The collapse of Enron seems to be rooted in a combination of the failure of top leadership, a corporate culture that supported unethical behavior, and the complicity of the investment banking community. In the aftermath of Enron’s bankruptcy filing, numerous Enron executives were charged with criminal acts, including fraud, money laundering, and insider trading. Ben Glisan, Enron’s former treasurer, was charged with two-dozen counts of money laundering, fraud, and conspiracy.
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During the plea negotiations, Glisan described Enron as a “house of cards. ” Andrew Fastow, Jeff Skilling, and Ken Lay are among the most notable top-level executives implicated in the collapse of Enron’s “house of cards. ” Andrew Fastow, former Enron chief financial officer (CFO), faced 98 counts of money laundering, fraud, and conspiracy in connection with the improper partnerships he ran, which included a Brazilian power plant project and a Nigerian power plant project that was aided by Merrill Lynch, an investment banking firm. 2.
How did the top leadership at Enron undermine the foundation values of the Enron Code of Ethics? Enron’s ethics code was based on respect, integrity, communication, and excellence. Kenneth Lay, former chairman and (CEO) of Enron Corp. , once quoted as saying: “I was fully exposed to not only legal behavior but moral and ethical behavior and what that means from the standpoint of leading organizations and people. ” In an introductory statement to the revised Enron Code of Ethics issued in July 2000, Lay wrote: “As officers and employees of Enron Corp.
Its subsidiaries, and its affiliated companies, we are responsible for conducting the business affairs of the companies in accordance with all applicable laws and in a moral and honest manner. ” Lay went on to indicate that the 64-page Enron Code of Ethics reflected policies approved by the company’s board of directors and that the company, which enjoyed a reputation for being fair and honest, was highly respected.
Enron’s ethics code also specified that “An employee shall not conduct himself or herself in a manner which directly or indirectly would be detrimental to the best interests
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of the Company or in a manner which would bring to the employee financial gain separately derived as a direct consequence of his or her employment with the Company. ” 3. How did Enron’s corporate culture promote unethical decisions and actions? Enron has been described as having a culture of arrogance that led people to believe that they could handle increasingly greater risk without encountering any danger. According to Sherron Watkins, “Enron’s unspoken message was, ‘Make the numbers, make the numbers, make the numbers—if you steal, if you cheat, just don’t get caught.
If you do, beg for a second chance, and you’ll get one. ’” Enron’s corporate culture did little to promote the values of respect and integrity. These values were undermined through the company’s emphasis on decentralization, its employee performance appraisals, and its compensation program. Each Enron division and business unit was kept separate from the others, and as a result very few people in the organization had a “big picture” perspective of the company’s operations.
Accompanying this emphasis on decentralization were insufficient operational and financial controls as well as “a distracted, hands-off chairman, a compliant board of directors, and an impotent staff of accountants, auditors, and lawyers. ” Jeff Skilling implemented a very rigorous and threatening performance evaluation process for all Enron employees. Known as “rank and yank,” the annual process utilized peer evaluations, and each of the company’s divisions was arbitrarily forced to fire the lowest ranking one-fifth of its employees. Employees frequently ranked their peers lower in order to enhance their own positions in the company.
Enron’s compensation plan “seemed oriented toward enriching executives rather than generating profits for shareholders” and encouraged people to break rules and inflate the value of contracts even though no actual cash was generated. Enron’s bonus program encouraged the use of non-standard accounting practices and the inflated valuation of deals on the company’s books. Indeed, deal inflation became widespread within the company as partnerships were created solely to hide losses and avoid the consequences of owning up to problems. (p29-31) Weiss, Joseph W. (2009). Business Ethics: A Stakeholders & Issues Management ApproachSee More on Business ethics