Research Paper on "Segregation of Duty the Enron"

Research Paper 8 pages (2524 words) Sources: 8

[EXCERPT] . . . .

Moral responsibility for the collapse of ENRON

Individuals' Angle

Because corporate principles stem from actions and choices of human persons, these individuals ought to be seen as the principal bearers of moral responsibility and moral duties. The former board chair, Kenneth lay and the then CEO Skilling allowed the chief financial officer (CFO), Andrew Fastow to build a private corporate institution secretly and later made illegal transfer of property. The CFO defiled his professional ethics by engaging in a crime of malfeasance. The board's chair lay and the CEO Skilling requested some workers to conduct the conspiratorial act, which they knew was wrong. These workers were also morally responsible for the act. The court was left to establish the facts but regardless of the legitimate outcomes, the senior management of Enron got a failing grade on disclosure and truth. Ethics serves to enable practitioners recognize how a situation will be perceived (Markham, 2010).

At this level, regardless of the court's decisions, Enron was already bankrupt. This happened to the company and its managers one day before the court's ruling. No business that engages in similar activities will ever derive encouragement for lawsuits, which could be terminated in favor of Enron. The most injurious to the reputation of Andersen was their admission that workers of the company had destroyed communication and documents related to the Enron engagement. The damage to a firm's reputation via a negative perception of corporate ethics and principles was evident. Arthur Andersen, as Enron's auditor and consultant, violated the company's industry specifications, despite being a certified public accountant (Mesa & Financial Executives Research Foundation, 2012).

Corporation's Angle

The acts of a company's top executives are attributed to the company given the executives act within their authority. However, Enron's shareholders did not know. They did not notice this issue from the superficial high price of the stock. As such, the entire company was not responsible for this scandal. In fact, if the shareholders and the board members paid more attention to the decisions made by the CEO, CFO, and relevant employees, Enron could have avoided this scandal (Jackson, 2009).

Lessons learnt from Enron's scandal

Four crucial lessons can be derived from Enron's debacle

Companies must establish a healthy corporate culture. In the case of Enron, its corporate culture made a major contribution to its collapse. The top managers thought that Enron had to be perfect at everything they did. The shareholders who were not involved in this debacle were over-optimistic about the operating conditions of the company. When losses and failures emerged in Enron's performance, all they did was cover up the losses so that they could protect their reputation; they should have tried something to correct the situation. The board directors of companies must be attentive to such situations, which are "too good to be true" (Niskanen, 2007).

Company owners require a complete system of supervising the operations and their executives. This will give them an idea of the company's operating condition. In fact, more governance by the board is likely to keep Enron from succumbing to bankruptcy. The board of directors must devote tight attention on the conduct of top managers and the company's profitability. Additionally, the fall of Enron also had a striking influence on the entire American economy (Mesa & Financial Executives Research Foundation, 2012). Therefore, the government can also make improved rules and regulations in the economy.

Andrew Fastow and Jeffrey Skilling proposed the "Mark to market" plan as a strategy to cover the loss, pump the stock price, and attract more investment. However, it was impossible to benefit in a long-term operation in such a manner. As such, it was clearly illegal and immoral. On the contrary, it was reported that the then American Exchange and Security Commission permitted them to "Mark to market" accounting model. By ignoring, the drawbacks associated with this accounting model, American Exchange and Security Commission contributed to the final scandal. Therefore, companies including Enron should pursue an accounting system that facilitates the disclosure of more financial data (Jackson, 2009).

Persons engaged in business must focus on business ethics as a thesis point. As loyal agents of employers, managers have a duty to serve their employers in whatever ways that advance the employers" personal interests. In Enron's case, they defiled the principle to be loyal to Enron's agency. Particularly for accountants, keeping financial records disclosed with factual losses and profits information is the fundamental responsibility, which they ought to follow (Niskanen, 2007).

Conclusion

Enron Corporation was a gigantic failure, partly due to the complexity, its size, and partly, the failure of the controls to protect the integrity of its capital markets. All these were worsened by the massive collusion and greed among key participants. The auditors, the management, the bankers/creditors, and the analysts failed. Therefore, impacts of deceptive financial information stemming from structural failure in the capital markets cannot be viewed as a mere hypothetical possibility. The systems responded in speeds that indicate the imperativeness of presented financial data. It is always important for company CEOs and all the other employees to perform their duties diligently. This always works in favor of the company by ensuring that scandalous actions are prevented. It is evident from Enron's case that rogue employees killed an otherwise prosperous company. Appropriate financial systems must also be adopted in order to ensure that possible fraudulent activities (Mesa & Financial Executives Research Foundation, 2012).

References

Benston, G. (2013). Following the money: The Enron failure and the state of corporate disclosure. Washington, D.C: AEI-Brookings Joint Center for Regulatory Studies.

Jackson, P.M. (2009). Sarbanes-Oxley for Nonprofit Boards. Hoboken: John Wiley & Sons.

Jones, M. (2010). Creative accounting, fraud and international accounting scandals. Chichester: John Wiley & Sons.

Kidder, D.S., & Oppenheim, N.D. (2011). The intellectual devotional American history: Revive your mind, complete your education, and converse confidently about our nation's past. New York: Modern Times.

Markham, J.W. (2010). A financial history of modern U.S. corporate scandals: From Enron to reform. Armonk, N.Y. [u.a.: Sharpe.

Mesa, G.C., & Financial Executives Research Foundation. (2012). Enron and the Powers Report: An examination of business and accounting failures. Morristown, NJ: Financial Executives… READ MORE

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