Case Analysis Commentary: Enron's Ethics Policies

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The Enron Corporation represented a golden future for its former employees and was, in fact, an enormously successful company in the 1990s. From Enron's beginnings in 1985, the company “owned and operated pipelines for oil and gas; soon it was buying up power plants around the world” (La Caida de Enron – A Cautionary tale – ABC news videos). In the face of government deregulation in the energy industry Enron made the decision to move forward into other activities. According to the aforementioned ABC news video film footage, Enron made the decision to engage in major commodity trading. The company's speculations moved beyond energies commodities. Eventually, Enron would forge a reputation as one of the most stellar and formidable businesses underneath the Wall Street spotlight.

Enron hit the number seven spot on the Fortune 500 list. With the additional activity of having become a major commodities trader, Enron at that time in the 1990s was “heralded as a paragon of corporate responsibility and ethics...successful, driven, focused, philanthropic and environmentally” sound states Sims and Brinkmann (p. 243). Furthermore, during Enron's investment activities in the commodities trading world, the company speculated on industries outside of oil and gas such as water, and Internet space. As the company shifted gears into an expansion of business area endeavors, company culture seemed to shift as well. During the years-long span of the unfolding situation, Sims and Brinkmann reveal that Enron's CEO, Jeffry Skilling, promulgated a motto to propel the new culture of “Do it right, do it now, do it better” (p. 244). In the midst of this shifting cultural ambiance, at Enron's height of success signs of cooked financial books surface – the first signs of something having gone terribly awry.

Enron's month of October statement produced astonishing statistical figures discrepancies. The ABC news report noted that “in October Enron's Statement of Earnings raised even more questions; $1.2 billion of equity had mysteriously vanished, Enron's stock price” which had risen to “nearly $90 a share fell off a cliff down to a low of 26 cents” (La Caida de Enron – A Cautionary tale – ABC news videos). When the company was pressed for explanations Enron's executives brushed them off. In secretly rendered deals, surrounded by many conflicts of interest, Enron's top executives financially prospered by dollars in the double-digit millions. Arthur Levitt, former Securities and Exchange Commission (SEC) Chairman commented that accountants and the Board failed in their share of ethical responsibilities. With the shadow of negative earnings lingering over Enron's reputation, that might signal to investors to retreat their support – the “deceiving web of partnerships” and implementation of “increasingly questionable accounting methods to maintain its investment-grade status” continued, informs Sims and Brinkmann (p. 245). Employees were shocked and stunned, having lost all their retirement savings along with their jobs.

The bottom line was that Enron's upper management executives were not forthright in their business practices, letting the chips fall where they may. Enron executives refused and declined to appear before a panel hearing of Congressional representatives. However, the head of Enron's primary accountant firm did, and in answering questions protested that Enron had “withheld critical information” (La Caida de Enron – A Cautionary tale – ABC news videos). He testified that additionally, Enron's important information was not divulged to the accountant team. That said, members of the Enron's accountant committee had received in a single year as much as $52 million, according to the same report source. Also, Sims and Brinkmann announce that earning were reported before actual materialization of business deals leading to a quickly infectious erosion. Essentially, Enron placed a higher value upon deception and greed to protect its reputation and keep money flowing into the pockets of the top execs – regardless of the rank-and-file workers' hard work and inevitable loss.

Shareholder Analysis

Stakeholders obviously include the employees, shareholders, suppliers, accountants, and commodities and exchange house markets/market-maker participants. With what must have been occurring as a colossal series of unprofitable futures trades, it cannot have gone unnoticed by officials and professionals in the trading exchanges. That said, it was not the market exchange's responsibility to police the internal workings of one of its client's business practices. During the development of Enron's debacle and fall from financially sound reputation, stakeholders inside the company had conflicting interests. This example is most apparent with hefty sums of money being paid to accountants. Every business has stakeholders. What makes Enron's situation so unique is that the ethical culture was so unhealthy. It is commonly known among professionals active in the business world that leaders model behavior. As outlined in the preliminary case analysis instructions for this investigation, despite the fact Enron had a very strong written code of ethics – the company culture belied something different.

What were the mechanisms of stakeholders' conflict and abuse coupled with a breakdown in company ethics in its culture that caused Enron to implode into its own destruction? Stakeholders' conflict among well-paid employees and accountants is one part of the story. Abuse of shareholders' trust and employees who lost their retirement funds, is another. Certain cultural elements supported the immoral behaviors of bad business practices in Enron's environment. The point of an ethics program in the first place, as points out Muel Kaptein is “to improve [italics, mine] the ethical culture of an organization” (p. 261). In a journal article discussion on ethics programs and ethics culture, Kaptein emphasizes in his paper insists that there is a multiplicity of elements – as constructs – in ethics programs and an ethics culture. Perhaps one of the cultural elements within Enron supporting unethical behavior was an attitude of its leaders to prompt employees to: Do as you see me do, not what I say, or obey what is written. Nevertheless Kaptein poses an interesting question: “Should organizations always adopt a full-scale, standardized ethics program independent of the current culture or should the components of an ethics program adopted be determined [italics, mine] by the current culture, the specific dimensions of ethical culture that require improvement and the impact that each component of an ethics program may have on these specific dimensions?” (p. 261). The latter seems to make better sense.

Researchers Sims and Brinkmann certainly believe that Enron esteemed the company's bottom line above people and any ethical behavior. They observe that codes and written regulations have little to do with actual practice within an organization's culture. A proper analysis of the stakeholders which had a conflict of interest in the Enron case, the culture evolved with the opening up of industry deregulation Sims and Brinkmann explain, encouraging “experimentation” and an establishment that “the culture at Enron was one that expected employees to explore this new playing field to the utmost. Pushing the limits was considered a survival skill” (p. 244). So then, as certain key stakeholders who clearly knew ethical concerns may have been on a slippery slope paid more attention to upholding the image of the company's enormous success. In this way, Enron's culture dictated behavior.

Characterizing Enron's organizational culture as one of smoke and mirrors, Sims and Brinkmann continue to describe the company's partnerships. In inquiring how Enron lost both its economical standing and ethical “status” Sims and Brinkmann ask: “Is it because of its very size and effects? Is it the direct harm to primary and secondary stakeholders?” (p. 243). The most disturbing aspect may be as Sims and Brinkmann put forth is that Enron looked like a squeaky-clean model of excellence in terms of business “corporate social responsibility” having the best of both worlds in “ethics tools” and “status” in business achievement (p. 243). The levels of all stakeholders involved in terms of who-knew-what perhaps will never be known and are difficult to ascertain. Furthermore, Enron partnerships became a basis for condoning “exaggerated earnings” and prematurely reporting “$110.9 million in profits” never realized according to “Enron Ethics (Or: Culture Matters More Than Codes) (p. 243). Enron also had a harsh performance practice to fire those who were bottom-tier producers. Employees were possibly fearful of losing their jobs, although ironically in the end they did.

Analysis Based on Ethical Theories

Basic moral principles and philosophies of different ethical standards have underlying fundamentals that can be found in law, education, medicine, and nearly every human institution or sphere. Cultural Relativism places moral codes upon a sliding scale, wherein different people have different standards. There are no absolutes in this regard.

Issues in ethical behavior in business present a growing concern to define and control it. In 'Ethics for Managers: Philosophical Foundations and Business Realities' Joseph Gilbert admits that there are consequences in terms of “ethical implications of actions taken by managers,” and secondly he particularly condones in his book a concern when the issue is not clear to an individual manager his desire is to “provide some time-tested ways of thinking about ethical issues when they arise” (p. 2). Interestingly enough, and perhaps wisely, Gilbert does not seek to criticize the macro-cosmic level of vilifying the Western system of capitalism but rather to narrow a guiding path to help managers work through common workday matters with thoughtful considerations.

Coercion, control, and willingness come to mind when the discussion of ethics theories surface. In quoting a Greek tragedy Gilbert explores ethics theory, suggesting that “there are many examples in literature of the tension that can exist when law and morality do not coincide” (p. 230). Gilbert draws the comment from the Greek play Antigone, in which the King decrees one of the dead brothers killed in battle be left unburied. The two brothers' sister, Antigone resists the King's decree. Another example that Gilbert makes mention of is Dr. Martin Luther King Jr.'s eloquent and poignantly moving 'Letter from Birmingham Jail.' In the opinion of this writer, the piece is a masterful study in what ethics theory should embody at its core. Stansbury and Barry make valid remarks concerning the enforcement of ethics programs, and the issue of control.

Can an employer truly force employees or organizational stakeholders directly associated with any company to comply? The distinction is formed in comparison to ethics programs that are compliance-based versus values-based. Stansbury and Barry obviously realize that “control is indispensable” in an organization however they argue that “the manner in which control is exercised” might have “pernicious consequences” (p. 239). Stansbury and Barry are concerned with the forms of controlling factors that an organization uses, “cultivated by programs” to motivate employees and that the very programs designed to help instill ethical practices may cripple workers abilities' “to exercise their own moral judgment, especially in novel situations” (p. 240). The earlier reference to the famous Letter from Birmingham Jail, by Dr. Martin Luther King, Jr. when actually pondered may convince people to act and behave in a manner that will cause less harm to others. While the politics of control may deepen the analysis and contrasts of nuances in ethical theory, the case of Enron's fatal practices may enable companies to avoid similar pitfalls.

Enron Ethical Dilemma Conclusion

The ethical dilemma of Enron, placing profits or the appearance of profits, above doing the right thing eventually sank the company. In doing so the company lost economic standing and any salvageable potential revenues. Various companies have patterns of greater or lesser profit margins in the life and development of their firms. Common sense dictates that certain years may be more or less profitable than others. Nel, Nel, and du Plessis consider organizational cultures as “rites and rituals, including the informal behaviour” and are many times referred to as just the “how things are done” inside a corporation (p. 59). The following may be the key to reasons why Enron came to its unfruitful and embarrassing demise. The Enron code and regulatory standardized policy for ethics was merely a written protocol. Nel, et al., state that “developing a code of ethics is important” yet such code(s) should “reflect a values context instead of merely a compliance” (p. 59). It is doubtful that Enron had any actual ongoing training sessions in ethical concerns.

If Enron did ever establish any such sessions with any amount of regularity, the intentions were never taken seriously nor heeded when it came to real-life business practices that would involve stakeholders to harm or become harmed. It seems clear, and obvious that at the deepest level of its company culture, Enron merely had a written compliance-based code of conduct. As Nel, et al., point out in quoting Trevino & Nelson (2011) “The value-based approach is more effective than the compliance-based as it motivates employees to act in accordance with the values which are shared” and that such rewards that accompany it help to reinforce people's behavior (p. 60). Enron executives had the power and ability to set the stage early on when the company had its focus on the oil and gas industrial activities. Perhaps controls as to company investment strategies may have been of value.

It is common knowledge in the business world that futures commodities investment trading is very high risk. In consideration of company growth, instilling a value-based ethics program, coupled with generous employee stakeholders' stock options packages might have proven a better pathway.

The world has gotten much more complex and dynamic than when the Enron debacle occurred, yet business ethics and theory is constantly being discussed. The electronic world of the Internet and business matters has greatly increased risk factors, particularly in terms of the cloud and associated IT security. Enron's sad lesson can be pertinent, though the unsavory example of how far a company can fail. In the case of Enron the business failure and attempted cover-up led to the blatant disregard for ethics at all.

Stakeholders and partnerships were on some levels, whether purposefully or inadvertently – drawn into a large-scale fiasco that ruined people's lives. In Muel Kaptein's quantitative approach results of his study showed “that the relationship between the individual components of ethics programs and ethical culture diverges” and “distinguishing between the components of an ethics program and the dimensions of the ethical culture” help to better comprehend the correlation between the two (p. 271). It is clear that business ethics and what was learned from the neglectful failure of Enron will inform business management actors from this day forward.

References

Definitions U.S. Legal. (2013). Code of ethics law & legal definition. [Data file] Retrieved from http://definitions.uslegal.com/c/code-of-ethics/

Gilbert, J. (2012). Ethics for managers: Philosophical foundations and business realities.New York: Routledge.

Kaptein, M. (2009). Ethics programs and ethical culture: A next step in unraveling their multi-faceted relationship. Journal Of Business Ethics, 89(2), 261-281. doi:10.1007/s10551-008-9998-3

M Eduardo Villa Corrales. (2011, February 28). La Caida de Enron – A Cautionary tale – ABC Newsvideos. [Web Youtube vlog comment]. Retrieved from http://www.youtube.com/watch?v=zSt9Ovt9ksY

M Prindle. (2010, November). Enron ethics – the culture of Enron. [Web blog comment]. Retrieved from http://business.mattprindle.com/leadership-skills/enron-ethics-the-culture-of-enron/

Nel, P., Nel, L., & du Pleiss, A. (2011). Implications for human resources and employment relationspractice with regard to the integration of corporate ethics programmes into the culture of organisations. International Employment Relations Review, 17(2), 55-74.

Sims, R. R., & Brinkmann, J. (2003). Enron ethics (Or: Culture Matters More than Codes).Journal Of Business Ethics, 45(3), 243-256.

Stansbury, J, & Barry, B. (2007). Ethics programs and the paradox of control. Business Ethics Quarterly, 17(2), 239-261.