Enron Code Of Ethics
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Manuel Velasquez: What went wrong at Enron? In ethics, explanations tend to fall into three categories: personal, organizational, and systemic. Personal explanations look for the causes of evil in the character of the individuals who were involved. Did this happen, for example, because the people involved were vicious? Were they greedy? Were they stupid? Were they callous? Were they intemperate? Were they lacking in compassion? Organizational explanations look for causes in group influences. They take seriously the ways that we influence each other when we do things as a group.
These influences include the shared beliefs that groups develop about who is important, what is permissible, and how things are done here in this group. These include also the shared values that we call a group culture, the rules or policies groups develop to govern their interactions with each other and the rest of the world. Finally, systemic explanations look for causes outside the group, for example in the environmental forces that drive or direct groups or individuals to do one thing rather than another. These include the laws and the regulations that provide the framework in which people act, the economic and social institutions that give meaning and direction to our lives, and the culture that shapes the values and perceptions of people and groups.
I am going to concentrate on the third kind of explanation for what went wrong with Enron-the systemic explanations…. I think that one of the obvious systemic causes of the Enron scandal is our legal and regulatory structure. First, current laws and SEC regulations allow firms like Arthur Andersen to provide consulting services to a company and then turn around and provide the audited report about the financial results of these consulting activities. This is an obvious conflict of interest that is built into our legal structure. Second, a private company like Enron currently hires and pays its own auditors.
This again is a conflict of interest built into our legal system because the auditor has an incentive not to issue an unfavorable report on the company that is paying him or her. Third, most large companies like Enron are allowed to manage their own employee pension funds. Again, this is a conflict of interest built into our legal system because the company has an incentive to use these funds in ways that advantage the company even when they may disadvantage employees.
And fourth, most companies like Enron have codes of ethics that prohibit managers and executives from being involved in another business entity that does business with their own company. But these codes of ethics are voluntary and can be set aside by the board of directors. Our legal structure today largely allows managers to enter these arrangements, which constitute a conflict of interest. The managers and executives, of course, have a fiduciary duty to act in the best interest of the company and its shareholders, But the law leaves considerable discretion to managers and executives to exercise their own business judgment about what is in the best interests of the company.
A lot of the Enron story developed during the booming '90s. The stock market was shooting upward. Start-ups were rolling in venture capital, established businesses were expanding, consumers were spending, and it seemed like everyone was making lots of money. I would suggest that during periods like these, our moral standards tend to get corrupted. The ease with which we see money being made leads us to cut corners, to take shortcuts, to become focused on getting our own share of the pie no matter what because everybody else is getting theirs.
This general boom culture, I believe, was part of what affected Enron and led its managers and executives to think that anything was okay so long as the money kept rolling in. Dennis Moberg: Manny talked about the importance of looking at this case from a lot of different vantagepoints. I'd like to concentrate primarily on the character of the individuals in question: Kenneth Lay, Jeffrey Skilling, and Andrew Fastow. Character ethics focuses on the ethics of the person rather than the ethics of the action in question. It distinguishes between individuals who might be called good or virtuous and individuals who might be called bad-at the extreme, evil people or people who are vice-ridden or vicious….
The best list of vices is the classic seven deadly sins: pride, anger, sloth, avarice, gluttony, lust, and envy. Do we see any of these elements of character displayed among the executives at Enron? Add to this…a tendency toward cronyism. Managers at Enron's divisions grew arrogant, thinking themselves invincible. We see this insular tendency of the company to seal itself off from forces on the outside.
They had something called a rank-and-yank performance appraisal system, which eliminated anyone who fell behind-a real Darwinist system that took care of anyone who might potentially disagree. All of the internal whistleblowers were rebuffed, humiliated, or treated in an intimidating way by the various players. And finally, one of my favorites-their annual report in which all of the members of the board of directors are listed by their nicknames, again suggesting that tendency towards cronyism….
In terms of fixing the system from a character viewpoint…, we need reforms that discourage cronyism-this insular tendency in too many American corporations to seal themselves off from the realities beyond themselves. Jeffrey Skilling, Andrew Fastow, and Kenneth Lay all live in the same gated community in Houston, which I think is a great metaphor for what happened at Enron. Martin Calkins, S. In the Enron case, the rules were in place, but were willfully and skillfully ignored. In the Enron case, we see the result of a growing and pervasive winking at the letter of the law.
This winking didn't come out of nowhere. It built up in our society during the s and culminated in in the Private Securities Litigation Reform Act—a law that eased some of the restrictions put in place after the Great Depression to prevent the sort of behavior we see with Enron. Both the behavior and the rules and laws to prevent it have been around for years. The laws were simply circumvented in the Enron case. On the issue of character, I agree with Dennis that the Enron debacle seems to be character-based.
Unlike Dennis, however, I would be less inclined to judge the character of the Enron people harshly. The Enron people may very well be the good people they present themselves to be. Perhaps it was the corporate culture in which they operated that led to the problem we have today. It may be that we have here an example of the so-called "separation thesis": an incident where individuals, for reasons tied to corporate culture and societal expectations, adopted as their own an ethic associated with their role as manager that was distinct separate from their individual ethics.
In other words, these may be good people who acted wrongly because they thought their managerial roles demanded they act in a certain unethical manner. First, I think this issue shows the need for better financial disclosure mechanisms. Perhaps we should institute programs to replace today's peer review process involving the American Institute of Certified Public Accountants. At a minimum, the case seems to show that the Financial Accounting Standards Board, which has responsibility for rule making in this area, needs to establish regulations and standards that are more forthright and understandable to ordinary people such as you and me. Making decisions on your values and morals will help you be prepared to face ethical dilemmas in the future.
There are many ways you can be ethical, including being honest with other employees and the public, whistle blowing on misconduct, paying employees what they deserve, not tolerating theft, being unwilling to participate in questionable accounting, respecting the environment, and refusing gifts from vendors in exchange for better treatment. Decide what your ethics are before you start a job.
Understand what your values, your personal mission statement, and your goals are in order to help you know ahead of time how you'll behave in an ethical dilemma. Communicate with your manager. Management should be made aware of any areas that you feel are ethically questionable. This is usually best done via email, so you have record and proof or your actions. Be sure to let your manager know the entire situation, and how you feel about it.
If a manager is behaving unethically, you can send an email explaining your feelings and concerns. Work with HR if necessary. Sometimes management doesn't respond or react when you bring up ethical dilemmas at the office. If this is the case, go directly to your human resource manager and work with them to know how to best handle the situation. Know when to get out. If you believe a company is going to continue unethical behavior, it's up to you to get out of the company. Work to find another job at a company that you feel will uphold your ethical standards. There is nothing wrong with leaving a job because you believe they are being unethical, and it can end up being good for you in the long-run.
Business ethics can be a slippery slope, so it's best to ensure you know what your personal ethics are, so when a conflict or challenge arises, you know exactly what you will do. Ethics are a vital element of becoming successful in business, and the more prepared you are, the better your career will be. If using technical and organizational skills to launch new products interests you, consider product management! Our focus on your success starts with our focus on four high-demand fields: K—12 teaching and education, nursing and healthcare, information technology, and business. Every degree program at WGU is tied to a high-growth, highly rewarding career path. Which college fits you?
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