The Unethical Behavior

Table of contents

Question 1

The unethical behavior in Enron became evident when the mission statement changed from being the best gas company to becoming the world’s leading energy company. Before the change, the company had a good reputation but as soon the as mission of the company changed to an area of business that the company hadn’t ever worked with before, Enron began amending the financial statements so that the financial statements that they showed to the public weren’t actually the real financial statements (the financial statements with the real figures and no alterations with them). Enron never focused on gaining the necessary skills to run a energy company and the entire company ran on strategic planning.

The unethical behaviour evident in Enron’s treatment of employees is when Kenneth Lay forced his employees to use his sisters travel agency for all corporate travel. His sisters travel agency was more expensive than agencies that had more satisfactory service. Sherron Watkins stated in an interview that she would be stuck in a third world countries where she couldn’t speak the native languages and where she didn’t have a hotel room or with an inadequate for an airplane ticket to go back home even though she might have had paperwork that stated otherwise.

When Sherron Watkins attempted to use another travel agency, after one or two reports of the expense of the travel, an email would be send be send to her, reminding her to use Kenneth Lay’s sister’s travel agency. This shows how Enron didn’t follow its value of “Respect” as the company didn’t place the wellbeing of their employees as their top priority. Another value that Enron didn’t follow is “Communication.”, the company wasn’t opening a discussion to talk about what travel agency was the best to use. If someone in the company attempted to discuss about using a different travel agency, the person was rebuffed by the company. Kenneth Lay, himself, just decided what travel agency employees must use for corporate travels.

A law was passed in 2000, which stated that states in the United States could control the switching on and off of power supply to energy such as electricity to the public. Enron, which was trading electricity, at one stage bought electricity for 250 dollars and sold it for 1200 dollars. This was allowed if the electricity was bought from another state and valid reason was given for the increase in the price of electricity. Enron persuaded the energy regulators to have more power failures and to hike up the prices of electricity.

This is unethical, as they were just ripping people off their money. Enron was giving false reports as to why there was an increase in blackouts and the price increase (Enron states that they would be doing maintenance work when they had no maintenance work to do). Enron was not only lying to the public but they were also breaking the law as they weren’t buying the electricity from another state, instead they were buying it from California but they were marking it as an export.

They used a mark-to-market strategy which is legal and used by business such as banks but Enron was an organization based on energy and this was much more complicated business than banking and thus shouldn’t have used the mark-to-market strategy. Using the mark-to-market strategy meant that they recorded profits that were meant to come from long-term partnerships (i.e. profits from the future) in the present day as actual earnings thus making it seem like the company had actually received at the present day but in reality the company had not received any money.

The unethical behaviour evident in Enron wrote down billions of dollars that were losses as profits as they had previously thought they would have received profits from these transactions Enron was able to hide their debt via Special Purposes Entities. An example of this is the deal Enron made with Blockbuster video where they signed a 20- year agreement to launch a new online video games to different cities. Enron estimated profits of 110 million dollars and all the executives were paid large sums of bonuses for the deal. Though after numerous projects- all of them that failed. The company made a loss through the deal, but Enron altered the numbers to make it seem like Enron actually made profits from the deal.

Question 2

Jeff Skilling was charismatic which made many people believe his word and trust his leadership of the company. A characteristic such as charisma can be dangerous in a leader- thus in Jeff Skilling’s case as well, as each time Jeff Skilling spoke to his employees, it inspired the employs to follow his word as they trusted him and thus the employees looked up to him and gave good feedback to him and a leader can become addicted to the positive feedback from the employees. Thus this could have caused Jeff Skilling to feel as if he always had to give good news to keep getting the same positive response back as this would give him more confidence.

Greed, he acted in the best interest of the shareholders and not the company. Jeff Skilling wanted to maximize the earnings for the shareholders.

Ambition, he wanted to achieve his goals and dreams no matter what it cost him, the company and the people working for the company. The new mission statement was: To become the world’s leading company. This showed that both, Jeff Skilling and Kenneth Lay were arrogant. They both believed that older, stodgier companies didn’t have a chance against the new, powerful and modern Enron. They both had a lot of pride and they believed that they were more powerful and skillful than they actually were.

Question 3

In the tale of Emperor’s New Clothes, the Emperors loves fine clothing. Two con men, arrive in the Emperor’s city professing to be the greatest weavers in the world. The two men claimed that the clothing they weaved was also magical thus the clothing would not be visible to anyone who was foolish. The Emperor was thrilled to hear about the clothing that the two men could make and the Emperor pays the two men a large amount of money to make the magical clothing.

The two men, then with needles that had no thread pretended to weave and sew clothing with empty looms. The Emperor sent one of his men to check on the two men who were pretending to weave and sew clothing. When the Emperor’s man checked up and registered the fact that he couldn’t see the clothing, the man doesn’t tell the Emperor that he couldn’t see the clothing as he feared that the Emperor would think the man is foolish. So the man lied to the Emperor and said that the clothing was beautiful. The Emperor kept sending different men to check up on the clothing and all the men lied to the Emperor as all the men couldn’t see the clothing.

On the day of a big parade, the clothing is taken to the Emperor. The Emperor, himself couldn’t see the clothing, but he himself doesn’t want to admit that he is foolish as he couldn’t see clothing thus he dresses himself in the invisible clothing and as the Emperor walked in the parade, in front of all his people, everyone in the kingdom see the Emperor without any clothes on but his people are also afraid to say they cannot see the clothing as they would be accused of being called foolish thus they all glorified the Emperor’s clothing. Eventually, a child said, “But he doesn’t have anything on!”.

At this point, everyone realized if the innocent child cannot see any clothing, then it must be true. The Emperor, indeed didn’t any clothing on. Everyone started crying out, “He doesn’t have anything on!”. The Emperor then realized that his people were telling the truth and that he indeed didn’t have any clothing on. The Emperor had to complete the parade, with everyone knowing that the Emperor wore nothing but pride.

Like the Emperor, Kenneth Lay didn’t care about kingdom (in Lay’s case, Enron) but rather on his appearance. Just like how in the tale, anyone who was stupid couldn’t see the clothing was considered stupid, Enron used the same technique. Like the con men in the tale, the top executives in Enron used deception to work on people’s securities. In Enron, Andrew Fastow and his team of accountants created very complicated structures.

In fact, the structures were made so complex that anyone who couldn’t understand the structure was called stupid. Jeff Skilling in particular used intimidation tactics and for those people who didn’t understand the structure, Skilling accused them of not getting it almost implying that the person wasn’t smart enough. Like in the tale, people stopped asking questions, in fear of being called stupid. Thus no one questioned Enron. A reporter who didn’t know much about finance noticed something in the financial statements and realized that the numbers didn’t add up.

She spoke up about the irregularities in the article that she published (Just like how the innocent boy said that the Emperor had no clothes on). When Jeff Skilling addressed the article he explained why the reporter might have said the things she said in the article and Skilling gave a reason as to why the article was published (it was almost like he had too much pride to admit that the article was right), just like in the tale the Emperor has too much pride to admit that he couldn’t see the clothing.

Question 4

Enrons’s auditing firm, legal firm and banks were all complicit in the questionable business operations of Enron as they call knew of the fraud that was occurring and many of them were aiding in the fraud that was occurring at Enron. These firms and banks were funding (they used prepays which are basically loans but Enron included them in cash flow operation) and aiding (not alarming authorities of the irregularities) and benefitting in the side partnership deals that were occurring at Enron.

The banks aided Enron to stay afloat as Enron owed the banks billions of dollars and the banks needed Enron to do well so that they could get their money back. During that time, to the public, Enron was one of the biggest companies in the United States and the company was looked up to by people and by working with such a big and powerful company as Enron, banks and these firms could also boost to their other clients about how they work with Enron. Enrons’s auditing firm, legal firm and banks were also supposed to give their opinions on complicated accounting, and legal matters yet, none of them objected to the wrongdoings of Enron.

On 23 October 2001, the day after Enron released a statement stating that it was being inquired by U.S. Securities and Exchange Commission (SEC), the partner in charge of auditing Enron’s financial statements ordered all the documents except for the basic documents of Enron to be destroyed. This is proof that Arthur Anderson was destroying all the documents so that it seemed like there was no proof of fraud that was occurring in Enron.

It was further revealed that the auditors from Arthur Anderson had reviewed and approved of documents relating to Enron-related partnerships which later lead to the fall of the company. Thus it can be concluded that the audit firm did know of the fraud occurring at Enron. Arthur Anderson ceased its operations on August 2002 as on June 15, 2002, Arthur Andersen was found guilty of obstruction of justice for destroying documents connected to its audit of Enron.

Question 5

They did Insider Trading. Insider Trading is when people working or that have access to information that isn’t available to the public and trades a public company’s stock or other securities (such as bonds or stock options). It is illegal as it is not fair for investors that don’t have access to the information. Investors without access to the information are at risk of making smaller or less profits from their shares that investors who have access to the information that might have an advantage over them thus they could make larger profits from their shares.

Question 6

Both the companies- Steinhoff and Enron had charismatic leaders. Having a charismatic leader meant that employees, investors and shareholders were almost drawn to the leader and looked up to the leader thus they believed whatever the leader was telling them- not doubting that the leader might be actually lying. Both Markus Jooste and Jeff Sklling, had aided their respective companies to becoming great companies thus this further reinforces their charismatic characteristics as this meant that the employees, investors and shareholders, looked up to their leaders.

The founder of Enron, Kenneth Lay, was found to be guilty of many things that Markus Jooste and other Steinhoff directors were found to be guilty with. Some of the things they all were found to be guilty of is giving a false report such false financial statements and covering up the increasing levels of debt. Both these companies have corruption occurring at the top levels of the company.

Both the companies- Steinhoff and Enron started to make false reports slowly. Both the companies had short term goals and they didn’t think of the bigger picture. As time went by, more false reports were made and slowly all these false reports that were once small were now so much, that both the companies could no longer hide them anymore.

Both the companies stated that they agreed good, ethical accounting practices. Yet, both the companies’ boards didn’t make to make sure all the ethical standards were met. Steinhoff used the following statement from 2011- 2016,” Steinhoff has not established a formal process for obtaining assurance on ethical awareness and ethical compliance throughout the group.”

This shows that the board of Steinhoff didn’t care about making sure the company was meeting all the ethical standards that companies of such great size should be compiling with. With Enron, the board members, suspended Enron’s code of ethics to support and agree with the establishment of the partnerships between Enron and its chief financial officer, Andrew Fastow.

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