Principles of Business Ethics of the Enron Corporation

Some teenagers today, may not know what business ethics are. Well, business ethics is the difference between right and wrong in the business realm. There are so many companies with good business ethics but in our world we only hear about the companies with the bad ethics. One of those companies is called Enron. Enron is a gigantic corporation that deals with the electrical power in Dallas, Texas. Enron may have destroyed many peoples lives due to the company declaring bankruptcy.

Enrons collapse has devastated the world; especially the market place because no one thought that a corporation that big would ever fall. What the Enron executives did was morally despicable, lying to their fellow blue collar workers and not telling them the truth behind all of Enrons debts. In the space of five days last week, the story of Enrons collapse went from the merely unusual to the truly baroque, with plot elements lifted from the pages of Robert Penn Warren and John Grisham (Time Feb 2002 18).

Enron executives have brought loads of controversy upon themselves. How does the seventh wealthiest corporation collapse? Why did it collapse? Who was behind all of this? Questions like these are wandering through investors heads who invested their money in this company.

Id ever the worloes live at deals Enron was a corporation that was built up through loans or fake money. One would call it fake money because Enron really had no clue on how many debts they owed and how many loans they had.

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Enron avoided paying federal income tax for four out the last five years and instead received millions of dollars in federal-tax refunds. Enron ran into financial trouble while transforming itself into a company that traded energy, water, weather derivatives and anything else it could turn into commodity (Time Jan 2002 19). Kenneth Lay, the former Enron chairman, resigned a few months before the collapse received about $200 million in salary, stock and other compensation from Enron. He enjoyed privileges such as a $7.5 million revolving credit line Enron extended him, which he reportedly used and repaid with Enron stock fifteen times (Eric Roston , The Enron Players 20). Sherron Watkins, Enrons vice president, learned Enron was losing money on two equity investments: network equipment supplier Avici lost 98% of its value, and another, New Power and energy retailer that had Ken Lay on the board, dropped more than 80%.

Because both firms were backed by Enron stock, she knew their downfall was dragging down Enron too (Time Jan 2002 19). Watkins sent a brief letter to Lay warning him about the company, he then cashed out $16.1 million in stock, and then he assures Enron employees that the company is fine and urges them to buy stock. Enron executives knew what was going to happen. Instead of telling the truth and report what was going to happen, they took the situation to their advantage and didnt care about anyone else. Enron staff and other investors invested retirement money into this company and now it is all gone. One moment they are riding high thinking they can retire then the next moment Enron is worth nothing leaving them with nothing. Business Week makes a good point towards the market: The good news is that, under investor pressure, dozens of corporations are now scrambling to restate their earnings and make their balance sheets more transparent. The bad news is that the investor revolt could turn into a stock market rout and the growing strains on credit could produce a serious banking crisis (116). Enron is a good example for all the companies to make sure that they keep neat and clean accounting records.

At the close of the financial year, the company issues its annual report, which includes a statement of income and a balance sheet that shows how much the company owes and is owed. At the end of the annual report, the accounting firm signs its corporate name to a statement attesting that the report fairly represents the current financial position of the corporation (America 4). Business Week included this intelligent point on what should be done: The Federal Reserve should monitor the markets to make sure theres enough liquidity to keep them open and steady. It is important that the investors regain confidence in the markets and believe that they have the tools to evaluate the risk and values in companies fairly. The companies that are moving back toward more conservative accounting are headed in the right direction. But a new set of common standards for all companies is absolutely necessary and must include better uniform measures of true financial health: unencumbered cash flow or true operating earnings would get us closer to this goal. The SEC and the accounting profession must face up to their responsibilities and act forcefully (116).

Some other remedies to the situation is that; first, the accounting profession should be regulated by organizations that are not appointed by the accounting firms themselves, second, the conflict of inter! est inherent when accounting firms serve as both auditors and consultants needs to be eliminated, third, what are known as generally accepted principles should be brought in line with the requirement for fair representation of financial results, and finally, even if the law does not require it, equity demands that managers who profited unfairly be severely penalized, and that funds from such penalties be used to compensated employees whose retirement savings were eradicated (America 4). In conclusion Enron is perfect for the saying you cant read a book by its cover. Enron was one of the wealthiest corporations in America but now it is a pile of dust. Most importantly the Enron scandal shows the absolute requirement for boards of directors, executives and everyone else in the business world to accept the moral responsibility for honesty (America 4). Although the foundation of our economic system is to maximize return for shareholders, it provides a well-organized capitalism. As we all can see now is that the system can be easily destroyed by the wickedness and greed of a few. With Enron, we are able to see the wages of immorality: the suffering of many hardworking people who have lost their lifes savings.