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Unethical 'Best Practices'
Corporate Governance Case Study: Enron
Enron, the seventh-largest American corporation, collapsed in December 2001 in what most people refer to as the 'New Economy's first major failure'. Following its collapse, Congressional committees immediately embarked on inquiries to determine the cause(s) of its bankruptcy. Once investigations were complete, it was evident that the corporate governance mechanisms employed by the company had contributed to its downfall. The company employed the Anglo-American model of corporate governance, which places substantial emphasis on shareholder rights as opposed to stakeholder rights, and which, in addition, is management-dominated and has a unitary board structure with a single powerful leader. Driven by an urge to keep shareholders appeased by paying them more even when the company's resources were strained, Enron's managers employed off-balance sheet transactions with SPEs, and were able to hide huge amounts of debt that was often collaterized with the company's stock. The CFO, Andrew Fastow, was left to solely manage transactions between the company and its smaller partners. The executive board, which is supposed to be driven by the goal of maximizing shareholder wealth, chose instead to be driven by their 'trust' for management with the directors;
Improperly allowing conflicts of interests...
One of the key aspects of moral leadership is to balance between creating positive relationships with followers and ensuring that they do exactly what is expected of them so that stakeholder value is not compromised. In this case, for instance, given the massive power and authority granted to management and the company's CFO, the executive board ought not to have been so trusting, or rather, so…
References
Hartman, L.P., DesJardins, J.R., & MacDonald, C. (2013). Business Ethics: Decision-Making for Personal Integrity & Social Responsibility (3rd ed.). New York, NY: McGraw-Hill.
Pies, I., Beckmann, M. & Hielscher, S. (2010). Value Creation, Management Competencies, and Global Corporate Citizenship: An Ordonomic Approach to Business Ethics in the Age of Globalization. Journal of Business Ethics, 94(1), 265-278.
Rhode, D.L. (Ed.). (2006). Moral Leadership: The Theory and Practice of Power, Judgment, and Policy. San Francisco, CA: John Wiley & Sons.
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