Applying Duty Ethics To The Enron Case

Duty based ethics also known as deontological ethics are highly concerned on what persons do and not the results or significances of their actions. According to duty-based ethics an individual is required to do what is right since it is the right thing to do. Thus, each person guided by duty of ethics is anticipated to avoid wrong things because they are wrong. In this regard, a wrong act should be avoided even if it results to good results or consequences. Deontologists trust that molarity is a matter of duty. Individuals have moral duties to only do the right things and to avoid the wrong things, and this is not founded on the consequences of the action but on the action itself.

Deontological theories acknowledge two classes of duties. They include general duties individuals have towards anyone and duties we have due to our specific social or personal relationships. The main aim of each individual according to deontological theories is to comply with our duties and not to maximize on the good duties outcome. According to duty-based ethics, actions are choices result and choices are normally made for a purpose or a reason. In this regard, an action can only be classified as either good or bad based on the main intention of doing the action. Thus, if a good intended action brings bad consequence that does not make the action wrong. Similarly, if a bad intended action brings good consequences that does not make the action to be morally right.

Ethical Issue Raised by Enron

Enron was involved in a number of activities that raised ethical question during Ken Lay management. The company changed from its ethically based traditional principles to unorganized work environment that was ruled by greed and desire to satisfy personal needs. This paper will focus on two ethical issues raised by Enron. The two selected issues include Enron company reward system and Enron accounting fraud.

Enron Accounting Fraud

The company accounts are required to be very accurate since they play a great part in reflecting the company’s present financial position, comparison of the company’s current financial position with the past and prediction of the future. Accounting therefore assists the company in making possible adjustments to remain healthy. Accountings are also used by investors and creditors to determine the company’s ability to pay debts and the possibility of earning from an investment or losing money placed in an investment in the future (Sims & Brinkmann, 2003). In this regard, accounts are normally audited critically to ensure that they are accurate and that they represent the true picture of the company financial position. Having realized the importance of accounting, Enron considered manipulating their accounts to always look healthy and promising to anyone who care to analyze. The accounts demonstrated that the company was making great profits year after year with a positive growth in its level of profits. This attracted more investors into the company. The healthy displayed financial condition increased the value of the company’s share in the share market and thus, the company was trading highly in the share market. The company created poor accounting reports, accounting loopholes, and entities of special purpose. Using these techniques, the company was able to hide a huge amount of money in debts from failed projects and deals. The company accountant managed to mislead the audit committee and company’s board of directors on high-risk practices of accounting. He also managed to pressure the company’s external auditing firm; Andersen to ignore the matter. Therefore, the company was able to continue with its unethical accounting practices, unquestioned (Madsen & Vance, 2009).

Enron Company Reward System

Initially, Enron was guided by the right compensation and reward system where workers were rewarded based on qualification, operation level, merit or performance. Each employee was well aware of his or her duties and responsibilities and what one would do to get promotion, bonus, salary increment or any other reward in the company. This system was well defined and structured, and thus, it was highly fair to all. Individual got what they deserved. However, everything changed during Ken Lay era. The systematic way of rewarding employees was completely changed. All compensation caps were eliminated and thus, one would earn any amount of money based on how much one could trade. Employees could work late hours to ensure that they get extra income by trading natural gas. The GE employees ranking model introduced by Jeff was eliminated (Madsen & Vance, 2009). Firing and promotion were based on the employee’s loyalty to the management and how effective one was on betraying other workers, or on reporting them to the management. Morally based employees who were against the unethical operations of the management were easily sacked especially if one raised an alarm or they remain stagnant in their career, particularly if one decided to keep a low profile. Individuals would work hard for a short period of time, earn their bonuses and leave the job for a different task without leaping the work result. There was no accountability in the company, and most employment deals seems short-term and profit based. The company promotion and demotion was based on unhealthy internal competition among the employees such that the aspect of idea sharing was completely eliminated. This was quite unethical and it highly contributed to the downfall of the company. The lack of standard reward system increased the company’s wage bill which reduced its level of profitability and thus, it highly contributed to the company’s financial downfall (Sims & Brinkmann, 2003).

Application of Duty of Ethics

Ken Lay had a duty of ethics to manage Enron Company and to enhance its future growth. In addition, the company accountant had a duty of ethics to provide accurate financial report of the company. However, the accountant accepted to be used by Ken Lay to provide false information to the company’s directors, audit committee and the public with intention of hiding the actual company’s position and stealing more from the investors and creditors. The accountant did wrong by providing manipulating the company financial reports and misleading the company’s investors. This resulted to great loss on investors, when the company was declared bankrupt.  He also did wrong by misleading the company’s board of directors, and the audit committee who could have saved the company from the bankruptcy if they were aware of the actual financial situation of the company. Similarly, the company external auditors failed in reporting the actual situation of the company to the right authority including the public. External auditors had a duty of analyzing the financial situation of the company and uncovering any accounting malpractice done in the company that would affect the company’s investors or other stakeholders. However, they concealed this information with intention of protecting the company while endangering the life of other company’s stakeholders. Thus, both the external auditors and the company accountants failed in their duty of ethics by doing wrong things and failing to do what they are required to do, as per their qualifications (Free et al., 2007).

Ken Lay embraced unstructured rewarding system with intention of influencing employees to support his unethical way of doing business. This system enabled him to gain favors from employees that were more concerned about their earnings. By so doing he was able to earn more money but the actual profitability of the company was low. The other main intention was to eliminate employees that were career and ethically based and keep only those who were loyal to him to be able to do his business without being questioned. Thus ken failed in his duty of ethics of enhancing sustainable reward system by employing unsustainable reward system for personal benefits. He also failed in his duty of ethics by eliminating employees who cared of the company’s future while employing and rewarding selfish employees whose goal was to increase their profitability (Free et al., 2007).

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