Ethics

One of the tragic events that happened in business was the Enron Scandal of 2001. This scandal involved fraudulent corporate practices such as accounting fraud, which led to the biggest bankruptcy case at the time (Fox, 2013). The company executives misrepresented its earnings so that its balance sheets appeared favourable yet the firm was underperforming.  Enron corporation subsequently filed for bankruptcy, and the fact that it had assets of over $63 billion, made it the largest corporate bankruptcy at the time. Enron shareholders and employees faced massive losses after the company stopped operating and the US developed stronger financial regulations to prevent similar corporate unethical practices in future. 

After the Enron scandal was publicized, the US Securities and Exchange Commission (SEC) began an investigation. The first response by the state and federal agencies following the event was investigating and charging perpetrators of the crimes (Kimmel et al., 2011). This move was meant to deter similar actions by executives in future through punishing criminal behavior. As a result, several executives were charged and later imprisoned for their role in the scandal. The second step was the development of long term strategies that will prevent future corporate scandals of a massive scale such as Enron. To achieve this goal, legislators passed the 2002 Sarbanes-Oxley Act which outlined actions by management, public company boards and public accounting firms that sought to protect investors and other stakeholders from corporate fraud (Kimmel et al., 2011). The act enhances transparency in the disclosure of financial information by corporations and it enforces stiffer punishment for violations in ethical responsibility. 

The management and executives of a corporation are directly accountable to stakeholders, and are expected to run the company while safeguarding the interests of shareholders.  These executives should observe social responsibility, integrity and business ethics while operating. Social responsibility is the concept that companies should perform their activities in a manner that is beneficial to society at large. It entails addressing the welfare of different segments in society such as local communities and marginalized populations (Fox, 2013). Integrity is the ability to have strong moral principles and being honest in one’s undertakings. Business ethics entails following ethical principles that guide business operations such as integrity, responsibility, accountability, transparency and prudence. 

Executives at Enron failed in their ethical duty to stakeholders by breaching values such as transparency, integrity, and accountability. The Enron management deliberately misrepresented the company’s financial performance by altering its financial statements to portray positive performance. The executives also failed in their social responsibility since they performed actions that harmed society (Fox, 2013). Many people were jobless after the collapse of Enron, and this had significant adverse effects on society. Additionally, many social programs that Enron supported through its corporate social responsibility programs also collapsed.  The actions by the executives were unethical and outright criminal.  

In conclusion, the Enron scandal shaped the ethical culture in the United States by exposing how unethical practices by corporations can be detrimental to the economy and society.  It influenced the development of stronger regulation of corporate practices through the 2002 Sarbanes-Oxley Act and other regulatory measures. Moreover, executives have an ethical duty to observe principles such as integrity, transparency and accountability in their duty so that they act in the best interests of shareholders. Enron management failed in this role and most of the executives who were culpable were indicted and jailed for their offences. It is important for corporations to develop a culture of integrity and social responsibility so that they can ultimately attain their goals. 

References

Fox, L. (2013). Enron: The Rise and Fall. New York: John Wiley & Sons

Kimmel, P. D., Weygandt, J. J. & Kieso, D. E. (2011). Financial Accounting, 6th Edition. 

New York: Wiley.