The Role Of Business Ethics In The Collapse Of Enron

Introduction

Business Ethics

Business ethics are the moral principles that guide individuals and organizations to make decisions based on organization beliefs and values for business practices in its industry. It guides the way a business behaves. Individual or the organization who is acting in the ethical way should be able to distinguish between right and wrong and then make the right decisions. The companies also should fulfill the corporate social responsibilities in which they should minimize harmful effects to the environment and communities. Also companies should treat their employees fairly and respect their values. The common examples of unethical business practices involve using child labor, greed and fraud in business.

Relations with the company’s suppliers, governments

Collapse of Enron

The collapse of Enron was due to the unethical moral principles by Enron Executives and the misleading of financial accounts. Most of the reasons for collapse are described below.

Misleading of Accounting Entries

The one of the major part in company collapsed was the failed investments in other businesses apart from their main business like investments in Internet and Communication business and the use of Special Purpose Entities(SPE) which were backed by Enron stock, were created to keep the debt off from the company’s balance sheets and it also helps to prevent significant losses to appear on financial statements and it helps in support the share price to increase also. But when the stock prices start to decrease; Enron was not successful to back its guarantees and when these doubting accounting practices appear, all the profits which was reported was disappeared and Enron collapsed. Enron adopted the new form of accounting called “mark to market” created in 1980s, this accounting form, allows to calculate the fair value of an assets and liabilities on the base of