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Enron Lester M. Legette Trident University International

ETH501- Business Ethics Dr. Bonnie Lee Adams December 19, 2011

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Introduction Recent years have proven most unethical for the Business industry; as in the case study of Enron, and WorldCom, these two case studies are a classic example of Moral and Ethical Values gone wrong. Enron once known as the Elephant in the Room of the Natural Gas industry were on the way to becoming a Natural Gas Major only to be dethroned by bad business practices, lack of accountability, lack of social responsibility, and having no ethical standards. This is a prime example how top leaders infected with greed and power; choose money over ethics, which would eventually lead to the bankruptcy and the end of a powerhouse. In this paper we will discuss how three top executives Seager, Lay, and Skilling became so far detached from their moral and ethical standards that they refused to walk and talk with the common man/woman. Ethics Ethics is two things. First, ethics refers to well-founded standards of right and wrong that prescribe what humans ought to do, usually in terms of rights, obligations, benefits to society, fairness, or specific virtues. Ethics, for example, refers to those standards that impose the reasonable obligations to refrain from rape, stealing, murder, assault, slander, and fraud. Ethical standards also include those that enjoin virtues of honesty, compassion, and loyalty. And, ethical standards include standards relating to rights, such as the right to life, the right to freedom from injury, and the right to privacy. Such standards are adequate standards of ethics, because they are supported by consistent and well-founded reasons. (Valasquez, Moberg, Calkins & Dirksen, 2010) What went wrong?

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In the case study of Enron we analyze many different types of poor business ethics that led to the most significant corporate collapse in the United States history. One of the most noticeable events that led to the collapse is the fact that Enron business culture was corrupted. Enrons leaders had no accountability of their actions, and they made decisions based off of greed and the thirst for power. Towards the end of Enron existence there were reports of expense report inflation, off balance sheet deals, accounting cover-up, misleading the public, self dealing, chasing big bonuses, insider trading, wild parties, and even theft. (Madsen, 2009) Enrons leaders created a hostile work environment that set the tone for employees to either play cut throat, or get left behind. The leaders of Enron also fostered a climate where employees had to make a decision either they would get on the bandwagon with the top executives and play by their unethical rules or they would be fired. Skilling and Lay created an environment where they didnt believe in training their employees, so they recruited from the top business schools in the country. The executives also felt that they knew everything there was to know about business and that they didnt have anything left to learn. In all Top Executives from Enron gambled the careers, money, and futures away of themselves, shareholders, stakeholders, and employees of all parties concerned. Lay and Skilling had no social responsibility the executives spent money, covered up accounting chicanery and had no regard for the future. What should have been the role and responsibility of company leadership? The role and responsibility of the leadership should have been the same as the two companies that we evaluated in case study 4, Anglo American and Primark. Anglo/Primark believed and lived by the fact the no amount of money is worth destroying the environment or treating its employee unfair. Enron should have had some social responsibility and created a

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code of conduct that would govern how they would lead the cooperation into the future. Enrons leadership should have fostered an environment where employees would have accountability of their actions instead of playing cut throat to get ahead. The cooperation should have made decisions based off of good ethical practices and followed its blueprint of management control systems that was implemented in the early beginnings of the company. These measures would have allowed top leadership to identify problems early on and could have countered all of the issues that would eventually cause Enron to fall. In what ways did key executive players work to negatively reshape the culture? The key players in Enron let greed and power cloud their judgment, which in return led to many bad business practices. Egalitarian, unwillingness to learn, lack of training for employees, outrageous spending, and unwillingness to listen to the voice of reasoning, all played a major part in negatively reshaping the culture of Enron during its final days. Around 1992 many employees could see that Enron was a house of cards, and its future was near its end. (Madsen 2009). The top leaders of Enron didnt use Utilitarianism ethics in their decision making process, because none of the top executives thought about their actions and the outcome they would have on the future. All the leaders in the cooperation thought with their wallets, no one had any social responsibility and made decisions that destroyed Enron. Top leaders in Enron were responsible for creating a social environment where bottom percentage of employees in perceived performance would be fired. (Madsen, 2009). This in return made the relationship between employees a cut throat, competitive environment. Leadership also shaped the culture

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negatively by fostering an environment where employees could be fired by not sharing the same beliefs as management either you are with us or youre or out. Adverse Consequences Enron was once headed toward being a Natural Gas Major, but due to all of the poor business decisions and ethical challenges made by executives, Enron will go down in history as the worst financial collapse in U.S. corporate history. In my opinion the adverse consequences that faced both Lay and Skilling was the fact that the two leaders thought that they were doing the right thing, Man v/s Self. Both Leaders were blinded by their greed, and the fact that they actually thought that there was nothing else for them to learn. Another Adverse consequence that Enron faced was the SEC he might have single handed stuck the knife in the back of Enron. Blinded and drunken by their own success, Lay and Skilling actually thought as long as the SEC has blessed of on it, then it was legal and it was ok. At this point nothing mattered to Lay and Skilling as long as it looked good on paper How might Human Resource Management (HRM) have played a central role in setting the moral compass at Enron? If the Human Resource Management at Enron would have done their job, we wouldnt be discussing Enron today. Human Resource Management of an organization has many different responsibilities. Their main responsibility is the recruitment of, management of, and providing direction for the people who work in the organization. HRM is also responsible for compensation, hiring, performance management, organization development, safety, wellness, benefits, employee motivation, communication, administration, and training. (Heathfield, 2011)

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Enron didnt hire individuals that would be beneficial to the cooperation; instead Enron recruited and hired students from the top schools in the country. In any other organization this might be a good thing, but with no training available to employees, and a lack of experience and discipline from the new recruits this was a recipe for disaster. The Human Resource department is also responsible compensation, if Enron HR department would have controlled and regulated the amount of compensation paid to employees by putting a cap on what employees could make; it would have eliminated the cut throat effect. Human Resource Management could have done many different things to save the corporation from failing. They could have opened up the lines of communication so that employees could have voiced their opinion and gave leadership proper feedback that would have been an early warning sign that there were underlying issues. Human Resource Management should have been more responsible and ensured that training was being conducted so that employees would have the proper training. HRM could have put measures in place that would have taken a more active role in managing the people and the culture of the organization. If the Human Resource Management would have taken a more proactive approach in all of their duties, Enron could have avoided the debacle. Deontological Ethics If we apply Deontological ethics to this case study, then everyone who knew about what was happening on the inside of Enron can be at fault. Alan P. Warnick actually admits that they know what was going on, he even referred to Enron as The house of cards. In my opinion Warnick had a duty to expose what was happening in the Enron scandal. The difference between Enron and WorldCom is the fact that WorldCom had Cynthia Cooper, an employee that wasnt

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afraid to stand up for what was right. Enron had a bunch of individuals that sat around and called the business a house of cards. No one in Enron acted morally and the fact that Warnick can give a detailed interview about what happened in Enron means he is as much the blame and Lay and Skilling I do hope that he got rich also. Conclusion Having displayed a vast knowledge of the information presented above we have analyzed top executives of Enron being blinded with greed and power unable to see the underlying message in the sand. Lay and Skilling made decisions based off money they are two leaders that forgot to lead and ignored the fact that they had a social responsibility to everyone that was directly affected by their actions. We also briefly discussed that all of the employees had a little to do with the demise of Enron, because they didnt have the Cynthia Cooper, known as the hero of WorldCom. In all we can learn a lot from Lay, Skilling, and Enron for one, we can learn that its not hard to get lost in our own success. Another thing that we can learn from this is the fact that we can always learn something. The last thing to take away from this is that if No one in Enron stands for something then they will fall from anything.

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Refences Free, C., Macintosh, N., & Stein, M.. (2007). Management Controls: The Organizational Fraud Triangle of Leadership, Culture and Control in Enron. Ivey Business Journal Online. Retrieved Dec 05, 2011 from: http://proquest.umi.com/pqdweb? index=4&did=1399135231&SrchMode=1&sid=2&Fmt=3&VInst=PROD&VType=PQD&RQT =309&VName=PQD&TS=1314458740&clientId=29440 Madsen, S. & Vance, C. (2009). Unlearned lessons from the past: an insider's view of Enron's downfall. Corporate Governance, 9(2), 216-227. Retrieved Dec 05, 2011, from: http://proquest.umi.com/pqdweb? index=1&did=1882661041&SrchMode=1&sid=2&Fmt=3&VInst=PROD&VType=PQD&RQT =309&VName=PQD&TS=1314458740&clientId=29440 Velasquez, M., Moberg, D., Calkins, M., & Dirksen, (2010). What really went wrong with enron? a culture of evil. Markkula Center, Hanson, K. (2002, March 05). Interview by AN Nakayama [Personal Interview]. Lessons from the enron scandal.