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Activity 3: Enron Analysis
Several years ago, the Enron Corporation was a high-tech investor’s dream. Stock prices were high, employees were able to buy stock and invest in their 401K plan, morale was high, and things were apparently going smoothly. Their auditing firm, Arthur Andersen supported the financial numbers that were given to the public as to the soundness of the company. Then a whistleblower from the inside (a vice president) revealed that there were many other corporations formed within the company, and monies were loaned to top officials of the company. In a matter of weeks, Enron became (at that time) the largest bankruptcy case in American business history. Later it was discovered that senior managers took millions of dollars through stock transactions and, at the same time, were telling employees that the company’s future looked bright. Many employees lost all their retirement assets, and stockholders lost millions.
Delineate the ethical standards violated in the Enron case based on six (6) ethical theories. Begin by briefly identifying/defining each of the six (6) ethical theories. Next, focus on those standards violated by Enron, and discuss five (5) issues related to utilitarianism, five (5) issues related to Kantianism, three (3) issues related to rights issue ethics, four (4) issues related to virtue ethics, six (6) issues related to feminist ethics, and four (4) issues related to common moral theory. Then, briefly discuss 10 standards violated by Arthur Andersen. Your Activity responses should be both grammatically and mechanically correct, and formatted in the same fashion as the Activity itself. If there is a Part A, your response should identify a Part A, etc. In addition, you must appropriately cite all resources used in your response and document in a bibliography using APA style. (100 points)
(A 3- to 4-page response is required.)
Expert Answer
Ethical theories leads to the most ethically correct resolution according to the guidelines. The six theories are discussed below:
- Utilitarian ethical theory-this theory states that the choice that yields the greatest benefit to the most people is the one that is ethically correct.
- The deontological ethical theories-this theory states that a person will follow his or her obligations to another individual or society because upholding one’s duty is what is considered ethically correct
- Rights-it states that rights are given the highest priority. Rights are considered to be ethically correct.
- Virtue- It takes the person’s morals, reputation, and motivation into account when rating an unusual and irregular behaviour that is considered unethical.
- Feminist-it believes that women’s moral experience need not to be undervalued or under appreciated. her is anteed of holistic feminist approach
- Common moral theory- it states stat hat normal humans know that there is something wrong with things like lying or breaking promises or killing people.
Issues retaking to utilitarianism- during booming periods of the company, its moral standards tend to get corrupted. The ease of making money leads to cutting corners, to take shortcuts, to become focused on getting our own share of the pie no matter what because everybody else is getting theirs. it lead managers to think that anything was okay so long as the money kept rolling in. the group members rationalized self-interests at the expense of the overall health of the company and its shareholders.
Issues relating to deontological ethical theories-the company’s motto was Respect, Integrity, Communication, and Excellence and its vision statement sates the” We treat others as we would like to be treated ourselves…We do not tolerate abusive or disrespectful treatment. Ruthlessness, callousness and arrogance don’t belong here”. Enron’s leadership simply did not live out the ethics they claimed to have valued. This disconnect between words and action developed into a major cultural problem for leadership within the organization.
Issues relating to rights-there were a difference between rights and privileges of rich vs. the regular employees. The people at the top seem to have gotten their money out, leaving their fortunes intact. They were running a risk-free company for themselves while the risk was assumed by the people at the lower levels in the organization.
Virtue- Character ethics focuses on the ethics of the person rather than the ethics of the action in question. Managers at Enron’s divisions grew arrogant, thinking them invincible. They recruited just at the major business schools. Once people were hired, it was an up-or-out culture. Those who survived began to think they were gods.
The auditors had an incentive not to challenge Enron. They get paid for keeping that client and fired for losing the client. People are incanted to keep clients at all cost. The incentives all run in the direction of doing whatever these company demands of you. There was a mark-to-market accounting and the utilization of Special Purpose Entities (SPE’s) to hide financial debt. There was a mismanagement of risk and overextension of capital resources. There was no honest system of accountability. 10 standards violated by Arthur Andersen are as follows:
1. Public Company Accounting Oversight Board (PCAOB)
2. Auditor Independence
3. Corporate Responsibility
4. Enhanced Financial Disclosures
5. Analyst Conflicts of Interest
6. Commission Resources and Authority
7. Studies and Reports
8. Corporate and Criminal Fraud Accountability
9. White Collar Crime Penalty Enhancement
10. Corporate Tax Returns
11. Corporate Fraud Accountability
