Tone at the Top free essay sample

Enron: Tone at the Top The fall of Enron is not just one of the largest bankruptcies in U. S. history, but in my opinion, a landmark case study of the lack of business ethics in an organization. Enron’s downfall, along with the demise of Arthur Andersen, one of the largest public accounting firms at the time, brought about a swift change in U. S. regulations governing how publicly traded companies reported their financials. While the top brass at Enron pled ignorance to the fact that they had no control of what was happening at the employee level, there was ample evidence that they were indeed, the architects behind the series of unethical practices that went on in the organization. Enron, one of the largest corporations in America and once ranked Fortune magazine’s â€Å"Most Admired Companies† went down in 2001 after they were exposed of defrauding their investors in a series of creative ways. We will write a custom essay sample on Tone at the Top or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page Enron was known for being an innovative company in the energy, technology space but much of their innovation seemed to lie in how they managed to hide their debts and cover their losses through unscrupulous means. They would book hypothetical profits on projects and joint ventures that had not yet launched and on the day a deal was signed. They would hide their debts through the use of complex Special Purpose Entities (SPEs). They would solicit support from top tier investment banks by giving them lucrative deals to work on. All this and more was conducted with one clear objective in mind: to make as much money as possible through manipulation. Everyone was happy as long as there was money to be made. Ethics was out the window. Manipulating financial books and records, exploiting deregulated markets became their predominant strategy -all in the name of maximizing profits and pushing up the company’s stock price. When indicted, the chief executives of Enron, Kenneth Lay (former Chairman and CEO) and Jeffrey Skilling (CEO), amongst others, continually denied their involvement. Their defense was that it is impossible for them to keep track of what their managers and employees were doing and they could not possibly be responsible for that. Unfortunately, that is not a good enough answer for all the people who lost millions of their pensions and personal wealth due to this so called â€Å"ignorance†. However, if it was indeed the case that the executives had conducted themselves with integrity and honesty in the past, and it was their ignorance and incompetence that led to this mishap, it still would not be acceptable. The executives have a responsibility to the company and to the shareholders. Saying that they didn’t know is an unacceptable excuse. The chief executives are quick to take credit for a company’s success and are revered for their exemplary leadership. Similarly, in a situation where a company is performing poorly or engaging in illegal activities, (with or without the executives being aware) the executives are to shoulder the blame for their poor leadership. In Enron’s case though, it wasn’t just that a couple of rogue executives got together and brought the company down because of their individual greed. The unbridled greed and hubris, in my opinion and in the opinions of my classmates during our discussion, was brewed at the top and served to the employees below. The executives lead by example. The root of the greed was the ‘macho culture’, the high risk taking antics that Skilling created at Enron by the dirt biking and hunting expeditions that he would organize with his friends and company executives. This aggressive, overtly masculine mentality was exemplified when one of the traders in the documentary â€Å"Enron: Smartest Guys in the Room† mentioned how that if going ahead meant ‘stomping on someone’s throat’, they were willing to do it. They were hungry and they were in it to win, and this spurred them to engage in various unethical activities that otherwise would not happened had Skilling been more conservative and risk averse in his approach. His push for mark-to–market accounting methods in the company was an example of the pure arrogance displayed by the top brass: Enron would book profits for projects they had just signed a deal on without even implementing them! Kenneth Lay was no model of perfection either. The Valhalla scandal involving Enron Oil where he purposefully hid the company’s losses from investors should have served as a warning sign that he was not one to be trusted. He turned a blind eye to many unethical practices as long as he, and the company, was making money. They were purely focused on the bottom line and were willing to go down any avenue to achieve it. This aggressive attitude, this hunger to constantly keep ‘winning’ was unsustainable through ethical business practices, which was why Enron went down the wrong path. With these two xecutives at the helm, it’s no wonder Andrew Fastow thought he could misappropriate funds for his own use (and use SPEs to cover company debts); that the traders could call up power plants in California and ask them to shut off power so they could make profits! Skilling’s ego combined with Lay’s greed was the perfect catalyst to initiate a series of illegal activities at Enron. But why didn’t anyone step forward for so long? Because personal gain took precedence over ethics and morals? One interesting way to look at is through the Milgram Experiment. In the psychology experiment conducted by Stanley Milgram, in which participants were told it was perfectly okay to administer almost lethal shocks to another person (an actor was used) in a make believe ‘learning’ experiment and they would be absolved of any resulting consequences. While the participants expressed concern, it turned out that over 50% of participants were willing to deliver the final, massive shocks to the other person. The situation was set up so that the participant was told that it was required to administer the shocks and was also assured that nothing would happen to them. This means that over 50% of the participants were fine with shocking a person to death if they were told from an authoritative figure that it was okay to do so. They were fine with foregoing their personal morals and ethics and willing because it came from a legitimate source. The same logic applies to Enron. Because the top executives paved the way from the top (mark-to-market accounting, SPEs etc. ), the mid managers and traders were able to conduct their unethical practices with ease. All morals were set aside because the lure of profit was not easy to resist and that was fine, because that’s what the top executives wanted their employees to solely focus on – make money for the company. The executives, through their own activities, and the culture they created, had created this illusion that the employees would not be reprimanded for all the unscrupulous activities they were engaging in. Employees legitimized their actions primarily because they felt they had the authority to do so. The end result? One of the biggest bankruptcies in US history.