An Ethical Analysis of the Enron Scandal

The Enron scandal is one that left a deep and ugly scar on the face of modern business. As a result of the scandal, thousands of people lost their jobs, some people lost their entire pensions, and all of the shareholders lost the money that they had invested in the corporation after it went bankrupt. I believe that Kenneth Lay, former Enron CEO, and Jeffrey Skilling behaved in an unethical manner without any form of justification, but the whistleblower, former Enron vice president Sherron Watkins, acted in a way that upheld moral principles.

I can understand Jeffrey Skilling’s motivation, since money and greed are very powerful forces, occasionally driving even the most honest individuals to commit horrible acts. I might understand a destitute individual committing a dishonest act in order to feed themselves or their children, but Jeffrey Skilling was by no means destitute and had no just cause to even consider deceptive accounting. Personally, I am constantly faced with situations where it is possible for me to be dishonest and steal expensive items from the company I work for, but I choose not to since these things are needed by the company and are owned by the shareholders. I believe that I have no right to steal anything since I am living very comfortably, with respect to most humans, and I am satisfied with my economic position. If Jeffrey Skilling had looked at the Enron situation from a perspective similar to mine, he probably would not have seen any reason to do what he did.

Sherron Watkins’s actions, in my opinion, were perfectly orchestrated in a very ethical manner. She noticed something suspicious about the accounting, so she took a closer look and didn’t just ignore the problem. When she realized the depth of the situation, she reported it to the people that could do something about it in the organization, even reaching the top man, Kenneth Lay. When the company refused to correct the situation, she went to the media, which forced the problem to be fixed by causing shareholders to dump their investments in Enron. In her memo written to Kenneth Lay, she expressed concerns that her 8 years with Enron would not be worth anything after the scandal, but she went ahead anyways despite these fears about her future employment.

Sure, people lost their jobs and pensions when the news came out, but that was not the fault of the whistleblower. It was the fault of those who forced her to take the story outside of the company. It was Jeffrey Skilling’s fault in the first place that the unethical accounting was being done, but the company could easily have fixed the problem internally without going bankrupt. If Kenneth Lay had actually done something about the problem, share values might have gone down after the corrected financials came out, but the company would probably have survived. I have seen companies in far worse situations reverse their fortunes by replacing management and making their processes more efficient.

I think that whistle blowing is a very courageous and selfless act, since it exposes the person to economic, personal, and sometimes physical attacks. I am reminded of the story of Jeffrey Wygand, a tobacco company scientist, who blew the whistle by declaring that tobacco company executives knew about the dangers of smoking and considered cigarettes “nicotine delivery devices”, but did not care about the health problems caused by smoking. After blowing the whistle, he was threatened by his company, fired, and followed by unknown people for quite some time afterwards. I have never blown the whistle personally, but I can easily see how dangerous it would be, given the vulnerable situation that it places the person in.

Although I think that Jeffrey Skilling should be given the most blame for the corruption at Enron, that does not mean that Kenneth Lay is not deserving of some blame for what happened. He was the lead figure at the corporation and he should have been watching the accounting to make sure that no illegal actions were being taken by the employees. Sure, he might not have had an accounting background, but he could have hired independent consultants to look at the financials and make sure that nothing unethical was being done. I might have been able to give him the benefit of the doubt if the corruption was very far down the chain, but accounting is very closely related to upper management (in most businesses) and Skilling seemed to be someone that Kenneth met with frequently.

As the leader of a publicly-held corporation, a CEO’s foremost duties are to produce a profit for shareholders, a responsibility which Kenneth Lay might have followed in the short term, but not in the long term. Sure, some shareholders might have made a return on their investment if they sold their stock before the collapse, but all of the long term investors who were loyal to the company ended up being punished for that loyalty. Kenneth Lay betrayed the shareholders through deception and lack of foresight into the consequences of Enron’s accounting practices. A CEO is also supposed to care for the people who work for him by giving them job security and benefits, but Kenneth Lay ultimately failed in this area as well since his inaction ended up costing most of them their jobs and pension funds invested in company stock.

The actions of Kenneth Lay seem to be those of a manager who doesn’t care about what his sub-managers are doing as long as the machine is running smoothly and profits are rolling in. When the whistleblower informed him of the suspicious activities of his underlings, he decided not to do anything about the situation. Instead, he forced the whistleblower to go outside the company and caused the resultant financial collapse of Enron.

I think that a manager needs to at least question the actions of people under them in order to ensure that a company or organization is behaving in an ethical manner. A manager who does not manage often becomes a mere puppet, providing a clean façade for a possibly corrupt and evil organization.

I think that if Kenneth Lay and Jeffrey Skilling had applied the Kantian concept of reversibility, and asked themselves how they would feel if their employer betrayed them and caused them to lose their life savings, they would have acted differently. I believe reversibility is one of the best ways to evaluate the ethicality of decisions since it forces a person to think about what the other person feels like. Part of their punishment should be to spend time with the victims of their actions to see the effects that the Enron collapse has had on them.

It is also interesting that Kenneth Lay grew up in poverty, but he was willing to throw away all of his progress just to make some extra money. Since he came from a humble background, I would think that he would have been able to better empathize for the common man and the lesser-paid employees of Enron. However, it appears that his success excessively inflated his ego, causing him to turn down President Bush’s offer to make him secretary of commerce since it was “below” him.

In conclusion, I find that the actions of Kenneth Lay and Jeffrey Skilling were clearly unethical and not justified by need. The whistleblower’s actions, on the other hand, were very ethical and represented the selfless things that human beings are capable of doing. It is very unfortunate that the Enron situation occurred at all, but it is fortunate that it was exposed in a somewhat timely manner and the people responsible are being brought to justice.

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