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October 10, 2012

Ethics is obviously a very complex topic. Even though ethics can be sculpted by a culture and one’s environment, when it comes down to the roots, ethics is determined by the individual. It is a perspective and an opinion. However, it becomes more complicated when the ethical decision is made by a group. If people dispute on ethical standpoints, there is going to have to be a compromise of some sorts. Many people may have the same idea of right vs. wrong in certain scenarios, but then there are right vs. right situations. Other times, there is a group of people that may be behaving unethically, but because you are in the group, you perceive the unethical behavior as the norm. One can only analyze the ethical dilemma and make the choice that he/she believes is the most ethical option.  There are five major ethical reasoning theories that we went over in class: utilitarianism, deontology, egoism, relativism, and justice theories.

We can delve into these theories further by using the example of the Enron scandal. This is a prime example of how people can slip into unethical behavior by not speaking up or holding to their personal ethics. Enron Corporation was an American energy company based in Houston, Texas that was founded in 1985 by Kenneth Lay who acted as the CEO and chairman until 2002.  When Jeffrey Skilling became president, he began working with Lay and the CFO Arthur Anderson to hide billions of dollars in debt through accounting and financial reporting fraud. Enron had non-transparent financial statements which made it unclear to outsiders and shareholders how poor the company actually was doing. Transparency is crucial in having an ethical foundation for a company. This became one of the largest bankruptcies and audit failures of all time.

Utilitarianism is an ethical approach that asks what will give the greatest amount of happiness to the most amounts of people. The Enron executives were solely focusing on short-term rewards/consequences with this theory. They were able to establish a fake multi-billion dollar company that had an evaluated market capitalization of 60 billion dollars. The shareholders were temporarily very happy and so was the rest of the company. However, this success was very short lived. Once they went bankrupt, the stock price dropped down from $90 per share to $1 per share in a matter of months.  Shareholders lost around 74 billion dollars within the four years leading to the bankruptcy. All the employees that worked there lost their jobs. Many of the executives did not end up “happy” due to their prison sentences and large fines. The executives did not think through their ethical decisions in terms of how it was going to affect a great number of people.

In terms of deontology, which is essentially following certain established rules, the company was breaking many laws. There was no ethical code for the company and the executives who were running the corporation were behind the major unethical decisions. This led to the executives’ arrests.

Ethical Egoism is when people should do the most ethical action for their own self-interest. The three executives leading the corporation in an unethical way should have realized that they were only helping themselves temporarily by lying about their financial statements. By submitting to unethical behavior, they now have to face prison sentences, (except for Kenneth Lay because he was reported to have died in 2006) and if they do not die in prison, once they come out they will be older, not be able to get a job, and will have very little money. The executives were in all forms of media and embarrassed world-wide on top of having to deal with their other punishments. There was a documentary called “The Smartest People in the Room” that was all about exposing the reality behind the Enron scandal (there is a link below).

The culture relative to Enron was based off of lies. The executives created a structure that would lie about financial reporting leading to entire teams of people committing unethical actions that they did not even have full comprehension of how unethical they were being. Many employees were compensated afterwards due to their loss of their pensions. The corruption was dense in upper management, but many employees had no idea how unethical the corporation was.

Justice has to do with treating people fairly, giving them what they deserve. Applying the golden and platinum rules, treating people how you want to be treated and treating people how they want to be treated, are very important concepts to take into consideration when leading a company. Many innocent people were negatively impacted by the greed of the Enron executives. Shareholders were betrayed and lost money on their investment. The employees, thinking they had stable jobs, lost their pensions, as well as their steady income. Many smart people working for this multi-billion dollar corporation were ethical and did not deserve to waste their valuable time with this corrupt company. The executives clearly did not thoroughly evaluate the effects that their actions would have on other people.

A big problem with the Enron scenario was that there lacked a whistle-blower. Although being a whistle-blower does not sound like a glamorous thing to do to the people you work with and the company you work for, in this situation it would have ended the fraud earlier. If an upper management or executive exposed the lies and stopped cooperating with the illegal auditing, then they could have saved time and money for thousands of people.

In conclusion, ethics is a critical aspect of business to consider, as most employees face ethical decisions in their careers. Most of the time, it will not be as extreme as the Enron example, but their story is a prime example of what unethical actions can lead to. Even though ethics is a multilayered concept, we do have these principles and concepts to help us approach ethical issues.

“If you don’t have integrity, you have nothing. You can’t buy it. You can have all the money in the world, but if you are not a moral and ethical person, you really have nothing.”

– Henry Kravis,28757,2021097,00.html


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