Enron:Lapses in Ethical Decision Making

The rise of Enron can date back to the early 1900’s, when the city of Houston first struck Oil landfill. From this point on in history, the city of Houston would be known as the Oil Capital of the United States. As the Enron Corporation came about in 1985, after the merger took place, many were optimistic at the opportunity of investment. The corporation made its largest sum of money through buying and selling natural gas futures. When the word was finally out that Enron had been hiding profits in offshore accounts, the company’s stock plummeted after the top executives had pulled out. After the stock is now worth a few cents and the employees had lost over $1.2 B

Not only was Enron held responsible for its wrong doings, but Arthur Anderson, one of the nations largest accounting firms, was held at trail as well. They were not convicted because of stepping over the legal line, but because their actions displayed a cover up. The American litigation system depends largely on the act of discovery to follow the paper trail. Some officials at Anderson believed that shredding the papers would help the problem, putting ethical considerations aside. So in fact what they did was not illegal, but rather unethical. The public now sees Anderson to be more at fault than Enron, even though Enron hired Anderson to be their bookkeepers.

So how did Enron make all of their money? Throughout the 1980’s, they were buying and selling all of the natural gas futures. This was all done based on speculation of gas prices, which was hyped up after it was deregulated. Enron then got their hands onto the electricity market, which then was also deregulated. Between the years of 1999 and 2000, they merely doubled sales, and from 1996 to 2000 sales grew an astonishing 57%. If they would have into the year 2002 they would have officially become second-largest corporation in the world, in terms of sales. “Enron’s reported revenue was based on its exploitation of a loophole in accounting rules that allowed it to book revenue from huge energy-derivative contracts at their gross value, not their net value as is done with other securities transactions.” (Forbes, 1/15/02) Basically instead of reporting the spread difference (between bid and ask price), they would report the entire sale price instead. Many energy companies used this accounting style that was legal, but made the numbers look astronomical.

Between the terrorist attacks of September 11th and the Enron scandal, the unemployment rate saw a drastic change at the end of 2001. Currently the un-employment rate is around 6%. The downturn of events is due in part from the rapid growth that has taken place since 1995. The productivity growth is measured in relation to growth in labor and the real capital stock. You would think Europe wouldn’t be affected by the terrorist attacks or the Enron fiasco, but the US economy has actually responded better mainly because of the lower taxes and more flexible with production. “I am optimistic about the future, yet I am concerned that the new legislation on corporate governance and accounting will not help, and may seriously hinder, the efficiency and the world leadership of the U.S. business sector”. (Business Week, 12/30/02)

Several organizations have ethical standards that training professionals use as corporate guidelines. The SA 8000, which was developed by Social Accountability International, and the AA 1000, developed by the Institute for Social and Ethical Accountability. These organizations with open compliance have developed standardized guidelines and best practices for corporate-wide ethics. Concentrating on strategic capabilities of training may finally become a reality in the near future. Although ethics training may sound like the solution to this ever-growing problem, the core value developed within the organization is what has to establish in order for the corporation to succeed.

The accounting methods used by Enron were definitely the major result in the collapse the corporation took in 2001. Besides accounting, lack of training in the organization also was a factor along with ignoring ethical judgment. Not being able to implement rewards, provide leadership and performance management are all concepts the Enron was unable to engage. Back in July 2003, Enron was granted time to file reorganization. When all is completed, the creditors will see how much they can recover from the losses. At that time, Enron has about $5 Billion in cash on hand, and when all assets and stocks are liquidated, they should be able to distribute anywhere from $10 to $20 Billion t

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