Unethical Best Practices: Ethics and Morality Essay

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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 with the company's partnerships and failing to maintain oversight over the same

Wrongly failing to communicate with the company's auditors, which ultimately led to them not being aware of the aggressive accounting techniques the company was using

Failing to give enough consideration to proposals by management, and being too quick to approve the same owing to miscommunication and lack of information

Establishing very close relationships with the company and its management, which impeded on their ability to execute proactive oversight

Relying too heavily on auditors and failing to fulfill the legal duty to ensure auditor independence

I obviously do not agree with the executive board's actions in this case - first, because they compromise the very goal of value-creation for stakeholders that drives ethical business in society (Pies, et al., 2009); and secondly, because they are against the key competencies of leadership.

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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….....

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