Premium Essay

Enron Ethical Issue

In: Business and Management

Submitted By braveheartwang
Words 1074
Pages 5
September 22, 2014
Ethical Meltdown This case describes one of the biggest corporate collapses due to unethical practices in the history of the United States. Before the ethical meltdown, Enron was the world’s largest wholesaler of natural gas and electricity. In a competitive market, companies are constantly struggling to improve their services or products in order to gain a competitive advantage. The pressure to succeed sometimes allows for companies to forget their morals and participate in unethical practices. “It turned out that the lack of accounting transparency enabled the company’s managers to make Enron’s financial performance look much better than it actually was” (Dessler, 2013, p. 242). As a result, several top executives were convicted of manipulating Enron’s profit statements and investors lost most of their investments in Enron. This is a perfect example of a company that lacks professional ethics and proper management. Enron was able to succeed and become a huge corporation in the United States economy. However, the loss of morality and ethics eventually led to the collapse of the corporation. In order for a company to become successful and maintain their success a proper ethical culture is needed within the organization.
Enron’s Ethical Culture Dessler describes ethics as, “the principles of conduct governing an individual or a group and specifically to the standards you use to decide what your conduct should be” (2013, 240). In order for a company to be successful a code of ethics must be applied to the company’s culture. The behavior of both Enron’s CEO and the employees when an analyst asked about the firm’s suspicious accounting statements is an example of the company’s lack of proper ethical culture. The incident consisted of the CEO describing the analyst using inappropriate language while the employees laughed. There is no proof that...

Similar Documents

Premium Essay

Acc 557 Assignment 1: Ethics

...Ethical Breaches ACC 557 Name Date Instructor Introduction In recent years, accounting ethical breaches has emerged as a major problem for most of the organizations. With growth of businesses, the number of accounting ethical breaches has also increased in organizations. Accounting ethical breaches may be defined as the misappropriation and misconduct of financial data by the auditors and accountants of the company (Duska & Ragatz, 2011). The accounting ethical breaches not only affect the organization, but also the stakeholders involved with the organization. The paper will discuss the accounting ethical breach in Enron. The paper will also discuss the ethical issues, accounting ethical breaches and the recommendations to prevent such breaches. Ethical Behavior in Current Business and Regulatory Environment With increasing number of corporate ethical breaches, the role of ethical behavior has increased in organizations. The organizations are more supportive to ethical behavior ensuring risk, compliance and governance culture within organization. As a part of this culture, effective communication around ethical practices has been followed by the organization. Since ethical breaches are mainly done for the sake of money, rewarding and ethical practices has effectively helped organizations to minimize the ethical breaches (Ferrell & Fraedrich, 2009). At the same time, ethical breaches have not only affected the image of the company, but are also responsible......

Words: 1393 - Pages: 6

Premium Essay

Article Review of Sarbanes Oxley

...their full share of ethical dilemmas. With law and ethics, business environments can be equipped with tools to successfully handle ethical situations. Without legal and ethical discipline, a business can deteriorate in the blink of an eye. Because of the Sarbanes-Oxley Act, businesses can be controlled on the way they conduct business through the instruction of auditing, corporate governance, and financial reporting. The Sarbanes-Oxley Act came about due to the issues with Enron. Enron was an organization founded based on two companies: InterNorth and Houston Natural Gas. Enron grew rapidly in the United States and maintained strong globally. Even through Enron progressed, the executives became greedy. Days before Enron announced a $618 million loss over the third quarter, the company’s accountants told workers to destroy all audit material and keep the basic work documents. Because of this, workers suing Enron for lost retirement savings were denied all of the backup paperwork to support their claims against Enron. Enron’s accounting firm reminded employees of the document destruction process prior to the subpoenas issued by the Security and Exchange Commission. There is speculation that documents were being destroyed even after the subpoenas were issued. Accounting firms are to use a retention policy, and any intentional destruction of a document that could be subpoenaed is illegal. The accounting for a company like Enron is complex. Enron fell so fast......

Words: 691 - Pages: 3

Premium Essay

Coca-Cola

...Running Head: The Coca-Cola Company Struggles with Ethical Crises   Phyllis Walters Professor: West Ethics and Advocacy for HR Professionals HRM 522001 5/01/2011 Coca-Cola Company is the world’s largest beverage company. It is recognized as the world’s most valuable brand, with operations in more than 200 countries. Besides Coca-Cola, and Diet Coke, the company has also profited from its other brands; PowerAde, Minute Maid, and Dasani water. The company has excelled over the last ten years; however, in recent decades the company struggled to meet its financial objectives and has encountered a number of ethical crises (Ferrell, 2011). Explain why you think Coca-Cola has had one ethical issue after another to resolve over the past decade or so. The pathway of Coca-Cola was not as smooth as it appears, even with international recognition a brand as large and successful as Coca-Cola, has run into numerous difficulties and in short, has had ethical issues one after the other over the past decade. The company’s problem began at the executive level where many areas of the organization lacked quality leadership that was deficient in handling a series of ethical crises. The company leadership was not strong enough to resolve the ethical issue that it continually encountered. Many board members lost faith in the company and resigned after Coca-cola failed to conquer its challenges. According to Ferrell (2011) when Doug Ivester became CEO of Coca-Cola, he was......

Words: 1412 - Pages: 6

Premium Essay

Ethic

...Consequentialists’ theory: Many philosophers believe that the rightness and the wrongness of any action are determined from its consequences and people who hold this view is known as consequentialist. Consequentialism is general approach to ethical dilemmas which inquire about the consequences to relevant people of making a particular decision. So basically consequentialism word itself suggests that it is an ethical approach which “depends on the consequences”. This view is also sometimes referred to as teleology (from the Greek word telos which means goal). Ethics is a branch of Philosophy that examines ethical concepts and issues. It inquiries into such things as goodness, right action, and moral responsibility. It answers the question, “What do I do?" It is the study of right and wrong in human endeavours. At a more fundamental level, it is the method by which we categorize our values and pursue them. Do we pursue our own happiness, or do we sacrifice ourselves to a greater cause? A proper foundation of ethics requires a standard of value to which all goals and actions can be compared to. Consequentialism, as its name suggests, is the view that normative properties depend only on consequences. This general approach can be applied at different levels to different normative properties of different kinds of things, but the most prominent example is consequentialism about the moral rightness of acts, which holds that whether an act is morally right depends only on the......

Words: 1370 - Pages: 6

Premium Essay

Enron

...There was a vast number of ethical issues raised in the movie “Enron-the Smartest Guys in the Room” but the four I am going to focus on are listed below. Art Anderson, Ken Lay and all of the other executives did a number of unethical things which ultimately brought down Enron and affected thousands of employees and their futures. The bottom line was that each and every one of them acted out of greed for the almighty dollar. 1- Encouraging employees to invest and buy stock in Enron when they knew the truth about the lack of value in the stock. As an employee you trust in your management to make the best choices both for you and for the business to succeed. Ken Lay and other executives strongly encouraged Enron employees to invest in it’s stock. They all knew that the company was not doing well and yet they encouraged others to spend their hard earned money investing in it all the while they are selling their shares of stock. Employees trusted and relied on their decisions and in the end it ended up hurting them. With Ken Lay publicly encouraging its employees and other investors to invest in Enron’s stock he is affecting their future and retirement. These employees didn’t earn nearly as much as he did and he is convincing them to invest their money into an entity that was set to fail by Lay himself. I don’t believe any proper ethical alternative action could have been taken in this situation. Of course you want your employees to have faith in the company they work......

Words: 1798 - Pages: 8

Premium Essay

Assignment 1

...Ethical Breaches and Environment Ethics is an important aspect of business in today’s environment. Sometimes management ignores or leaves to state laws to govern the code of ethics within a company. Companies have faced a lot of issues regarding ethical situations in modern times. Making ethical decisions in accounting is growing in complexity because of the larger number of stakeholders in business, and the greater responsibility on accountants. In the early 2000s many financial and accounting scandals went public in the media. As a result the practice of accounting in recent years has evolved drastically and greater accountability and consequences have been issued to corporations. In the United States authorities made many headlines with companies who practiced fraudulent activities, such as Enron, to serve as a warning to those who dare break rules in the future. The Organization Enron, According to (Eichenwald, 2006), was a U.S. energy-trading and utilities company that housed one of the largest accounting frauds in history. The company was based in Houston, Texas. Enron employed about 20,000 people and was the world’s largest natural gas, electricity, communications and pulp and paper company. As reported by Fortune.com, Enron had revenues of nearly $101 billion during year 2000. Fortune also named Enron “America’s Most Innovative Company” for six consecutive years. Accounting Ethical Breach Enron’s downfall, and the imprisonment of several of its leadership......

Words: 765 - Pages: 4

Premium Essay

Ethical Dilemma

...By definition, an ethical dilemma is a situation that will often involve an apparent conflict between moral imperatives, in which to obey one would result in transgressing another. When one combines this definition with the many problems employees and management face on a daily basis, you are bound to have plenty of examples for many different kinds of businesses, regardless of what the business is or the line of work. This internal conflict that people experience can cause many issues in today’s workplace, and in the next few paragraphs I will explain how, why, and produce some examples. One of the most popular examples of an ethical dilemma is the story of the man whose family is starving and he steals a loaf of bread for his family’s survival. At its core, this example covers all the bases: conflicting imperatives with regards to a need for food and breaking the law by stealing the food. There can be arguments made on both sides with no clear decision on what the right thing to do would be. When translated into today’s work environment, employed persons have conflicting thoughts and feelings every day because they face problems at work but also in their personal lives as well. Anytime one has two completely different sets of problems their chances for an ethical dilemma will rise. According to Puja Lalwani, who writes articles for buzzle.com, “A lot of people believe that there is no room for ethics in the workplace. In a world of fierce competition where everyone...

Words: 1751 - Pages: 8

Premium Essay

Review of Accounting Ethics

...22, 2013 Table of Contents 1.0 Corporate ethical breaches in recent times. 3 2.0 Accounting ethical breaches and their impacts 3 2.1 The Scandal of Enron 3 3.0 Organizational ethical issues and the management failure 5 4.0 Breach of the accounting practices and its impacts 5 5.0 Recommendations by the CFO 6 6.0 References 8 1.0 Corporate ethical breaches in recent times. Ethics is an important aspect of business in today’s enironment. Sometimes management ignores or leaves to state laws to govern the code of ethics within a company. Companies have faced a lot of issues regarding ethical situations in modern times. According to Baker (2012) contrary to the popular belief of the recent global financial crisis resulting from failures of accounting ethics, he argues that there is not enough evidence to support this connection. 2.0 Accounting ethical breaches and its impacts Breaches of the accounting ethical policies have become a source of concern for the firms today. The proper application of IFRS and GAAP standards is vital for each firm. In recent years as more scandals have come into the spotlight firms have taken more and more internal measures in addition to the policy making at the governmental level to ensure breach of consumers’ trust and laws does not take place in the future. There has been a tremendous increase in the interest in accounting ethics (Cowton, 2013). 2.1 The Scandal of Enron The scandal of Enron in 1990’s is well known in history. When due...

Words: 1420 - Pages: 6

Premium Essay

Enron

...days. So, its adaptors are steadily increasing over past two decade. The research of Mark John Somers characterized codes of ethics into several themes representing distinct lines of inquiry. One theme concern in promoting ethical behavior in organization and second one is prevalence; which mean which codes have been adopted in specific countries. (e.g white and Montgonery, 1980) or industries (e.g Berenbeim, 1992). And the last is emergent theme which concerns the influence of codes of ethics on employee in an organization. Codes of ethics define moral idea essence of an organization or company. A code need to be simple and easy to understand that unites employee regardless of their particular religious, sex, location, race and ethnicity. The tone of code is important. There are six moral values of codes of ethics review by corporate, global codes of ethics, Business ethics are as follows: * Trustworthiness * Responsibility * Respect * Caring * Fairness * Citizenship Codes of conduct A code of conduct expands on the principles embodied in code of ethics. Codes of conduct have to address all the legal expectation and ethical risks suit to organization or company or job title. Codes of conduct have to be revising when the issues arise in the organization. The NYSE address seven topics of codes they are as follows: - conflict of interest: A conflict between an individual interest and organization should be avoided. * Corporate opportunity:......

Words: 1489 - Pages: 6

Premium Essay

Ethnicity

...ENRON AND UNETHICAL BEHAVIOR By SHERNITA JONES INSTRUCTOR ALFRED GREENFIELD ACC 557 FINANCIAL ACCOUNTING 10/27/2013 This paper will describe the following: 1) Corporate ethical breaches in recent times, assess whether or not one believe that current business and regulatory environment is more conducive to ethical behavior. 2) Describe the organization, the accounting ethical breach and the impact to the organization related to ethical breach. 3) Determine how the organization ethical issue was detected and how management failed to an ethical environment. 4) Analyze the accounts impacted and / or accounting guidelines violated and the resulting impact to the business operation. 5) As CFO, recommend which measures could have been taken to prevent this ethical breach and how each measure should be implemented in the future. Establishing principles for ethical behavior frequently starts with a policy on ethics. Businesses acquire a policy on ethics to guide their measures and to set up a general meaning of correct versus incorrect. According to the American Library Association, code of ethics is a handbook for suitable behavior (2012). Given the corporate ethical breaches in recent times, existing businesses and regulatory environment is more conductive behavior because some companies and managers feel as though they can get away with it. The unpredictable increase and collapse of the Enron Company set off......

Words: 1224 - Pages: 5

Premium Essay

Responsibility Web Site

...The Responsibility Project Ethical principles are something that can address any organizations issues. How to use these ethical principles are what we will address in this article. From the website “The Responsibility Project”, we will see how ethical principles are important in any organization, and how they can shape and change them. From the website, we will be reviewing the film “Good Vibrations”. Why are the issues in the film important? Good Vibrations is an animated tale all about a community’s responsibility, and the cost to be complacent. Although the film is more about a community’s responsibility, the issues addressed within the film are the same within organizations and communities just the same. The film showed an entire building of employees who would laugh at helpless individuals who were being injured as they tripped on a loose brick on the outside sidewalk. Finally, an employee opens a window to shout out a warning to an elderly man who was about to encounter the loose brick. The employee then proceeds to place a caution sign near the brick to prevent other people from getting hurt. A person with morals could say that the problem in this film is the laziness or failure of the entire building of people to prevent the accidents from happening. Instead, they find it more amusing to let people be hurt for their own pleasure. Many organizations are faced everyday with the same personality types each day. On the same level, there are people who know this......

Words: 933 - Pages: 4

Free Essay

Arthur Andersen Collapse

...globally. The firm ran into many ethical issues when becoming involved in the Enron scandal, which affected the company globally. The ethical perceptions across cultures affected the employment of many people that ended up losing their jobs or transferring to other firms. There were many risks and consequences involved in the demise of Arthur Andersen. All of the risks involved affected the firm as a whole, around the world. Ethical Issues Ethical issues involving the demise of Arthur Andersen are solely based around the obstruction of justice involving the Enron case. “Its workers had destroyed ‘a significant but undetermined number’ of documents related to Enron.” (Kadlec, 2002) Destroying documents that were needed for future court proceedings involving Enron not only helped the collapse of Enron, but destroyed the Arthur Andersen firm in the process. Arthur Andersen was not only destroyed in the United States but globally as well. Employees quit and found new jobs, and clients “decided to quit the firm—not because the accountants are bad, but because the Andersen name is poison.” (Ackman, 2002) Over 85,000 employees worldwide, most of which had nothing to do with the Enron scandal were without a job, all because the employees had received a memo to destroy documents that should not have been destroyed. Globally, the demise of Arthur Andersen destroyed the company name, and employees found other firms to work for. Ethical issues involving the demise of Arthur......

Words: 813 - Pages: 4

Free Essay

Ethic Business Paper

...January 13, 2015 Instructor Ashram Chooniedass Ethic Business Paper Enron started out in 1985 as a merger between InterNorth and Houston Gas Company, the company’s innovation leads to huge success. By 2000 Enron announce revenue of one hundred million dollars in profit. This huge increase was due to the trading energy sector of the company, shortly after it announced that Enron had become the sixth largest energy company in the world. In 1996 Jeffery Skilling became the new CEO while In 2001 Kenneth Lay held the title of chairman of the board. Skilling made it very clear that his focus is on revenue and profit increase margin and had no interest in Enron’s cash flow (Houston Chronicle, 2002). Skilling created a competitive atmosphere driven by huge bonuses, under his leadership the human resources department provided cheat sheet to recruiters to hire individuals who portray the image of sharp-dressing extrovert. They focus on graduates from Harvard, Yale, Princeton, Rice, Northwestern, and other leading universities. (Houston Chronicle, 2002). Unethical behavior such a falsifying transaction to boost volume was done by traders frequently, hide huge losses from shareholders, they encourage employees to buy stocks and discourage them from reporting poor accounting practices. Enron issue had brought a lot of businesses down due to the unethical actions that took place in that organization. Enron, an energy firm in Texas, it was a company of high demands and a......

Words: 1780 - Pages: 8

Premium Essay

Essay on Epron

...Enron Company James Miles September 28, 2014 ENRON COMPANY FRAUD Based on the findings from milestone one, it is clear that Enron Company experienced an accounting fraud resulting in a spectacular bankruptcy. This was brought about by the accounting fraud made by the accounting firm. An accountant may face accounting dilemma of reporting any accounting violation to the financial accounting body of a company. It is an ethical duty for an accountant to report any such violations but also the dilemma arises on whether to report any uncertain mistake in the accounts. In the case of Enron Company the mistake was done by the accounting firm and the involved CEO was Jeff Skilling. According to legal and ethical issues of accounting fraud, government review of company financial records caused by an accounting scandal could cause the company’s rapid decline and can also lead to the layoff of thousands of employees and we can see from the Enron Company that it dropped its shares from $90 to $0.50 which brought loss to employees and a big financial loss to the investors who had saved their money in the Enron Company. From the legal ethical issues, executives and other corporate officers can also face criminal prosecution, leading to heavy fines and prison time as seen from the case where the scandal resulted in penalty of CEO Jeff Skilling. Jeff Skilling was sent to prison for 24 years for engaging in accounting fraud for the financial collapse of the company. Arthur was not charged...

Words: 825 - Pages: 4

Premium Essay

Law Article Synopsis

...Oxley Act and the Enron scandal was about the fraudulent issues that took place within one of the top American oil refinery companies. The article discussed the overall background of Enron success as well as Enron’s major fall due to the dishonest business ethics that took place within the company. The article explains the Sarbanes- Oxley act that passed in 2002 and why the act came about and the importance of the Sarbanes- Oxley act to the corporate business world. LEGAL ISSUE In the article there were many legal business issues that arise within the company Enron. Most of the legal issues that were mostly common in Enron were fraud. Enron were very misleading to their shareholders and employees and were being dishonest about their earnings reports while telling their employees to invest only in Enron as well as the embezzlement of money from the firm. The end result of Enron’s legal issues lead to their bankruptcy and furthermore the Sarbanes –Oxley act that took place to ensure less fraudulent activities within corporate companies. MANAGERIAL PERSPECTIVE The legal issues affect business tremendously; it can cause the business to lose almost everything because of the unethical way business is being conducted. In the Enron scandal many issues could have been avoided by simply being honest with their earnings reports as well as remaining ethical by not trying too hard to get ahead and compromising their corporate image. If Enron would have not......

Words: 361 - Pages: 2