...Case 1 ENRON: WHAT CAUSED THE ETHICAL COLLAPSE? case summary | Kenneth Lay, former chairman and chief executive officer (CEO) of Enron Corp., claimed to be a moral and ethical leader and exhorted Enron’s officers and employees to be highly ethical in their decisions and actions. In addition, the Enron Code of Ethics specified that “An employee shall not conduct himself or herself in a manner which directly or indirectly would be detrimental to the best interests of the Company or in a manner which would bring to the employee financial gain separately derived as a direct consequence of his or her employment with the Company.” Enron’s ethics code was based on the values of respect, integrity, communication, and excellence. Given this code of conduct and Ken Lay’s professed commitment to business ethics, one wonders how Enron could have collapsed so dramatically? The answer to this question seems to be rooted in a combination of the failure of top leadership, a corporate culture that supported unethical behavior, and the complicity of the investment banking community. The failure of Enron’s top leadership was evident in the activities of Andrew Fastow, Jeff Skilling, and Ken Lay, all of whom faced multiple counts of criminal activity with respect to their decisions and actions at Enron. Included among these criminal charges were money laundering, wire fraud, securities fraud, conspiracy, making false statements on financial reports, and insider trading. Some of the activities...
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...Arthur Andersen Collapse Introduction Arthur Andersen was one of the biggest top 5 accounting firms around the country, practicing 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...
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...The Enron Collapse Enron, a high profile organization which ranked as the seventh largest company in the United States during the 1990’s consisted of approximately 25,000 employees worldwide and held revenues in the tune of over 100 billion dollars in 2000. Enron controlled about one quarter of the gas companies in the United States and also expanded into Myriad energy products during its years of operation. The company traded hundreds of products throughout the wider Continentals including South America, Asia, Europe, Australia and also the United States, and was considered to be very successful with their trading strategies. An excerpt from an article in the CRS Report for Congress entitled The Enron Collapse: An Overview of Financial Issues, Mark Jickling, (February 4, 2002), states that “the firm was widely regarded as one of the most innovative, fast growing, and best managed businesses in the United States.” However, despite all of Enron’s fame and glory, the company crumbled as a result of bad management and unethical practices. According to Donaldson & Werhane (2008), “The controls as designed were not rigorous enough and their implication and oversight was inadequate at both Management and Board levels,” (p. 313). The purpose of this paper is to discuss the Enron Collapse and explain how the virtuous manager would have responded to working for Enron. Also being discussed is what the virtuous manager is expected to do if confronted with these decisions. Unfolding...
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...Enron Case ACC 304 1. What led to the collapse of Enron under Lay and Skilling? There were various reasons as to why Enron collapsed under Lay and Skilling. One reason Enron collapsed under Lay is because Lay simply did not practice what he preached. Lay did not live by his code of ethics and neither did his corporation. Not only that, but Lay and top management gave Andrew Fastow an exemption to the code of ethics to continue doing business. Another reason that Enron collapsed, under Skilling, is that Skilling had a performance evaluation process for all Enron employees that didn’t express the code of ethics that they should’ve followed which caused employees to rank their peers lower as to enhance their own position in the firm. 2. How did the top leadership at Enron undermine the foundational values of the Enron Code of Ethics? The top leadership at Enron undermined the foundational values by granting an exemption to Andrew Fastow to continue bringing in dirty money through his actions. Also, the top leadership allowed an unethical culture of ethics by promoting to the employees that they had to make the numbers literally any way they could even if that meant to break the law. 3. Given Kenneth Lay’s and Jeff Skilling’s operating beliefs and the Enron Code of Ethics, what expectations regarding ethical decisions and actions should Enron’s employees reasonably have had? Enron had a great and respected code of ethics among its peers. Also, Lay and Skilling had respectable...
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...Managerial Organization (Option 1) University of Phoenix Organizational Leadership Patricia Caracena June 10, 2013 How did Enron a multibillion-dollar energy company arrive at a state of non-existence? Was it due to the lack of leadership and ethical managing or the whole organizational structure? Nevertheless, the collapse of Enron shed a whole new light on the industry of how one-minute they are the leader of the pack and the next just a remembrance of what was complete. Problems that plagued Enron were the lack of management possessing values, ethics, structure, leadership, and integrity to oversea the company. After Enron, government agencies begin to explore what caused the company to plummet. With the discovery of the uncovered risks, which show specific organizational behavior theories were unseen, the prediction was that this ultimately caused the downhill demise. Problems faced by Enron arose from the CEO and other management not acting in a manner that was competent in terms of knowing how to organize properly lead, and control the company. Enron consisted of some of the best executives with business backgrounds and employment records that showed them as being flawless. With this combined experience the entire team lacked the ethical approach of accountability on the level of financial insight and daily business processes. “Enron was undone by shaky accounting, too much borrowed money and an unwillingness to provide information to investors who grew to doubt...
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...The Collapse of Enron Assessment Task A brief introduction outlining the key facts in the selected case On December 2nd 2001 the largest bankruptcy in US history was filed by energy trader, Enron Corporation. Once regarded as one of the fasted growing, innovative and best managed businesses in the United States, the collapse of the energy giant highlighted a series of corrupt and criminal activities that were, according to several investigations, rife throughout Enron’s operations. Enron Corporation was formed in 1985 from a merger of Houston Natural Gas and Internorth. Enron held the title of operating the first nationwide network of natural gas pipelines in the United States as a result of the merger. Created on the basis of operating a regulated network for the transport of natural gas, Enron’s operating aim shifted during the early 1990’s to a new central focus. The corporation’s new focus was now in the unregulated energy trading markets of the United States. Until late 2001, nearly all observers- including professional Wall Street analysts- regarded this transformation as an outstanding success. (Jickling 2002, p1) Throughout the 1990’s Enron’s annual revenues grew significantly. In the early 1990’s, Enron’s annual profit was reported to be under $10 billion before ballooning to $101 billion in the lead up to 2000. By autumn of 2000, Enron was starting to crumble under its own weight. (Seabury 2003, p1) Enron’s CEO, Jeffery Skilling, who oversaw the company that...
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...Introduction. Ethics have been defines as the discipline that differentiates between what is good from what is bad. Ethics are a set of moral principle or value. Ethics assist individuals to make moral decisions when faced with any kind of situation. In business, ethics assist individuals in applying ethical considerations when making any decisions. Ethics regarding the carrying on of business have been described as principles and standards of behavior that are expected of individuals in business. There are various philosophical approaches to decision making in business. One of the most popular philosophical approach to ethics in business is the consequentialist approach. According to this school of thought, a decision ought to be analyzed to ensure that the benefits of making that particular decision outweigh the possible harm that can be occasioned by that decision. According to this theory, the only variables under considerations are the cost benefits involved as well as the level of harm that is likely to be caused by a particular decision. The deontological school on the other hand addresses issues which are related to duties, rights and considerations of justice using standards that are rooted on morality. There are various problems associated with this philosophical school of thought since it advocated for a strict observance of ethical behavior. One of the major problems is the conflict between the ethical duties owed to various classes of person versus a fiduciary duty which may...
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...Case 1 ENRON: WHAT CAUSED THE ETHICAL COLLAPSE? case summary | Kenneth Lay, former chairman and chief executive officer (CEO) of Enron Corp., claimed to be a moral and ethical leader and exhorted Enron’s officers and employees to be highly ethical in their decisions and actions. In addition, the Enron Code of Ethics specified that “An employee shall not conduct himself or herself in a manner which directly or indirectly would be detrimental to the best interests of the Company or in a manner which would bring to the employee financial gain separately derived as a direct consequence of his or her employment with the Company.” Enron’s ethics code was based on the values of respect, integrity, communication, and excellence. Given this code of conduct and Ken Lay’s professed commitment to business ethics, one wonders how Enron could have collapsed so dramatically? The answer to this question seems to be rooted in a combination of the failure of top leadership, a corporate culture that supported unethical behavior, and the complicity of the investment banking community. The failure of Enron’s top leadership was evident in the activities of Andrew Fastow, Jeff Skilling, and Ken Lay, all of whom faced multiple counts of criminal activity with respect to their decisions and actions at Enron. Included among these criminal charges were money laundering, wire fraud, securities fraud, conspiracy, making false statements on financial reports, and insider trading. Some of the activities...
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...group with respect to what is right or wrong” (Daft, 2011, p.445). Ethics play the most important role in any business, and are the key to its success. Every company expects a standard pattern of behavior from their employees on some common grounds. In order to define ethics in leadership, we must first define leadership. Leadership is defined as “an influence relationship among leaders and followers who intend real changes and outcomes that reflect their shared purposes” (Daft, 2011, p.5). A dynamic leader operates with a high sense of ethics, integrity, and possesses high moral standards. True leaders have an appreciation for learning, take risks, and understand the importance of change and when it is necessary. Leadership, in a sense, is never a finished product, but rather, it is an ongoing process that continuously needs refinement. Leaders are aware of what they value and recognize the importance of ethical behavior. “Leaders come in all shapes and sizes but all good leaders possess leadership style and actions that exhibit both their values and their ethics” (Daft, 2011, p.6). Since we have defined leadership as the “influence relationship among leaders and followers, ethical leadership is about leaders trying to influence people to act in an ethical manner” (Daft, 2011, p.5). Some believe that ethical leadership is only a matter of leaders having good character. By being a person of strong character and having the right values, an ethical leader can use these...
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...Gary Solomon ETHICS PAPER 2 INTRODUCTION This paper is about the role of ethics and social responsibility in developing a strategic plan while considering stakeholder needs and agendas. Included in this paper will be one example of a corporation overstepping the ethical boundaries for stakeholder programs, and what types of preventative measures could be taken to avoid this type of situation. ETHICS AND SOCIAL RESPONSIBILITY There are couple important issues of ethics and general responsibility in the strategic outlining process. According to webster dictionary, the definition of ethics is an area of study that deals with ideas about good and bad behavior and dealing with what is morally right and wrong ("Merriam-Webster", nd). The stakeholders of any corporation are not just investors, they have the power to influence the financial impact of a corporation. Ethical responsibilities are responsibilities that are governed by a moral code of conduct and are composed of beliefs that are generally held by the owners and the stakeholders of the corporation. The stakeholders also have a social responsibility to act in the best of the entire corporation and not just for their own self-interests. STAKEHOLDERS AND STRATEGIC PLANNING When establishing a strategic plan a corporation must consider all...
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.... Burton Final Paper: The Enron Scandal MSA 602 Dr. Pendarvis 12-4-2011 Abstract Enron's collapse is generally viewed as a morality tale - the natural result of managerial greed, a clueless board, and feckless gatekeepers. But none of these aspects of the story clearly distinguishes Enron from other major firms during the bubble era of the late 90s. This material identifies certain economic facts from the many moving parts that was Enron, and organizes them along two main threads. The first describes Enron's major businesses, and the incentives and constraints under which the managers of those businesses operated. The second thread describes the basic financial engineering tools developed by Enron's finance department. These threads are then woven into the timeline of Enron's ultimate collapse. What emerges is a tale of how bad bets that resulted in good outcomes came to be viewed by top management and the board as bets worth repeating on an ever-larger scale. Early success in highly risky ventures were ramped up and duplicated, under perverse incentives, into a financial disaster. The firm then doubled down on that disaster with non-economic hedges developed by the finance group. The CFO, in a wholesale breach of his fiduciary responsibilities, including corruption of various gatekeepers, managed to cloak the poor quality of his hedges and his motivation in creating them. This duplicity prevented...
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...expectations for its employees by the actions they engage in and the choices they make. Actions clearly speak louder than words and role-modeling behavior is a very powerful tool that leaders should use to develop and influence their corporate culture. Leaders can use role modeling, teaching, and coaching, to reinforce the values that support the organizational culture. Employees look to leaders for cues as to what is truly appropriate behavior. Corporate cultures must reward ethical conduct while penalizing any wrongdoing at all levels in a corporation. Values matter and trying to ignore trouble spots or the blaming of underlings is an unacceptable practice. A company is measured by the traditions they build and the way they manage all their relationships with shareholders, employees, and the communities they live and work in. Enron went bankrupt and disappeared over 10 years ago but the impact it has made on ethical standards have never faded. Thousands of people lost their retirement savings, and the energy industry was greatly affected by the downfall of Enron. The collapse of Enron is now used in many textbooks and research papers as an example of the importance of an organization’s behaviors an how much of impact unethical acts can have from top management all the way to new hires. Company leaders do not always do the right thing, act as positive influencers, or lead the company to do the best thing for all its stakeholders. The actions of the company executives, the culture...
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... | |Kent Vander Kamp | |7/12/2012 | In 1985 the Inter North Corporation and Houston Natural Gas merged together and formed Enron. The former president of Inter North, Sam Segnar became the president of the newly formed Enron. It was then that it appeared that the corporate culture had changed. Unlike Segnar's predecessor, Willis Straus who was loved by all within his company and achieved an open culture where employees were treated fairly Segnar was often disliked and held in disdain. It appeared that Segnar was an elitist who separated the working class from management so the newly formed Enron began its venture heading down the wrong road by dividing the working class and the elitist. As is seen in many corporate disasters the elitist spending was encouraged and recognized by the new CEO Segnar. (Madsen & Vance, 2009) Through this massive change within Enron its employees and peers developed a hatred for Segnar. This was seen as an opening or an opportunity for Ken Lay. Lay used this opportunity to propose a collaborative board between the two merging companies. This was not seen as unusual however Lay was surprised when Segnar accepted the proposal. However Segnar maintained a majority control over the board. Over a...
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...Lessons from the Enron Scandal On March 5, 2002, Kirk Hanson, executive director of the Markkula Center for Applied Ethics, was interviewed about Enron by Atsushi Nakayama, a reporter for the Japanese newspaper Nikkei. Their Q & A appears below: Nakayama: What do you think are the most important lessons to be learned from the Enron scandal? Hanson: The Enron scandal is the most significant corporate collapse in the United States since the failure of many savings and loan banks during the 1980s. This scandal demonstrates the need for significant reforms in accounting and corporate governance in the United States, as well as for a close look at the ethical quality of the culture of business generally and of business corporations in the United States. N: Why did this happen? H: There are many causes of the Enron collapse. Among them are the conflict of interest between the two roles played by Arthur Andersen, as auditor but also as consultant to Enron; the lack of attention shown by members of the Enron board of directors to the off-books financial entities with which Enron did business; and the lack of truthfulness by management about the health of the company and its business operations. In some ways, the culture of Enron was the primary cause of the collapse. The senior executives believed Enron had to be the best at everything it did and that they had to protect their reputations and their compensation as the most successful executives in the U.S. When some of their...
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...Downfall of Enron Team D: LDR/531 2012 Eric Heard In December of 2001, Enron was forced to file for bankruptcy after an investigation of their finances. This investigation uncovered a history of conspiracy, money laundering, and inside trading that led to one of the largest fraud scandals in history (Cernusca, 2011). As a result, businesses should examine exactly where this powerhouse faltered. The areas to be studied specifically are organizational structure, leadership, and management (Yuki, 2010). Once this is complete, business should learn from Enron's mistakes and be careful not repeat history. Organizational Structure's Part of the Enron Failure When looking at an organization, the structure which is defined as “how job tasks are formally divided, grouped, and coordinated” is important to fully understand the organization and how it can be an asset or in the case of Enron a failure (Robbins & Judge, 2011, p. 493). Since the fall of Enron people have studied the company to see what caused the failure. Due to Enron’s failure we have new legislation to help prevent some of the issues from happening again in other companies from the Sarbanes Oxley Act (SOX). One of the reasons for the act was the way Enron’s upper management ran the company. One key element to organizational structure is Centralization and Decentralization decision-making. This key aspect could be argued as the main point to which caused the failure...
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