沃尔夫汉普顿大学企业管理英国硕士课程dissertation-Corporation Social Responsibility and Ethic ：The case study of Enron

沃尔夫汉普顿大学企业管理英国硕士课程essay-Corporation Social Responsibility and Ethic ：The case study of Enron

 

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Enron: personal arrogance and corporate humiliation?

On December 14 2000 Houston based Enron Corporation seemed to stand at the peak of its meteoric rise to prominence. Chief Executive Officer (CEO) Kenneth Lay announced he would soon turn over the reins to Jeffrey Skilling. They both exuded pride in the past achievements of the company and confidence in the future. At the time of the transition from Lay to Skilling, the company reported $15 billion in assets $100 billion in revenues and 20000 employees.

Enron had done more than succeed; it had virtually redefined the energy industry. Embracing deregulation and free markets adopting new technology with remarkable speed, and radically reinventing its own business model several times over, Enron seemed a paragon of successful innovation.

安然：个人的傲慢和企业的屈辱？

2000年12月14日基于休斯敦的安然公司似乎站在在其翻红突出的高峰期。首席执行官（首席执行官）肯尼斯宣布他将很快把权力移交给杰夫瑞61。他们都流露出对公司和对未来的信心过去的成就感到自豪。在从躺着斯奇林过渡时间，该公司报告15000000000美元的资产100000000000美元的收入和20000雇员。

 

安然做得多成功，它实际上已经重新定义能源产业。拥抱放松管制和自由市场，采用新技术以惊人的速度，从根本上重塑自己的商业模式的数倍以上，安然似乎是一个成功的创新典范。

 

In 2000 Fortune magazine rated it the top American company on ‘Reputation of Quality of Management’ 

On December 2 2001 Enron declared itself bankrupt. Much debate followed as to the causes: but one idea was common; the roots of the collapse spread deep and wide through the company’s history.

Enron reshapes the energy industry and itself.#p#分页标题#e#

 

Kenneth Lay headed Enron since its creation in 1985. The Economist stated ‘Spend long enough around top Enron people and you feel you are in the midst of some evangelical culture…. In a sense you are. Mr Lay, with his passion for markets, is the cult’s guru.’ He keenly advocated deregulation of the energy industry, for he thought Enron could differentiate itself on products and services and make a profit from it. Between 1997 and 2000 24 states (in the United States of America) moved toward energy market deregulation. He put forward 4 core values 肯尼斯头安然自1985成立。经济学家表示，“花了足够长的时间，在顶安然的人和你觉得你是在一些福音派的文化…中间在某种意义上是。莱，热爱市场，是邪教的领袖。他敏锐地倡导能源业解除管制，因为他认为安然可以区分自己的产品和服务，从中获得利润。在1997和2000 24个州（美国美国）走向能源市场解除管制。他提出了4个核心价值观    

 

‘Communication.

 We have an obligation to communicate. Here we take the time to talk to one another… and to listen. We believe that information is meant to move and that information moves people.

‘Respect

We treat others as we would like to be treated ourselves. We do not tolerate abusive or disrespectful treatment.

 

‘Integrity 

We work with customers and prospects openly, honestly and sincerely. When we say we will do something, we will do it; when we say we cannot or will not do something, then we won’t do it.

‘Excellence 

We are satisfied with nothing less than the very best in everything we do. We will continue to raise the bar for everyone. The great fun here will be for all of us to discover just how good we can really be’.      

 

Becoming a trader.

In the late 1980s gas prices became unstable. Lay recruited McKinsey consultant Jeffrey Skilling to develop the idea of selling gas futures at agreed prices through Enron’s innovative ‘gas bank’. Customers could withdraw gas against a current contract but for a slightly higher price. Enron covered its risk on ‘two simple rules: all trades must be balanced with an offsetting trade to minimize unhedged risks and each trader must report a daily profit and loss statement’.

In 1992, electricity was deregulated, and Enron was selling $10 billion worth of electricity, little generated by itself. It relied on ‘the arts of swaps, collars, caps, floors and hybrids.’

Skilling saw the gas bank model as the basis for expansion into other commodities such as fibre optic bandwidth, even weather derivatives. It was said that Enron saw assets as bad, intellectual capital as good. Enron became to The Economist ‘a Wall Street trader that just happened to be based in Houston’- no longer as an energy provider.#p#分页标题#e#

 

Jeffrey Skilling and Andrew Fastow 

Skilling joined McKinsey in 1979 after an MBA from Harvard Business School. He was remembered as passionate and relentless, but never unpleasant. He began working for Enron in 1988 and in two years he was the CEO of Enron Finance Corporation. ‘I’ve never not been successful in business or work.  Ever’, he said. He became president and chief operating officer in 1996 with Lay as chairman and CEO. Over the next three and a half years Enron’s stock soared 350% to a high of $90 a share.

 

Skilling valued organizational flexibility and innovation. ‘Weird ideas create new businesses’. He surrounded himself with talented tough minded individuals such as Fastow who joined Enron in 1990, aged 29. In 1998 he became the chief financial officer (CFO). Brilliant with figures, Fastow could be short tempered and impersonal. In December 2000 Lay named Skilling as President from the following February. Lay put a banner in Enron’s corporate lobby proclaiming it to be ‘The world’s leading energy company’ Skilling replaced it with a new banner: ‘The world’s leading company’. Skilling could be brash and boastful, and antagonised people.

 

Building businesses

Enron used cellular divisions with entrepreneurial new businesses becoming separate divisions. To help people concentrate on new business, Enron offered ‘phantom equity’ to the teams of these new businesses. When the new businesses became profitable, that phantom equity could be swapped for real Enron shares.  By such a device had Enron On line been created, which by being instant had a massive impact on Enron traders.

 

Building a trading culture

People in Enron had ‘an overwhelming pride’ which led them to thinking they could handle exotic risks without danger. There was pressure for ever increasing performance, and Enron needed to attract a different type of executive to the business. The new traders were ‘bold hungry and creative’ but they were really employed to make money. They could overstep the mark. Two oil traders defrauded the company of $136 million and were sacked.

 

Global expansion

Enron began buying energy related assets overseas. Under Harvard Business School graduate Rebecca Mark, Enron focussed on Europe South America and then switched to China and India. Mark believed in building hard assets – unlike Skilling. Enron bought the UK’s Wessex Water for $1.9 billion and invested heavily in a power plant in India against World Bank advice. Little profit occurred. In August 2000, Skilling put virtually the whole global holdings on the market, to recover most of the $7.5 billion invested. No buyers came.

 

Employee Development #p#分页标题#e#

Skilling wanted flexible intelligent performance oriented employees to provide the company with a competitive advantage. There was ‘seaMLess movement across businesses and units. Common compensation and evaluation systems removed potential barriers’. Work titles did not transfer to new roles. Stock options were meant to keep employees focussed on the company’s performance. Employees were rated not by supervisors alone, but by a Performance Review Committee. The bottom 15% of employees were fired.  

 

Ranking of individual performance by committee meant there was much back stabbing. Rating was by revenue generated, not teamwork, integrity or respect. Skilling supported a change away from this after criticism of the system.

 

Compensation 

High salaries and lavish perks -$100 notes left on employees’ desks when the share price reached $50 – and a fleet of corporate jets – all were justified by Lay, who wanted to pay people like entrepreneurs. The result was to push through bad deals such as the Indian power plant for bonuses, with no distinction between temporary value and long term value. 

As Enron’s stock price rose the company came to rely on stock options, which made the company look more profitable than if executives had been paid a salary. It is the only form of compensation not reported as an expense.      

 

Culture of confidence

‘The Enron way was to be brash and there was an arrogance about it’, said one executive. Lay dismissed charges of corporate or personal arrogance. 

Aggressive accounting 

 

The company followed the mark to market rule for revenues. So a deal to provide $500,000 a year in natural gas for five years would appear as $2.5 million at the start of the deal.   Most deals were more ambiguous – a customer might not exist in 15 years, as with the Maharashtra State Electricity Board. Arthur Andersen the accounting firm agreed to aggressive optimism. Many analysts both critics and supporters acknowledged that openness about numbers was never strong in Enron: a claim of the company was that it was impenetrable to outsiders. It was difficult to determine how Enron made its money. The Houston Area Water Corporation’s chairman noted ‘The first tell tale sign of something being amiss is the refusal to turn over documents.’

A broker who warned about the performance of Enron’s stock was fired by his company after criticism by Aaron Brown manager of Enron’s employee stock option plans. The same day Lay sold $4 million worth of his holdings. 

 

In 2000 Carl Bass a partner at Arthur Andersen Houston sent an email to Chicago expressing concerns about various accounting practices – how the company recognized revenues dealings with off- balance sheet partnerships and that these matters had been ‘sustained’ in the Houston office. Enron could not get Bass replaced. #p#分页标题#e#

The Collapse 

 

August 14th 2001. Skilling unexpectedly resigned. Comforting words from Lay did not reassure the markets. The stock price from being $90 tumbled through the $30s. 

An Enron vice president Sherron Watkins wrote to Ken Lay warning of implosion – that many complex deals had hidden the true financial picture of the company. From 1999 to 2000 Andrew Fastow had created hundreds of off balance partnerships, which could be used to hide debt and inflate revenues. Watkins met Lay the next week. Lay said he would investigate the matter. He did contact the company’s law firm and David Duncan senior partner of Enron’s accounting firm Arthur Andersen. The law firm concluded there was nothing to be worried about. Duncan pulled together a committee to review past practices. 

 

On October 16th, third quarter results showed a loss of $1 billion in bad investments. Lay said quickly that an additional $1.2 billion in capital reduction from off book partnerships. 

Lay removed Fastow but on 22nd October the Securities and Exchange Commission opened an investigation into certain accounting practices relating to off balance sheet partnerships. The stock fell to $21. Later on October 30 the bonds were termed ‘junk’. Employees were prevented from selling stock from their retirement packages. 

 

Early November with stock in single digits, Enron announced it was reducing earnings by $600 million due to accounting of ‘unconsolidated entities’ as a result of Duncan’s review. Enron had borrowed $6 billion from mid October to December but still faced $31 billion in combined debt. It filed for bankruptcy on December 2 2001.   

 

An extra view  adapted from another source

In 2002 the Enron Corporation reported massive financial losses. In August 2002 Michael Kopper, a former senior financial official at Enron, pleaded guilty to using Enron’s off – balance sheet partnerships to enrich himself and former Chief Financial Officer Andrew Fastow. The Chief Executive of Enron, Kenneth Lay, sold shares for $70 million whilst the company was collapsing: some of these sales took place after Mr Lay had been warned by an Enron accountant, Sherron Watkins, that the company might implode in a wave of accounting scandals. Press comment at the time of the collapse spoke in terms of the Enron affair being ‘mind-boggling’. Clifford Baxter, a vice president had spoken out about accounting practices but had committed suicide rather than face a Congressional enquiry into the affair. 

 

No one blew the whistle because staff received lavish bonuses and stock options. Also the company management ranked staff on the basis of their sense of urgency and capacity to innovative. 15 % annually were fired and the next 30% were under scrutiny the next year. 45% of staff were under constant threat of dismissal. #p#分页标题#e#

 

The failure to comply with good accounting practice should have been picked up by auditors Andersen. But Andersen were earning $54 million annually from Enron….

Finally. A challenge to the usefulness of business ethics 

“What all these principles of ethical correction have to confront is the problem that if they were applied rigorously to business, they would seriously attenuate (lessen) the mechanics which drive and galvanise the system. It could be said they already have.” Norman Barry,  (1991) The morality of business enterprise, Hume paper 13, Aberdeen, Aberdeen University Press

 

Questions. Answer all questions using ethical and / or csr theory. Do not repeat the detail or personal views expressed in the case study. Refer to the case in limited ways to support your use of ethical and csr theories. 

 

1 Use any moral theories to critically evaluate the actions of the Chief Executive, Kenneth Lay.  

2 Set out the arguments in favour and against Norman Barry’s views above, using the case study as the basis of your analysis.  

3 Is it reasonable to hold any group (stakeholders) more or less to blame morally for the collapse of the company?   

4 What practical steps could the various groups have taken to avert the collapse of the company?     

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Preparing for your assessment

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Learning Outcomes Tested

(Insert detail)

 

1 Analyse concepts and theories of Corporate Social Responsibility (CSR)  and business ethics 

2 Discuss the relevance of ethical and CSR concepts in organisational contexts

3 Differentiate CSR issues from the perspective of different stakeholders 

4 Evaluate the outcomes of CSR strategies and provide reasoned predictions on the future use of CSR and ethical perspectives, within organisational policy making

 

Level 6 Performance descriptors

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Excellent links between a range of different ideas and theories. Places issues in a wider context. Evidence of excellent understanding and a range of relevant theories and demonstrates a facility to apply these appropriately. Original insight, independent, imaginative and creative ideas, excellently argued and supported.#p#分页标题#e# Very good links between theory and practice. Highly competent coverage of main assignment issues. Full understanding of issues.

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References present and accurate Little evidence of reading.

 

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Clarity and precision of writing throughout. Excellent style and level of detail for audience. Accurate, succinct and fluent, persuasive in approach and typified by a sophisticated use of English. Appropriate style used for purpose

Generally no grammar or spelling errors; only very minor errors in English. Clear, fluent and persuasive writing style. A competent attempt. Occasional errors in grammar spelling, punctuation, etc. but largely fluent, clear and correct. Appropriate style for purpose and audience. Mostly clear in meaning if lacking in fluency. Some errors in grammar, spelling or punctuation.

 

Frequent lapses in grammar, punctuation and /or spelling.

Meaning not always clear, often obscure.

Clumsy expressions used.

Inappropriate style.

 

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• Refer to module guide for contact details of module leader and Departmental Administrator

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Warning

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(For further guidance go to www.wlv.ac.uk/lib and from the menu that then appears, make these choices in turn: Study skills, referencing, Harvard Citation).

Plagiarism is the act of stealing someone else's work and passing it off as your own.  This includes incorporating either unattributed direct quotation(s) or substantial paraphrasing from the work of another/others.  For this reason it is important that you cite all the sources whose work you have drawn on and reference them fully in accordance with the Harvard referencing standard.

 

Extensive direct quotations in assessed work is ill advised because:

It represents a poor writing style that is unlikely to meet the pass grade marking criteria, and it could lead to omission errors and a plagiarism offence could be committed accidentally.

Maximising the benefits of team working

Individual assessment must represent an effort prepared and submitted by you.  It will contain your solutions to exercises set during the delivery of the module.  (Your submission may reflect some contributions arising from group working and classroom presentations).

 

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