Duty ethics or deontology is concerned with the actions of people, not the outcomes. It is the normative ethics that judges the morality of actions based on their adherence to a specific rule or a set of rules. In the terms of business, it means that employees justify their behavior by honoring organizational policies and procedures. There are four primary duty theories.
The first is avered by Samuel Pufendorf in a bygone era of 17th century. He categorized dozens of duties into three subsections as duties towards God, self, and others. He further pigeonholed "duties towards others" into two sections, i.e., absolute and conditional duties. Principal among conditional duties is to keep one's promises. Absolute duties include:
Avoid wrongdoing to others
Treat people as equals
Promoting others' good
The second approach is the rights theory; most influential among these theories is Locke's idea that the nature has mandated us not to harm anyone's of health, possessions, life, and liberty. These are our natural rights given by the Supreme, The God. The third approach is by Kant who has presented the categorical imperatives to regulate moral actions of duty. The fourth and recent addition is Ross's prima facie duties that include:
Fidelity: Keeping promises
Gratitude: Thanking those who help us
Justice: Recognizing the merit
Reparation: Compensating others for the harm we have incurred them
Self-improvement: Improving our intelligence and virtue
Nonmaleficence: The duty of not injuring others
Though the depth of duty theories is much more than mentioned here, a more detailed theoretical elaboration is beyond the scope of this paper. The paper instead aims to apply duty ethics to the Enron scandal that made the entire corporate world topsy turvy.
Clearly, the fall of Enron stands strikingly against the moral principles of duty. The failure of the edifice highlights grave misconduct on the part of top officials. They placed their own interests higher than those of public, and failed to shoulder responsibilities for ethical failings. While the company stands accused of several shenanigans, the focus of this paper rests at discussing two ethical maladies, i.e., accounting frauds and dysfunctional company culture. Principles of duty ethics will be applied to judge Enron fraudulent practices so as to present a comprehensive account to duty ethics in a business scenario.
Founded in 1985, Enron was one of the leading organizations before its bankruptcy in 2001. As its revenues reached whopping $100 billion in 2001, it was revealed that the financial condition was maintained through systematic, institutionalized, and creatively planned accounting malfunctioning. Main players kept huge debt off the balance sheets that ended up in incurring a loss to $74 billion to shareholders. Many employees lost their jobs, and several investor lost their retirement accounts. Ironically, the Fortune magazine named Enron as America's most innovative company for 6 years in a row before high stock prices fueled suspicions and unearthed the scandal.
The plot of the massive accounting fraud was written using SPEs. Special Purpose Entities facilitated Enron to keep the failed assets off the books. Apparently, duty ethics raises two questions in Enron case:
If the board members received the information from external auditing firms and accepted it because it was beneficial to the board
If board members were negligent and there was lack of diligence on their part
Enron scandal, in both cases, is a sheer violation of 'duties' and infringement of stakeholders' rights on the part of top executives. Actions of wrongdoers are questionable on several features as mentioned by these four duty approaches. First of all, traders were pressurized to forecast high future cash flows that was clearly inflated and over-optimistic. It devoid investors right to analyze things accurately. Rather, the deception was aimed at appeasing investors to maintain the profiting situation of the organization, which was not actually the case. Clearly, top executives failed on accounts of fidelity, malficence, reparation, wrongdoing to others, and not promoting others' good.
Additionally, leaders failed in their responsibilities to be duly informed of company's operations. The excessive flat organizational structure gave unrestrained authority to subordinate traders to operate multi-million dollar deals without any direct supervision. This was a 'willful blindness' on the part of Enron executives, as stated by few savants. In this course of action, the executives allowed those traders to infringe on their right to know as well as devoid the shareholders further by keeping them uninformed of organizational issues. It, thus, represents a complex case of infringement of rights as well as non-performance of duties.
The problem was aggravated further by unethical company culture. Rather than maintaining an environment of truthfulness and open communication, the management created a culture of secrecy and no bad news. Any whiff of negativity was squelched. As such , they stand accused of harming the followers and violating their rights. Employees were unable to come to grips with mounting issues. Johnson (2003) has accused Enron leaders of deceitful actions, irresponsible behavior, inconsistent actions, and broken loyalties. They failed to adhere to conduct of transparency and truthfulness.
When failures and losses of the organization were brewing, they did not try to ameliorate the situation. Rather, they covered up the loss to retain their reputation. Apparently, code of conduct was infringed. Mark-to-market was the plan by Skilling and that enabled the executives to write off any loss without altering the bottom line. This type of accounting method was designed to hide the losses and made the company appear profitable. Succinctly, they did not come up to their responsibilities of overall financial performance, compensating the losses to their employees, duty of their care and supervision to company's operations.
The case analysis further reflects conflicting interests, against the characteristics of deontology. Arthur Andersen violated the industry specifications as a certified public accountant. Andersen played two roles of auditor and a consultant to Enron. Researchers suggest that lack of supervision by an independent authority contributed to the demise.
References
Johnson, C. (2003). Enron's Ethical Collapse: Lessons for Leadership Educators. Journal of Leadership Education .
Li, Y. (2010). The Case analysis of the Scandal of Enron. International Journal of Business and Management .
Morrissey, S. A., & Reddy, P. (2006). Ethics and Professional Practice for Psychologist. Victoria, Australia: Cengage Learning .
Simmons, J. A. (1994). The Lockean Theory of Rights. New Jersey: Princeton University.
Wilcox, M. W., & Mohan, T. O. (2007). Contenporary Issues in Business Ethics. New York: Nova Publishers.
