Term Paper on "Enron Case"

Term Paper 4 pages (1682 words) Sources: 4

[EXCERPT] . . . .

Enron Case

When most people think of the Enron accounting scandal, they will often associate it with the different kinds of fraud that were connected with the organization. While this is true, the fact of the matter is that there were a number of different variables that contributed to the situation. To fully understand the lack of morals and ethics at the company we will examine how this was a reflection of these issues inside the organization itself. Once this occurs, it will offer the greatest insights as to how the lack of morals and ethical standards contributed to the downfall of the corporation. ("Case Summary," n.d.)

Stakeholders

There are a number of different stakeholders that are considered to be a part of the Enron dilemma. These include: Ken Lay, Jeff Skilling, Andrew Fastow, Arthur Anderson, the shareholders of the company, employees, the various banks that loaned the company money and the government. This is important, because it is showing how the interests of the various stakeholders often came into conflict depending upon the party that you a talking about and their role inside the organization. ("Case Summary," n.d.)

Defining the Dilemma

One of the many dilemmas that Enron was facing was directly related to the California Energy crisis in the late 1990's and early 2000's. Understanding the role that they were playing in this situation will help to highlight the lack of morals inside the company itself. This will provide us with specific insights about how the lack of ethics contributed to the downfall of the organization by: creating a culture that allowed this kind of activity to occur. As a result, the question that we are asking is:

What is the crisis in California telling us about the mindset and morality of Enron during the late 1990's going into the early 2000's?

The main causes that were contributing to the energy crisis in California were not from a lack of supply. Instead, it was directly associated with individual amounts of greed within Enron itself. What happened was; a transmission line in California was completely out due to a forest fire in early 2000. However, instead of rerouting the electricity to other sources, Enron traders directly manipulated prices to the point that they helped to create rolling blackouts. Where, the company had established its niche in serving as the middleman for energy trading markets. To help increase their profit margins, they ordered a number of power plants in the state to shut down in aftermath of the disaster. Evidence of this can be seen with conversations that were recorded of Enron employees directly telling electric utilities to stop producing power. With employees saying to one power plant "If you took down the steamer, how long would it take to get it back up? Oh, it's not something you want to just be turning on and off every hour (replied the power plant employee). Let's put it that way, why don't you just go ahead and shut her (the power plant) down." (Roberts, 2007) This is significant, because it is illustrating how the culture inside the company was for employees to look out for the organization's best interests at all costs.

Descriptive vs. Normative Ethics

When you apply descriptive ethics to the situation, it is clear that the company is involved in going against the morals of society and embracing those ideas of the sub-society (Enron). The way that this occurred is employees knew that the actions they were taking were considered to be illegal. Yet, they did not care because the culture inside the company itself told them to increase revenues from the trading of electricity as much as possible. One of the best ways to accomplish this objective was to raise prices by: ordering a number of different power plants to go offline. This helped to contribute to the situation in California with the company focused on taking advantage of what was happening to help increase energy prices. From a normative ethics standpoint, they are taking actions that are against those of American society by allowing these power plants to close down. However, within the sub-society of Enron they were engaging in actions that would help to increase their profits as much as possible by ordering these power plants to shut down. These different elements are important, because they are illustrating how the crisis in California was the direct result of the lack of ethics inside the company. As, employees were encouraged to engage in actions to: increase their overall profit margins as much as possible. This is despite the fact that these actions were going directly against the interests of the general public. (Cline, 2011) ("Business Ethics," n.d., pg. 22)

These different elements are important, because they are also illustrating how there was a sense of relativism at the company itself. This is when moral standards are based on avoiding the doing what is ethically correct. Instead, they are focused on identifying specific needs of the executives and the company itself (increasing these bottom line numbers). This played a part in helping to contribute to the downfall of Enron, as they established a culture that was lacking any kind of ethical standards. At which point, company would engage in a number of activities to achieve these objectives (i.e. special purpose entities and market to market accounting). ("Business Ethics," n.d., pg. 25) Once this occurred, it meant that anything was used to help increase the price of the company's stock and their earnings.

Applying Relevant Principals to Answer this Question

When you step back and use both descriptive and normative ethics, it is clear that they are telling us how Enron was embracing this mindset during the crisis by: putting their own self-interests first. This is based upon an approach used by the top management all the way down. Where, they pressured employees to engage in actions that would help to increase the company's overall bottom line at all costs. A good example of this can be seen by looking no further than comments from one former energy trader at the company. He and many others were encouraged by Jeff Skilling to engage in activities that were considered to be unethical and illegal. Evidence of this can be seen with comments from this individual with him saying, "(Skilling told us) Trade aggressively in California and to do whatever was necessary to take advantage of the state's wholesale market to boost the price of Enron's stock." He further added that Skilling said to these people, "If you can't do that then you need to find a job at another company. You should go trade pork bellies if you can't be aggressive." (Leopold, 2002)

This is significant, because it is illustrating how these actions were violating the rules of: honesty, safety, integrity and respect for everyone. As a result, these actions helped to contribute to the downfall of the organization by establishing a lack of following these basic ideas, which meant that all kinds of actions were taken to benefit Enron itself. Over the course of time, this meant that any kind of activity would be utilized to ensure that the company was able to increase the price of their stock to include: hiding losses and illegal endeavors that they were involved in. ("Business Ethics," n.d., pg. 39)

Justification of this Point-of-View

This is significant, because it is showing how Enron was encouraging employees to engage in ethical standards that were directly in conflict with those of society at large. As, they were forced to participate in actions that would help to: increase the company's profit margins at all costs. This meant that there was a focus on using both descriptive and normative ethics to understand the situation itself. As, the ethics of society were overruled by: the morals of… READ MORE

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