Management Practices at Enron with regard to Ethical Principles of Global Business Standards Codex - Case Study Example

Name Course Name and Code Instructor’s Name Date The management practices at Enron with regard to three ethical principles of the Global Business Standards Codex Good corporate management is key in maximizing investor returns. Corporate managers are therefore called upon to comply with regulatory standards while avoiding principle-agent conflicts of interest in order for them to enhance the firm’s goodwill. Enron came into play in 1986 whereby natural gas pipeline companies merged to become one corporate entity. Like any other corporate firm, Enron diversified its products and services and became one of the most successful companies in the US. However, due to poor and unethical top management practices culminated to the collapse of the company in December 2001. Global Business standards Codex have been widely endorsed to act as a guideline to evaluate the code of conduct with regard to companies across the world. The GBS Codex principles comprise of Fiduciary, Property, Reliability, Transparency, Dignity, Fairness, Citizenship, and Responsiveness. This paper seeks to discuss the management practices at Enron with regard to three ethical principles of the Global Business Standards Codex. In this respect, the paper will specifically discuss the Fiduciary, Reliability and Property principles; these were the most eroded principles at Enron which eventually led to the company’s ultimate bankruptcy. The Fiduciary principle demands that when carrying out company’s business, diligence, loyalty and candour expected by trustees should be observed. In this regard, the top management of the company should promote the company’s legitimate interests in a diligent and professional manner thereby maintaining the economic wellbeing of the firm. Furthermore, they should safeguard company resources ensuring their prudent and effective use. Consequently, the management must ensure provision of fair and competitive return on investment (Lynn et al, 37). The fiduciary principle also requires the management to be loyal to the company; for instance, they should only use their position and company resources for company purposes and not for personal gains (Culpan and Trussel 66). Accordingly, they should disclose potential conflicts between personal and company interest. In the same line, they should distance themselves from activities that may lead to actual conflict of interest like self-dealing and competing with the company. Excessive gifts and entertainment should be avoided (Eliot &Schroth, 108). Most importantly, they should refrain from pursuing for personal benefit opportunities discovered through their position or company resources. With regard to investors, the management should not trade in company securities based on confidential company information (Lynn et al, 42). Using company confidential information and valuable resources for personal dealings is wholly unethical with regard to the above-discussed principle. The top leadership at Enron comprised of Kenneth Lay, Jeffrey Skilling, and Andrew Fastow. Their executive negligence and failure to observe the relevant moral codes as required by their positions allowed unethical business operations at Enron leading to the eventual bankruptcy of the company (Sims and Brinkmann 244). For instance, the decision making style embraced by Skilling, Fastow, and Kopper in most cases suppressed the overall moral integrity only focusing on short term financial gains (Eliot &Schroth, 117). In addition, Enron management and board members poorly analyzed and resolved moral conflicts of interest through self-cantered policies while ignoring the harm caused to other stakeholders. Enron top management can be characterized with greed, dishonesty, arrogance, selfishness, hypocrisy, cowardice, disrespect, and injustice (Culpan and Trussel 67). They never allowed the disclosure of their culpable motives and the corrupting workplace culture they created (Carnevale et al, 29). The top management dishonestly concealed debt and overstated earnings. They abused power to gain wealth through advanced sale of stock while other primary critical stakeholders were exposed to suffer due to nondisclosure of accurate performance results (Sims and Brinkmann 246). They created and sustained a work culture that rewarded financial results at any cost, pushed moral limits which eventually became a moral cesspool (Eliot &Schroth, 110). In fact, even the morally upright employees were inhibited form doing the right thing. They never observed the fiduciary principle to increase investor wealth rather they sought to fulfil their own personal interests. Property principle demands that the management should respect property and the rights of those who own it. Theft and misappropriation of company resources should be avoided and they should safeguard properties entrusted to them (Lynn et al, 45). The main concepts in this principle are protection and theft. Protection of company assets including funds, equipments, and confidential and proprietary information is obligatory to the management. Misappropriation of company resources through theft and embezzlement should be avoided at all costs. The top management at Enron was never faithful to the company, never respected company wealth and resources. They directed their mighty to defrauding the company by lying and manipulating the staff in order to achieve self-oriented goals. For example, Fastow used company resources to run personal partnership while Lay lied to the staff about the state of the company (Vic, 123). In addition, the corrupt environment created at the company by the top management; the bonus incentives encouraged the manipulate profit estimates not respecting the long run outcomes. The judgment and integrity capacity was virtually not there at Enron as managers always evaded moral accountability. For instance, managers in any business environment are required to exhibit judgment integrity whereby they are held responsible for achieving good results by following the right rules and standards (Hultgren & Cameron, 45). However, Enron management greedily pursued short-term economic benefits while changing rules to suit their personal interests. Lavish and unprecedented rewards to the executives showed no respect to the company’s property. Furthermore, the executives benefited form compensation packages, share option schemes, and management fees from the SPEs. These executives never observed the property principle as described from the above. Reliability principle entails honouring commitments. For instance, the management should be faithful to their word following through on premises, agreements, and other voluntary undertakings whether or not embodied in legally enforceable agreements. Contracts, premises and commitment are the main concepts under this principle. In this regard, honouring premises and agreement while implicitly and explicitly fulfilling management obligations are core ethical practices that managers must observe (Lynn et al, 64). The world over, managers are responsible of their stakeholders for the management, use and conversion of their stakes into profitable products and services without exposing them to involuntary harm or loss. In essence, they should be reliable. With regard to Enron, the top management completely harmed the interests of employees, creditors and shareholders while they maximized their own interests (Fusaro & Miller, 88). Enron executives persistently continued to financially benefit themselves by cashing on their stock options regardless of the indications that company was going to collapse. Shareholders lost their investments, Enron workers lost their employment together with their retirement savings. Enron executives orchestrated the manipulation of all financial and accounting data to deceive investors and other stakeholders that the company was making increased sales and profits (Petrick and Scherer Robert 38). Consequently, they sold their stocks at inflated prices by taking advantage of the company’s confidential information (Fusaro & Miller, 91). They also shredded documents that could hold them accountable for their malicious operations. Enron management relied strongly on public relations and political contributions and connections rather than sound financial and accounting practices. They significantly compromised the reliability principle. Enron top management actions impacted all stakeholders including investors, employees, creditors, auditors, competitors and other business firms at large (Petrick and Scherer Robert 40). Investors lost their stock values, employees lost their jobs, creditors were left without their refunds, and competitors like the investors lost their stock values. Enron’s management never observed the reliability principles because the agreements on which they were employed were never honoured (Fusaro & Miller, 101). Concisely, observing business code of ethics is one of the most important duties that managers at any level in any organization must embrace in order to create a good business reputation. Global Business standards Codex have been widely endorsed to act as a guideline to evaluate the code of conduct with regard to companies across the world. From the discussion above, the continued erosion of the GBS Codex principles by Enron top management led to the ultimate bankruptcy of the company. For instance, the executive overrode the company’s basic objective of benefiting the public, investors and other stakeholders to fulfil personal interests. Works Cited Carnevale, AP, Gainer, LJ, and Meltzer, AS. 1988. Workplace basics: the skills employer want’, American Society for Training & Development and US Department of Labor Employment & Training. Retrieved on 19/10/2011, from; http://www.eric.ed.gov/PDFS/ED299462.pdf Culpan Refik, and Trussel John. Applying the Agency and Stakeholder Theories to the Enron Debacle: An Ethical Perspective. Business and Society Review, 110.1, 59-76 Elliot, Larry, and Schroth Joseph. How companies lie: why Enron is just the tip of the iceberg. New York: Crown Business. 2002. Fusaro, Peter and Miller, Ross. What went wrong at Enron: Everyone’s guide to the largest bankruptcy in US history. New York: John Wiley & Sons. 2002. Hultgren, AK and Cameron, D. Communication skills in contemporary service workplace: some problems. 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