Ethical practices are a code of conduct that govern how things are done or should be done in a particular place, for example in a business. They can also be described as a system of moral principle that state how people or organizations should act or behave (Brooks & Dunn 2009, p. 23).
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A business organization is expected to follow certain ethical principles in its operations in order to ensure that they are working efficiently and that all stakeholders are benefiting from its operations. Many businesses have been driven by a need to make extra money, and hence they have become greedy and, therefore, engage in unethical practices just to get the extra money.
According to W. Stead, Worrell & J. Stead, “the question of ethics in business conduct has become one of the most challenging issues confronting corporate America in this era” (1990, p. 233).
This paper will examine ethical practices that the management of Enron neglected and that led to its collapse. The paper will explore the requirements of these ethical principles and how the management of Enron acted against them which led to its bankruptcy and, finally, collapse.
Enron is an example of a business which has been engaged in unethical practices just for the sake of satisfying the interests of a few people in the organization at the expense of others. Enron was one of the largest energy companies in the world, and it has been the most innovative company in America until its bankruptcy (Rapoport & Dharan 2004, p. 124).
It has, however, been affected by several unethical and illegal practices such as defrauding its financial statements. The Enron scandal led to a massive loss of jobs and shareholders who lost their capital when the company went bankrupt (Goldman, 2010, p. 75). The management practices at Enron, which led to its fall, did not adhere to the ethical principles of the global business standards codex.
There were also concerns about “pervasiveness of unethical practices and about the systemic nature of practices which distorted the market” (McBarnet 2006, p. 1093). These ethical principles usually govern the way businesses and organizations should operate or carry how managers and employees should carry out their duties.
One of the principles of the global business standard codex is the transparency principle. This principle states that everyone in an organization should be transparent and truthful in whatever they do (Morland 2011, p. 121). This means that managers should provide clear and true financial statements regarding the company, and also provide true records and reports on all the activities of the business.
The managers at Enron did not adhere to this ethical principle. Enron, with the help of its accounting firm Arthur Anderson, constantly defrauded its financial statements and issued the ones that were not true and were not clear (Goldman 2010, p. 98). This shows that they were not transparent and truthful.
Its accounting practices were also not clear, for example, they included costs of ghost projects that had been cancelled and were not in their financial statements in reality, and this is why, they could retain the money to the cancelled project. They, however, argued that they included the costs because there was no official letter stating that projects were cancelled (Sims, 2003, p. 156).
Individuals and investors who had invested either their money or time in the company lost a lot of money because they were misled by the fraudulent financial statements and financial performance of the company that had been altered by the executives, for example, the executives paid people to pretend that they were working hard when company analysts were around so that they would give an impression that the company was performing well, and that it was lucrative, while in reality the company was performing poorly.
The employees were also deceived by the financial condition of the firm, and therefore, they did not diversify their retirement portfolios in time hence losing out on their salaries and pensions when the company went bankrupt. The company also engaged in fraudulent activities like avoiding taxes by creating offshore entities which would not be liable to taxation so that the profits of the company could be increased (Sims and Johannes, 2003, p.23).
Another ethical principle of the global business standards codex is the fiduciary principle. This principle requires people in the business to act diligently with loyalty and integrity to the owners of the business and for the betterment of the business (Seeger and Ulmer, 2010, p. 76). The management of Enron was not acting with integrity and diligence.
This was the major cause of Enron’s legal and financial problems. Some practices are usually legally acceptable but morally questionable. A business that adheres to the principles of ethics should not engage in such practices because ethics does not allow them. This principle expects managers to be aware of the dimensions of the moral antecedents of engaging in illegal activity and acting without any integrity.
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In Enron, Andrew Fastow who was then the chief financial officer of the company was acting without integrity and diligence, and hence he engaged in certain illegal and unethical activities (Petrick and Schrerer 2009, p. 213). He was behind the creation of the off books companies which were not liable to taxation.
These companies were beneficial for him and his friends because they were able to make millions from the off book companies, but at the expense of the stakeholders who would lose their investments if these unethical activities were discovered.
The managers also took advantage of the stock of the company when it was selling at its highest and sold their shares because they were sure that the company would fall in the future because of the fraudulent activities that they were engaged in (Petrick & Schrerer 2009, p. 213).
These activities also did not adhere to the property principle which expects the managers of a company to protect and not steal the property of the shareholders of the business. The managers, instead of protecting the property of the shareholders, engaged in activities of theft of such property which later led to bankruptcy and hence collapse of the company.
Ethical conduct and behavior should be stressed and practiced in every organization. If Enron had stressed an ethical culture in its business, all the unethical behavior would have been limited and the company would not have collapsed. All businesses should therefore have an ethical culture and practice it.
All businesses should therefore avoid the Enron case by stressing more on what is ethically acceptable rather than what is legally acceptable. Businesses should train their employees, managers and all the other stakeholders regarding the importance of acting ethically in a business while carrying out the activities of the business. This will reduce any likely occurrences of the Enron scandal.
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