Enron Scandal Fraud

This is a 6-page essay discussing ethics and governance in business. It identifies one specific organization and critically evaluates its performance in relation to the key principles of business ethics. It provides background information about the organization, information about ethical dilemmas within the organization and possible ways these dilemmas can be solved. It relies on 15 sources and is presented in Harvard format.

Enron and Ethics

Introduction

Enron is an American company based in Houston, Texas. Before declaring bankruptcy in 2001, Enron employed approximately 22,000 people and was one of the world’s leading natural gas, electricity, pulp and paper and communications companies. It had reported revenue of $111 billion in 2000. However, due to accounting fraud, Enron is now considered a company that lacks ethics and stands for corruption (Enron, 1).

Ethical Dilemmas within Enron

Deontological Ethics

The media coverage of the Enron scandal revealed a major breach of ethics due to accounting fraud. The specific actions caused an ethical problem within the company. The news coverage detailed the consequences of the actions of those involved in ethically questionable behavior, but according to the deontological ethics theory, it is the actions of those individuals that need to be examined (Fisher & Lovell, 1). Ethically wise decisions are those that increase the good of the company (Stanford Encyclopedia of Philosophy, 1). In the short term, those involved in faulty accounting practices benefited monetarily from their poor choices. In the long term, those same individuals face prison time, which didn’t end up serving the good of the company at all.

According to Kant under the deontological ethics theory, the rules are more important than the outcome. In other words, the moral duty of a person is a better predictor of proper ethics than the consequences of that behavior (Herman, vi). A familiar notion of this theory is that a moral person so someone who always acts out of duty. In addition, a moral person is driven to do what is right even when it is not required (Campbell, 1). Those persons within the Enron corporation who chose not to conduct themselves in an ethically appropriate manner lacked this duty to do what was right. This brings a great lack of ethics to a corporation. If those employed by a corporation cannot run a business with correct ethics, than that business will, like Enron, ultimately fail.

Another key piece of the deontological theory states that a moral person will choose the moral path even when another, less than moral but more desirable, option presents itself (Campbell, 1). This part of the theory was not evident among certain employees of the Enron corporation either. Those employees knew what the moral decision would have been – not to commit accounting fraud. However, they chose the more desirable path that led to more money in their pockets. This is specific evidence that shows that these people were not moral nor did they conduct themselves in an ethically appropriate manner.

A successful business is run by supervisors who make ethically correct decisions. How someone in charge chooses to behave has a direct effect on how employees respond and behave themselves. “Ethical behavior on the part of the leader would appear to be a necessary condition for the establishment of an ethical organization, but this alone is not sufficient. Ethical leadership is required” (Aronson, 1). In order to have a business founded and operated under a certain set of ethically driven standards, those that are employed in managerial positions must have ethically moral behavior (Kanungo, 1). Ken Lay is a good example of a person who lacks ethics under the deontological theory. He was found guilty of conspiracy to commit fraud and, among other things, giving false statements to employees (Houston Chronicle, 1). According to Kanungo, Ken Lay was not a good choice of an ethically driven supervisor.

Virtue Ethics

As opposed to deontological ethics, virtue ethics focus on the character of a person rather than on rules and consequences (Fisher & Lovell, 1). The soul and its habits make up the character of a person and determine whether that person has good character or poor character. “Without the habitual make-up of the human person, like so much conductive metal for the transference of an electric current, there is no substrate by which transmission can occur” (Wilson, 176 – 77). In order for the Enron exectives to have shown moral character, they would have had to have that moral drive within themselves. In light of how the situation ended, the conclusion is drawn that they did not have moral character.

While Enron grew rapidly in the 1990’s, obessions with stock prices and bonuses was also growing out of control. Top executive, Jeff Skilling allowed this type of unethical behavior to flourish under his leadership. However, he didn’t act alone. There were numerous other top level employees engaging in the same type of encouraging behavior as Skilling (Fowler, 1). They were falsifying transactions to fatten their own bonuses. They were acting outside the boundaries of moral obligation because they were only interested in their own bottom line. It is a classic case of ethics against greed. The desire to make more money over rode any desire or motivation to run Enron in an ethically appropriate manner. This goes against the very nature of virtue ethics. Virtues were nonexistant because these specific employees did not have the type of character to run Enron with appropriate ethics.

There are some that believe that they can do whatever it takes to get ahead in business and that it’s all right within the boundaries of business. It is a sign of good character that one is willing to do what it takes to make a business successful. Poor character shows itself when doing what it takes to get ahead means engaging in unethical and sometimes illegal behavior (Shergold, 1). This “win at all costs” mentality is what ended up bringing down several Enron employees. These employees lacked the moral character to get ahead by making sound business decisions and acting under a code of ethics. Instead, in their haste to make more money, they forgot about ethical behavior.

When business ethics is replaced by the desire to get ahead whatever it takes, the good of the company suffers. Enron was eventually brought down because of the allegations surrounding it. The actions of a few people lacking virtue ethics ruined the name of Enron. Instead of behaving in unethical ways, the top executives engaging in accounting fraud should have had the good sense to realize that doing the right thing almost always brings about a desirable outcome in the long run. “The right act is the one that would actually do most good” (Hooker, 1). In addition, those with a good sense of character care equally about themselves and others. This was nonexistant in the case of the top level executives. They obviously cared much more about themselves than they cared about any other employee of Enron, or about Enron as a whole. “Our ordinary understanding of what is admirable and what counts as a virtue gives equal weight to self and others” (Slote, 98).

Evaluation

Accounting fraud is very unethical behavior and it was being engaged in by several top level executives lacking any sort of ethically driven behavior. When Sherron Watkins, vice president of corporate development at Enron, blew the whistle on the unethical behavior, it was realized that something needed to change (Duffy, 1). Watkins is quoted as saying, “I am incredibly nervous that we will implode in a wave of accounting scandals” (Duffy, 1). She was acting under the code of ethics that says that committing accounting fraud is not ethical business behavior. She understood that unethical employees almost always get caught.

There were some employees who wished they would get caught because they knew that they were behaving unethically. Their character told them that they were doing the wrong thing and they knew better. “’I know it would be devastating to all of us, but I wish we would get caught. We’re such a crooked company” (Duffy, 1). When all was said and done it became startling apparent what should have happened within Enron. Executives should have put stock holder interests above their own desire for more money. They should have had the moral character to run a business in an ethically appropriate way that was self serving.

Both the actions and consequences have important implications for the failure of Enron (Audi, 1). Deontological ethics and virtue ethics played a major role in what happened within the Enron corporation. Doing the right thing because one’s character dictates it results in desirable outcomes. The opposite is also true. Doing the wrong thing because one doesn’t have moral character results in undesirable outcomes. This is painfully evident when discussing the Enron scandal.

Sherron Watkins had the good moral character to stand up and blow the whistle on unethical executives. This is the kind of character that needed to be evident in those engaging in accounting fraud. The ultimate failure of Enron relied solely on those unethical behaviors. Watkins may have shed the light on the situation, but in the end she is the one that displayed deontological ethics by acting in an ethical manner. This action was prompted by her underlying virtue ethics that allowed her to display her moral character. The Enron scandal would only have been prevented if other top level executives had displayed the same type of ethical character.

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