Ethical decision-making and the Enron corporate scandal

Organizational Ethics Issues Resolution

The Enron debacle that occurred in late 2001 illustrated how an ethically unsound business can have devastating and widespread effects on the international business community. At the core of the collapse of Enron was an absence of ideation and practice of ethical values. Market failure occurred due to information asymmetries, in which unfairness of the imbalance exceeded simple competitive advantage, while compromisinf the rights of others (Berenbeim, 2002). The six ethical decision-making steps can be applied to the organizational ethics issue of Enron in order to further understand the process involved in solving ethical issues.

Issue Clarification

The first step in ethical decision making is issue clarification. It is necessary to thoroughly understand the issue at hand in order to effectively construct a solution. In regards to the Enron scandal, ethical practices were compromised in order for executives within the company to profit while investors and the general public experienced losses. The scandal involved irregular accounting procedures, and Enron filed for bankruptcy in December 2001. This file of bankruptcy resulted in Enron shares plunging from a price of U.S. $90.00 to U.S. $0.30. The plunge was amplified when it was brought to light that much of the revenue and profits experienced by Enron resulted from deals with special purpose entities. Enron fraudulently created an illusion that their profits were greater than they actually were. As executives began to gain inside knowledge about the hidden losses accumulated by Enron, they began to sell their stocks. However, as executives sold their stocks, investors and the general public were ill-advised to buy the stock under the belief that the stock would resume its upward climb.

The collapse of Enron was based in a lack of a firm ethical foundation. The Enron scandal gave birth to the term "Enron ethics," as explained in an article by Sims and Brinkman (2003). These writers described how "Enron ethics" encompassed the phenomena of ethical demise due to deep problems with the company's culture and the company's leadership.

Stakeholder Analysis

The collapse of Enron at the end of 2001 resulted in the second largest corporate bankruptcy in American history to date. The fraudulent practices of Enron executives resulted in stakeholder betrayals (Petrick & Scherer, 2003). Stakeholders were deceived by Enron executives, betrayals which contravene any ethical code. This choice among Enron executives to betray stakeholders in order to promote short-term financial gain resulted in the destruction of their own personal and business reputations, exposure to the possibility of criminal and civil prosecution, as well as bankruptcy (Petrick & Scherer, 2003). Stakeholders, including institutional and individual investors, were misinformed regarding the financial stability of Enron due to fraudulent accounting practices, and this resulted in a loss of millions of dollars. Secondary and tertiary stakeholders were also negatively affected by the Enron scandal (Petrick & Scherer, 2003). For example, Enron executives placed pressure on accounting and law firms to partake in unethical practices in order to accrue short-term, temporary gain (Petrick & Scherer, 2003).

Petrick and Scherer (2003) described how the several damages sustained by stakeholders in the Enron scandal are due to marked lapses in the four dimensions of management integrity capacity. These four dimensions include process, judgment, development and system (Petrick & Scherer, 2003). These lapses must be comprehended and corrected in order to structurally ensure moral foundations of remedies for current stakeholders, as well as effectively prevent the occurrence of Enron-type incidents in the future (Petrick & Scherer, 2003).

Issue resolution

Resolution of the organizational ethics issue in the Enron scandal could have been obtained through process integrity capacity (Petrick & Scherer, 2003). Process integrity capacity is essentially the alignment of moral awareness among individuals and collectively, deliberation, character and conduct. This alignment is executed on a sustained basis in order for reputational capital to result (Petrick & Scherer, 2003). Moral sensitivity among executives is necessary to ensure ethical business practices. In the case of Enron, executives were morally deaf mute and blind. They claimed themselves to be responsible citizens of the corporate world while they defrauded employees and investors in order to obtain short-term gains in profit (Petrick & Scherer, 2003).

Overall the ethical decision making style utilized by Enron executives was faulty. One of the most important components to ethical decision making is moral deliberation, the second part of process integrity (Petrick & Scherer, 2003). Moral deliberation encompasses the capacity to take part in the comprehensive and critical assessment of factors involved in moral issues and the recognition of options in order to establish an inclusive, reasonable, and balanced resolution policy that provides the foundation for future ethical determinations (Petrick & Scherer, 2003). Enron executives did not partake in effective moral deliberation. The decision-making style utilized by these executives focused only on short-term financial impact of issues and the preservation of decisive action and perks experienced by executives (Petrick & Scherer, 2003). Furthermore, these executives also ignored the harm their actions caused to stakeholders. In order to achieve issue resolution, executives must become committed to reasonable and honest moral deliberation (Petrick & Scherer, 2003).

Another key component to issue resolution is moral character. This involves the individual and collective capacity to readily act ethically (Petrick & Scherer, 2003). The Enron scandal was characterized by greed, arrogance, dishonesty, cowardice, selfishness, disrespect, hypocrisy and injustice among executives (Petrick & Scherer, 2003). All trust among employees disintegrated due to the executives' focus on financial gain at the expense of ethics and consideration of others. The Enron scandal illustrated a distinct lack of wisdom among leaders, further intensifying the absence of moral character (Petrick & Scherer, 2003). Moral character must be established in order for organizational ethics issues to be resolved effectively.

Yet another main component to process integrity and ethical issue resolution is noral conduct (Petrick & Scherer, 2003). This involves the individual and collective execution of right action on basis that'd sustained. Moral conduct is necessary for Executives to develop and dependable reputation and the alignment of morality with reality (Petrick & Scherer, 2003). The Enron scandal demonstrated hypocrisy and a distinct lack of moral conduct.

Addressing Objections

Throughout the inquiries initially put forth regarding the accounting practices of Enron, executives continually claimed innocence, blamed others, lied, and were deceitful on several levels. These blatant objections to ethical practice were addressed by the authorities, and top Enron executives faced several charges including fines and imprisonment.

Resolution Implementation

Petrick and Scherer (2003) proposed three practices that serve as proposed remedies for ethical issues. These remedies are beneficial for the improvement of moral resources among leaders (Petrick & Scherer, 2003). The first remedy is an awareness of the nature and importance of integrity capacity as a strategic asset for a business, which in the Enron scandal would have prevented the adverse effects experienced by stakeholders. The second remedy is the development of auditing and reporting mechanisms that continually respond to stakeholder accountability. The third and final remedy is the expansion of the scope of managerial duty and power to all stakeholders, resulting in a system more conducive to the development of system integrity capacity. The practice of these three remedies may contribute a reduced likeliness of an Enron-type debacle in the future (Petrick & Scherer, 2003).