Merrill Lynch Barge Scenario Case Summary -- Case Study

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Merrill Lynch Barge Scenario

Case Summary -- Enron, a Texas-based energy company, was created in 1985 and had such phenomenal growth it was soon the seventh largest company in the U.S. until its bankruptcy in 2001. Enron was involved in a number of scandals, among which was the Nigerian Barge Case. Essentially, Enron attempted to sell interest in three power-generating barges off the coast of Nigeria, but was unsuccessful. By December of 1999, Merrill Lynch agreed to buy Enron's interest. Enron "loaned" ML 75% of the money, offering ML a guaranteed return of 15% on 7 million dollars ($1.05 million in 6 months). Essentially, the entire deal was a fraud, designed only to make Enron appear more profitable than it was. Most of the Enron promises were verbal, and the situation was never really a "sale," but a short-term leverage loan. Enron's objective, in fact, was to improve the way its income statement looked, so that it could borrow money at a lower interest rate, pay higher bonuses, and retain its momentum. Enron was unable to find a purchaser within the agreed upon timeframe, so its CEO, Andrew Fastow, arranged for another Enron company, LJM2, to fulfill the deal. As a result, ML executives were accused of obstruction justice, conspiracy, fraud, and lying (Flood, 2005; Ethics in Finance, Chapter 11).

Kantian Ethics - "To tell the truth is a duty, but is a duty only with regard to one who has a right to the truth. But no one has a right to a truth that harms others" (Immanuel Kant, "Grounding for the Metaphysics of Morals"). To many, Kant is the father of modern ethics, developing the view that morality is derived as an absolute -- or categorical imperative, necessary for human society to live appropriately.

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There are two types of concepts: 1) empirical, or ideas we learn about through our experience, and 2) a priori ideas that we reach because they simply exist in nature. Moral actions, to Kant, are a priori - "Reason's function is to bring a will that is good in itself, as opposed to good for some particular purpose"(Flikschuh, 2000). Kant then says that there are at least three propositions about duty that speak to our situation: 1) is the action to be taken morally good and done from duty? 2) is the action judged by a principal of a moral maxim for society, or 3) is the action not in respect for morals or law, but for the imperative of reason that goes beyond our other interests.

Virtue Theory -- Since humans began living in cities and organizing social and political organizations, they have debated what is good, what is evil, what makes one action moral, the other immoral, and how the philosophy of ethics balanced with virtue helps both society and the individual. For many, virtue is the theory of how each individual should be moral so that we can not only get along with others, but form a more positive and productive society. In fact, one assumes that part of being human in an advanced society is knowing the difference between what is right and what is wrong and then acting upon it. One way to think about this from a philosophical perspective is to use deontology, which emphasizes causes and effects through rules and duties, not just as amorphous laws set down for no reason, but for sound and practical reasons so that people can live together. Thus, the principles of virtue theory take the most admirable characteristics.....

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