Introduction
Overview
The various scandals, downfalls, frauds, harassments, collapses, and meltdowns associated
with business entities in the United States and outside in various other countries has
contributed a windfall of social and ethical fallout. All of the aforementioned collapses and
illegal activities pale in comparison to that of the greatest scandal in corporate history –
that of the Enron scandal. The Enron scandal stands as one of – if not the preeminent
example of hypocrisy, dishonesty, illegal activity, and unethical business practices in
corporate operations around the world and most specifically in the United States.
Facts and History of Enron
Enron is an example of white collar crime, which is generally considered non-violent and
financially involved criminal misconduct generally done within a business entity.
The reason for Enron’s status as the most notorious in corporate history comes from its
rich history. At one point, Enron sat as the seventh largest company in America. With the
deregulation of Enron, the government essentially gave permission to Enron executives to
maintain their own earnings reports that would be released to both investors and
employees. This is the tipping point for the scandal, as it opened up the floodgates to allow
all sorts of deviant, unethical, dishonest, and illegal activity because Enron had little to no
oversight. The financial reports were inaccurate, misleading, losses were not stated
completely, which led to more and more investments as it seemed to the outside world that
Enron was highly profitable. It began in 1985 shortly after federal deregulation, with the
InterNorth acquisition of Houston Natural Gas.
(http://finance.laws.com/enron-scandal-summary)
Afterwards, the company spread out to various fields of energy and several fields of
non-energy relation. They branched out to internet service providers, risk management,
and weather insurance. For six consecutive years Enron was selected as America’s most
innovative company, between the years of 1996 and 2001, shortly thereafter came the
investigation into Enron’s off-shore partnerships and dubious accounting practices. In
1985, after the merger between InterNorth and Houston Natural Gas, the company known
as Enron was born. It started with massive debt, and due to the deregulation the exclusive
rights to pipelines were now gone. This is what led to the company seeking new and
innovative technology fields and fields of energy in order to compensate for the loss of
profitability involved in the loss of their pipelines’ exclusivity rights.
During this time, Kenneth Lay, the CEO of Enron hired mcKinsey & Co. to develop
Enron’s strategy for business operations. It was then that a consultant named Jeffrey
Skilling was brought on board. With his history of experience in banking and asset
management he attempted to solve Enron’s financial woes. That idea, labeled a gas bank,
helped to ensure Enron’s future success by allowing Enron to buy gas from various supply
networks and then sell it to the consumers. This allowed Enron to control both the price
and the supply, and allowed Enron to charge a markup and other fees. This was the first
venture into the energy derivative for Enron, and afterwards Lay created a brand new
division in 1990 and gave it to Skilling to operate. The branch known as Enron Finance
Corp., soon came to dominate the natural gas contracts market because of their access to
supplies and customers. Because of their immense market share and power Enron was able
to anticipate the changes and fluctuations in pricing with a low margin of error.
With Skilling’s leadership growing in the company so also did the apparently unethical
treatment of employees. With his establishment of the performance review committee,
which became known as the harshest employee-ranking system in the country, also
referred to as the 360 degree review, Skilling became known as an extremely difficult
executive. This review was supposedly based on the core values and code of ethics
discussed later in this paper. However, most employees understood the real method of
performance review to be based on the profits they could produce. While this isn’t
unethical in the nature of business, since the goal is to make profit, using the code of ethics
as a façade for the performance review is dishonest and misrepresentative of the nature of
the review. Being forthcoming with the nature of the review would have been honest and
actually follow the code of ethics. Instead, the review was based primarily on the ability of
associated to turn a profit, while stating that it was based on the core ethical values of the
company. This is extremely dishonest and only starts to show the beginning of the ethical
dilemma Skilling started putting Enron and associates toward. The goal of the performance
review was to achieve profit and drive competition, this was very successful because the
employees understood they were discardable if not profitable. This led to fierce
competition and rivalry within the organization, which again goes against the
fundamentals established within their code of ethics. The effects of this performance
review bred intense paranoia and extremely unpleasant work environments. All of this
came from the installment of a review system that completely contrasted the exemplified
code of ethics for the company.
The Problem
Disclosure, oversight, and accountability are the origination of the problem associated with
the Enron scandal. If Enron had an oversight committee, government or third party, they
would be held accountable for full public disclosure. Instead, they were given the ability to
manage their own finances, and this put the onus on the individuals operating as executives
in charge at Enron to be honest, forthright, and virtuous individuals. This was clearly a
