Enron and Ethics: A Cautionary Tale

The law directs how one must behave, but ethics examine how people ought to behave. Often in the business world the people’s differing beliefs on ethics leave them susceptible to a plethora of ethical traps. The story of Enron is a perfect example of how ethics and the lack thereof can cause extreme problems for many. Throughout the 2005 documentary film, Enron: The Smartest Guys in the Room, a number of ethicall ambiguous practices are exposed. Viewed through the lenses of the utilitarian and deontological ethical theories, one can analyze how and why Enron came to these decisions and predict how their decision would differ or remain the same if they followed the guidelines of these theories.

Additionally, I want to analyze the significance of the ethical traps such as money and the power of orders from a superior had on the decisions made by Enron.

First, utilitarianism “holds that a correct decision is one that maximizes overall happiness and minimizes overall pain, thereby producing the greatest net benefit.

”(Mann, Roberts, 30). Theorized by John Stuart Mill, utilitarian ethics goal is to produce the greatest good for the greatest number of people, and in the business world cost-benefit analyses and risk management practices are perfect examples of the utilitarianism in action. When applying the principles of utilitarian thought to the details exposed in the documentary I slightly see what the leaders of Enron may have been thinking.

If they had followed utilitarianism, it is possible that Kenneth Lay and Jeffrey Skilling could have mapped out a cost benefit analysis, that showed that cooking the books would provide the greatest net benefit for them two as it would thoroughly increase their wealth.

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This displays one of the commonly voiced criticism of the utilitarian thought, because Lay and Skilling are theoretically too short sighted to take into account the amount of harm they would inflict on low-level employees and commoners. Additionally, opposers of utilitarian thought argue that it can be extraordinarily time consuming to account for the benefit and pain felt by all parties affected by a decision.

Contrastingly, deontological thought holds “that utilitarians have it all wrong and that the results of a decision are not as important as the reason for making it.” (Mann, Roberts, 30) In short, in the mind of a deontological thinker the ends certainly do not justify the means. One should do the morally correct thing regardless of the consequences. A major component in this ethical theory is the belief in the categorical imperative. Coined by philosopher Immanuel Kant, the categorical imperative, holds that an act is only ethical if it would be acceptable for everyone to do the same thing. The truth is a major belief of these thinker, and there exists a belief that humans possess a unique dignity and that no decision that treats people as commodities could be just. It is obvious that if the people of Enron had followed the beliefs of this thought then their harmful fraud would never have occurred.

For example, in the The Smartest Guys in the Room it was appalling to learn about Enron’s action in the fraudulent California Energy Crisis. In this fake energy crisis made up by Enron, the people of California were subject to price increases of up to 800% higher than normal rates. And although perfectly following deontological thought would have stopped something like the California Energy Crisis detractors of this ethical theory make some valid points in their critiques. Critics of this theory state that although following the Golden Rule with every decision sounds perfect, it is impossible because the ends do matter. Another problem argued by opposers regarding deontology is that it relies on the subjective opinion of those carrying out the decision. For example, in the documentary there are numerous times when it is explained that the fraud was so ingrained in the culture of Enron that the employees believed what they were doing was completely right. How could we get Enron executives and its other employees to stop if they were living under the delusion that what they were doing was okay?

It is commonly said that money is the root of all evil, and this old adage clearly supported by in story of Enron. Money and the greed that comes with it is a powerful and Kenneth Lay and Jeffrey Skilling were seduced by it. Money is seen as an ethical trap because of the numerous benefits people associate.Money is also a way of keeping score. Enron fudged their “score” by manipulating their accounting earnings and revenue. In the documentary it is shown that if Enron started a investment or business initiative that could potentially earn them $50 million in some odd years, they wrongly claimed that $50 million on their current income.

In addition to money being a common ethical trap, people are often susceptible to disregard their ethics when following orders from a superior. When a leader or authority figure of an organization gives an order, even to do something clearly wrong, it is undoubtedly enticing to obey. A combination of both trust in the leader, and fear of punishment play a major role in persuading people to fall into the ethical trap of following orders. Employees who work for firms with a culture of blind obedience are two times as likely to report having seen immoral behavior as are workers at companies with a healthy corporate culture. The textbook explains that, “Because humans are social animals, they are prone to follow the actions of the people around them.

For example, If a new salesperson is added to a company, he or she is more likely to cheat on expense accounts if that is the norm at the company.”(Mann, Roberts, 36). An example of this can be seen in the blind faith Enron employees were regarding their investments. For example, in the documentary the CEOs strongly urged workers to continue to buy Enron stock, despite knowing the truth about the lack of stocks value. If Enron employees had slowed down and done the proper due diligence regarding their investments, they may have realized the enormous fraud taking place right under their nose. Unfortunately, the employees did not notice they were harmed a lot by the collapse. Retirement funds, and accrued gains on investment from Enron were all but lost as the company folded.

In conclusion, Enron was once hailed as the “most innovative company in the United States”, but a series of illegal and unethical decision caused one of the most drastic collapses in corporate America. People who watch this film and learn about Enron should this as a story about people and their ethics. The poor leadership of Kenneth Lay and Jeffrey Skilling bred a culture of blind greed and Enron was doomed from its inception. The countless shady business practices could have been avoided if they had stayed true to their life principles.