Enron Ethical Dilemma - Case Study Example

Enron Ethical Dilemma Enron Ethical Dilemma Enron was an organization which dealt with communication, electri and natural gas. The corporation used to take in millions of money. The company was situated in Houston, which was found in Texas. The company employed about twenty-two thousand people before claiming bankruptcy in the year 2001. It happened to be one of the world’s best companies in the electricity, natural gas, and communication production. Although stated $111 billion in 2000, it is currently declared as an organization which lacks ethics due to fraud in accounting. The company proclaimed making billions yet it was facing bankruptcy crisis because the finance department was giving incorrect financial statements. The ethical dilemma is that the directors and the management of the company violated ethics by giving false financial statements to avoid the awareness of stakeholders of the real status of the company (Ferrell, 2014). The management wanted the company shares in the stock market to look appealing and increasing. The method used by the directors to take care of the ethical issues led to bankruptcy hence the fall of the company. During this period, the company was supposed to disclose honestly and real financial reports to the stakeholders, this was the main ethical issue (Lin, 2013). However, they violated the ethical issue by changing the real accounts of the company and using fake accounts to raise the status of the company (Lin, 2013). The management and the company’s directors faced an ethical dilemma of rendering the real financial accounts of the company to the stakeholders or hide them and make fake financial accounts. The dilemma they faced was tricky, and they chose to hide the real financial accounts and to render the fake financial accounts to the stakeholders of the company (Ferrell, 2014). This led to fraud, and the company went bankrupt and was closed. The research looks at the ethical dilemma faced by the directors during this period as well as all issues involved and methods used to solve the problem and the effective methods that should have been used. The implications of Enron occurred due to the failure of the organization. Some effects were found before all the official, and formal investigations were finished in the management of the company and the reason for collapsing (Bratton, 2001). The issues raised by this scandal included regulation of energy in the future, the laws of security which forced compulsory disclosure of the statements in the organization. Others include rules of the professionalism in accounting and the governance system of the internal corporate. Before the end of the year 2001, the amount of security was reduced by the management of the company and the pension of the employees started reducing dramatically. Since then, the presentation of legislation has been done covering several areas. According to Bratton (2001), regulatory failure has been claimed to be more aggressive in politics since the Enron’s profile whereas deregulatory politics is centered on the business plan of the company. However, Enron had earned a good place in the markets and this political success impacted the company as innovation and entrepreneurship. Bratton (2001) also talked about the value of the shareholders. After Arthur Levitt was no longer the SEC chair. Consequently, the observations from the collapse of the company became different from the ones obtained during the times of Harvey Pitt. The management decided to use the policies of accounting and the review conducted by the auditor. The auditor gives a threatening opinion if the decisions and the methods used by the management are not in the range of professionalism. Professionalism in the accounting has changed and failed because of a different role and imposing friendship with the providers. The management bribes the providers and charges consultancy fee (Bratton, 2001). Some reviews were made during the scandal of Enron. In order to accurately bring out the main issues that led to the fall of Enron, this review contrasts and compares all the issues. The trend of the company is studied from the start, all through to bankruptcy up to the point of the fall of the company (Klimt and Yang, 2004). The review was done through the use of Enron’s dataset. The analysis shows that the arrangement of the emails is done through the use of folders. In addition to this, the number of folders used by a user is not dependent on the number of messages used since some users have many messages and small number of folders. Therefore, users with relatively more messages and less number of folders have more messages in every folder. Klimt and Yang (2004) also analyzed the behavior of email beam as well as their characteristics. A conversation is formed into a thread of messages where a sequence of messages is arranged in the conversation. This analysis found that emails in a thread of conversation were determined if the users used similar and repeated words as well as the communication or the messages, when discussing the same topic. In addition to this, if the messages were found to be coming from the same user addresses, then this was concluded to be a thread of messages or a conversation. Klimt and Yang found 30,091 threads out of 200,399 messages which amounted to about 61.63% of the total emails discovered. The average size of threads as calculated was obtained to be 4.10 messages, the median was found to be two hence there appeared to be too large threads (Klimt & Yang, 2004). The information derived from this analysis was that the mean number of folders containing threads of messages was 1.37. The information was used in the classification of the folders of emails since the messages in each thread were distributed among 1.37 folders. This information is also useful but could not be used with any other type of evidence since it might have been laid off. The large number of messages conversation with the corpus would play a vital role in email classification methods as well as the analysis methods involved in the information about the threads (Klimt and Yang, 2004). Since the research found that there are many users of messages and many folders and threads of conversations, then the overall results found from the analysis would be useful for the testing and evaluation of the emails. The decision on the Enron organization issues was conducted by the board of directors of the organization. The board was composed of one chair that led 13 prominent directors for decision-making regarding matters and issues of Enron Company (Mclean and Elkind, 2013). The board seemed composed and well-formed for the particular task. However, after the collapse of the organization, investigators found that the decisions made for the organization contributed to the downfall of the organization. Some individuals in the board had their special interest in benefitting from the market shares of the company. This selfishness and special interests contributed towards poor decision-making. Such bad decisions that the board made had their consequences (Mclean and Elkind, 2013). One of the decisions was the rendering of false financial documents hiding the real documents and reports from the shareholders. Mclean and Elkind (2013), tries to explain the reason behind the poor decision-making process of the board of directors. The researchers found several reasons that could have been related to this directors making poor decisions in the organization. They understood properly that making this decision was wrong ethically and could lead to unbearable consequences in the future of the company, yet they made the decision and went through with it. According to Mclean and Elkind (2013), the board of directors and the management of the organization made the decision to keep the company price of the market in a competitive form (Ferrell, 2014). This could be the reason the company management and the board of directors decided to hide the real financial accounts. The decision could also have been made so as the management and the board of directors could benefit before the company collapsed (Mclean & Elkind, 2013). It can be deduced that if the members of the board of directors knew that the company was about to collapse, they would look at ways to benefit from the remnants of the company before it collapsed. This is one of the effective ways to benefit in that they give false information and false accounts in order to benefits from the shareholders of the company (Mclean & Elkind, 2013.. The decision they made could have been followed by a numerous numbers of motives. Gillan and Martin, (2007) discussed the lifestyles of the members of the board of directors relating each of them to their behaviors and motives to make poor decisions. The board had 14 members of 2001, two executives Board Chairman Kenneth L Lay and Jeffrey K Skilling the CEO. Included was also 12 directors from outside, along with five CEOs. Others were Robert Jaedicke former accounting professors among others. The board was compensated for their extra services than other firms (Gillan and Martin, 2007). In relation to the state of Enron, the term white collar crime can be used to refer to the crime committed by a highly respected and qualified professions in the line of his profession. According to (Nelken, 1994), white collar crime applies even to the respected criminals. In relation to this research, the crime committed is the fraud of financial reports. This is a crime by law as well as a crime ethically (Nelken, 1994). The criminals in this situation are the most respected and the most educated employees in the firm. They include the CEOs, the managers and the entire management involved in the decision-making and the fraud of the financial reports. Nelken (1994) Investigated the trust lying between the finance and the investors. The financial crime committed against the investors. There are numerous forms of white collar crime as understood by different people. The first form is the economic crime. This type of crime involves profit making and takes place within commercial practices. Nelken, (1994) stated that a common piece of white collar crime normally is found in its indefinite status. The white collar crime is explored by Nelken (1994), through talking of the debates that bring about the feedbacks on white-collar crime, that has an impact on the knowledge of the crimes committed in business and other numerous types of white collar. The term white-collar crime in this research is important because it gives the categories of crimes in business and finance accounts. The white collar crime is caused by the several reasons that are normally behind the self-interest of the leaders in the finance department of the organization. These crimes occur to a ridiculous rate for most of the organizations of the global economy (Nelken, 1994). The study and the research of the white collar crimes can be related to the situation of finance fraud that took place in Enron in the year 2001 (Reeves, 2013). The investors who are the shareholders of the company Enron had a crime committed to them by the management and board of directors of the Enron Company. White collar crime committed by the board of directors in Enron organization led to the fall of the firm (Reeves, 2013). The financial reports and financial statements presented to them were violated and they were false. Therefore, the board of directors together with the entire management of the company would be said to have committed the crime (Reeves, 2013). This clearly shows that there was no trust in the investors who are the shareholders and the management of the company. There are other situations where ethical dilemmas may occur to the one discussed above. For instance, there are scenarios that took place in the past and appears to be ethical dilemmas. These examples include during the capture and execution of Osama Bin Laden, the soldiers were in a dilemma of either killing him or bringing him alive to justice. Ultimately they chose to kill him since he was responsible for the deaths of many people around the world (Schermerhorn, 1996). Could they have brought him to justice, his crimes were too many, and no punishment could have paid for his crimes? Another instance is a scenario of the health trust of the United Kingdom. The health trust has suggested to stopping performing operations to obese and smokers. According to Schermerhorn (1996) the plan is to stop patients who smoke and those with obese from operations. In solving ethical dilemmas, there are three steps followed that ensure effective decisions are made when in an ethical dilemma. The first step is to understand one’s values such as honesty. Knowing the values can help solve the ethical dilemmas successfully. The other step is to choose a model. Selecting a model gives the person ethical values like their strengths and weaknesses. The final step is to solve the situation using a problem solution plan. After knowing the values and selecting a model, the following are to solve the problem or the dilemma (Schermerhorn, 1996). In conclusion, the research had introduced the ethical dilemmas in life and has described the ethical dilemma that took place in Enron Company when it failed because of poor decision-making. Relevant information may be obtained from the research and can be applicable to current business situations. Also, the information may be used by future companies since the tips, and the reasons that led to the fall of Enron organization can be highlighted by the research and avoided in other business. For instance, making wise decision is important for any firm. Also, making trustworthy partners is vital for the purpose of the relationships in business. References Bratton, W. (2001). Enron and Dark side of the shareholder value. Tul. L. Rev., 76, 1275 closing the stable door? Journal of Corporate Finance, 13, 929–958. Ferrell, O. C., & Fraedrich, J. (2014). Business Ethics: Ethical decision-making & cases. Cengage learning. Forester-Miller, H., & Davis, T. E. (1995). A practitioners guide to ethical decision-making. American Counseling Association. Gillan, S. L., and Martin, J. D. (2007). The Corporate governance post-Enron: Effective reforms, or Klimt, B., & Yang, Y. (2004). Introducing the Enron Corpus. In CEAS. Lin, S. K. (2013). Resisting Corporate Corruption: The Cases in Practical Ethics From Enron Through The Financial Crisis, By Stephen V. Arbogast, Wiley-Scrivener, 2013; 552 Pages. Price US $75.00, ISBN 978-1-118-20855-7. Administrative Sciences, 3(2), 6-8. Mclean, B., & Elkind, P. (2013). The Smartest guys in the room: The amazing rise and Nelken, D. (1994). White-Collar crime. pp 335-392. Aldershot, England: Dartmouth. Reeves, C. (2013). The Sentencing Structure of White-Collar Crime. Scandalous fall of Enron. Penguin. Schermerhorn Jr, J. (1996). Management 10/e. Harvard Business Review, 74, pp.48-62. Read More