Nov 19, 2020 in Case Studies

M7A1 Case Analysis: Enron’s Ethics Policies

M7A1 Case Analysis: Enrons Ethics Policies

Introduction and Situational Analysis


Ethics generally describes a given moral code of conduct. An ethical dilemma is a complex situation involving mental conflict between different moral imperatives. However, the term dilemma includes pros and cons, or rather for and against the reasons for holding a social position on an issue affecting the society.

An organizations unethical behavior can be evaluated based on its ethics program. It is necessary to research on the Enron Corporation (as a sample organization) and analyze the lessons learned from its last scandal. Enron was once considered the largest seller of natural gas in the North America by 1992. Kenneth Lay, who successfully merged three gas companies, formed it in 1985. In an overzealous attempt to further develop the corporation, the management foraged into buying various assets like electricity plants, pipelines and other broad services around the globe, a move that, in the long run, paved way for its downturn (Salter, 2008).

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Many factors, some managerial and other external, led to the Enrons dilemma and its eventual collapse. To begin with, the top managers like Andy Fastow, who was the chief financial officer, proposed the creation of a Special Purpose Entity (SPE) known as LJM1. It was to attract more partners into the business as well as to help in the purchase of Rhythms NetConnections stock. A downfall was apparent when Fastow was proved an incompetent manager to lead the LJM1 and because the financial statements were inconsistent. This violation of the corporations principles led to its untimely implosion. Arthur Anderson, who served as the outside auditor, and David Duncan, his auditing partner, also contributed to the dilemma when they refused to disclose the corporations financial position besides violating the auditing standards; this added fuel to the conflict (Salter, 2008).

Another aspect that also created dilemma was the abnormal revenue recognition that was being constantly overstated. This made the corporation reluctant only to realize later that it was making huge losses. Additionally, the White-Winged Dove, a special entity that financed Enron, led to Enrons bankruptcy because most of the asset transfers were on loans and not on true sales. Last, was the inability of the finance committee and the board to manage the risks well and, consequently, their failure to manage minor accounting errors. Above all, Enrons competitive environment and performance standards caused a deception culture that made the employees behave unethically, further contributing to its downfall (Salter, 2008; Marianne, 2009).

Stakeholder Analysis

Stakeholders are the most important partners in any business organization. They have an increased responsibility to keep a business on the positive front move. Notwithstanding Kenneth Lays refusal that Enron was facing financial problems; the stakeholders were affected negatively and driven into the dilemma, as well. The merge with Dynergy as the major stakeholder was never a success because it terminated the transaction contract. In addition, Merrill Lynch, Bernard Shapiro, Ann Pearl, and Morgan Stanley stakeholders followed the same suit when the latter alleged claims of damages from Enron Corporation. Therefore, failure of Enron to comply with the guidelines set forth with its stakeholders became apparent when the consumers of Enrons products considered the situation a dilemma. As a stakeholder corporation, Dynergy would have played a better role in helping in the management of funds to help improve Enrons transparency and to avoid the dilemma because it would have taken responsibility in asset maintenance and possession (Sims & Brinkmen, 2003; Marianne, 2009).

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Analysis Based on Ethical Theories

By critically analyzing the dilemma based on cultural relativism, some of the practices undertaken by Enron Corporation can be considered either acceptable or unacceptable in the society. To begin with, fraud and bankruptcy experienced by Enron Corporation can never be socially acceptable because transparency is the most important issue in creating an enabling business environment (Bryce, 2003).

Additionally, the competitive nature created room for coverage of errors and cheating that brought conflict of interest, which is not socially accepted. Consequently, the stakeholders had trouble in identifying any of these practices as Enron was a bankrupt since both the executive and employees concentrated on making profits for themselves rather than for the corporation at large; this was also seen as a major cause of companys downturn. However, the competitive nature of Enron ensured that the employees worked to their maximum best because they feared losing their jobs, and this contributed positively to its internal and external environments (Bryce, 2003).

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Conclusion and Recommendations

The success of any business goal is dependent on the decisions the managers make in taking the business to the future. Because two are better than one and business ideas are shared each and every time, Enron would have done much better if it considered this as an issue of concern. In case of Enron, much weakness in its personnels conduct and wrong business choices led to the dilemma. Though the corporation did its best in the beginning to manage its funds, merging with others, and bringing in various stakeholders, it was bad and unfair that it never disclosed the most relevant and important information to its stakeholders. Moreover, the corporations unaccommodating culture together with its unethical infrastructure did more harm to the organization at large. Since the aim of any business is to make profits, it can only be achieved if good ethics are practiced. In summary, therefore, suppose Enron survived the scandal or, in order to avoid another Enron, companies need to be very curious and have well-written code of ethics that is fully implemented. Businesses must adopt healthy and sustainable cultures and, above all, they should ensure that they as employers and their employees are knowledgeable about business ethics.


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