ethics by management level of a corporation .In this case ,the mastermind of this scandal is the company CEO , Mr .
“Ethics”, in an organizational context, comprises a set of behavioral standards, expressed as norms, principles, procedural guides, or rules of behavior, defining what is appropriate (right) and inappropriate(wrong). Grounded in a system of values and moral principles, these behavioral
The false accounting records were unethical because it means management was enriching themselves. They were getting earnings based on the false availability of funds. They also did this to keep their jobs. When a company is not performing financially well the top positions are the ones usually at risk of being retrenched, as a result of implying the company was financially stable they were protecting their jobs. False accounting also results in duping investors that trust the financial records of the company.
(Bratton, 2002). The Enron scandal in 2001 that resulted in the collapse of its auditor, Arthur Andersen, had the public starting to question the ethics and integrity of the financial audit process, where before this scandal it was assumed that the ethical and legal liabilities or even the reputational concern would have prevented the auditors from colluding with their