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Ethical conduct Essay Sample

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Ethical conduct Essay Sample

Introduction

Ethical conduct is a prerequisite for all the employees of an organization. In the 20th and the 21st Century, it has become imperative to promote ethical behavior among all employees of an organization in their dealing with internal and external stakeholders of an organization (Ferrell, & Fraedrich, 2014). This was necessitated by the separation of ownership and management. Ethical conduct among all stakeholders ensures that the interests of both owners and management, including employees, is considered and promotes mutual respect and benefit among all the stakeholders (Carroll, & Buchholtz, 2014). In instances where either of the parties violates the respect and trust of the other party, it results in losses to some or all the stakeholders. This is evidenced by the Enron case, where the financial impropriety of management led to losses to shareholders, employees, and the collapse of the company.

Case Analysis

Ethical Theories Introduction

To have an understanding of the Enron case from an ethical decision-making perspective, an analysis of the case by utilitarianism, Kantianism, rights issue ethics, virtue ethics, feminist ethics, and common moral, ethical theories will suffice. First and foremost, the rights issue ethical theory uses rights and obligations of individuals to determine whether or not an action is ethical (Beauchamp, & Bowie, 2004; see also Ferrell, & Fraedrich, 2014). On the other hand, according to the virtue theory, ethical action is determined premised on the virtues and tenets demonstrated by an individual about the issue under consideration (Beauchamp, & Bowie, 2004). The feminist theory also know as care theory, is premised on the inclusion of what are perceived as feministic tenets such as kindness, love, and care in determining whether or not an action is ethical. The common moral, ethical theory, on the other hand, is premised on the social nature of human beings which places a moral responsibility on individuals to behave or act in particular ways that promote morality (Carroll, & Buchholtz, 2014).

The Kantian ethical theories, on the other hand, are premised on a means and ends analysis of situations. This entails determining if an end is ethical, and then any actions ethical or not can be used to get to the end (Beauchamp, & Bowie, 2004). Lastly, the utilitarianism ethical theory, on the other hand, is premised on the common good principle. Whichever action promotes the good of the majority or benefits the majority is deemed to be ethical (Carroll, & Buchholtz, 2014).

When the Enron case broke out, it emerged that Kenneth Lay, one of the founders of Enron and chairman of the board, acting in cahoots with Andrew Fastow, the then Chief Finance Officer, and Jeffrey Skilling, the CEO were involved in financial impropriety including money laundering, insider trading and widespread fraud (Markham, 2015). Therefore, contrary to the Enron code of conduct, that propagated virtues such as respect, integrity, communication, and excellence, the top management of the company did not set a good example and were the main cause of the demise of the company as a result of unethical financial conduct (Boatright, 2013; see also Markham, 2015).

From the foregoing, it is, therefore, evident that the management and leadership of the company violated many moral and ethical theories, professional accounting standards, laws of the United States, and professional codes of conduct. Analysing the case using the utilitarianism ethical theories, it emerges that the management and leadership of the company acted driven by greed and selfish motives. The management failed to disclose losses, giving the impression that the company was still recording good performance.

Secondly, using the information only privy to them, the top management were able to manipulate stock prices and trade to maximize their selfish gains through insider trading (Boatright, 2013). The management, also, violated the public trust by providing untrue or wrong information to dupe the public and employees of the company to invest funds in a company that was performing poorly. In addition to this, through a manipulated performance management system, the company arbitrarily discharged employees who were good performers because the existing system required at least 20% of underperformers be dismissed on an annual basis (Markham, 2015). Lastly, donations to political parties’ campaign activities contravened existing code of conduct and went against the interest of the public because the management expected favours from the beneficiaries of such donations when they assumed office upon election giving the company an unfair competitive advantage (Ferrell, & Fraedrich, 2014).

Applying the Kantian theory to the Enron case, it emerges that the disinformation of the public kept a poorly performing company in existences duping the public to keep on investing in the business. Also, failure to disclose losses, wrongful discharge of employees, insider trading, and retaliatory action against employees with dissenting views are contradictory to the categorical imperative principles upon which the Kantian ethical theories are premised (Markham, 2015). The vision of a company like Enron as discerned from the case was to grow and make a positive impact globally. This is the end. However, the approaches taken by the management, that it, the means as discussed above, contravenes the Kantian philosophy of the end justify the means.

In the same grain, applying the rights ethical theory to the Enron case, it is clear that as custodians of the company’s financial prosperity, the management failed in the discharge of their duties, responsibilities and obligations. They violated the trust bestowed upon them by the shareholders and the public. Secondly, the management had a legal and moral obligation to provide correct information to the employees, investors and other stakeholders to facilitate informed decision making (Markham, 2015). They failed in this by continuously failing to disclose losses when made. At the same time, the ethical code of conduct of the company and the law, forbid the management from making contributions to political parties which they continuously contravened by making contributions to political parties and presidential candidates (Boatright, 2013).

The management of the company demonstrated some behaviours and acted in ways that violate ethical standards as per the virtue theory that uses virtues to determine if or not an action or a decision is ethical. The management was dishonest by continuously providing wrong information to the public and employees causing them to invest in Enron. They were selfish because they used information that was not in the public domain to engage in insider trading to promote personal gains through their activities in the stock exchange (Boatright, 2013). The management of the company were untrustworthy because they provided wrong information related to the financial soundness of the company to various stakeholders. There was a widespread lack of integrity among the top management and leadership of Enron as discerned from the incidents highlighted above.

A scrutiny of this case using the feministic ethical theory, which uses a general concern for the well-being of others in determining whether or not an action or a decision is ethical, it is clear that the management of the company was not kind, caring, loving, trustworthy, sharing, emotional, nor did they demonstrate any tenets fostered in this theory (Beauchamp, & Bowie, 2004). The management in their actions, on the contrary, were unfair as they promoted a culture that treated employees unfairly. The management and leadership at Enron, through insider trading, failure to disclose losses, provision of wrongful information, retaliatory action against employees, unfair treatment of workers through unfair discharges and unfair performance appraisal practices, disregard of the law, unprofessional behaviour, and the general selfish behaviour and conduct of the management of Enron demonstrates unethical behaviour (Markham, 2015). This is since the aforementioned actions disregard the feministic tenets of love, care, kindness, fairness, trust, peace, and a general concern for the well-being of others.

First and foremost, under the common moral theory, the management failed in their duty to safeguard the interests of the shareholders who are their employers by engaging in fraud and financial impropriety. Secondly, the collusion between the auditors of the firm and the management of Enron in a bid to promote self-gain contravenes the common moral ethics (Beauchamp, & Bowie, 2004). Thirdly, lying to various stakeholders as to the financial soundness of the company is another practice that contravenes the common moral theories. Finally, the design of the 401K plan and the subsequent use of the same to dupe employees is tantamount to theft and defrauding of employees of their lifetime savings and retirement benefits (Boatright, 2013). These actions and behaviours are an indication of violation of ethical standards judged from the perspective of common moral theory.

Standards Violated by Arthur Andersen

In acting in cahoots with the management of Enron, Arthur Andersen violated public trust, disregarded and broke the law, and acted in violation of a moral, legal and professional code of conduct that required the auditing firm to bring to the fore financial impropriety at Enron in line with Securities and Exchanges Commission regulations under the Securities Act (Boatright, 2013). First and foremost, a consulting subsidiary of Arthur Andersen provided financial consulting services while Arthur Andersen provided auditing services, a violation of ethical standards due to conflict of interest (Ferrell, & Fraedrich, 2014). The staff of Arthur Andersen violated the company’s code of conduct that prohibited engaging in fraudulent financial auditing practices. Thirdly, failure to report discrepancies in the audited financial reports of Enron to the board of the company was a violation of trust and duty to the board, a representative of the shareholders (Markham, 2015). Fourthly, lack of integrity as deduced from these actions is a violation of the law and ethical standards as set by the company and the SEC through misrepresentation of the financial position of the company to the general public (Boatright, 2013).

On the other hand, the activities of Arthur Andersen were in violation of the professional code of conduct for accountants as set by American Institute of Certified Public Accountants (AICPA), Generally Accepted Auditing Standards (GAAS), Generally Accepted Accounting Principles (GAAP), and Statements on Auditing Standards (SAS) (Boatright, 2013). Further, Arthur Andersen, through its staff charged with the responsibility of safeguarding public interest failed in this duty by concealing the true financial position of Enron through abetting management engagement in fraud. Therefore, Arthur Andersen engaged in fraud, destruction of evidence when investigations were initiated, manipulation of financial records, and assisting in the criminal activities of the management of Enron (Markham, 2015).

Conclusion

The management of a company is charged with the responsibility of safeguarding the interests of their employers, that is, the shareholders, who are the owners of the enterprise. To be successful in these pursuits, the management is required to uphold high moral and ethical standards through promoting a culture of integrity and ethical behaviour in the organization. However, where the management propagates unethical conduct, their activities will result in losses to the company, shareholders, and other stakeholders and like in the case of Enron, the company might collapse.

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