The Milgram Experiments were basically a series of psychological experiments conducted by a psychologist professor from Yale University named Stanley Milgram; the purpose of the said series of experiments was to describe and measure the willingness of individuals to obey the orders of a person of authority and participate in a conspiracy or any scheme that conflict or go against their personal conscience. The reality is that these series of experiments had a long development period. It was first published and discussed in a 1963 edition of the Journal of Abnormal and Social Psychology. Milgram then went on to continue fortifying and justifying his initial findings. Some ten years later, he revisited his findings, although in greater depth, when he wrote the book Obedience to Authority: An Experimental View . The experimental setup consisted of three individuals: the person who ran the experiment, the subject of the experiment who is also a volunteer, and a conspirator who is pretending to also be a volunteer. Each of these people was to perform different roles. The experimenter would be the one having the authoritative role—to order both the subject and the conspirator. The teacher would have to obey the experimenter and the learner would be the one who obey and receive stimulus from the teacher. In the experiment, the subject would have the role of the teacher. They were put in a setup where they the teacher would ask the learner a series of questions and that he (the teacher) would be made to believe that for every wrong answer the learner (the conspirator) gives, he (the learner) would be given an electric jolt. Now, the turning point here is the fact that the teacher gets to experience the initial dose of electric jolt in order for him to have a firsthand experience of the learner’s would-be suffering for every wrong answer. Since the learner and the teacher would be placed in separate rooms, it would be easy to manipulate the reactions and make the teacher believe that actual electric shocks were indeed being delivered for every wrong answer. The reality was that there were no shocks being delivered and that the reactions of the learner were just recorded play backs intended to make the teacher believe that he was suffering. The experiment basically tested the teacher’s (i.e. subjects) willingness to proceed with the experiment even after seeing the learner suffering. The results showed that most people would be willing to violate their personal conscience provided that they are assured that they would not be held responsible for any consequences or collateral damages.
The findings obtained from the Milgram Experiments can, in fact, be related to Enron’s corporate culture. The management leaders at Enron’s various divisions were basically making money out of nothing by cooking their books and falsifying the company’s accounting records. For years, they made their investors, customers, business partners, banks, and the government believed that they were making tons of cash out of their operations when the reality was that they were quickly and continuously being buried in debt. They conspired with the auditors in the company to falsify the financial figures in their income statements, balance sheets, and cash flow statements to create a false reality. They knew that this would inflict severe pain and damage to their stakeholders in the future but they still went on with it and made money out of it. The insiders from the company started to dump their stocks while the public investors were continuously buying it up. Now, then the news broke out that Enron was engaged in an accounting fraud; the investors were left holding the ball and suffering the consequences.
Transparency would be the most important lesson that an auditor or one who is aspiring to be one can get from the movie. What Enron and the government regulatory agencies for publicly listed companies lacked were a provision and mandate that would require firms to engage in fully transparent business transactions and publishing of their financial reports. The truth is that it these regulatory agencies (e.g. Securities and Exchange Commission) only act to solve a problem after a seeing a lot of people suffer from its consequences and what happened to Enron is a perfect evidence and example.
Black Box accounting is not illegal. However, there are guidelines that companies trying to engage in this shady accounting practice of seeking to hire information that their investors or any other stakeholders may interpret negatively have to follow. From an ethical standpoint, however, it is indeed unethical because it deprives the company’s stakeholders of transparency and reporting accuracy. Therefore, even with the presence of this provision, auditors should still know all the details about the company they are reviewing.
There are many red flags that the auditors involved in Enron’s case should have seen. The unusually rapid growth in profitability given Enron’s size and the market conditions that time could have been a red flag, other that may be included could be: unusual changes in balance sheets, financial and operating performance that seemed too good to be true, and inadequately explained changes and missing components in the company’s financial report footnotes.
Works Cited
Milgram, S. "Obedience to Authority: An Experimental View Summary." Harper Collins (1974): 01-219. Print.
