Enron Incorporation’s Needs Assessment
Introduction
Enron Inc. was an American-based company specializing in energy and critical services, which went bankrupt following the unethical practices and financial impropriety adopted by its management. This paper seeks to examine the Enron’s decision-makers and assesses its leader’s values, followed by an analysis of the organization. Several recommendations on how to diminish ethical infringements follow, ending with a conclusion of the findings obtained.
Analysis Of The Company Decision-Makers
Any leader must know that they have the paramount responsibility for ensuring that the organization embraces an ethical culture when conducting the various organizational affairs. If a leader fails to act ethically, there is a high likelihood that the unethical approach to issues will also affect and infect the subordinates and thus pollute the entire organizational culture. Enron’s board Chairman and top founder, Kenneth Lay, the Chief Executive Officer (CEO), Skilling Jeffrey, and the Company’s Chief Financial Officer (CFO), Andrew Fastow, collaborated to defraud the Company financially (Marciano, 2013). They engaged in extensive fraud, laundered money, and were involved in insider trading. Hence, the Company’s top leadership acted in contrast to the established ethical code of conduct that espoused excellence, integrity, open communication, value, and other pertinent virtues. The Company’s leader encouraged other top leaders to contravene the established ethical and moral code of conduct, the professional standards of accounting, and the United States’ business laws.
Applying the example of the utilitarianism ethical theory that dictates acting in everyone’s best interests as advanced by Wisler (2018), it is evident that the Company’s leaders acted greedily and for selfish intentions. They failed to divulge the Company’s actual financial status. Since the information was known only to them, they used it to manipulate the Company’s stock prices and engaged in insider trading to obtain maximum profits at the Company’s and employees’ expense. Moreover, the complicity between the Company’s top management and its auditors to defraud Enron was a contravention of moral ethics as dictated by the common moral theory. Furthermore, their decision to lie to the stakeholders about the Company’s finances as well as their use of the 401K plan to defraud the employees are a further contravention of their ethical obligation to the public, the United States’ law, and to the established sound business practices by the various business entities in the country. This is the process many unethical leaders follow, where they provide wrong information or fail to unveil vital information to defraud employees, stakeholders, and the public. They engage in malpractices such as firing well-performing employees randomly to conceal their acts and defraud stakeholders to keep investing. Ultimately, such a deceptive approach corrupts not only the leader’s but also the employees’ values.
Examination Of The Leader’s Values
Kenneth Lay contravened the values that make an ethical leader. In engaging with the other company leaders, Kenneth violated the personal, leadership, and business ethics. Kenneth ignored and broke the law by failing to audit the Company truthfully and concealing the firm’s financial information from the public. As a leader, he failed in the principal mandate of revealing the financial impropriety at the Company. His inaction breached the provisions of the Securities and Exchanges commission as contained in the Securities Act. Kenneth breached business ethical standards by allowing his consulting subordinate to audit the Company’s activities while acting as a financial consultant, which presented a conflict of interest. Kenneth further allowed his subordinates to audit the firm’s practices fraudulently without intervening or raising the alarm. He even collaborated with his juniors to defraud his firm, which shows the unethical leader he was. Moreover, his failure to reveal and report the inconsistencies in the Company’s financial reports breached the duty and trust responsibilities he owed to the board as a shareholder representative.
Additionally, Kenneth breached the law and the ethical standards espoused by Enron and the Securities Exchange Commission by misrepresenting the Company’s financial information and position to the public. Kenneth also breached the professional code of conduct articulated by accountants as established by the AICPA or the American Institute of Certified Public Accountants. He also violated the provisions of other recognized accounting entities, namely, the Statements on Auditing Standards as well as the Generally Accepted Accounting Principles. A leader who willingly defrauds the public and fails to safeguard public interests in their company by deceiving the public on the good performance of a nonetheless collapsing company violates the ethical values and responsibility required of a leader to the public. Hence, Kenneth’s engagement in deception, manipulated the Company’s financial records, aided and abetted the criminal undertakings that affected the Company’s operations and destroyed evidence when authorities began investigating the firm. The failure of an organization’s top leadership to embrace ethical values in their leadership practices thus defiles corporate culture and ultimately cripples all organizational operations.
Critique of the Organization
The inability of an institution’s top leaders to direct a company and highlight any critical issues in its operations guarantees the institution’s downfall. Although such a downfall may be delayed, the various organizational operations eventually fail to correspond and clash, usually too late to institute any meaningful remedial measures. In light of this, Enron Inc.’s downfall is a notorious and appalling incident in the financial world globally. Before its collapse in 2001, the Company was one of the most admired in the world, and its board was regarded among the country’s topmost performers. The Company had over 30,000 employees, and its operations touched about 20 countries internationally. However, it soon emerged that dubious accounting techniques and approaches provided the Company with the high profile it enjoyed.
The emergence of these malpractices led to the Company’s downfall and became a fitting illustration of well-designed and institutionalized fraud in the corporate world. While the Company was esteemed by external viewers, internally, it was rapidly crippling because of the highly decentralized approach used by the top leadership to make decisions and control its activities. The intentions and mindsets behind the various decisions and operations undertaken by top management resulted in the individual and collective greed that engendered extensive corporate arrogance. Skilling’s division replaced 15% of the Company staff, which resulted in a ferocious internal competition that emphasized short-term delivery than long-term growth potential. As a result, the mistrust within Enron increased, and numerous extremely restrictive privacy clauses characterized the resultant trade contracts. Hence, a high number of Enron’s trading contracts emphasized secrecy, and deals, especially in the Skilling’s department, were done quickly. No evaluations were done on these deals to ensure that they conformed to the strategic objectives and rules of risk management espoused by the Company. Consequently, it was almost impossible to obtain a comprehensible and coherent view of the Company’s operations and deals.
If a company’s top management fails to understand the intricacies of managerial performance, there is a high likelihood that all the activities of the departments of such a company would conflict with the pertinent corporate business principles and ethical values. Regardless of what employees in a corporate setting do, the responsibility for a company lacking an effective corporate culture falls on the senior leadership. For instance, if the senior executives at Enron worked with the needed discipline, they could have promoted a culture of transparency and answerability that would have avoided the eventual tragedy that occurred. The senior organizational leaders must be sufficiently empowered to make, shape, and effect the necessary strategic decisions. It is the senior leaders’ onus to translate the strategic targets and objectives into clear, actionable operational objectives and delivery processes. They must understand how to incorporate changes and know how the relevant external and internal factors affect a company’s operations and other parts of the corporate system. Such understanding is the only way for leadership to promote an effective corporate culture that ultimately reduces and even averts ethical violations.
Recommendations On How To Reduce Ethical Violations
As advanced by McManus (2018), an ethical decision is considered morally and legally acceptable to the wider community. Thus, the findings obtained on studying Enron’s case, show that the Company collapsed because of a host of interrelated causes, many of which emanated from ignoring the Company’s ethical and moral code by the senior leadership. The executives failed to create and promote a transparent control environment. They also failed at shaping and enforcing Enron’s ethical values, management philosophy, and organizational accountability. Hence, to reduce ethical violations, it is first imperative to develop and implement ethical standards that formalize the Company’s expectations and articulate the acceptable behaviors. Secondly, an organizational leader must understand how to show proper behavior by acting virtuously and understanding that they are the mirrors that the employees use to act ethically. The third important aspect is for top leadership to exercise diligence in enforcing the relevant company policies. Such policies promote the accountability required to guide behavior and avert unethical practices, all of which are important in the contemporary business world, as implied by Blewitt (2018).
Conclusion
Adhering to ethical practices is a vital aspect in every organization and is a prominent selling point to many of the contemporary consumers. A company that takes measures to create, advance, and uphold workplace ethics engenders a positive culture that increases a company’s recognition in public. Enron’s top leadership used erroneous formulation and communication company policies that did not comply with the Company’s initial values of ethics. The austere and callous chain of command and system of evaluating performance used by Skilling corrupted the initial ethical values adopted by the Company and encouraged the culture of greedily acquiring profits. Ultimately, this culture also corrupted the Company’s employees because they resorted to seeking underhanded ways to bring in profits to obtain rewards. Ultimately, Enron’s whole operational culture became corrupted, implying that if top leadership at any company fails, the adverse outcomes affect all aspects of an organization.
References
Blewitt, J. (2018). Business Forums Pave the Way to Ethical Decision Making: The Mediating Role of Self-Efficacy and Awareness of a Value-Based Educational Institution. Journal of Business Ethics, 149(1), 235- 244.
Marciano, A. (2013). The bright side of scandals : [an introduction. München: Accedo Verl.-Ges.
McManus, J. (2018). Hubris and unethical decision making: The tragedy of the uncommon. J Bus Ethics, 149:169–185.
Wisler, J. (2018). U.S. CEOs of SBUs in Luxury Goods Organizations: A Mixed Methods Comparison of Ethical Decision-Making Profiles. Journal of Business Ethics, 149(2), 443-518.