Profit Before Principle at Enron Paper Example

Introduction

Several factors led to the development of the culture of profit before principle at Enron. First capitalized loopholes in the ethical and legal requirements for financial accounting at the time. To begin, the company took advantage of its approval to use the mark to market accounting instead of the traditional cost accounting method to inflate its financial income. The company's Chief Finance Officer would report their estimated income as the actual ones, giving the public and its creditors the false impression that it is performing excellently when it was struggling with losses and huge debts (Rose, 2012). Secondly, Enron illegally exploited the legal provision for companies to use off-balance-sheet special purpose entities to conceal the dwindling value of its assets as well as burgeoning debts from the creditors and investors.

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According to Lemus (2014), Weak ethics or legislation requiring low levels of accountability can lead to the temptation to do what is convenient rather than right. This observation can be confirmed by the fact that in the US, Enron is not the first company to go down dramatically after being found to have been projecting financial reports for years. The collapse of Long-term Capital Management just a few years earlier had attributed to a similar manipulation of the existing legislation and ethics regarding transparency. The US government only saw the need to tighten legislation and regulations governing financial reporting for publicly held organizations following the devastating story of Enron. It is possible that before the enactment of Sarbanes-Oxley Act of 2002, the executives of many companies were not afraid to defraud shareholders, and fabricate, alter or destroy their financial statements because the consequences of such acts were not as severe.

Secondly, Enron was able to compromise on ethics it lacked proper management oversight (Rose, 2012). From the SEC investigations, it came out that the company's top executives - particularly, the first and the second CEO, and the CFO conspired to commit the economic rimes behind the back of its board of directors. The primary role of the board of directors is to audit and monitor the performance of the company and decide the right people to hold managerial positions. But in the case of Enron, the board of directors was not held liable for its lack of knowledge of the reality. At the same time, the boards of directors were less independent of the top executive before the new law. However, given the many years that the company was able to avoid accountability, its directors were to blame for being overly complacent in carrying out their oversight role.

Lastly, Enron adopted the culture of profit before principle as a desperate measure to save its life, which was threatened by a series of poor operational and investment decisions. The company's overambitious diversification led it to spend hundreds of millions of dollars in investments, some of which did not bring corresponding financial returns. It feared that reporting its huge losses from the poorly-thought-out capital-intensive investments would pull down its value at the shares market. Therefore, it had to compromise to maintain a high capital income from shares and special purpose entities. Besides, Enron conspired with its audit firm to exaggerate its income by as much as over $500 million for many years (Lemus, 2014). That too, was a bad decision because it increased the amount of tax paid for income that did not exist; thereby shrinking the company's real net income even further.

Personal Code of Ethics

The following code of ethics will guide me in my professional and personal decision making. They will mainly regulate my behavior in all four areas of my life - work ethics, integrity, honesty, and relationships. I have chosen to focus on the four values because I have identified them as the most crucial for me to attain my professional as well as personal aspirations in life.

Relationships

In all my decisions, I will give priority to the interest of my faith, followed by family, then work, and then friends. Since God only wants what is good and upright, as long as I get it right with him, it should be right with everyone one else.

I have realized through experience that people only respect you if they are sure that you respect yourself. Therefore, I will treat everyone with the respect they deserve and take the dignity to walk away from any table where respect is not served.

Love is the greatest shield from evil; so I will love everyone without any expectation of reciprocation because no one is obliged to love me. Nonetheless, I will only trust those who have proven themselves as worthy of trust.

Good grooming boosts personal confidence; after all, cleanliness is next to godliness, and the first impression is the lasting impression (Adams, 2012). I will always capitalize on these two.

Honesty

They say that honesty is the best policy. I will always express my honest opinion whether it is popular or unpopular. The Bible says that you shall know the truth and the truth shall set you free (John 8:32 SEV).

Integrity

Integrity is what defines an adult. People who don't keep their word are not yet grown up because it is children who are controlled by their whims (Shahid & Azhar, 2013). As long as it is within my power, I will never let my whims stop me from keeping my word no matter how inconvenient it might be. This includes strictly adhering to all my personal and work ethics to which I have committed myself with a clear conscience.

Secondly, I will always do what is right in all circumstances regardless of whether someone will get to know what I did or not. In difficult circumstances, instead of finding an excuse or loophole to do the wrong thing, I will dedicate my effort in finding a way to do what is right.

Work Ethics

When it comes to productivity at work, attitude is everything. In choosing workers, I will always value the right attitude above skill (Hettiararchchi and Jayarathna). For the same reason, I will always be positive about my work and do it with unrelenting commitment. However, I will not let my work erode my personal ethics, values, and real identity.

Since I want to be a high-quality employee, I will always endeavor to portray a self-disciplined character. It means avoiding procrastination, working within deadlines, as well as always being trustworthy and honest in all work circumstances.

I will always cooperate in all activities geared towards the attainment of the goals of my organization. Also, I will endeavor to work well within teams, respect my bosses, and be polite to my colleagues.

Transparency and disclosure of information

I will be freely and unconditionally disclose all information that should be disclosed in the right manner. At the same time, I protect all confidential information within my possession from disclosure.

Fairness

I will treat all people fairly, affording them equal opportunity regardless of their diversity. Those who make mistakes must be as treated innocent until proven guilty as per the law (Pennington, 2003). On the same note, I will not take any unfair treatment directed at me lying low, but will always stand up for what is right.

References

Adams, T. (2012). Judging a Book By Its Cover: Are First Impressions Accurate?.

Hettiararchchi, H., & Jayarathna, S. (2014). The effect of Employee Work-Related Attitudes on Employee Job Performance: A Study of Tertiary and Vocational Education Sector in Sri Lanka. IOSR Journal of Business and Management, 16(4), 74-83.

John 8:32. (n.d.). The Bible Standard English Version. Retrieved December 13, 2018, from https://biblehub.com/john/8-32.htm

Lemus, E., M. I. B. A. (2014). The Financial Collapse of the Enron Corporation and its Impact in the United States Capital Market. Global Journal of Management And Business Research.

Pennington, K. (2003). Innocent until proven guilty: The origins of a legal maxim. Jurist, 63, 106.

Rose, C. (2012, April 15). A conversation about the documentary "Enron: The Smartest Guys in the Room" [Video file]. Retrieved from https://youtu.be/PNIooXEeVu4

Shahid, A., & Azhar, S. M. (2013). Integrity & Trust: The Defining Principles of Great Workplaces. Journal of Management Research, 5(4), 64. doi:10.5296/jmr.v5i4.3739