Section 1: Introduction and Situational Analysis
The Enron scandal, which erupted in 2001, was created by a complex blend of unethical business practices. First, executives at the Enron Company took advantage of the then-unregulated public utilities market, and began to sell commodities such as natural gas and electricity at market rates, which resulted in much higher utility bills for the average consumer, and a subsequent spike in revenue for Enron. Additionally, the Enron leadership engaged in a series of unethical accounting practices, and developed complex financial statements that were almost impossible for an outsider to understand (Sims & Brinkman, 2003). Eventually, the Enron Company was audited, and the result was that the company was forced to file for Chapter 11 bankruptcy, which turned out to be the largest bankruptcy in United States history. As a result of the scandal, several Enron executives received prison sentences.
Section 2: Stakeholder Analysis
In the Enron scandal, there were several groups of stakeholders who were profoundly affected by the collapse of Enron. The first group of stakeholders was the energy consumers who lived in the areas that were serviced by the Enron Company and its subsidiaries. Due to the rise in prices, many American consumers saw their basic utility bills double or triple almost overnight. A second group of stakeholders would be the investors and shareholders who invested in the rapidly skyrocketing Enron stock. When the company filed Chapter 11, these stakeholders saw their investments disappear very quickly (Petrick & Scherer, 2003). A third group of stakeholders in this instance would be the Enron company employees; when the company filed for bankruptcy, most of these people found themselves unemployed, and lost the bulk of their retirement savings and pension plans. A final, and more peripheral, group of stakeholders would be the American public, who lost much of their faith in the business community as a result of the Enron scandal.
Section 3: Analysis Based on Ethical Theories
From a standpoint of cultural relativism, the actions of the Enron executives would be interpreted as perfectly acceptable. The cultural and social atmosphere of the 1980’s and 1990’s United States promoted behavior that sought to profit using any means necessary, regardless of who was negatively impacted by such actions. From a teleological standpoint, however, the actions of the Enron executives were completely deplorable. Even if Enron had been successful in its schemes, and Chapter 11 bankruptcy was never necessary, millions of Americans suddenly found themselves with gas and electricity bills that they had a difficult time paying, and which put them in a bad financial situation (Nelson, Price, & Rountree, 2008). From both the deontological and virtue ethics standpoints, the actions of the Enron executives were completely wrong; from these ethical standpoints, engaging in fraud is never ethically acceptable.
Section 4: Conclusion and Recommendations
In examining the entirety of the Enron scandal, it is impossible to state that the company did the right thing. The actions of the Enron executives were reprehensible, and served the interests of no one except the members of executive leadership at Enron (Li, 2010). With regards to recommendations as to the prevention of a future scandal such as this one, the first would be to ensure that there is more direct oversight of top executives at a large organization. Ideally such oversight should come from a disinterested third party who is not beholden to the executives in any way, and is not in a position to personally profit from unethical actions that the executives take. Further, an outside accounting firm should regularly audit the financial records, in order to ensure that there is no suspicious activity that is taking place.
- Li, Y. (2010). The case analysis of the scandal of Enron. International Journal of Business and Management, 5(10), 37-41.
- Nelson, K. K., Price, R. A., & Rountree, B. R. (2008). The market reaction to Arthur Andersen’s role in the Enron scandal: Loss of reputation or confounding effects?. Journal of Accounting and Economics, 46(2), 279-293.
- Petrick, J. A., & Scherer, R. F. (2003). The Enron scandal and the neglect of management integrity capacity. American Journal of Business, 18(1), 37-50.
- Sims, R. R., & Brinkmann, J. (2003). Enron ethics (or: culture matters more than codes). Journal of Business ethics, 45(3), 243-256
.
