Corporate Ethics: Enron Corporation Position Scandal - Research Paper Example

According to Kotler & Armstrong p. 97), “written regulations cannot possibly cover all potential marketing abuses and existing laws are often difficult to enforce. However, beyond written laws and regulations, business is also governed by social codes and rules of professional ethics”. As such, this paper seeks to discuss the significance of corporate ethics to business and the stakeholders involved. The paper discusses the impact of violating regulations and ethical considerations that that guide the conduct of business and it will mainly draw examples from the case of the Enron Scandal. The paper starts by giving a brief synapse of what Enron was and what the Enron Scandal was and why it caused the downfall of Enron. The paper will also discuss the ethical considerations of what Enron did to its investors and take a position on whether it was okay to sell stocks on what you believe will be the expected dividends. Enron was a company based in Houston and it specialised in commodities, energy and service corporation. The company was rocked by a scandal in 2001 and this was recorded as one of the biggest scandals of the century as a result of the fact that shareholders lost $74 billion and thousands of employees and investors lost their retirement accounts, and many employees lost their jobs (The ten worst corporate financial scandals of all time, nd). The main players in this particular scandal included the CEO Jeff Skilling and former CEO Ken Lay who kept huge debts off the balance sheet. In other words, the figure presented on the balance sheet revealed normal operations of the company which did not raise any suspicion among the investors. They also hoodwinked the investors by overstating their profits so as to attract many investors to pour in money into the company. However, things turned nasty when Sherron Watkins the internal whistle blower exposed them after witnessing high stock prices that fuelled external suspicions. Upon full investigation of the case, the main culprits were convicted of a criminal offence and the CEO was sentenced for 24 years and his partner in crime Lay died before his serving time. Andersen was also found guilty of fudging the company’s accounts. After the company was rocked by this scandal, it filed for bankruptcy. From an ethical perspective, it can be noted that what Enron did to its investors was not good especially to sell stocks on what you believe will be the expected dividends. The investors were not fully aware of the underhand dealings taking place behind the scenes in company. Unsuspicious of anything fishy, the investors poured their money into the company. According to The Economist (2002), “The main issue that should now attract more attention is: the governance of the public capital markets, and especially the role played by auditors”. It can be noted that Enron overstated its profits by almost $600m and the auditors gave a blind eye to this scandalous activity. By any standard, the professional conduct of the auditors in this case is unethical since they are the custodians of the investors and the society at large. Ignoring such malpractice in business is tantamount to promoting corruption which is unethical. A closer analysis of the case of Enron shows that it engaged in unethical practices deliberately in order to hoodwink the investors and generate more profits through unorthodox means. Selling stocks on what is believed will be the expected dividend is not a right thing to do since action would be based on speculation. In any case, the expected dividends may not turn out to be true and this will be a major threat to the shareholders. In as far as the concept of business ethics is concerned, it can be noted that by far, the practice of Enron was unethical. A reflection on the concepts of ethics and value supports this assertion. Business ethics are primarily concerned with the practice that seeks to distinguish between something that is morally good from bad (Robbins, 1993). Ethics mainly derive from the values of business and these values represent convictions that “a specific mode of conduct or end state of existence is personally or socially preferable to an opposite or converse mode of conduct or end state of existence,” (Robbins, 1993, p.171). In other words, values contain a judgemental element in that they help individuals to decipher as to what is right, good or desirable. DesJardins (2006, p. 5) also describes values as “essential and enduring tenets” that help define the company and are “not to be compromised for financial gain or short term expediency”. In simple terms, values shape the operations of the organization and they should never be compromised for financial gain. Any attempt to compromise these values in the organization can lead to its demise like what happened to Enron which knowingly compromised its values for financial gain. The company ought to take into account the impacts of desire for short term gain on its operations as well as the interests of the stakeholders. In most cases, the desire for short term gains can put the company into disrepute or it can ultimately lead to its downfall as illustrated by the case of Enron. Upholding business ethics can be beneficial to the company as a result of various factors. Ethical practice in business leads to long term stability if properly implemented. As illustrated in the scandal of Enron, more should be done in order to protect the interests of the shareholders in the company. Kotler & Armstrong (2010) also concur that the recent rash of business scandals and increased concerns about the environment has created fresh interest in issues related to ethics and social responsibility. Enlightened firms often encourage their managers to look beyond what is required by regulatory systems and do the right thing. Such a company is regarded as socially responsible since it would be concerned with protecting the long term interests of their clients and other stakeholders who may have an interest in the operations of the organization. Companies that do the right thing in their operations are likely to gain the trust of their consumers. However, firms that engage in unethical practices are likely to be discredited by the clients and this may have a negative impact on their performance. There are certain issues that are often encountered in the operations of the company that present conflicts of interests. In some cases, people can honestly disagree about the right course of action that can be taken in a given situation (Kotler & Armstrong, 2010). Apart from the scandal that led to the demise of Enron, it can be noted that this company was regarded as the best company to work for by the Forbes Magazine. This means that the company was not that bad altogether besides the scandal that took a toll on its operations. Thus, in order to address this unfortunate situation from happening, many industrial and trade associations have suggested codes of ethics (Kotler & Armstrong, 2010). A code of ethics is very significant in the company since it guides the conduct of the employees. This document also helps the employees to do the right things in their operations and they can also be in a position to make a distinction between something that is morally good from bad. The scandal of Enron could have been avoided if the responsible authorities had upheld their ethical principles. However, their desire for financial gains swayed their attention and ended up acting unethically. Over and above, it can be noted that the concept of business ethics is topical in that it impacts on the performance of the company as well as the interests of the stakeholders. Failure to uphold the ethical principles in the company’s operations can lead to its ultimate demise. Such practice can also put the company into disrepute which negatively affects its operations. As illustrated in the case of Enron, scandals are witnessed because companies are engaging in unethical practices in their operations. In order to address this cancerous practice in business, it can be observed that a holistic approach should be taken to develop policies, guidelines and other responses to complex social responsibility issues that can impact on the operations of business. This will help to safeguard the interests of the company and the stakeholders in the long run. References DesJardins J. (2006). An introduction to business ethics. 2nd Edition. Boston. McGraw Hill international Edition. Kotler, P. & Armstrong, G. (2010). Principles of Marketing. CT: Person. Robins, S.P (1993). Organisational Behaviour: Concepts, controversies and applications. New Jersey: NJ. Prentice Hall, Englewood Cliffs. “The ten worst corporate financial scandals of all time” Viewed from: . The Economist (17 Jan 2002). “Enron: The real scandal”. Viewed from: . Read More