Enron is a company that has transacted as a large scale success in a very short period of time, compared to many. It was formed out of a merger of two gas companies in the mid-1980s. The company essentially started transacting as a gas company during 1989 and within a short period of time it became successful and the biggest trading gas company in the United States. Enron began to expend its agendas through the utilization of special purpose entities which initiated the company to fall upon less conventional directions without specifically reviewing its cost in the balance sheet.
I think that Enron behaved unethically since all its activities were of not accepted standards and it lacked a corporate social responsibility which is how a company can be able to produce a positive impact on the society. This corporate social responsibility is the general belief that a company has to take into account the ethical, social and environmental effects of all the activities of its stakeholders. The ethical behaviour and contribution of the company towards economic development is when it is aiming at improving the workforce’s quality of life, the welfare of the employees` families , community, and the whole society (Lynch, 2006). The main reason why I think that the company`s behaviour was unethical is that Enron has engaged in a number of activities, mainly related to the energy industry, building pipelines, gas plants, and other power stations which were for the interest of the company and the society at large, but its leadership was bad. The leaders of the company are to be blamed of the downfall of the as they were very greedy and undertook the evil venture without thinking that it would affect all the stakeholders of the company. A company is determined by its leadership management since they are the main decision makers of the company. The Enron stakeholders are the key parties that have the influence over the company and its future endeavors. Some of the major key stakeholders of the Enron Company are employees, customers, the government, investors, institutions, shareholders, and suppliers.
The Enron Company had unethical business behaviours when it used accounting standards which were not acceptable in the accounting practices. This is because at the time the company collapsed, it showed that it was making huge profits which were false, since the company at that time was falling apart and the top executives knew very well what was happening, including Arthur Anderson, the auditor of the company (Kotler, 2005). They failed to be honest with their stakeholders which led to the high investment from the stakeholders of the company who trusted that the company was doing well, so they did not doubt the situation of the company which led to the loss of money in the form of investments. The top executives overpriced the Enron’s stock which portrayed mistrust and it ended up misleading the stakeholders of the company.
The Enron scandal involved unethical activity where people committed fraud due to a lack of effective punishment for the fraudsters. The Enron scandal left very big scars on the face of the modern business, where many people lost their jobs, other employees lost all their pensions, and the shareholders lost the large amounts that they had invested in the company and after it was declared bankrupt. I strongly believe that Kenneth Lay, the former CEO of Enron and Jeffrey Skilling are solely to blame for the failure of the company, since they behaved in unethical ways and they never had any justification in their behaviour. This is so because they tried to cover up their failures when hell broke loose. This became obvious with the help of Sherron Watkins, the former vice president, who realized that there was a problem with the accounting books of the company. Upon reporting the problem to the top executives, including Kenneth Lay, who did nothing, and Sherron was forced by her conscience to seek the help of the media since the top management did not want to arrest their cases as they were trying to hide the truth from the stakeholders of the company. This showed that the masterminds of the scandal in Enron were Kenneth Lay and Jeffrey Skilling
The Enron Company was affected by unethical issues, demonstrated by the board of directors of the company sharing a conflict of interest, as well as by the lack of ethical leadership. From the company employee`s information source, the authority team of the company had an idea of acquiring financial excellence through any means and at any price. This became a vice to them by lying and cheating or by amending their rules to ensure that the company transacted a lot of money. The worst part was that most of the employees of the company had invested a lot of their savings and pensions. The authority management team sold their shares when they discovered that they could get a lot of money from the sale of the shares which showed how greedy they were, since they did not think about the future of the company because of their personal interests.
Many executive managers at several levels are involved in different forms of corruption which is a very bad behavior since it affects both the intensity and the depth of the entire corporate social responsibility. This is because the executive organization gets involved in this kind of behavior to allow alliances with stakeholders to provide an excellent personal oriented result. The cause of such behavior are the following: confidence of the corporation, fixed in a legal and ethical region; confidence in the actions that are influenced by excellent intentions of the company; the opinion that the procedure is secure by not getting to the public light; and lastly, confidence that if the ill behavior is successful, the person connected to this behavior will attain a good reward.
Enron has created non effective financial associations that have dropped it from its major objective - energy. It redirected its transactions towards goods such as water and paper and also space advertising. The company had the idea of changing its transactions that could be profitable to the company. The kind of managerial directions, applied in the company, caused deconstruction of the obvious multi combination of real assets with the development of a new economy. However, there was a ramshackle integrity and, ethics in economics, which include profitability and social issues, also lacked ambient effectiveness and politics equity.
For a company to cover all the required aspects of the society it is essential to gather the results connected to the economic, legal, moral and ethical fields. Social issues are the elements that determine a corporation to act in a responsible way and to be able to connect with the society which has similar goals. A corporation that utilizes effective corporate social responsibility ideas can promote its long term profits even if it has to pump higher cost in order to achieve it. Therefore, the contribution that corporation should utilize to develop the present society. Since the implementation of the principles of corporate social responsibility by various corporations, serving the agenda of sustainable development, many international companies have created a set of rules to define the meaning of desirable company behavior.
I think Frank Partnov was right in his statement that the Enron’s case was not worse than other companies which collapsed immediately after the country`s collapse. This showed that he did not agree with the media who had seized the collapse of Enron as being the scandal of the decade. This is because the unethical practices of auditing firms resulted in the collapse of all companies which collapsed before and after the fall of Enron. He also thought that the Enron case was not the last company to suffer from the heavy malpractices of greedy auditors who were after their own personal gains instead of protecting the companies they were trusted to take care of. This implies that if nothing is done with the auditing breaches and the breaches in accounting practices, then there is the possibility of having similar or even worse cases in the future.
The management responsibilities of the executives in the Enron Company included activities like training and management of staff performance, customer interface management, risk reduction in the company, and the engagement of the stakeholders of the company (DeWit & Meyer 2004). These Enron executives should act like role models and aim towards achievement of the goals and objectives of the company (Miles, 2003). In the majority of cases, the company is accused of being involved in the largest consumer fraud cases, and it is associated with the executives of the company (Donaldson, 1996). This builds a very bad name for the company, thus, calls for good leadership qualities of the executives which include practicing good communication skills, being honest to the stakeholders of the company, being visionary, not being self-centered, be motivating and quick in taking actions in the protection of the stakeholders of the company.
Arthur Anderson was the consultant and the auditor of the Enron Company. It was because of him that Enron bankrupted, because as an auditor and consultant of the company, he was supposed to check all the accounts for consistence and also to conduct all the auditing of the company’s accounts and to report any fraud cases for action or any breach of the accounting rules and principles (Kieso, Weygandt & Terry, 2001).
Arthur Anderson in the Enron case is brought out as a greedy, dishonest, and an evil person. Evil is considered to be a vice and a person is considered to be evil since being an intelligent person he/she goes ahead and makes life very difficult, unpleasant and very painful to good people around him or her. Men and women can be evil in one way or another. Money is considered to be the source of evil which could transform a person into a greedy one who desires to have what does not belong to him or her. This greed can cause others to suffer because humans are capable of anything including selflessness.
Personal interest is what made Arthur Anderson to be dishonest, obstructing justice, which later landed him into serious problems. The main reason why he committed the dishonesty to the Enron is because he wanted to get a return from the act without being aware of the consequences of such acts. Dishonesty is a moral wrong since it shows that the individual has no conscience since he/she always finds happiness in his/her destructions at the expense of the pain of innocent people (Thompson & Strickland, 2003).
I strongly believe that Arthur Anderson was responsible for encouraging the employees of Enron to be dishonest, since he had the courage to cover up their crimes because he could get some monetary gains out of it.. The numerous cases of the employees` disloyalty were because they had liaised with Arthur Anderson and he encouraged them, knowing very well that he was breaching the auditing rules and regulations. Arthur Anderson, the company’s auditor, was the only person who could have saved the company from the bankruptcy. His actions qualified him to be evil, since he made all the stakeholders of the company suffer since the majority of them lost huge amounts of money in the process. The stakeholders are the people involved in the company’s activities and they are most likely to be affected by all the actions of the company. The stakeholders of the company include the government, employees, customers, suppliers, creditors, trade unions, business owner, and the community.
The main reason why I strongly believe that Arthur Anderson was solely to blame for encouraging the top Enron executives to tamper with the accounting books; it cost a lot to the company because these executives knew what evil that they were doing but they kept on encouraging the other employees of the company to invest in the company while, on the other hand, they were selling all the shares of the company, earning a lot of money which was considered to be billions of dollars without being under suspicion of the innocent employees. This led to the fall of the share price which made the independent rating agencies to consider the company as worthless.
The action of Arthur Anderson brought a negative impact on the auditing profession since his actions were solely responsible for the bankruptcy of the Enron Company since he was aware of all the fraudulent cases which were committed by the top level management and other employees who were the decision makers of the company.
The reason why I think that the actions of Arthur Anderson would have negative impact is because there were also other companies where Arthur Anderson conducted irregularities in the accounting principles but where the auditors failed to give reports of all the financial reports which had the misstatements. Out of all those fraudulent cases that Arthur Anderson was accused of, it was found out that there was the direct linking with the top executives of the companies which showed that it was not only the Enron case alone, there were also other companies involved. The Enron case was considered to the biggest in history.
Arthur Anderson breached his independence rules, since the direct linking with the top executives of Enron influenced the auditing firm, which made it give false financial reports. Arthur Anderson destroyed all the financial statements and documents which would not have rhymed with the final earnings restatements in the favour of the top executives. This action creates a negative image in the society. Public relations are very important since they deal with the public image. This makes the public lose confidence in the auditing profession, since according to the auditing and accounting practices, an auditor is supposed to audit the financial statements of a company for consistency and report any cases of fraud.
Arthur Anderson owned one of the 5 big auditing firms which showed that it was very famous and successful company which made Enron trust that his company can handle all its financial documents and statements. This act by the Arthur Anderson auditing firm led the public to lose trust in the auditing profession. This is because when a company decides to employ the services ofan auditor, it shows that the company has full trust on the auditing firm with the company’s financial documents and the auditing firm should also yield results since the company expects to get all the irregularities in the financial statement and reports. For the Enron case, it was the audit firm which encouraged frauds in the financial documents which makes the public to loose trust in the audit profession since if the people that they can trust can also be dishonest, then who do they trust?(Johnson, et al., 2005)
I strongly believe that what happened to Arthur Anderson was fair and he really deserved what was done to him. This is because according to the rules of the AICPA Code, auditors should be independent, both in fact and in appearance. Auditor’s independence is considered to be the strongest cornerstone of the profession of the auditor, as he/she acts in the interests of the Public Trust Foundation. This auditors` independence is what ensures that the quality audits perform and that they contribute fully to users of the financial statements. The Code establishes all the auditors’ independence standards, objectivity and integrity, and all their responsibilities to all their clients, in terms of their action towards the accounting specialists. Auditor’s independence is general independence that ensures that the auditor is safe from all the parties, whose main interests might get harmed by the audit report results. Auditors are supposed to be independent in appearance, which is called a perceived independence, and also independent in fact, which is called a real independence (Dunn, 1996).
An auditor, who is independent in fact, is considered to have an ability to be able to make impartial and just decisions. These decisions should be independent even though the perceived independence is absent or have to be taken under state or situations, which are very compromising. This is very difficult to determine whether the auditor is independent in fact, since it is very hard to measure the personal integrity and mental attitude of the auditor (Dunn, 1996). The independence in appearance, which is also known as the Perceived independence, is the situation where the auditor is forced to act in a way other than acting independently. This, in most cases, adds some credibility to the report of the audit. This reduces the possibility that the auditor is not acting independently.
Arthur violated the independence rules of auditing. Because Arthur was the auditor of the Enron Company he must have liaised with the employees of the company so as to obstruct justice because he destroyed documents about the fraud case in the company which shows that his decision was influenced by the Enron Company’s employees, which led to the bankruptcy of the company. Arthur also knew that it was very wrong for the company to include its accounts derivative contracts at gross rather than net value which had led to the inflation of the company’s earnings through the use of dubious accounting procedures (Elliot & Elliot, 2004). This was evident when the company took in numerous innovations in notably derivatives and financial instruments, so as to manipulate the company’s earnings and avoid regulation. Arthur knew about these activities by the company and being the consultant and auditor of the company, he did nothing about it which showed that he breached the auditor’s independence rules and auditing practices according to the GAAP.