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Stakeholder Impact of Enron's Ethics Scandal

Paper Type: Free Assignment Study Level: University / Undergraduate
Wordcount: 1836 words Published: 9th Dec 2020

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Henry Kravis once said, “If you do not have integrity, you have nothing. You cannot 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.” (BrainyQuote) Integrity can be defined as, “doing the right thing in a reliable way.” (Vocabulary.com). This means an organization is willing to be obedient to a set of values.

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Assuming that the reader knows everything about Enron, an individual should speak in terms of business ethics. The topics that will be discussed are ethical issues, the stakeholders and their issues in the case, an analysis from a stakeholders’ perspective, Enron’s corporate culture and their commitment to social responsibility, and Enron’s view of corporate governance. It can be seen that Enron was greedy because of the ethical issues that took place. Some of the issues that took place are fraudulent behavior, financial misconduct, and dishonesty.

Business Ethics

According to Business Ethics, “Fraud is any deliberate communication that misdirects, controls, or conceals realities in arrange to hurt others.” (Ferrell, O.C. et. al. 75) There are several types of fraud, but accounting fraud can fit perfectly in this case. Accounting fraud “usually includes an organization’s money related reports in which companies give vital data on which financial specialists and others base choices including millions of dollars.” (Ferrell, O.C. et. al. 76) “Financial misconduct is when a business does not grasp the knowledge to manage ethical risks that play an important part in a financial crisis.” (Ferrell O.C. et. al. 80) Dishonesty is the intentional act of lacking integrity. Dishonest businesses will be found out. It is better for a business to be honest in all aspects, than to have a harmed reputation.

Stakeholder Business Ethics

The second topic that should be discussed stakeholders and each of their issues in the case. “Stakeholders are clients, investors, workers, providers, government organizations, and numerous other people who have a "stake" or guarantee in some part of an organization's items, activities, markets, industry, and results. Stakeholders give assets that are imperative to a long haul achievement. These assets can be unmistakable or elusive. Stakeholders’ capacities to pull back assets gives them control over organizations. There are two kinds of stakeholders: primary stakeholders and secondary stakeholders. Primary stakeholders are those whose proceeded with affiliation and assets are completely fundamental for an association's survival. These incorporate representatives, clients, and investors and also the administrations and networks that give important framework. Secondary stakeholders do not commonly connect specifically in exchanges with an organization and are along these lines not fundamental to its survival. These incorporate media, exchange affiliations, and little intrigue gatherings.

Both primary and secondary stakeholders grasp particular qualities and benchmarks that direct worthy and unacceptable practices.” The stakeholders that were affected in this case were the executive managers, the employees, and the stockholders. Stockholders lost their money when investments were lost. Employees had to involuntarily separate from their positions, and as a result, could no longer rely on their retirement savings from the company. Managers believed in competing in order to be the best and protect their reputation. The third topic that should be discussed is an analysis from a stakeholders’ perspective, or point of view.

Analysis from a Stakeholders’ Perspective

There are six steps to applying a stakeholders’ perspective according to Business Ethics. The first step is to assess corporate culture. It is the obligation of an organization to identify norms, values, and missions. An organization can have a plaque that states, “Visions and Values,” but there are times it does not practice what it preaches parse. The second step is to recognize stakeholder groups. It is important for an organization to identify the needs, want, and desires of its stakeholders. Enron was interested in increasing its own wealth. Stakeholders have power because they can withhold resources from an organization to a certain extent. The third step is for organizations to recognize the issues of its stakeholders. Organizations need to be able to collaborate with several stakeholders in order to solve an issue. The fourth step is for organizations to assess commitment to stakeholders and social responsibility. Once an organization understands this, it will need to use this definition to evaluate practices and select initiatives. The fifth step for an organization is to identify resources and determine urgency. Two key principles can be measured: the degree of monetary and structural funds needed by distinct proceedings, and the importance when giving precedence to social responsibility encounters. The sixth and final step of applying a stakeholders’ perspective is for an organization to gain stakeholder feedback. This can be generated by different means. An example can be a memo. When an organization receives an anonymous memo from an employee predicting of its failure, it (the organization) needs to take action.

Enron's Commitment to Social Responsibility

Enron did not gain stakeholder feedback from its employee. Enron downgraded its employee. (Ferrell, O.C. et. al 48-50) The fourth topic that should be discussed is Enron’s corporate culture and its commitment to social responsibility. “Financial analyst Milton Friedman has contended that it is the social duty of enterprises to extend benefits subsequently putting more individuals to work and paying more charges to bolster programs that advantage the general public.” (Silverstein, Ken) “Social responsibility is an organization’s duty to raise its encouraging influence on stakeholders and lessen its discouraging influence. Social responsibility can be defined as a contract with society, whereas business ethics involves carefully thought out rules that guide decision making.”

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There are four levels of social responsibility. Those levels are: economic, legal, ethical, and philanthropic. The economic level is maximizing the wealth of stakeholders. The legal level is abiding by all laws and government regulations. The ethical level is following standards of acceptable behavior as judged by stakeholders. The philanthropic level is giving back to society. At the foremost essential level, companies have a duty to be beneficial at a satisfactory level to meet the objectives of shareholders and create value. One could say that Enron failed economically, legally, ethically, and philanthropically. Enron was ravenous by expanding its claim riches and not giving cash to the workers that merited it. The company was deceptive and intentionally took part in activities that were unlawful. The best officials at the control of issues at Enron made a poisonous corporate culture by utilizing corruption, covetousness, and deceptiveness. Whether it be administrators or floor level workers, it is the work of everybody within the organization to represent and live the company's vision and guarantee everybody is emphatically contributing to it.

Corporate Governance at Enron

On the off chance that an individual is committed to their company's values, their group will be, as well. Enron officials showed fairly how effective an organizational culture is and how imperative it is to a company's capacity to flourish. The last topic that should be discussed is Enron’s view of corporate governance. Corporate governance involves decisions and activities and decisions by a board of directors. There are two types of corporate governance: shareholder model of corporate governance and stakeholder model of corporate governance. “The shareholder model of corporate governance is established in classic financial matters statutes, counting the objective of maximizing riches for speculators and proprietors. For freely exchanged firms, corporate governance centers on creating and making the formal frameworks for keeping up execution responsibility between best management and the firm’s shareholders. The stakeholder model of corporate governance adopts a broader view of the purpose of business. In spite of the fact that a company certainly encompasses a obligation financial victory and responsibility to fulfill its stockholders, it must too reply to other partners, counting representatives, providers, government controllers, communities, and the extraordinary intrigued bunches with which it interacts.” (Ferrell, O.C et. al. 44-45)

The corporate governance at Enron was weak in every aspect. Lacking in morale character, was the board of directors, who participated in fraudulent behavior. This was the authentic source that led to the organization’s corporate governance collapse. “Helpful corporate governance produces an obedience and ethics culture so workers can sense integrity is at the center of its competition. Corporate governance likewise offers methods for recognizing chances and preparing for revival when errors or difficulties happen. Corporate governance creates important procedures and practices for avoiding and becoming aware of misbehavior, and also assists in creating the integrity of associations.” (Ferrell, O.C. et. al. 43-44)

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