Fall of Enron - Free Essay Example

The documentary The Smartest Guys in the Room talks about the corrupt practices by executives of the seventh most important corporation in the United States named Enron and how this led to its bankruptcy. In the beginning this company was only dedicated to the energy business, however, after its consolidation in 1985 with Houston Natural Gas and InterNorth it focused towards other business-related activities. From Enrons distribution and transmission of energy and gas, to the development of energy plants around the globe, it ultimately contributed to their exponential growth in the market. Even after the massive fraud committed by the companys top executives such as Ken Lay, Jeffrey Skilling, Andrew Fastow, Lou Pai, their unethical practices resulted to be detrimental not only for them but also for their employees and shareholders. Without regard from Enrons values these executives wanted to keep on profiting from the company for personal gain. In less than a year, the fall of Enron created a severe international impact. This left tremendous repercussions in respect to the energy markets. Because of Enrons bankruptcy nearly all employees lost their jobs, which means they also lost access to their pension salaries. Additionally, the companies which had contracts with Enron suffered a loss in revenue beside the employee layoff. The film explains two important strategies that unpack the reasons for Enrons end. First, there is the practice of the mark-to-market accounting; a subjective method by which they count non-existing profits. Throughout, the film it is more commonly known as Hypothetical Future Value (HFV). Enrons executives used HFV to overcome the losses that were generated by previous frauds in the oil industry, ones which were committed by some of Enrons important public figures. Jeff Skilling, former CEO of the company, introduced the calculus of HFV. To be more specific, it consisted on the alteration of documents that indicated Enrons financial status. The company would earn considerable amounts of profit when in reality the documents did not reflect their economic situation. According to the film, the possibility of booking a potential future profit was done on the same day they signed a deal. The irregularities investigated by authorities established that the company was earning high profits that were statistically impossible because of the industry in which they were immersed. To the world, Enron possessed the benefits they claimed to have. So, because of the alleged revenue they gained, multiple stockholders invested in the company to the point where they received appraisal from Wall Street. It is important to highlight the fact that Enrons workplace transformed into an environment where ethical egoism reigned. This is can be seen in the matter that Enron transgressed all the principles and professional ethics a company should have. The top executives lost their integrity by making dishonest decisions based on their long-term and self-interested reasons, which in this case was their self-enrichment. This showed their lack of responsibility and loyalty with their customers but especially the lack of their good faith and honesty. Jeff Skillings favorite book The Selfish Gene played an important role in Enrons path. The book is about the way in which greed and competition led human nature, which represents what happened with those who held the reins of the company. The compelling notions Skilling derived from the book and his highly competitive vision is what helped him design the system by which he would guide Enron. This system is known as: Performance Review Committee (PRC), which was introduced in the documentary as the second strategy. This system promoted an intense competition between co-workers, where they would be rated in a scale from 1 to 5 (1 as in less productive and 5 as in most productive). Approximately 10% of Enrons employees who were qualified as 5 would be fired because the company did not want intelligent people catching on to the false data they were providing. With this system, Enron measured their employees performance by analyzing the amount of profits they could produce. So, the higher an employees PRC score went, the higher the probability was that he or she would be dismissed. This constant and fierce competition is an ethical trap because ones values are at stake. An ethical trap consists when two codes of ethics are in conflict which causes a moral dilemma. This can be seen in the matter that they were told to do better but if they did they would be fired. According to the text Intro to Business Law, as well as its definition, the trap reduces a persons sense of morality. This happened at Enron because employees were involved in a striking rivalry between them and they would not stop at any cost. This was done with the purpose of producing more profit for the company. In reality, it is true that people are naturally competitive. However, employees at Enron were so influenced by the system that even though they wanted to be better than their co-workers, in the long run that costed them their job because of the principles the company strived to look for in thei r workers. Another vision Jeff Skilling had was his Darwinist theory; that only the fittest people can survive, this was how he believed the world worked because he affirmed that money was the greatest motivator. This ethical trap lures people to abandon their values and it is used as a medium to justify unethical behaviors by making them look rewarding; however, according to the text Intro to Business Law, money contributes to happiness but does not equal it. This trap can make someones life easier but not happier, because it can provide amenities that increases ones life standards. On top of that, they world may consider this trap was the reason of Enrons bankruptcy. On a certain level it is because it was what the executives wanted but, the documentary lets us understand that is more than the money itself. Enron fell because of its people and their anti-values. The companys executives shared an Utilitarianistic vision of the end justify the means. Due to their arrogance, greed and pride they made un-ethical decisions to the point where they were determined to accomplish their goals regardless of the cost. In this way, they would justify their actions by doing something that is morally wrong just to take advantage of the situation. Enrons fell also left in evidence how media condescendly acted because they did not limit the lack of transparency there was since the beginning. Enron had personal relationships with media journalists, this resulted in the company having an influential image that led people to believe the company was doing well. Therefore, investors were more likely to give money to the company because of the image they represented. Overall, it is important to recognize that people need a moral path to guide themselves through life. In respect to Enron, their success was dependent on their ethics because they are the foundation of a long-term reputation; however, given its history, authorities should legislate to reprehend companies that deceive others. They should demand more transparency, create rules that protect pensioners and regulate the systems of control and auditing more strictly. By Ashley n Baez gomez Miami us florida