Why Being Ethical And Who Bothers?

3354 words - 13 pages

IntroductionThe Enron scandal, revealed in October 2001, eventually led to the bankruptcy of the Enron Corporation, an American energy company based in Houston, Texas, and the dissolution of Arthur Andersen, which was one of the five largest audit and accountancy partnerships in the world. In addition to being the largest bankruptcy reorganization in American history at that time, Enron undoubtedly is the biggest audit failure. It is ever the most famous company in the world, but it also is one of companies which fell down too fast. In this paper, it provides an analysis of the video ' The wise men in the room' giving critical comments of the movie and the reasons for Enron's downfall in detail including conflict of interest, accounting fraud and determine whether or not the leadership were ethical and practiced good corporate governance.Enron's Rise and FallAccording to the video, Enron was almost universally considered one of the country's most innovative companies, a new-economy maverick that forsook musty, old industries with their cumbersome hard assets in favour of the freewheeling world of e-commerce. The company continued to build power plants and operate gas lines, but it became better known for its unique trading businesses. Besides buying and selling gas and electricity futures, it created whole new markets for such oddball "commodities" as broadcast time for advertisers, weather futures, and internet bandwidth.Enron was founded in 1985, and as one of the world's leading electricity, natural gas, communications and pulp and paper companies before it bankrupted in late 2001, its annual revenues rose from about $9 billion in 1995 to over $100 billion in 2000. At the end of 2001 it was revealed that its reported financial condition was sustained substantially by institutionalized, systematic, and creatively planned accounting fraud. The video revealed that, in the year 2002, the drop of Enron's stock price from $90 per share in mid-2000 to less than $1 per share at the end of 2001, caused shareholders to lose nearly $11 billion. And Enron revised its financial statement for the previous five years and found that there was $586million in losses (Thomas, 2002). Enron fall to bankruptcy on December 2, 2001.The Causes of Enron's bankruptcyTruthfulnessThe leadership of Enron were not ethical in their business dealings. There was a clear lack of truthfulness by management about the health of the company, according to Kirk Hanson, the executive director of the Markkula Center for Applied Ethics. The senior executives believed Enron had to be the best at everything it did and that they had to protect their reputations and their compensation as the most successful executives in the U.S. The duty that is owed is one of good faith and full disclosure. There is no evidence that when Enron's CEO told the employees that the stock would probably rise that he also disclosed that he was selling stock. Moreover, the employees would not have learned of the...

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