The Ethical Issue About Employees Responsibilities - Essay Example

?Ethical issue: employee’s responsibilities (Enron) Thesis: Great financial losses, a destructive impact on shareholders and employees at Enron is the example of inability of company’s executives, external auditors, managers and bankers to cease their greed and a neglect attitude to their ethical professional responsibilities. As a result, Enron did not benefit from such kind of a corporate unethical behavior; its shareholders and employees suffered great financial losses, because they invested their pensions in Enron shares. Andersen accountants’ responsibilities Employees’ responsibilities are very important for any organization. Nevertheless, sometimes the most serious collapses of the companies are connected with working responsibilities neglect. A perfect example is the collapse of Enron. Two responsible managers who were accused by the court in shredding Enron audit documents were Nancy Temple (Andersen Legal Dept.) and David Duncan (Lead Partner for the Enron account) (Cunningham and Harris 2006, p. 28). The reputation of Andersen’s Legal Department was stained. Nevertheless, during process in the case Arthur Andersen LLP v. United States on May 31, 2005, it was underlined that Andersen was accused with no real proof. It was underlined also that Andersen was involuntarily involved into corrupt actions and he was also a kind of a victim in that case. Moreover, both Enron and Andersen “acted with an obvious disregard of any notion of ethical conduct. The breaches of ethics are so obvious they need not be presented in detail. Interesting issues about ethics of the legal, banking, and financial analysis professions are also apparent, but are beyond the scope of this case” (Cunningham and Harris 2006, p. 31). In other words, the accountants of the company starting from 1947 after death of Andersen were involved in malpractice and violated legal, ethical and social norms in order to gain money by fooling their clients and leading them to bankruptcy. Executives’ irresponsibility Another overlook of professional responsibility that is wide spread among executives, is their insider trading. A temptation to get involved into insider trading is great for executives. They know necessary information and want to gain profits in an easy manner. The executives of Enron sold the stock on its rise. That was a favorable situation when executives in Enron managed to sell the stocks on the rise. Misdeeds of executives led to a dreadful situation, when “those poor, helpless Enron employees whose retirements accounts vanished because they were too stupid to spread their retirement income over several investments)” (Cunningham and Harris 2006, p. 34). Employees lost their investments, executives earned big money. Thus, the crisis at Enron is beneficial for the former and disastrous for the letter. Nevertheless, the price for irresponsibility of executives was too high. Subprime mortgages at Enron Moreover, the deal with subprime mortgages and Enron still exists as a related phenomenon. It is also often supposed that “as with Enron, banks failed to disclose in their balance sheets the special purpose structures which held subprime debt” (Subprime Mortgage Crisis). Moreover, it has been documented that Enron’s special purpose entities were completely revealed in their balance sheets and also in 10K and 10Q forms (Subprime Mortgage Crisis). A lack of responsibilities of executives led to misvaluing of subprime mortgage crisis. It is beneficial for those who raised great profits, but it is destructive for those who suffered great losses. Andrew Fastow’s roles as CFO and SPE The role of CFO is usually determined in terms of financial discipline and propriety. A potential conflict of CFO role can be interpreted as a risky position: “the traditional role of policing the integrity and accuracy of the accounts and financial statements of a company, and the contemporary ‘role’ of making sure that the quarterly earnings of the company look the best that they can, even at times assisting this outcome by recourse to some ‘creative’ accounting” (Cunningham and Harris 2006, p. 42). Fastow’s role as Special Purpose Entities (SPEs) and CFO evoked a serious conflict of interests. Fastow has developed a chain of destructive strategies directed on off balance sheet partnership arrangements (SPEs). In the result debt could be hidden and inflating earnings were concealed as well. Therefore, Fastow was one of those who tried to hide the way things were going at Enron: “Fastow had the reputation of being a money wizard who constructed the complex financial vehicles that drove Enron’s growth” (Cunningham and Harris 2006, p. 42). He subjected interests of shareholders and employees to a great risk in the name of his own enrichment. As far as we can see, the way executives and managers in Enron behaved, has caused a negative impact on the reputation of the company, its employees and even those who were accused of the irresponsible behavior and neglect attitude to their professional spheres of activity in the name of the illicit gain. To prevent future Enron In order to prevent further attempts of executives and professionals who have access to the required information to gain profits in an illegal way, it is relevant to suggest some recommendations and behavioral strategies. There is no need in a massive intrusion of governmental institutions in the company’s affairs. Nevertheless, there is a necessity to make some changes and regulate the nature of accounting affairs in order to avoid other attempts to violate public’s trust. It is not the only case (Enron), when “aggressive accounting” occurred. The enterprises should be assured that they can trust heir interests to the accounting firms. Otherwise they would not have a chance to get a proper funding for further development. Moreover, Enron subjected its clients and shareholders to a great risk, because energy-trading deregulation was rather challenging for them. In order to protect public’s interest and preserve trust to the companies, it is necessary to rotate auditors and apply not for one accounting company, but to different ones. Another step is to appoint auditors with regards to shareholders (Cunningham and Harris 2006, p. 46). Lending practices in high-risk credit markets reform Moreover, it is relevant to reconsider regulations in lending practices in high-risk credit markets. Therefore, strict credit criteria should be introduced in order to deal with the problems in lending practices. Great financial losses, a negative impact on shareholders and employees at Enron is the example of inability of organization’s executives, external auditors, managers and bankers to cease their greed and a neglect attitude to their ethical professional responsibilities. It is possible to suggest the following measures that will facilitate risky lending in high risk credit markets. For example, it is possible to introduce “a simple, effective reform would involve restricting a loan’s amount to no more than a specified percentage of the underlying real estate’s appraised value” (Cunningham and Harris 2006, p. 48). Loan-to-value regulation would prevent against abundant borrowing that could lead to a huge credit increase. The main advantage of credit limitation is the potential equity of borrowers and prevention of potential risks and threats. Works cited 1. Cunningham, Gary M., Harris, J. Enron and Arthur Andersen: the Case of the Crooked E and the fallen A. Global Perspectives on Accounting Education 3 (2006), pp. 27-48. 2. The Subprime Mortgage Crisis Has Nothing In Common With Enron. Retrieved 05 June, 2011 from: Read More