Enron Fraud Scandal - Essay Example

Moral Dilemma of Enron One of the biggest frauds that has ever taken place in the modern 21st century commerce was the case with Enron. Enron’s scandal without a doubt has been the focal point for one of the biggest busts in the history of American entity. The Enron Scandal and the Neglect of Management Integrity Capacity Enron was a very prosperous and prominent firm that was an American energy company established in Houston, Texas. Enron was formed in 1985 by Kenneth Lay after he had acquired two other gas companies in his quest to become a conglomerate in the American history. Nonetheless, after Enron’s biggest scandal, shareholders lost around $11 billion as the company continued on the downward spiral. Enron finally filed for bankruptcy at its $63.4 billion in assets were completely diluted. Many of the stockholders got measly pennies back for the huge investments they had in the company. This article depicts the aftermath of Enron and the moral dilemmas that the company violated. Enron was charged with “cooking the books” along with their associates Arthur-Anderson can be viewed as a dilemma of deontological ethics. Deontological ethics is defined as the normative ethical position that judges the morality of an action. In essence, the company was running a Ponzi scheme. A Ponzi scheme is a strategy used by creditors to attract new investors in the company and utilize their funds to pay of old debts. Enron’s financial statements did not comply with the operations and finances with the shareholders and analysts. As a deontologist, this was a detrimental move because the Enron management was lying to investors taking the investments of new money. Moreover, the Enron management continued to implement unethical practices as they would modify the balance sheet in order to favor the revenue goals that the corporate wanted to achieve. The continuous spiral of modifying the financial statements became a continuous habit and the lead cause of the downfall for the company. This was ethnical because it had a trickling effects on individuals. The new investors were lied to on a felony basis, and lost millions of dollars. It is an obligation of an individual myself to understand and point out the moral flaws of Enron. Undoubtedly, managers in corporate America have to protect the interests of the corporate executives along with the goals of the stakeholders. The management clearly neglected responsibility of overseeing the unethical practices that were plaguing the corporation. These morals plagued individuals and had detrimental effect on society as whole. The Enron scandal continued to grow worse every year as it became a problem that was out of control. The primary motivation for Enron was to keep their gross income high along with cash flow while diminishing their liabilities and long-term debts. The author of the article even As mentioned before, Enron ran a Ponzi scheme that continued to over-inflate the revenues that they were actually earning. Enron and other energy suppliers earned sales by providing services such as electricity, natural gas and providing other risk management products. Traditionally, companies similar to Enron such as Goldman Sachs and Merrill Lynch used simple pure “brick and mortar” model for reporting income. However, Enron took upon a new model known as “the merchant model.” This model was however not adapted by Enron as they utilized the merchant model, which was aggressive, risky and was based on a subjective representation of revenues that were estimated. Although the system did thrive as Enron continued to promise huge compensations for its executives, it also lead to the downfall for the company. For instance, the company’s revenue from 1996 to 2000, Enron’s revenues were grossly inflated to be increased by 700%. This extensive inflation was highly unjustified as the market for energy itself is only figured to be around 2%. Enron’s success in the market was the key cause of investors taking keen interest in allocating their funds. The scandal was discovered after the Ponzi scheme crippled to thrive under the current system. As investors began to lose confidence, it was evident that investors’ confidence had diminished. By the end of August 2001, the company was struggling to give adequate earnings per share. The President of Enron insists that investors just needed reassurance to invest even though the Ponzi scheme was not gaining any steam. When investors realized that the company’s performance has struggled to retain any ground in the market as cash flow continued to be in critical condition. After the 9/11 attacks, the media swayed its attention from the issue. However, on October 16, the news snowballed once again as Enron announced on October 16 that its financial statements contained many flaws and violated auditing rules. The company’s stock price plummeting and the board of directors befuddled about the changing the situation was the “icing on the cake” that made the scandal notorious worldwide. Due to Enron’s fraudulent activities, many controls have been accounted have been placed by the government to ensure that these type of fraudulent activities might not occur. First and foremost is the creation is the creation of the Sarbanes-Oxley Act .This essential piece of legislation was implemented to eliminate fraud by extending the consequences of destroying, fabricating, and modifying records in a case of a federal investigation. The second end product that resulted due to this scandal was the strict incorporation of internal auditing in every organization. The Enron scandal undoubtedly shed a lot of light in the role of the audit committees that were responsible for preventing frauds and abuses in financial disclosures. The internal audit committee in every organization now is strict with the financial protocols it receives from its executive board. Each auditor is held responsible for their work to ensure that the company continues to follow the necessary guidelines. In the financial industry, it is essential to define industry that regulate ethics. First and foremost, it is crucial to be accountable with investments. Often times, marketers have to be accountable for what they advertise to consumers. B Being accountable for investments is an honest principle that should be one of the guidelines of professional conduct because it allows the organization to build a solid trust between itself and its customers. Accountability is an element that is embedded in all best practices of the organizations and harnesses trust internally and externally. The second ethical principle that marketers should abide by is honesty. Good advertisers in essence should never lie about the functionality of the product especially when it can turn into a life and death situation. However, human research shows that humans are greedy and will do whatever to trick people into investing their money. However, this principle is necessary because it has to benefit per the good of society. It is clear marketers for good companies never lie because they have to not only follow statutory laws, but realize that it cripples their business for them to have a law suit. Telling the truth builds a relationship that can be harnessed for years. Although full disclosure is something that is encouraged, advertisers must keep their product in the best light. Another element that should be accounted for investments is obscenity and indecency. Good marketers are never manipulative about their products because they have the confidence to understand it will sell well in the market. This is a difficult element to capture because sex sells in society. Obscenity and indecency appeal to human nature, which makes advertisements inciting for consumers. The key thing is to understand that consumers are very cognitive and psychological. Humans are creatures of emotion and habits. As an investor, it is crucial to understand to stay away from a taboo that attracts individuals, that are susceptible to an element of incite and allure. In essence, advertisers should conduct marketing based on social norms and should stay away to allure the emotional appeal of desperation for consumers. Works Cited http://scholars.law.unlv.edu/cgi/viewcontent.cgi?article=1147&context=facpub "5 social n ethical issues." 5 social n ethical issues. N.p., n.d. 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