Key Stakeholders Essay

Key Stakeholders Essay.

Question 1: Who were the key stakeholders involved in, or affected by, the collapse of Enron? How and to what degree were they hurt or helped by the actions of Enron management? Answer: Enron’s board was made up of 17 members. Out of 17, 15 were outsiders and only 2 were insiders. These two key stakeholders were insiders of Enron named Kenneth L. Lay (Enron CEO) and Jeffrey Skilling (President & Enron COO). They were helped my Enron management in lot many ways. Company gave huge compensations to these executives like Skilling held 5% stake in retail energy unit, which was almost equal to $100 worth of stock in 1998.

Company often used to lend money to its top executives and later these leans weren’t recovered if the terms of their contracts were fulfilled.

In 2001, each director of company was extraordinarily compensated. Each executive received $381,000 in total compensation. But later, after Enron scandal, these stakeholders were hurt a lot also. Shareholders and Mutual fund investors lost around $70 billion in market value.

Two major banks called J.P. Morgan Chase and Citigroup were the one who faced major write downs on bad loans. Not only did Enron Creditors, shareholders and bondholders lose out, confidence also fell across the market, as investors questioned the integrity of the financial statements of other companies in which they held stock.

Question 2: Considering all aspects of the case, what factor or factors do you believe most contributed to the collapse of Enron? In your answer, please consider both external and internal factors.

Key Stakeholders Essay

Unethical Behavior of Financial Accounting Essay

Unethical Behavior of Financial Accounting Essay.

Accounting can be best described as a type of tool or language put in place in order to provide appropriate information with regards to the financial position of an organization, corporate or business. With this kind of information, it will always be critical to investors as it provides them with relevant and thorough information that could turn out to be the deciding factor whether to invest or not to invest in a particular organization. Hence, it is very common to find unethical behavior in accounting practices in many different forms.

Variety of situations that might lead to unethical practices in accounting include: • Misleading financial analysis in order to obtain personal gains

• Misuse of funds (Liquidity)
• Exaggerating revenue
• Purposely providing erroneous information in regards to expenses
• Exaggerating the value of corporate assets
• Purposely providing erroneous information in regards to liabilities
• Securities fraud
• Bribery
•Financial Market Manipulation (Setting off a trend that will increase/decrease stock values).
• Inside trading

The two examples of unethical practices in accounting are those of the 2002 Enron / Andersen and the WorldCom scandal.

Both of these companies were involved in unethical accounting practices. While Enron was accused of a vast number of shady dealings that included concealing debts in order keep them from being reflected on the company’s accounts, WorldCom’s accounting practices were so fraudulent that the company was led into the largest bankruptcy in history.

Unethical accounting practices and scandals of the caliber of the Enron / Andersen and the WorldCom scandals is what led the U.S. government to get involved and at the same time contributed to the government’s creation of the Sarbanes – Oxley Act of 2002. The Sarbanes – Oxley Act was created by the government with the intention to bring to an end unethical behavior by implementing strict auditing rules in accounting. However, the Sarbanes-Oxley Act of 2002 addresses problems in the private sector; it does not address


Retrieved from (2008, 08). Unethical Behavior in Accounting. Retrieved 08, 2008, from

Unethical Behavior of Financial Accounting Essay

Ethics in Our Everyday Lives Essay

Ethics in Our Everyday Lives Essay.

This paper will discuss how ethics relate in our everyday lives and more specifically how ethics are used in our workplace also how ethics are used by companies. This paper will also cover how businesses have implemented ethical procedures, standards and how these businesses flourished because of the effective use of ethical standards.

“I consider ethics, as well as religion, as supplements to law in the government of man.”

Thomas Jefferson

Ethics in our Everyday Lives. As a society we are faced with ethical problems every day, and how we handle these situations shape our culture and lives.

However, what are ethics? The meaning of “ethics” is hard to pin down, and the views many people have about them are shaky. People tend to associate ethics with their feelings. But being ethical is clearly not a matter of following one’s feelings, nor should one identify ethics with religion, the law or “whatever society accepts.” Ethics refers to the constant effort of studying our moral conduct, and our own moral beliefs, and striving to ensure that we, and the institutions we help to shape, live up to standards that are reasonable and concrete.

It is not enough to be able to do the right thing when we ourselves have nothing to lose. We must be willing to fulfill our ethical obligations at the expense of our self-centered desires and vested interests. (Dr. Richard Paul & Dr. Linda Elder, 2003)

In short, ethics is doing what is right even when no one is looking. Well-founded standards of right and wrong that advocate what humans ought to do, usually in terms of rights, benefits to society, obligations, fairness, or specific virtues stem directly from having ethics. Ethical standards also impose the judicious obligations to refrain from rape, stealing, murder, assault, and fraud, therefore a society with a strong code of ethics tends to run smoothly. A society with no code of ethics could very well develop into anarchy. Although arguments have been made, to the contrary, ethics are just as vital in the workplace. Ethics are essential in the workplace because a tough ethical code provides a non-threatening environment with high employee morale, a company that exhibits clear-cut ethics tends to show higher profits, and simply because it is the right thing to do. Perhaps most important, attention to ethics in the workplaces helps ensure that when leaders and managers are struggling in times of crises and confusion, they retain a strong moral compass, and this goes for the workers as well.

The Ethics Resource Center, a non-profit, non-partisan organization devoted to business ethics, released the results of its 2005 National Business Ethics Survey, polling more than 3000 workers across America. The results were disheartening; 21% observed abusive or intimidating behavior toward employees. 19% observed lying to customers, employees, vendors or the public. 18% observed situations that placed employee interests over company interests. 16% observed violations of safety regulations and misreporting of time worked (Verschoor, 2000, pp. 19-20) Environments that accommodate these low ethical standards tend to feel hostile to the average employee. When this behavior is witnessed repeatedly over time, it lowers morale. And low moral easily leads the employee feels no loyalty towards the company and in turn the company feels no loyalty towards its employees. A workplace that encourages the effective ethical administration, however, is a workplace that breeds strong morale.

Patricia Harned, ERC president, states “Creating a strong ethical environment should be a top priority of all companies.” (Verschoor, 2000, pp. 19-20) According to “Workplace Ethics”, a company with strong ethical guidelines has a few commonalities. Companies watch encouraged communication; the staff feels open and unthreatened about reporting and discussing ethical concerns. They also clarify rewards and punishments, which provides a meaningful context to what otherwise seems arbitrary. Businesses that encourage trust between management and employs well tend to have a much easier time enforcing their ethical standards. Also businesses found out that by promoting this strategy that it was much less expensive and more effective than legally defining and enforcing their ethical standards. These organizations also build corporate values, which improves the corporate image. (Compilation, 1999) This creates an environment that employees find a joy to work in.

Furthermore, from a corporate perspective it is just as significant to note that an ethical company tends to be a profitable company. Can a company have ethical practices, and still show a profit? Yes, according to Business Ethics magazine. By concentrating on the effects of business decisions made and how they enhance or diminish the well being of others, benefits can be seen for the company, the employee, the stockholder, and the consumer. Many of the corporations that show up on the 100 Best Corporate Citizens by Business magazine also show up on Fortune magazine’s 100 Best Companies to Work For in America and Working Mother magazine’s Best Companies to Work For. (Do Good, Do Well, 2001, p. 28) Starbucks is one of these companies and has been a regular on these lists. Starbucks is working to empower farmers in East Timor, where coffee provides the livelihood of 25% of the population. The company also participates in various external programs to help benefit the environment and provide relief efforts after disasters.

Internally, Starbucks offers many benefits to its employees-including tuition reimbursement, partner benefits, a wellness program and a 25 to 150% match in its 401(k) plan. (Examining the benefits of corporate social responsibility, May1 2006) These factors are just some that contribute to the success of Starbucks and provide the company with the foundation to build a coffeehouse on every street corner. Another company that is perennially honored for its ethical conduct is Southwest Airlines. Although the airline industry has been through what some may characterize as catastrophic circumstances over the last several years Southwest has never cut employee pay. In fact, the organization’s employees took a voluntary pay cut after Sept. 11, 2001, rather than allow surging costs to force Southwest to reduce its flight schedule. “I’ve been here 28 years,” states Donna Conover, Southwest’s executive vice president of customer service, “and from the beginning, we’ve felt that employees are our greatest assets.” (Examining the benefits of corporate social responsibility, May1 2006)

An unethical company, however, can expect none of these benefits, and it may actually be part of the reason for failing. A perfect example of an unethical fallout would be that of the oil giant Enron. Former Enron chairman Kenneth Lay, discussing his company’s collapse due to fraud, and insider trading and tax evasion, recently insisted that his once great and honest company adhered to prevailing business practices. “The Enron task force investigation is largely a case about normal business activities typically engaged in on a daily basis by corporate officers of publicly held companies throughout the country,” Lay insisted in a December 2005 speech. Lay went on to say that the Enron task force was “attempting to criminalize” what he characterized as common business practices. Under Lay’s perverted ethics code, transactions meant to deceive are not wrong if these transactions, legal or not, are commonly practiced by corporate America. Stockholders often paid the price of such as moral relativism. (Zamansky, 02/01/2006, p. 11a)

This points out what should be the overriding reason for expecting high ethical standards in the workplace-it’s the right thing to do. A recent survey by The Society for Human Resource Management found that 54% of human-resource professionals surveyed had witnessed conduct in the workplace which violated either the law or common practices of their organizations. Some of the violations witnessed ware, Fair Labor Standards Act, violations of Title VII of the Civil Rights Act, employees engaging in fraud, falsifying records, altering the results of product tests, and misusing insider information. (Schumann, Spring/Summer 2001, p. 93) The survey found that 47% of those surveyed felt pressured to compromise ethical standards to achieve business objectives. They stated that they did not report observed conduct due to factors such as fear of retribution, lack of trust in the organization’s procedures, the desire to be part of the team, or a feeling that ethics were unimportant to the organizations. (Schumann, Spring/Summer 2001, p. 93)

The main culprit for this pervading ethical dilemma is moral relativism. Moral relativism is the belief that because different people have different moral principles, there is no way to pass judgment on these principles as to their validity or lack thereof. Taken to its extreme, this belief would allow any action, from lying to murder, if the perpetrator simply believes his moral framework does not preclude that action. An excellent example of this new moral relativism is recounted by Rhonda Gibbs. “About three years ago,” she recalls, “My daughter’s high school basketball coach, (also a teacher), was having a relationship with a minor.” The relationship, she details, was very obvious to those who had daily contact with the pair. Staff, faculty, and students watched the relationship develop over a period of nine months to a year; however, not a single person spoke up about the impropriety of this relationship or the seriousness of this crime.

Whether for reasons of not wanting to upset the coach, not wanting to look like a whistle blower, or simply to maintain the status quo, this teacher’s colleagues, the very people charged with protection of the young girl, allowed him to violate her for at least nine months. The school was only forced to deal with the issue when outside parties informed the police. Although the landscape sometimes looks bleak for the proponents of a strong ethical society, ethics do get used in a moral fashion, as this next example illustrates. Some surplus land adjacent to a shopping center was donated to a city by the developers who owned the mall. The land was earmarked by the builders to be used for community soccer fields. They then spent large sums of their own money to develop the fields.

The donated land was adjacent to a river, and after many years of spring floods swamping the fields, the city abandoned them. The developers, realizing that the land was no longer being used for their intended purpose, contacted the city. Developers are notorious for taking otherwise useless land and turning it into acres of parking lots. These individuals, however, decided to transform the property, at their own expense, into a community wetland park. This transformation took over two years and several hundred thousand dollars.

These businessmen, who were well within their rights to demand the land back since it wasn’t being utilized for its donated purpose, instead did the ethical thing at great cost to themselves. As I can be seen, ethics are important in the workplace and our every day life as well because they provide higher profits, higher morale, and ethical behavior is the proper course of action. Whether decisions made affect the operation of a home, small business, large corporation, or a nation, a clear ethical foundation will always serve to improve our society.


Compilation. (1999). Bulletpoint. Retrieved May 6, 2006, from Workplace Ethics Web site:

Examining the benefits of corporate social responsibility. (May1 2006). Employee Benefit News, pITEM0612100B. Retrieved May 5, 2006, from

Do Good, Do Well. (2001, January). Workforce, 80, 28. Retrieved May 5, 2006, from

Dr. Richard Paul & Dr. Linda Elder. (2003). The Miniature Guide to Understanding the Foundations of Ethical Reasoning. The Foundation for Critical Thinking.

Guest, E. (n.d.). SoFinesJoyfulMoments. Retrieved May 8, 2006, from Mary (Garren) Morand Web site:

Schumann, P.L. (Spring/Summer 2001). A moral principles framework for human resource management ethics. Human Resource Management Review, 11 (1/2), 93. Retrieved May 6, 2006, from

Verschoor, C. (2000, December). Ethical Culture: Most Important Barrier to Ethical Misconduct. Strategic Finance, 87, 19-20. Retrieved May 6, 2006, from

Zamansky, J. (02/01/2006). At the least, former Enron chiefs are guilty of moral bankruptcy. USAToday, 0734-7456, p. 11a. Retrieved from

Ethics in Our Everyday Lives Essay

Enron and Worldcom Scandals Essay

Enron and Worldcom Scandals Essay.

1. Which segment of its operations got Enron into difficulties?

The guaranteed loans that were intended to bridge the financing for investments from outside investors that could not be found would be the segment of operations that caused Enron difficulties.

2. Did Enron’s directors understand how profits were being made in this segment? Why or why not?

Enron’s directors did not understand how profits were being made in this segment because they were kept out of the loop of everything until all the issues became public.

3. Ken Lay was the chair of the board and the CEO for much of the time. How did this probably contribute to the lack of proper governance?

Key Lay allowed many things to happen that were not ethical. He was in charge of all of Enron’s activities. Because Ken Lay allowed deals to go on that were unethical and did not think about the consequences, it caused a sever lack of governance.

4. What aspects of the Enron governance system failed to work properly, and why?

Enron’s board members only allowed a slight amount of informations on the company’s earnings to be seen by the public and the investors of the company.

Because the board members did not question management when needed it failed to protect the interests of the shareholders of the company.

5. Identify conflicts of interests in:

• SPE activities

Enron was not reporting their losses off the end of the year reports, so to offset their other dealings that were not profitable.

• Arthur Andersen’s activities

Arthur Andersen’s did not report all of the earnings and helped Enron cover up losses that caused a conflict of interest.

• Executive activities

While the company’s employees were barred from cashing in there 401(k) retirement plans the executives were selling off Enron’s shares before the collapse and made a lot of money off of them.


1. Describe the mechanisms that WorldCom’s management used to transfer profit from other time periods to inflate the current period.

Worldcom released reserves held against the operating expenses improperly and improperly recharaterized some of the operating cost as capital assets.

2. How should WorldCom’s board of directors have prevented the manipulations that management used?

WorldCom’s board of directors should have reviewed and questioned reports. They should have had someone oversee the accounting department that was not so closely involved with the company.

3. Bernie Ebbers was not an accountant, so he needed the cooperation of accountants to make his manipulations work. Why did WorldCom’s accountants go along?

WorldCom hired Scott Sullivan and David Myers which had both worked for Arthur Andersen. With knowing that they had worked for Arthur Andersen prior they were more motivated to make sure that profits looked good regardless if it was unethical or not.

4. Why would a board of directors approve giving its Chair and CEO loans of over $408 million?

The board approved giving Ebber’s the $408 million loan to purchase or pay margin calls on WorldCom stock, which he did not do.

Enron and Worldcom Scandals Essay

Enron’s Fall Essay

Enron’s Fall Essay.

State the facts of the case. Enron is the Seventh- largest company in the united states but after six months, Enron filed for bankruptcy, the outcome of what has been called the greatest accounting fraud of the 20th century. Twelve thousand employees lost not only their jobs but their entire retirement and life savings, which had been invested in Enron Stocks. Other owners of Enron’s stocks—including thousands of ordinary Americans whose pension were also invested in Enron’s Stock—lost a total of $70 billion when the value of their stocks collapsed to zero.

. What are the systemic, corporate and individual issues raised by this case? Systemic Issues: The Enron’s greatest accounting fraud was done by the person inside the company who was indeed in a higher position. This is not only a crime in the point of view of law but also an organizational fraud which affect everyone in the organization, including the shareholders, stockholders, and employees. Corporate Issues:

The accounting frauds was done by creating the Special Purpose Entity that covers the debt and failing investment in the company and turn it into sales revenue in the financial statement.

In simplest way, they turn their liabilities to an asset. This is done through some executives of Enron with the help of Arthur Andersen, the chief auditor of Enron. Andersen violated the Public Accountant practices. Individual Issues: A moral Hazard caused by individual of Enron and the public revelation of Sherron Watkins in everything she knew about the malpractices in the company. . If the value of Enron’s Stock had not fallen, the Special Purpose Entities perhaps could have continued to operate indefinitely. Suppose that Enron’s stocks did not fall, and suppose that its accounting adhered to the letter, if not the spirit, of GAAP rules. In that case in your view, was there anything with what Enron did? Explain. If the practice was allowed by GAAP and the Enron did not fall is still consider as unethical behavior for the only purpose resulting for this action is fraudulence.

If fraudulence is not the purpose of some person in Enron’s, then it would be Sherron Watkins who behave unethically for revealing the company information without the authorization of the company itself. 4. Who in your judgment, was morally responsible for the collapsed of Enron? Andrew Fastow, Enron’s former CFO, for setting up limited partnership called Special Purpose Entity and Arthur Andersen for being an accessory to the crime of Andrew Fastow.

Enron’s Fall Essay