Corporate Social Responsibility, Ethics, and Business Law:

Corporate Social Responsibility, Ethics, And Business Law:

The Fall of Enron and the Discussion of Morals in Business

Ethics in business has continued to be a growing concern in the twenty-first century. In order to protect and attract stakeholders, companies have enforced social responsibility, while law has protected and ensured security to stakeholders through the passing of laws. Despite corporate social responsibility and federal law, individuals in some businesses still find means to sacrifice their morals and company reputation for their greed or disparity.

Enron Corporation was an energy company that was founded in Omaha, Nebraska in 1985. By 2000, Enron was able to claim revenues of roughly $101 billion and be a leading competitor worldwide in their industry. The year of 2001 saw a different reputation for Enron. It was publicly announced that lead accountant Arthur Andersen and other prominent staff had been embezzling and falsifying financial documents. "America's Most Innovative Company" quickly found itself as a symbol of American greed, corruption, and fraud. Stakeholders, some retired, suffered the financial consequences (Ackman, 2002).

Following the collapse of Enron, America developed the Sarbanes-Oxley Act of 2002 (SOX). Compliance with the SOX Act is required by federal law for large and small businesses alike. Arranged into eleven titles, SOX states that businesses must implement corporate responsibility to financial statements, publish accurate financial statements, practice and assess internal controls, and disclose information about changes in financial conditions to the public. Section 802 of the act clearly discusses corporate fraud and accountability and the punishment if committing fraud (SoxLaw.com, 2006). Along with SOX, American companies must also comply with the Generally Accepted Accounting Principles (GAAP). Overseen by the Federal Accounting Standards Advisory Board, GAAP is officially established and updated regularly as it sees fit, such as with the fall of Enron. In order to avoid leeway in falsification, misrepresentation, or fraud, GAAP prohibits accountants and auditors from expressing personal opinions about the financial state of a company (FASAB, n.d.).

Social responsibility is the belief that an entity has an obligation to give back to their community. Corporate social responsibility may come in the form of active or passive, however it chooses to benefit the community. It is not uncommon for a business to determine what their target market is interested before determining what their corporate social responsibility focus might be. In example, a cereal company may donate to schools, while organic product companies might focus on an environmental non-profit (Friedman, 1970). Ethics is questioned in business on a daily basis. The greed or disparity of an individual can lead to the fall of an entire entity, as shown by Enron. When Arthur Andersen perpetuated the scandal of 2001, offshore entities were used to hide company losses to the public. By hiding the losses, Enron appeared more profitable. As time went on, it became more and more difficult to hide the losses, but corporate officers continued to do so. The financial deception made Enron look like the ideal investment when in reality its stock was worth pennies. To continue with the ethical battles, officers received insider information, allowing them to sell stock before the collapse.