Business Case Analysis: Enron's Ethics Policies
M7A1 Case Analysis: Enron’s Ethics Policies
Gary Pace
Excelsior College
Business Ethics
BUS323
Professor Pao
INTRODUCTION/SITUATIONAL ANALYSIS
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
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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
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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.
References
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
(Jossey-Bass, San Francisco, CA).
Sims, R. R., & Brinkman, J. (2003). Enron Ethics (Or: Culture Matters More than Codes). Journal of Business Ethics, 45, 243 -
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