Enron’s Scandal: Who/What to Blame,

Morals or People’s Actions?

by Hyacynthia Kesuma (Finance 5A - 01313171055)

Enron was an energy trading company founded by Ken Lay. Enron was one of the worthiest companies at its
time, generating high-growth revenues with a very reasonable debt. Due to its trusted and prospective
business, Enron's stock prices increased each year, reaching its peak price at all time high, around $90.75.
This is mainly because of Enron's revenue that jumped from $40.1 Bn to $100.8 Bn or increased by 151%.
However, this fantastic number turned out to be an imaginary number, resulted from "Mark-to-Market"
approach that makes Enron able to recognize revenue when the company does not even make that revenue
by filling all the numbers by their current and future uncertain potential gain. They also created Special-purpose
Entities (SPE) to transfer all debts. Hence, these debts were not seen under Enron’s financial statement.

Enron’s failure was mainly due to immoral decisions held by the top-level management that was driven by the
competitive environment that seemed to create an unhealthy business culture, causing them doing accounting
fraud, insider trading, etc. What is worse was Enron arrived to the point where top-level management put their
individual interests above all, without considering sufferings that might be received by their surroundings or the
majority of people; employees, investors, shareholders. Hence, we can say that Enron has obviously violated 3
ethics such as virtue ethics, utilitarianism, and deontology.

Talking about virtue ethics, Enron's decision to manipulate their suffering business condition has shown that
they violate state of honesty and generosity. Jeff Skilling and other top-level management did not stop
themselves from creating imaginary number to boost up their company’s reputation in terms of stock price and
letting other people believe it.

Secondly, it has violated utilitarianism since Enron did not strive the greatest output for greatest numbers. Few
top-level management left the company right before the falling hill and gained profits. All Enron’s dirty actions
was helped by Arthur Andersen, its auditor that did immoral deeds, such as shredding and hiding all those
manipulated documents. Though, Arthur did not survive its reputation due to this scandal which led to the
closure of one of the top 5 auditing companies. This scandal brought large number of victims, they were
numerous employees that did not only lost their jobs, but also their life as they invested their life money such
as retirement insurance, ESOPs, etc. There were investors who invested heavily on Enron’s businesses and
stocks went collapse, following Enron’s bankruptcy. California citizens even was one of the victims from
Enron’s tricky action of periodic electricity plan shutdown for the sake of obtaining more profits.

Lastly, deontology was violated too. With the main basis of following the rules, one should follow what is ruled.
Enron’s success led Enron’s management to build up a “survival-of-the-fittest” culture in the company, that
ended up making lower-tier employees breaking the law. This is surprisingly also violated by Ken Lay, as he
proposed a false statement to the whole company about Enron’s real situation, hence he did not implement the
value of transparency in between the corporation family.

In my view, this big scandal is a product of domino effect. Enron’s top management that was ever once on top
were blinded by their greed. Their greediness were permeated under the layer of company’s culture in the evil
form and caused them ignoring their ethical behavior because everyone was doing so. With that environment,
no one was on the right track to shed the immoral decisions until Sherron Watkins warned Ken Lay. However,
it seemed to be ignored by the Ken Lay’s kingdom. Few people in the kingdom that knew there was something
wrong pretended to not know what was going on and I think that was the worst thing. Hence, once people lost
their morality, ethics would be ignored and unethical behavior will play along.