Implication of Bad Managerial Ethics in Enron - Term Paper Example

? Implication of Bad Managerial Ethics in Enron Implication of Bad Managerial Ethics in Enron Ethics can be defined as morally accepted values that employees should uphold at the workplace. Ethics play a significant role in shaping the future outlook of any business venture. Therefore, success of any business venture relies largely on upholding of ethical habits that include integrity and transparency. On the other hand, the failure of a business venture can be attributed to upholding unethical values such as deception and complacency. Ethics can be understood well by paying special attention to the Enron scandal. This paper discusses the implications of unethical practice. It begins by bringing out the unethical practices that occurred at Enron and the implications. To begin with, the Enron scam, unearthed in 2001, eventually caused the collapse of Enron, an Energy Corporation based in the United States and the complete closure of an accounting and re-organization firm called Arthur Andersen. Apart from being the mega insolvency reorganization in the history of the United States during that time, Enron was also regarded as the huge audit failure. Enron problems owe their origin to Jeffrey Skilling, who created a group of executives that used accounting loopholes, specific purpose entities and negative financial reporting to hide huge amount of dollars in the form of debts that came from scrupulous deals as well as projects (Swartz & Sherron, 2004). Chief Financial Manager Andrew Fastow together with other managers not only confused Enron’s management board and accounts committee on highly vulnerable accounting practices, but also forced Andersen to overlook the issues (Collins, 2006). Shareholders lost eleven billion dollars (Schein, 2005), when the price of stocks at Enron that had gained a peak of ninety dollars per share as of mid 2000, dropped by less than one dollar by the close of 2001.The United States Securities and Commission of Exchange started an inquiry, and rival competitor from Houston, Dynergy wanted to buy the firm at a subsidized price. The deal collapsed, and in2001, Enron petitioned for insolvency under chapter eleven of the US Bankruptcy Law (Cruver, 2003). Furthermore, the implication was that many managers at Enron Corporation were arrested for a several charges and later put behind bars. The auditor at Enron, Arthur Andersen, was proven guilty by a District Court in the US. However, when the decision was rescinded by the United States Supreme Court, the firm had lost many customers. Workers and shareholders got limited returns from lawsuits, despite forfeiting billions in form of pensions as well as stock prices. As a result of the scam, new rules and laws were passed to increase the validity of financial communication for public firms. The unethical events that took place at Enron included embracing a culture which regarded innovation coupled with unlimited ambition to be vital factors that produced good returns within a short time. However, this theory focused on the short term aspect rather than long term whereby achieving maximum profits becomes cumbersome. This forces employees to bend the rules until the limitations of ethics are ignored in the quest for success (Toffler & Jennifer, 2004). It is worth noting that Enron enjoyed a lot of success initially by raking in a lot of earnings as well as cash flows. Therefore, in order to maintain this trend they resorted to join a faulty network of partnerships and also employed questionable auditing procedures. Enron managers thought that it was the best path for the organization. The crucial question that comes out of this initiative is whether it was ethical for the executives to pursue that course. In my view, it can be said that to some extent it was given the fact that the company realized a lot of earnings. However, to a large extent the behavior depicted by the executives of Enron constituted the highest violation of ethical values since it is responsible for the collapse of Enron. In addition, my concurrence is with Schein (2005), who suggests the existence of five basic mechanisms that managers can employ to influence the culture of an organization they include: attention, response to challenges, role-modeling, giving rewards and methodology for selection as well as dismissal. The managers at Enron should have applied the methods to support a norm that was flexible in terms of morality thus creating space for ethical degeneration, dishonesty, deceit and looting. The events that attract the manager’s attention (in relation to what is ridiculed, praised or inquired about) will also attract the attention in the whole organization. If the managers of the firm focus on underlying issues, employees feel that financial growth is the prominent value worth considering. In such a scenario, rules pertaining to morality become mere deterrent to financial success (Brown & Sender, 2002). Another leadership strategy suggested by Schein (2005) refers to the manager’s response to a problem. Crisis determines what the manager values and exposes these values. With each looming problem, managers responded by embracing a norm that valued profit maximization. The distorted balance sheet collaboration was tremendously dangerous. However, since normal development of the price of stocks would have slumped, the only option would be to attempt to meet unachievable goal profitability expectations. This situation portrayed an impending catastrophe (Schein, 2005). Other responses to the Enron crisis included resignation of managers, firing of workers and admitting presence of accounting irregularities (Brown & Sender, 2002). In conclusion, the ethical implications at Enron could not be dismissed. Enron company experienced unethical practices, including fraudulent dealings and audit conspiracy, which was a result of greed. Various consequences followed. The Enron scam, unearthed in 2001, eventually caused the collapse of Enron, an Energy Corporation based in the United States and the complete closure of an accounting and re-organization firm. Moreover, many managers at Enron Corporation were arrested for a several charges and later put behind bars. The auditor at Enron, Arthur Andersen, was proven guilty by a District Court in the US. However, when the decision was rescinded by the United States Supreme Court, the firm had lost many customers. In this regard it would be factual to say that upholding high moral values at the workplace is a key to the success. This means that ethics is very important to organization in enhancing organization culture. Any company that overlooks ethics risks collapsing (Hartog & Winstanley, 2001). In future, this fact will still be proved for companies that do not uphold ethics. In this regard, organizations are encouraged to make sure such establishments are in line with ethics. References Brown, K., & Sender, H. (2002). Implications of bad managerial ethics at enron. London, UK: Oxford University Press. Collins, D. (2006). Behaving Badly: Ethical Lessons from Enron. Dog Ear Publishing, LLC. Pp 45-46 ISBN 1-59858-160-0.  Cruver, B. (2003). Anatomy of Greed: Telling the Unshredded Truth from Inside Enron. Basic Books. Hartog, M & Winstanley, D. (2001). Ethics and Human Resource Management: Professional Development and Practice Business & Professional Ethics Journal 21(3): 1-3. DOI: 10.1080/09585199300000054 Schein, B. (2005). Enron’s Transformation: From Gas Pipeline to New Economy Powerhouse. The Enron Scandal and Ethical Implications, 2, 100-116. Swartz, M. &Sherron, W. (2004). Power Failure: The Inside Story of the Collapse of Enron. Toffler, B. & Jennifer, R. (2004). Final Accounting: Ambition, Greed and the Fall of Arthur Andersen. Broadway Business. Read More