Ethics 1. In the Enron case there were several ethical issues. One of these issues was the way they moved debt from their book, which mislead thousands of people.
When Enron removed their debt off the books it made the company look as if they were more profitable than they actually was. This caused many of innocence people to invest in the company and in the long run lost everything. Another ethical issue was that managers were receiving large sums of money for partnerships that were being formed. The ethics issue here is that thousands of Americans can only dream to earn such a large sum of money because of greed these individuals contributed to the downfall of Enron.Then when share values dropped employees were not allowed to sell their stock and did not have access to their 410k plans. But of course the individuals that were involved with the embezzlement quickly sold their stock.
The ethical issue with this is that the CEO, CFO all knew about the company??™s stability situation but continued to ask both employees and third parties to continuing investing within the company. 2. Numerous people were harmed by Enron??™s collapse financial, emotional, and economical. Stockholders lost over a billion dollars in stock value. Thousand of employee lost their jobs, their retirement funds, and their health care benefits. Consumers in California suffered from energy shortages and blackouts that were caused by Enron??™s manipulation of the market. Hundreds of businesses that worked with Enron as suppliers suffered economic loss with the loss of a large client.
Enron??™s accounting firm, Author Anderson, went out of business as a direct result. The wider Houston community was hurt by the loss of a major employer and community benefactor. Families of employees, investors, and suppliers were hurt.
Many of the individuals directly involved with them suffer criminal and civil punishment, including jail sentences for some. 3. The scandal at Enron was based on both the organization, along with the unethical individuals. It is believed that if too much attention is paid to the organization, without balancing them with the need of the employees and those who serve the organization, the result of corporate scandal were all that matters is inflation the organization image and stock price at the expense of the employees??™ pension and clients??™ needs. Then when the needs of those served by the organization rank higher than the needs of the organization itself or the employee the result can be equally difficult. The organization should have had an ethics contract that all employees, along with the board officials must read and sign.
Also, in the Enron case top level employees were deliberately fixing the books to make the company look profitable knowing that eventually it would surface. All they were doing is helping themselves to millions of dollars which lead to the collapse of Enron. These employees left thousands of lower level employees who were not aware of these problems to take the fall. The Enron scandal was definitely a combination of all three; individuals, organization structures and the government. The failure of individual to recognized the consequences to their actions.
It wasn??™t just the books they were messing with it was also other people??™s lives. Then there is the organization structure that had too much power at the top level where these actives took place. When a company has too much power at any level there is bound to be some kind of fraudulent actions. Last is the government they had no laws in place to hold all accountable. I think many of these involved with the scandals didn??™t think they could prosecuted for someone else job.
4. Things that could be changed to try to prevent another future Enrons.The first is leadership.
The independent directors must have a leader who does not also hold the position of chief executive officer. Where the CEO and the chairman are the same person, a lead director should be chosen from the non-executive directors. The second area for improvement is independence.
The audit committee, along with most of the board, must be independent. The NYSE provides a definition of independence that, if complied with in spirit as well as letter, is sufficient. Auditors should be rotated every few years to prevent long-term, close ties between the management and their firm. The audit committee should also prohibit the management from hiring audit firm personnel for three years after the person has left the firm. Last, information must be improved.
The committee should be supplied with information regarding alternative GAAP methods that would result in different accounting outcomes and with figures outlining those differences. The reasons for the committees acceptance of the managements and the auditors recommendations should be disclosed in the financial statements.