Prior to 2000, Enron was a highly admired company due to the fact that it managed to achieve high levels of productivity and income in a short period of time. It was rated as the world’s most innovative company by Fortune magazine six years in a row, valued by investors at more than $60 billion (Palepu & Healy, 2019, p. 1). Founded in 1985, Enron was “the largest interstate pipeline firm to help gas buyers manage their volatility” (Palepu & Healy, 2019, p. 2). By 2000, the company had managed to significantly raise its revenue both in the international and local stock markets.
It can be stated that Enron’s failure was caused by the fact that its management’s activities did not correspond to the Four Component Model of Decision Making. This model suggests four steps for an individual to follow when facing ethical dilemmas. These include Moral Awareness, Moral Judgement, Moral Intention, and Moral Action (AccountingTools, Inc., 2021). This model suggests that the person facing a moral issue should first recognize it as such. After that, possible solutions have to be developed and analyzed. The third step, moral intention, involves making a choice that is most likely to take into account ethical and moral guidelines. The final stage of the model involves decision-makers acting in accordance with their moral decisions. It can be stated that Enron’s business practices and activities, such as manipulating a mark-to-market accounting method and hiding financial losses, did not resonate with moral boundaries and principles of ethical decision-making. Thus, numerous cases of accounting fraud and corporate malfeasance eventually led to the company’s failure.
Unethical practices were also the reason why measures such as internal checks, balances, and incentive systems were unable to prevent the company’s demise. Over the years, Enron’s management had built a multilayered system of checks and other safeguards to protect its stakeholders and employees from a corporate scandal. However, the core of most of its initiatives was also based on unethical behavior of the company’s governance system. For example, Arthur Andersen, Enron’s accounting firm, was partly responsible for its internal bookkeeping, which is an unethical practice because it does not assure the company’s honesty and completeness of its financial figures (Constable, 2021). Thus, it can be stated that using an outside auditor for internal auditing significantly weakened Enron’s safeguard systems, as well as its likelihood of preventing corporate implosion.
This allows for the conclusion that it would be extremely challenging for Enron to make a comeback today. Since 2001, there has been a significant increase in the development and strengthening of corporate social responsibilities. Economic responsibility would require the company to firmly back all of its financial practices and operations, adhering to the purpose of having a positive impact on society and the environment rather than simply maximizing profits. Legal responsibility would include annually filing necessary tax returns, establishing and maintaining corporate bookkeeping in a transparent and accountable manner, and ensuring that all necessary health and safety policies and procedures are put in place (Constable, 2021). Ethical responsibilities would also include several aspects. Among them are establishing morally sound collaborations, treating all stakeholders and employees in a fair manner, and ensuring that all moral principles and guidelines are followed by the company’s leadership and personnel. While profit is an important aspect to consider in relation to the company’s operations and activities, corporate social responsibilities are incredibly important for its success.
References
AccountingTools, Inc. (2021). Four-component model definition. Web.
Constable, S. (2021). How the Enron scandal changed American business forever. Time. Web.
Palepu, K., & Healy, P. M. (2019). The fall of Enron. Harvard Business School Journal, 1-21.