Enron Corporation and its Unethical Behavior
One business that has encountered moral dilemmas with serious legal repercussions is Enron Corporation. Enron Corporation, a Texas-based American energy business, was involved in unethical behavior that led to the dissolution of Arthur Andersen, one of the top five accounting firms in the world. (Cuong, 2011).
Formation and Leadership
Kenneth Lay combined the businesses of InterNorth and Houston Natural Gas to create Enron Corporation in 1985. After some time, Jefferey Skilling was appointed CEO of the business. (Cuong, 2011).
Accounting Loopholes and Financial Manipulation
Along with other senior company executives, Kenneth Lay and Jeffery Skilling established a habit of utilizing accounting loopholes, poor financial reporting, as well as special purpose entities to hide billions of dollars in debt from various failed projects and deals (Cuong, 2011).
Ethical Issues and Consequences
The ethical situation was that Andrew Fastow, the company's Chief Financial Officer, colluded with other executives and deliberately misled Enron's audit committee and board of directors regarding high-risk accounting practices, as well as pressured Arthur Andersen (Enron's auditing firm) to ignore such issues. The situation resulted in the downfall of Enron Corporation and the dissolution of Arthur Andersen, as well as the imprisonment of several leaders and high-ranking officials of the company (Cuong, 2011).
Legal and Business Law Implications
The situation faced by Enron Corporation relates to business law because its top officials violated the business Code of Ethics. According to the Constitution of the United States, all businesses have to comply with all the applicable laws, rules, and regulations as described in the corporate Code of Ethics (Cross & Miller, 2017). Additionally, according to business Code of Ethics, business employees are prohibited from using company property, their positions, or company information for personal gains. Besides, according to the corporate code of ethics, an employee of a firm must not disadvantage client accounts or funds through taking advantage of the business or trading opportunity (Cross & Miller, 2017).
The Investigation and Legal Proceedings
What happened was that Enron Corporation developed a habit of engaging in unethical accounting practices and after analysts and its shareholders had raised questions for several years, the Securities and Exchange Commission (SEC) launched an investigation into Enron Corporation in the year 2001 (Cuong, 2011). As a result, the company's unethical accounting practices got disclosed, and Enron Corporation suffered a reduced credit rating and investor confidence, leading to its bankruptcy in the year 2001. SEC pursued charges against Kenneth Lay, Jeffrey Skilling (the company's former CEO), Andrew Fastow (Chief Financial Officer), and other senior-ranking employees (Cuong, 2011). The charges included deliberate manipulation of accounting rules and masking the company's huge liabilities and losses. Kenneth Lay and Jeffrey Skilling got tried together on forty-six accounts including bank fraud, money laundering, conspiracy, and insider trading. Jeffrey Skilling got convicted on nineteen accounts and sentenced to more than twenty-four years in prison, while Kenneth Lay got convicted on six fraud accounts and sentenced to forty-five years in jail (Cuong, 2011).
Managerial Recommendations
One of the managerial recommendations I would provide for the mitigation of such an ethical issue is that company managers should remain transparent when giving financial reports. The presentation of financial reports to audit firms should always be treated with the greatest care, with emphasis on utmost financial integrity. Additionally, company managers and Chief Financial Officers must always be honest with the company's shareholders and stakeholders. Also, to avoid an ethical situation like the one faced by Enron Corporation, company managers should always remain open to the financial advice of independent professional firms, especially when there are signs of challenges.
References
Cross, F., & Miller, R. (2017). The Legal Environment of Business: Text and Cases (10th ed.).
Cuong, N. (2011). ENRON FIASCO: BUSINESS DIFFICULTY AND THE ROLE OF ENRON’ DIRECTORS. Corporate Ownership And Control, 8(4). http://dx.doi.org/10.22495/cocv8i4c1p2
