The Impact of Ethics on the Enron Corporation
Essay Preview: The Impact of Ethics on the Enron Corporation
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Ethics is something that is very important to have especially in the business world. Ethics is the unwritten laws or rules defined by human nature; ethics is something people encounter as a child learning the differences between right and wrong. In 2001, Enron was the fifth largest company on the Fortune 500. Enron was also the market leader in energy production, distribution, and trading. However, Enrons unethical accounting practices have left the company in joint chapter 11 bankruptcy. This bankruptcy has caused many problems among many individuals. Enrons employees and retirees are suffering because of the bankruptcy. Wall Street and investors have taken a major downturn do to the companys unethical practices. Enrons competitors and the industry have also both been affected by the bankruptcy. The U.S. economy took a sudden downturn for the worse, do to just this one companys unethical behavior.
Employees
Ethical decisions are guided by the underlying values of the individual. “Values are principles of conduct such as caring, honesty, keeping of promises, pursuit of excellence, loyalty, fairness, integrity, respect for others, and responsible citizenship” (Bateman, 2004). Numerous employees lost their jobs and retirement funds because of Enrons bankruptcy situation. While top executives were cashing in their stock options, knowing the company was going to fall, employees and shareholders were the ones who would take the biggest hit. One of Enrons principles was to offer their employees fair compensation through wages and other benefits; yet that did not end up being the case. While executives were selling their stock options, employees were going to be losing the money in their 401K policies since most of the employees had everything in the company stock options. “In large meeting rooms, just prior to Christmas in 2002, 5,000 Enron employees were informed by members of management that they had received their last paycheck, and they had no news of what might happen to health insurance or any severance pay. Those same 25 executives announcing the layoffs had just one week earlier paid themselves “retention bonuses” of $55 million” (Diekmann, 2005). These employees did not show or use ethical business conduct by making sure they themselves received pay; they are just as guilty as the top executives involved with the accounting scandals.
Wall Street
Wall Street can have a heavy influence on a company such as Enrons ethical standings. During the Enron debacle, Wall Street played a key role in the decision-making process for the leadership team of Enron. Wall Street roles in determining Enrons overall value as the company influenced Enron to push the boundaries of ethical standards. During the trial of Enrons executives former Internet division chief of Enron Ken Rice testified: “That he and his co-conspirators chose to lie about their networks capabilities to gain credibility on Wall Street and boost Enrons stock value.” (Flood, 2005) Enrons decision to inflate their values to Wall Street did exactly what the company executives wanted and the companys stock value skyrocketed. “Wall Street obediently obliged, inflating Enrons share value by as much as 75% from the time the company started bragging about its prospects.” (Lashinsky, 2001) When Enrons bubble finally burst and the companys ethical standing caught up with them, saving the company was too late for Enron the damage had already been done. Enrons affair with poor ethical decisions damaged the publics trust in the company and Wall Street. With investors trust deeply shaken and the realization that this type of practice was not an aberration, investors were sent reeling.
Investors
A companys ethical decisions have a major impact, either positive or negative, on its investors. For example, consider Enron as the case in point. The firm hyper inflated its numbers; even worse, Enron then hammered California residents by engineering an energy crisis by cutting the supply to the desperate region during the 2000 crisis according to two memos released by the Federal Energy Regulatory Commission. Obviously, investors were cheering as huge dividend checks arrived. CBS News caught several Enron employees incriminating themselves on tape. (See
However, the scandal brought the company crashing down into bankruptcy. The value of the stocks came plunging down, which caused an overwhelming negative impact on the investors, many of whom lost a substantial amount of money. The real problem is that most of the investors who lost money were actual employees of the company. Most Enron employees were urged to buy company stock as part of their 401k plans. Within months, all the investments were gone. Certainly, the ethical actions (or lack there of) caused a negative impact on the companys investors. The evidence presented shows how ethical actions can either have a positive or negative impact (or in this case, both) on investors.
Retirees
The Enron scandal was another instance where unethical decisions have cost numerous people jobs, money, and even stress related health problems. A few people cost thousands of retirees millions of dollars in a matter of days. When Enron filed for protection from creditors on December 2, 2001, 20,000 employees were left without jobs and retirement. Only months before the crash, stock prices were beginning to plunge. Enron barred the employees from selling their stock shares from retirement accounts saying the accounts were to be switched into a new plan administrator. (retrieved from
U.S Economy
The ethical actions of a company also have a tremendous impact on the U.S. economy as a whole microeconomic system. Because of the enormous impact, the federal government takes steps to protect the people by using regulations. To illustrate, the file on Enrons ethical impact on the economy is substantive. First, Enron is one of the largest companies