Discussion Board: Philosophy
Enron highlights the impact of engaging in unethical activities. Top level managers of the company engaged in various unethical activities that ultimately led to the collapse of the company. They engaged in rampant unethical accounting practices. To hide the company’s debt burden, Enron created several Special Purpose Entities (SPEs). SPEs enabled the company to engage in questionable hedging activities while hiding the real economic losses from its income statements. Various employees of the company earned significant sums of money due to the activities of the SPEs. The SPEs enabled the company to undertake transactions that it would not otherwise have been able to complete. Enron’s CFO, Andrew S. Fastow, managed various partnerships that were set up as SPEs. Fastow earned management fees that run into tens of millions of dollars from these SPEs. Chewco SPE, which was managed by Michael Kopper, an employee who reported to Fastow, enabled the company’s employees to earn millions of dollars due to dubious financial transactions.
Enron’s employees strived to ensure that they hid the financial problems that the company was facing. Enron’s CEO, Jeffrey Skilling, CFO, the Chief Accounting Officer (CAO), and the Chief Credit Officer (CRO) engaged in questionable activities (Anon, 2006). Their activities made Enron’s employees believe that the company could take huge risks without jeopardizing its activities (Wilson & Campbell, 2003). Revelations of the rampant accounting fraud in the company led to the dwindling of investor confidence. The stock price of the company dropped from a high of $90 in August 2000 to $1 by November 2001. It took many years for the company to attain its status. However, it only took 24 days for the company to declared bankrupt (Wilson & Campbell, 2003).
The top level executives of WorldCom also engaged in unethical conduct, which ultimately led to the collapse of the company. WorldCom’s growth strategy was through the acquisition of other smaller companies. This made the company become one of the largest telecommunications companies in the U.S. however, the top level executives of the company were secretly engaging in massive accounting malpractices to conceal the real financial position of the company. They reported various expenditures as capital expenditure. This enabled them to spread out the expenditure over many years.
This reduced the impact of capital expenditure on the current financial status of the company. Therefore, the practice of listing expenses as capital expenditure enabled the organization to overstate its income by more than $9 billion. The top level executives of the company listed ‘line costs,’ which was one of the major expenses of the company, as capital expenditure. This helped in portraying the company as highly profitable when in reality the company was facing financial woes. The management of the company inflated the profits to ensure that they corresponded with analysts’ estimates. Failure to correspond with analysts’ estimates would have tarnished the reputation of the company as one of the profitable companies in the industry (Wells, 2011).
The executives of the two companies should have been held to a higher level of accountability. It was their duty to ensure that they engage in activities that compromise the organization or its stakeholders. Their activities should not lead to the collapse of the company since it would make its employees lose their livelihoods. In addition, engaging in unethical activities would make investor lose their investments.
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