Term Paper on "Waste Abuse Fraud and Corruption in Enron"

Term Paper 10 pages (2980 words) Sources: 6

[EXCERPT] . . . .

Waste, Abuse, Fraud and Corruption in Enron

The images of executives being led out of their offices in handcuffs are images that have become increasingly more common in our society over the past decade. Executive fraud and corruption has been seen in many companies like WorldCom, Tyco, Adelphia Cable, Parmalat, and -- of course -- Enron. Executives were taking home millions of dollars each year in salaries and bonuses while their companies were struggling to survive. Shareholders and employees and retirees as well were all losing money while the executives led lavish lifestyles. While employees were being given pay cuts, executives were being given profitable stock options. All of these examples show us that we live in a society where money is valued above and beyond all else -- including the welfare of others. Organizations like Enron reflect what is going on in our culture: an ethos of consumption, excess, and competition; a society where bending -- or, rather, breaking -- the rules is encouraged when it comes to achieving one's ambitions (Burke & Cooper 37, 2009). The world is a different place Post-Enron, however, there is still the question as to how Enron (and other organizations like Arthur Anderson and WorldCom) could allow and cover the fraud, waste, corruption and abuse in their companies for so long before their final collapse. Enron was too severe a case for us to take a "bad apples" or "bad barrels" approach to the topic -- that is, the corruption that we saw in Enron was more than just a few corrupt individuals who just happened to be in positions of power. Rather, Enron is the result of our increasingly greedy culture and the social systems that have been set up in society.



Enron's case is one of fraud, waste and excessive abuse, but is it one of corruption? This all depends on how one views corruption, as it is a personal as well as a cultural difference in definition that will answer the question. Bratsis (2003) argues that at the center of our Western idea of corruption lays the misuse or abuse of the office, emphasizing the subversion of the public good by private interest. A prime example of this can be seen in the way Andrew Fastow, CEO of Enron, funded an excessive and eye-catching lifestyle through illegal dealings and accounting vehicles (Fleming & Zyglidopoulos 4, 2009). The executives at Enron were driven by greed, and their acts come at a high price to society: there are psychological costs to friends and family, of course, but there is also an increased amount of cynicism and a lack of trust among the general public that does not go away. Since the Enron scandal, people have changed the way that they think about corporate bigwigs. No longer are they viewed as businessmen, but rather, they are viewed as "bad apples," criminals who have made their way into our corporate culture. They are viewed as the enemy, the ones who take away from those who can't bear to lose, and they keep more than they can want for themselves.

The "bad apples" approach is one way of explaining human behavior when it comes to the Enron, Tyco, WorldCom -- and other - fiascos. This approach reflects the old dichotomy in making sense of human behavior as the result of free will or social determinism (Burke & Cooper 104, 2009). To understand this, a good example to refer to is the story of Oedipus Rex -- a basically good man -- who is led to committing some of the worst acts, according to ancient Greek morals, by fate (Fleming & Zyglidopoulos 110, 2009). According to the bad apple argument, "one can attribute organizational unethical behavior to the personal characteristics of individuals" (104, 2009). This type of explanation can be very comforting to people because it tells us that there are only a few bad "apples" -- or individuals -- out there and when we find them, we then punish them, and then everything in the world will be fine once again. In the case of Oedipus Rex, he committed two very serious crimes, but the question comes down to, was he really guilty of those crimes? Some would say no, since he did not know what he was doing and he couldn't have done otherwise. "Therefore, according to the principle of alternate possibilities, 'a person is morally responsible for what he has done only if he could have done otherwise" (Frankfurt 829, 1969). This bad apple approach is way too simplistic in the case of Enron. The approach that must be taken in the case of Enron has to do with social systems in which certain individuals become corrupt.

This social systems approach can be understood by looking at some experiments in social psychology that illustrate random people within the appropriate setting as being capable of the most ferocious acts (Burke & Cooper 104, 2009). For example,

Milgram's (1974) famous obedience experiments showed that randomly chosen individuals, when assured by white-robed scientists that their acts were meant to benefit scientific progress, were more than willing to inflict obviously lethal electric shocks to others. Or, as Zimbardo (2007) reports on his famous Stanford experiments, he was able to turn ordinary college students into sadistic guards in less than a week, simply by asking them to play the role of guards in a hypothetical jail setting. Zimbardo reports that the students became so cruel towards their fellow students, who had been randomly assigned the role of prisoners, that he had to stop the experiment after only a couple of days, even though it was supposed to run for a week (Burke & Cooper 104-5, 2009).

These experiments are disturbing because they imply that virtually anyone can become corrupt under the right circumstances and the right situation. It may be too extreme to say that anyone is vulnerable to corruption. However, the magnitude of Enron's corruption shows us, perhaps, that the corporation is inherently inclined towards illegality if it is given half a chance (Fleming & Zyglidopoulos 1, 2009). Enron was not the only corporation accused of misrepresenting their financial status and taking part in bribery -- among other acts. Corporate crime is different from other forms of crime, however, because the corporation as a whole entity benefits from the illegality, rather than just specific people in the firm. There are organizational ends that are pursued and, in the case of Enron, executives knowingly took part in acts that were supported by operational norms and organizational subcultures (Simpson 7, 2002). This can be seen in the documentary film Enron: The Smartest Men in the Room. "The dialogue gives a flavor of how ruthless and downright nasty the Enron culture had become in its pursuit of profits" (24, 2009). While California was dealing with a heat wave, Enron's West Coast trading desk decided to tinker with the market by simply turning off the power generators for a few hours. The company also came up with a plan to make more money by buying cheap price-capped energy, channeling it outside the state and back into California, selling it at inflated prices (24, 2009). The profits that Enron made were huge. "Here we witness" [in the dialogue from the film] "vindictive agents gaining pleasure not only from tremendous illegal profits, but also from the distress and discomfort caused to consumers" (24, 2009). The guys at Enron had a special dislike for people in California and their joy from taking away their electricity is apparent.

When a fire broke out in the sun-scorched state, taking down a major electricity line, a trader can be heard relishing in the misfortune: 'Burn, baby burn, that's a beautiful thing'. Another trader remarks, 'Just cut 'em off…They should just bring back…horses and carriages…lamps…kerosene lamps (Fleming & Zyglidopoulos 24, 2009).

Looking at the blatant disdain the Enron traders had for Californians, it may be more logical to take a middle way between the bad apples and the social systems approaches when trying to understand the corruption of Enron. This would mean that corruption occurs and escalates within an organization as a result of the positive feedbacks between an individual and circumstance (Burke & Cooper 105, 2009). We can look at the environmental systemic pressures and argue that along with individual choice, various personality characteristics and beliefs, along with a propensity for rationalization, it contribute towards the escalation of corruption within organizations (105, 2009).

The decision to not "act otherwise" is vital when trying to understand the immoral person and the kinds of corruption committed in Enron. In the case of the California electricity scandal, did not one person think, "doing this to people is wrong…perhaps we shouldn't do it?" Not one person decided to "act otherwise." This could be simplified as peer pressure, but there is more at the heart of the problem than peer pressure. Fleming and Zyglidopoulos (27, 2009) note that investigative research has been done on the types of people that are more prone… READ MORE

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