Posted: March 24th, 2023
Enron Corporation was one among many firms in history which recorded the largest fraud case in the business arena. he company provided its consumers with natural gas, communication services, and electricity. However, upon investigation of fraud allegations, Enron was forced to close down on claims of bankruptcy in 2001. In fact, Enron was a multinational business that could have become successful in the world business field, but unethical practices led to its downfall. While there were other ethical misconducts recorded, inadequate managerial integrity topped the list, thus leading to its closure. Therefore, the analysis is dedicated to discussing the administrative integrity scandal, the reasons that propagated the problem, the steps that should have been taken to prevent the indignity, and the lessons learned from Enron’s downfall.
In essence, Enron was initially built on ethical grounds. However, the pursuit of personal wealth in collaboration with the need to acquire rapid growth led to the unethical practice by the executives in this company. Due to the greed of the top leaders, extreme incentive schemes were introduced to attract and motivate bright self-driven employees and investors in the corporation. On the other hand, the executives at Enron were facing constant pressure to deliver their impossible promises (Silverstein 1). Consequently, natural ways were formulated to align both their earning targets and the aggressive revenues they were eager to collect. However, the undertaking did not work because the company encountered financial challenges. Therefore, Enron’s manager Jeff Skilling started relying on extreme borrowing to ensure that the commercial work was up to date. On consulting Arthur Anderson, Skilling realized that excess borrowing would hurt the organization’s share price. Under those premises, the two executives at Enron formulated secret schemes, which could produce profits in a hidden manner. In fact, the arrangement was the beginning of an unethical culture that was developed by the management at Enron (Dembinski et al. 103). Moreover, exploitation and misleading customers, colleagues, and suppliers became the order of the day. Besides, those in top management rewarded themselves with the illegal incentive schemes while they boasted that the organization was headed for greatness that was based on unethical practice and delusion. Indeed, Arthur Anderson and his auditing firm were also influenced by the unethical practice, when he overrode the company’s integrity due to greed for money (Dembinski at al. 144).
Nonetheless, Enron’s ethical scandal would have been prevented in several ways. The first problem was that although Enron’s ethical foundation was evident in writing the actual actions, it was contrary to the business’s moral expectations. Therefore, the top management would have been stricter on building and inducing a strong culture of ethical integrity and honesty (Li 5). On the other hand, truthfulness would have been stated and practiced as one of the company’s core values. To start with, this was the consideration that Jeff Skilling declined to tell the CEO Kenneth Lay and concealed the entire truth about the actual situation of the organization. Therefore, by lying about the Company’s partnerships, inflated profits, and the debts, Enron was incurring Skilling to start the downfall process of this organization. Besides, Arthur Andersen’s accounting firm should have been monitored more closely (Li 8). Moreover, the Author’s organization should not have been given the responsibility of managing both Enron’s consultative documents and auditing. After all, different companies could have provided the same services because Arthur was bound to experience a conflict of interest (Dembinski et al. 171). In addition, the downfall would have been prevented if Enron’s management provided their shareholders and partners with the correct financial statements instead of the bloated records. Particularly, the government could have provided a mechanism where market regulators would determine if the organization was using sophisticated methods to hide the losses and unrealized profits from the investors.
It is worth noting that the Enron’s moral case study is important because there are several relevant points that organizations should learn in the current economic situation. First of all, the managers in the companies need to be taught that making money in a new and globalized economy is not different from the previous markets. Therefore, clients ought to be presented with goods and services that are of real value (Dembinski et al. 131). In addition, the financial mischief or cleverness does not substitute the proper and correct corporate strategic planning towards achieving the profits. Therefore, the investors should detect the arrogant corporate executives and employ only reliable managers. For instance, Enron’s executives have boasted of being the most innovative, brightest and presented themselves as unbeatable on the business platform. On the other hand, paying many incentives for the top management can tempt them to start acting unethically in a bid to retain their wealth and status. With this in mind, the government and other market regulators should look out for those who infringe the set standards (Dembinski et al. 207).
As it was evident from the above analysis, Enron was a multinational giant that succumbed to lack of managerial integrity. Notably, the company initially established that organizational ethics was core to a successful business. Ultimately, those in management were overpowered by greed for money and delivered extremely high expectations to their clients. However, if Enron Corporation were built on strong ethical culture, accountable, and transparent administration, the ethical issues would have been prevented. Nonetheless, the corporation has provided a lesson to the modern day businesses that ethical practice is core to the success of a firm. Besides, it is important for companies to apply the right strategic plans to realize their goals. Therefore, the investors should look out for red flags within a company while market regulators should tighten the rules governing organizations. Lastly, executives should not be provided with excessive incentives that may tempt them to act unethically.
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