Introduction
A fiduciary is someone entrusted with the responsibility of acting on behalf of another person or organization. A fiduciary has a legal obligation to work in their client’s best interests and not act for their benefit. The fiduciary duty of care requires a fiduciary to exercise due diligence and care when making decisions on behalf of their client. The fiduciary duty of loyalty requires a fiduciary to put their client’s interests ahead of their own and not take advantage of their position. These terms promote ethical behaviors in the free market by preventing possible misconduct.
The explained terms should be enough to protect shareholders’ concerns in an organization, although adherence to these rules depends on the integrity of a company’s workers. For instance, Kuney (899) argues that Enron violated these concepts, ultimately leading to the company’s downfall. The author provides examples of how Enron violated these concepts, eventually leading to the company’s collapse. The burden of care required Enron’s directors to have reasonable knowledge about the company’s affairs and to exercise due diligence in monitoring the company’s activities. On the other hand, the duty of loyalty requires directors to act in the company’s and its shareholders’ best interests, not to put their interests ahead of the company’s (Kuney 900). Enron’s board failed to meet these standards, and as a result, the company’s shareholders and employees were harmed.
The Fiduciary Duty of Care and Responsibility of Loyalty
The corporate world is severe and competitive. Everyone in the business world wants to win, and some unscrupulous people would not mind jeopardizing someone else’s life for their gain. We can see this in Enron; if Kenneth Lay had been honest about his books, the company Enron would still be standing. Again, when it comes to fiduciary duty is owed to its corporation and its shareholder. There are two primary keys to fiduciary, 1. Duty of care, and 2. Duty of loyalty. “Directors owe the company and its shareholders two distinct fiduciary duties: a duty of care and responsibility of commitment (Kuney 898). If they failed in these obligations, they would risk liability to the corporation, its shareholders, and its creditors.
Enron officers breached the duty of care and responsibility of loyalty to its investors and shareholders. Officers like Kenneth Lay and Andrew Fastow defrauded investors and undermined free market confidence (Kuney 898). What happened in Enron was a loss of confidence in the market, and it also it is an open door for the government to stick its noses in the free market. This can be disadvantageous for other companies as they will be subjected to stricter investigations that could disrupt business.
The business judgment rule is a rule that protects officers, directors, and managers of a corporation from personal burden if their actions are honest and are based on a rational business judgment relating to the corporation’s affairs. The rule is not absolute, and there are circumstances under which an officer, director, or manager can be held liable for their actions. Trying to game the system creates an environment of mistrust and suspicion, which can lead to employees feeling like they need to always be on the lookout for potential wrongdoing (Kuney, 895). This can create a toxic work environment and make employees feel stressed and overworked.
Government Regulation and Self-Governance
Fairly, the legal rule and the SEC self-regulatory provide enough protection to stakeholders to deter corporate misconduct. The legal rule and the SEC cannot control an aggressive culture of greed based on bending the rules (Kuney 877). There is a need for government regulation in the free market. The government must regulate the free market to prevent companies from engaging in such practices. Otherwise, businesses would be free to engage in fraudulent and abusive practices, ultimately hurting consumers and businesses alike (Kuney 879). Additionally, without government regulation, the free market would not function properly, leading to chaos and ultimately destroying the economy. Although it is challenging for the government to oversee the activities of all companies in the free market, it can instil severe repercussions supported by the law to any CEO, employee or organization caught practising illegal transactions.
Government involvement can often lead to more significant harm than good, as businesses and individuals should be free to pursue their interests (Kuney, 895). Thus, the government should be careful not to put too many restrictions to avoid interfering with routine activities in the free market. Enron collapsed due to fraud, lack of self-regulation, and mismanagement. If the company had been subject to stricter government regulation, the fraud would likely have been uncovered sooner, and the company would have been saved from bankruptcy (Markham 99). Thus, if Enron had been appropriately regulated, it would not have collapsed and cost so many people their jobs and their retirement savings.
Some unethical personnel and companies are always finding ways to break the law for their selfish benefits, despite the regulations set through SEC, government involvement, fiduciary duties, and the business judgment rule. Thus, despite adequate laws, penalties should be strict to discourage people from indulging in such practices. There should consider more regulation for businesses, though not by adding more rules, but by being severe in punishing people who break the rules (Gerner-Beuerle 680). Self-regulation is necessary to keep companies honest and prevent them from engaging in fraudulent activities and should be ensured by the firm’s managers.
Conclusion
The Enron scandal resulted from the company’s greed and dishonesty culture. The company’s executives were more concerned with making money than running it properly. As a result, they engaged in fraudulent activities, eventually leading to the company’s collapse. Self-regulation could have protected the company from the outcomes of its illegal activities. Other organizations should adopt honesty and adherence to governmental laws to safeguard the interests of the company and the people they serve. Government regulations are sufficient, but lawbreakers should be severely punishable to prevent illegal behaviors.
Works Cited
“Financial Oversight of Enron: The SEC and Private-Sector… – Govinfo.” Financial Oversight of Enron: The SEC and Private-Sector Watchdogs, 2002, Web.
Bhaskar, Krish, John Flower, and Rod Sellers. Financial failures and scandals: From Enron to Carillion. Routledge, 2019.
Kuney, George. “Everything I need to know about Enron: I learned in Kindergarten and Graduate school, 877-908.
Markham, Jerry W. “The Enron Scandal.” From Enron to Reform, 2022, pp. 95–140., Web.