The Enron scandal is one of the biggest corporate scandals in the world which happen in 2001. A brief background to this is that the company executives were involved in a major fraudulent operation by completely lying about the company finances in terms of profits and the actual value of the company. The main architect of this was Kenneth Lay, Jeffrey Skilling, Andrew Fastow, and other executives such as Rebecca Mark (Wikipedia, Enron Scandal:2011). However, the main architect was Jeffrey Skilling who it was said “had a way of hiding the financial losses of the trading business and other operations of the company; it was called the mark to market accounting” (Segal: 2018) p2.
Their deceit led the company to be declared bankruptcy within two years of posting major profits. It was a race from up to the bottom. At the end of this scandal, almost over 16 of the company’s executives were arrested, tried and sentenced to long imprisonments (Silverstein: 2013).
Skilling was sentenced to 24 years in imprisonment which was later reduced to 10 years after a plea bargaining. Lay who was blaming Fastow for the company problems died before sentencing but was convicted and could have been sentenced to 45 years in imprisonment (Wikipedia, Enron Scandal:2011).
Unethical nature of Corporate Psychopaths
Almost all of the executives who were at the helm of Enron have been described as geniuses in their own capacity (Documentary: The Smartest Guy in the room). The most notable one being Jeffrey Skilling. He did not care much about his employees but rather the maximization of profits. He even introduced a system where one could lose his job if he does not contribute to the maximization of profits (Burkus: 2011)
Enron hard the following as their core values:
- Communication – We have an obligation to communicate.
- Respect – We treat others as we would like to be treated;
- Integrity – We work with customers and prospects openly, honestly, and sincerely;
- Excellence – We are satisfied with nothing less than the very best in everything we do.” (Enron, Annual Report, 2000, p. 29).
Despite having the above core values Burkus (2011), has argued that the company’s culture stood above these core values and there were a lot of ethical issues which left a lot to be desired (Burkus:2011). The tone at the top was so weak that most employees developed a system of survival of the fittest whereby employees would do anything they want to maximize profits even at the expense of their fellow workmates.
A clear and simple explanation of the personal characters which showed clear unethical behaviour of Enron Executives has been explained in simple terms;
“Two examples of unethical behaviour among leadership best demonstrate how Enron’s culture was established and strengthened. Former Enron CEO Jeffrey Skilling was inspired by one of his favourite books, The Selfish Gene, (Dawkins, 1976) to establish a grading system for all employees, routinely firing those who failed to help meet the company’s performance objectives (McLean & Elkind, 2004). However, the culture of greed is better seen in the actions taken by Andrew Fastow, former Enron Chief Financial Officer and one of the company’s board of directors. In an effort to continue to build revenue on Enron’s balance sheet, Fastow undertook an elaborate process of establishing special partnerships to bundle assets and secure loans (Gladwell, 2006). The board of Enron, understanding that Fastow’s involvement in these partnerships was a violation of its code of ethics, voted to suspend the code of ethics’ application to Fastow while these partnerships were active (Berenheim, 2002). Fastow’s actions and the board’s decision were not kept private, as SEC regulations required the identities of these partnership members to be disclosed.” (Burkus: 2011p.).
The failure of this company is muchly attributed to these charismatic leaders who had no moral values and did not think of the consequences of their action. What is shocking is that when CEO Kenneth Lay was asked if he thinks what they were doing was in any way wrong he responded by saying he did not think what he was doing was wrong as he was doing it in the best interest of the shareholders (Enron: 2000). They had no sense of corporate social responsibility at all which has proved over the years to be very extremely dangerous especially in multinational companies like this.
If one takes a closer look at the then CEO Jeffrey Skilling with no doubt one can conclude that he is a corporate psychopath. Psychopaths have been described as people who for whatever reasons they have abnormal brain connectivity hence “lack a conscience, have few emotions and display an inability to have any feelings, sympathy or empathy for other people.”(Bold: 2011, p 256).
A psychopath need not display all these features at once but one can notice the consistency. Skilling hard no feelings for anybody else and he believes himself to be some sort of a supreme gene. All his action were calculated and only saved to save his self-interest. Unlike Kenneth Lay who believed he was serving the interest of shareholders, it is doubtful if the same applied to Skilling.
Enron scandal was largely faulty of bad greedy leadership on top with a combination of the passive executive who did not stand up for good values. Both active and passive top management and the whole board were so negligent in the way they were handling the affairs of the company. To a certain extent, the blame should also go to the shareholder/investors in Enron because they were extremely passive and they just took the company reports as the gospel truth.
“Corporate Social Responsibility is the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large”.(Holmes and Watts: 2005).
It is important that Shareholders need to take an active role in their investment. In South Africa, for example, they have now developed the Code of Responsible Investment in South Africa (CRISA)(King Report: 2009). The development of responsible investment in South Africa is a crucial part of the corporate governance debate. These principles require that owners of a company as a stakeholder be actively involved in the company affairs one of which is to make sure they are quite conversant with the finances of the company. CRISA allows the possibility of holding the owners responsible by lifting the corporate veil for any noncompliance or illegal activities of the company they have invested.
This I believe is a model which should be adopted worldwide to avoid such corporate scandals. However, it should be noted that in some situation ethical dilemmas can be a very big problem especially to multinational companies operating in different countries which have different social, cultural and moral values. In this situation one might struggle to decide because whatever decision he/she makes will affect one of the stakeholders regardless it being good or bad.( Silverstein : 2013).
A good example is the Cobalt mining incident in the Democratic Republic of Congo (DRC) which was released by the CNN News Investigative journalists in 2018. It has been discovered that they use child labor to mine this mineral (CNN TV news of 3 May 2018). The companies which buys this Mineral are all multinational companies, such as, Dell, Volkswagen, General Motors and Fiat Chrysler. (CNN News Report, 3rd May 2018).
However, despite a video showing many children being used as child labor in DRC almost all the companies affected are either defending themselves or claiming ignorance. None of the companies have took or released a statement which shows what measures they will take immediately to combat this malpractice and an international criminal act. They all show signs that it will be business as usual whilst taking some control measures. This in my conclusion will not be effective nor will it stop the practice of using child labor which is part of core values and ethics of all these companies.
What should be noted is that, child labor is not only a question of a company ethical and compliance issue, but rather under the international law it is a criminal offense. This to certain extent is an example of the ethical dilemma which this companies are facing because in most African countries child labor is a norm and most culture encourages children to be working as they say it prepares them for the future. Based on most African social setting it will therefore be hard that this practice can be completely abandoned.
Nevertheless, instead of being categorized as a corporate psychopath compliance officials must always be on the right side of the law and history.
BBC News. Enron: timeline. Retrieved April 27, 2018 from http://news.bbc.co.uk/hi/english/static/in_depth/business/2002/enron/timeline.
Burkus, D., 2011. A tale of two cultures: Why culture trumps Core Values in building ethical organizations. The Journal of Value Based Leadership, 4(1).
CNN News. Retrieved on May 3, 2018 from https://edition.cnn.com
Dawkins, R. (1976). The Selfish Gene. New York: Oxford University Press.
Enron. (2000). Enron Corporation 2000 Annual Review to Shareholders. Gladwell, M. (2002, July 22). The talent myth: Are smart people overrated. The New Yorker, 28-33.
Enron. (2000). Enron Code of Ethics. McLean, B. & Elkind, P. (2004). Enron: The smartest guys in the room. New York: Portfolio Trade.
Segal, T., 2018. Enron Scandal: The Fall of a Wall Street Darling. Investopia.
Sims, R. R. & Brinkman, J. (2003). Enron ethics (or: Culture matters more than codes). Journal of Business Ethics, 45(3), 243-256.
Silverstern, K, Enron ethics and Today Values, accessed on https://www.forbes.com on 25 April 2018. Jess Schulschenk. 2009. Compilation, 20 Years of King, Interview Summary report, accessed on www.iodsa.co.za on 30th of April 2018