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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
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
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
Enron Case Study: Ethical Decision Making 2
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
(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
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
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
Enron Case Study: Ethical Decision Making 3
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
company arbitrarily discharged employees who were good performers because the existing
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
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
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
Enron Case Study: Ethical Decision Making 4
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
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
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
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
information, retaliatory action against employees, unfair treatment of workers through unfair
discharges and unfair performance appraisal practices, disregard of the law, unprofessional
Enron Case Study: Ethical Decision Making 5
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
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
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
Enron Case Study: Ethical Decision Making 6
reports of Enron to the board of the company was a violation of trust and duty to the board, a
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
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
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
financial records, and assisting in the criminal activities of the management of Enron
(Markham, 2015).
Conclusion
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
References
Enron Case Study: Ethical Decision Making 7
Beauchamp, T. L., & Bowie, N. E. (2004). Ethical theory and business(7th ed). Upper Saddle
Carroll, A., & Buchholtz, A. (2014). Business and society: Ethics, sustainability, and
Ferrell, O. C., & Fraedrich, J. (2014). Business ethics: Ethical decision making & cases.
Cengage learning.
Judeh, M. (2011). Ethical Decision Making and Its Relationship with Organizational
reform. Routledge.