Ethics of Enron

1. Executive Summary

This paper summarizes, the lack of ethics in an organization will surely cause its downfall. While the development of personal character and moral values are important, it must be linked to competence in understanding risks and approaches to managing ethics and compliance in a complex organizational context. The national culture and regulatory system is also an important area that can affect ethical decision making.

To explicate this, Enron provide excellent examples of highly visible firms who have failed to provide the ethical leadership necessary to avoid misconduct that has damaged their reputation, and created ethical disasters that have damaged many stakeholders. It show that Enron's leaders peculiar product of over confidence and nefarious accounting practices, created a world entirely in its own image. An example of our time, on how a corporation so big, powerful, and unethical that it eventually destroyed itself. The cause, enormous lack of integrity was at its heart.

This paper also demonstrates the possible 'dark side' of leadership. Leaders who have qualities much admired by some such as drive, confidence, charisma and good impression management while sometimes capable of producing exceptional results for the organisation can also in the wrong set of circumstances lead to its downfall. This report will look at how Enron failed in various business practices including organizational development, business ethics, and organizational culture. The report will specify how traditional business ethic codes were violated and lead the organization to bankruptcy

I will proceed further and discuss what could have been done to prevent the unethical procedures and method adopted in Enron and changes mandated by the governments which brought about "Corporate Governance".

Enron corporate culture also played and major part in fiasco of Enron. I will discuss the methods and mind games deployed Kenneth Lay and Jeffrey Skilling and how they pitted employees against each other and it caused employees to use any unethical method possible to get head of each other.

This paper will also discuss the emerging trends and best practices employed by ethical corporations and how they protect themselves from ending up like Enron. Finally I will examine, what exactly are the attributes and qualities needed for a ideal leader in this day and age to lead a corporation ethically.

2. Enron Timeline

July 1985

Houston Natural Gas merges with InterNorth, a natural gas company based in Omaha, Nebraska, to form the modern-day Enron, an interstate and intrastate natural gas pipeline company with 37,500 miles of pipe.

1989

Enron begins trading natural gas commodities. The company will become the largest natural gas merchant in North America and the United Kingdom

June 1990

Jeff Skilling, who has been a consultant for McKinsey & Co., joins Enron.

June 11, 1991

Enron asks the Security Exchange Commission (SEC) to approve mark-to-market accounting.

December 10, 1996

Enron announces that Jeff Skilling is taking over as COO.

June 28, 1999

Enron's Board of Directors exempts CFO Andy Fastow from the company's code of ethics so that he can run private equity funds that will raise money for and do deals with Enron. The LJM Funds become one of the key tools for Enron to manage its balance sheet and make investors think that it is performing better than it is.

October 12, 1999

Enron board exempts Fastow from Enron's code of ethics so that he can raise money for LJM2.

December 13, 2000

Enron announces that President and COO Jeffrey Skilling will take over as chief executive in February. Kenneth Lay will remain as chairman.

Late 2000

Enron uses "aggressive" accounting to declare 53 million dollars in earnings for broadband on a collapsing deal that hadn't earned a penny in profit

February 5-14, 2001

Senior partners from Arthur Anderson, Enron's accounting firm, meet to discuss whether to retain Enron as a client. They call use of mark-to-market accounting "intelligent gambling."

July 13, 2001

Skilling announces desire to resign to Lay. Lay asks Skilling to take the weekend and think it over. According to Lay, he tried to talk Skilling out of resigning. Skilling says Lay didn't seem to care about his announcement and that he offered to stay on for six more months with Enron. Lay claims Skilling wanted an immediate out.

August 14, 2001

Skilling's resignation announcement. In evening, analyst and investor conference call. Skilling: "The Company is in great shape..." Lay: "Company is in the strongest shape that it's ever been in." Lay is named CEO.

September 26, 2001

Employee meeting. Lay tells employees Enron stock is an "incredible bargain," and that, "third quarter is looking great."

October 16, 2001

Enron reports a 638-million-dollar third quarter loss and declares a 1.01-billion-dollar non-recurring charge against its balance sheet, partly related to "structured finance" operations run by Chief Financial Officer Andrew Fastow. In the analyst conference call that day, Lay also announces a 1.2-billion-dollar cut in shareholder equity.

October 23, 2001

In a massive shredding operation, Arthur Andersen destroys one ton of Enron documents.

October 24, 2001

Enron ousts Fastow.

October 31, 2001

Enron announces the SEC inquiry has been upgraded to a formal investigation. .

November 19, 2001

Enron restates its third quarter earnings and discloses it is trying to restructure a 690-million-dollar obligation that could come due November