Introduction
The 2001 Enron Scandal was one of the first corporate persecutions of the New Economy. The fall of the company marked one of the biggest cases of bankruptcies and pointed at the gaping hole in America’s corporate morality and responsibility. The constant pursuit of profits and indiscriminate bid for rising revenues, while trying to downplay all signs of dangers of such a path, led to the collapse of the company. As long as the company value was increasing and stock prices rising thus benefiting the investors, even the board of directors did not bother to take an in depth look into the company accounts. From here onwards began the ethical dilemmas and their consequent tragic results associated with Enron.
According to Milton Friedman the social responsibility of corporations is to boost profits which have other related benefits of employing more and more people, who can therefore pay more taxes, which in turn will go to support programs that benefit the general public. But as has been justly pointed out by business ethicists, such a line of thinking is indeed myopic and makes corporations solely money making entities, thereby removing any direct sense of duties, obligations and responsibilities from its operation. It was such a line of thought and action that led to the ethical dilemma faced by Enron, the dilemma of choosing between a desirable stock performance which satisfies investors, and the need to service all constituents of the corporate set up, in a responsible manner. Enron had gone for the former rather than the latter, and that had guaranteed the company’s downfall. Treating the case study of Enron and its plan of action with the philosophical analytical tools of ethics, the shortcomings and mistakes of Enron’s plan of action becomes absolutely apparent.
About Enron
Enron had a robust code of ethics which was based on respect, integrity, communication, and excellence (RICE). These values were described as follows:
Respect: Enron believes that employees should treats others as they would like to be treated themselves . Enron do not tolerate abusive or disrespectful treatment such as ruthlessness, callousness and arrogance .
Integrity: Enron works with customers and prospects with honesty and sincerity .
Communication: Enron believes in transparent communication and listens to others. Excellence: Enron is satisfied with the best that can be done.
But in 2001 when the company went down, it showed a breakdown of all these ethical values. Highly optimistic and positive reports of earnings, covering up or hiding all information about losses as well as other tactics were all employed together to keep the stock price falsely high. This false projection of stock values made all the other excesses within the company seem and deflected unwanted scrutiny.
All these tactics drove up the price of Enron stocks to $90, this made all investors and employees with substantial stocks to their names and other stakeholders abundantly happy and wealthy, but that was only for the short run. Soon the stock started free falling and took down all stakeholders’ interests with it. All in all the investors faced $74billion in losses and the employees lost all their pension plans as well as their jobs.
The plan and focus of Enron as a whole was on the short term benefits of sky high profits and stock prices, rather than the long term vision of creating a stable business unit. This plan reveals its ethical flaws rather easily when it is viewed in terms of Badarraco’s questions of “the plan of action that does the most good and the least harm.” Whose rights are being affected by this action? In the case of Enron it becomes clear that their short-term focussed plan of action was extremely flawed, as rather than doing the least harm and the most good, it took down the company and the interests of all its stakeholders along with it- saw all the employees unemployed and robbed off their pension plans in return of only a very brief spell of positive returns.
Ethical Theories
Enron’s plan of actions falls short on all counts of morality as well. People are raised in such an environment that is their socialisation takes place in such a way that a sense of ethics is instilled in them from the very beginning by their families, schools, and churches. The values of ‘honesty’, ‘decency’, ‘care & concern’ are a part and parcel of the interpersonal communications at Enron, however they tend to get lost during business dealings. The RICE code of ethics broke down, learning rules, ensuring the ethical fitness of the company, having a sense of what is wrong, an urge from within towards the honest path i.e. all the characteristics of both ‘act’ and ‘character’ based morality were given up when faced with the dilemma of whether to address the problems of outstanding loans, debts etc. head on or to keep mum and focus only on the stock values which will keep the investors happy.
Neither the Board of Directors nor the other employees took an in depth look to get a sense of the real picture, just because all stakeholders were satisfied in the short term. There was a breakdown of communication and transparency throughout the company.
Venturing further into the ethical dilemma of short term VS long term goals, faced by Enron, it becomes clear that the plan of action of the company to neglect shortcomings and focussing on only profit maximization fell short of Bentham’s Teleological goals of greatest good for the greatest number, and ended up negatively impacting all the stakeholders together. The owners were incarcerated, investors lost their investment, employees lost both their jobs and pensions, the company had also led to the California power crisis-jacking up the price thus affecting all consumers too. All in all, the intention of gaining profits and an envious stock price, led to utterly negative consequences where both the self and other stakeholders alike were devastated. In fact, it seems that though the plan of action had been taken up thinking about the investors’ interests at first but the myopic vision and sole focus on profit soon turned the stakeholders into the means to achieving the end of higher profits. On the basis of the utilitarianism theory of ethics, the actions of Enron are unethical as they resulted in the negative consequences for the stakeholders of the company.
According to deontology theory, it is the ethical responsibility to conduct one’s duty and not bother about the consequences. On the basis of the deontology theory of ethics, the actions of Enron are unethical as the company should have conducted its duty ethically and with full responsibility towards the stakeholders of the company.
All laws and rules were flouted when the account details were fudged by the CEO and CFO, in fact with time the company flouted each component of its RICE code and displayed arrogant behaviour by the leadership, did not communicate vital details to its employees or investors, on certain accounts even inconvenienced certain employees to favour those belonging to the management, broke all norms of integrity through fraudulent accounts etc.
When faced with the ethical dilemma the plan of action of the company was decided upon keeping in mind the reputation of the company, thus using reputation as a goal to be secured and upheld at any cost rather than treating it as a guide. Additionally the decision taken were the work of only a handful and not all the stakeholders involved. The practice of providing constantly misleading information, fake details, indiscriminate pursuit of profit led to the flouting all obligations to its stakeholders. In fact the plan was marked by a complete lack of fairness and ultimately saw the worst treatment being meted out to the employees and investors who lost jobs, pensions; retirement plans and money, at one go. There were even accounts of biased treatment from the highest level of management when the company was plummeting to its lowest. Average workers who had been forced to place their retirement plans in Enron stock, were blocked from selling their shares when the stock price was falling rapidly. While on the other hand top executives, were allowed to sell off their own. Five-hundred officials received a total of $55 million in “retention bonuses” while laid off workers received only a part of the severance pay they had been promised upon joining. Thus in the end the plan of action of the company also saw unfair and unjust treatment of those less advantaged, while the coffers of those better off were filled.
On the basis of the ethics of care, the actions of Enron were unethical as the company did not care about the relationships it shares with the stakeholders of the organization and the impact of its business practices on these relationships.
Conclusion
Overall, the case study of Enron makes it abundantly clear that when faced with the ethical dilemma of whether to focus on the immediate interests of the investors and stakeholders or risk punishment and loss of reputation in the short run only to guarantee a robust and honestly function business in the long run, one should choose the latter. The drop in the profits that the investors would face in the initial period would be more than compensated for once the company would be back on track once again. By choosing the easier and short term way out, Enron bartered away the future of its own self as well as all its stakeholders, especially its workers, and in the process created far graver ethical problems than it would have, had it chosen to take the first hit and sacrificed the short term economic gains for its investors. The decoupling of ethical values from the rest of the company’s operation was a result of this choice, which consequently led to its downfall, thus the case study of Enron makes the importance of ethics in business all the more evident and significant. The actions of Enron were unethical with respect to the various ethical theories of care, utilitarianism and deontological approach.
Works Cited
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- Folger, Jean. "The Enron Collapse: A Look Back." 1 December 2011. Investopedia.com. http://www.investopedia.com/financial-edge/1211/the-enron-collapse-a-look-back.aspx. 25 November 2014. <http://www.investopedia.com/financial-edge/1211/the-enron-collapse-a-look-back.aspx>.
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