Write approximately 3-5 sentences for each questions. 1. Describe the culture at

Question

Write approximately 3-5 sentences for each questions.

1. Describe the culture at Enron. How can Stanley Milgram’s famous “shock” experiment help explain what happened at Enron?

2. Conflicts of interest occur when the personal interests of managers interfere with the personal judgments of managers. Discuss some of the examples of conflicts of interest in the Enron scandal.

3. What were the responsibilities of the accountants of Arthur Anderson? To whom did they owe these responsibilities?

4. Who, if anyone, was harmed by Andrew Fastow’s dual roles as Enron’s CFO and as managing partner of SPEs (“off-balance sheet” partnerships)?

5. Whistleblowing is the process in which an employee informs another responsible employee in the company (or outside agency) about potential unethical behavior. Who was the primary Whistleblower in this case? What are some of the risks involved in “blowing the whistle”? Under what conditions is “whistle blowing” ethically permissible?

Explanation / Answer

1. Describe the culture at Enron. How can Stanley Milgram’s famous “shock” experiment help explain what happened at Enron?

Culture at Enron

Organizational Culture in an organization can be defined as a system of shared assumptions, values and beliefs which governs how people behave in organizations.

Enron's organizational culture can be described as simple as Toxic. It was far from Transparent. There were deception and greed which finally turned into corruption. This happened at the top level on more than one occasion. The Top Management didn’t care about the regulations or ethics they were fixated on the profit and the middle and low-level employee followed orders blindly.

Stanley Milgram’s shock experiment - Enron

The study, published in 1963, found that ordinary people would inflict painful and possibly even deadly electric shocks on innocent victims if they were told to do so by an authority figure. Milgram’s experiment says that if the person believed the fault would fall on the authority he/she would continue doing something which is morally wrong

The Milgram experiment is all about how people can be convinced to do something morally wrong if a person in authority tells them it's okay

The same happened at Enron. Traders exploited and extorted their customers, they would cut off supply and raise prices repeatedly. The power plant operators would listen to the traders and shut down
power plants whenever they were told even during blackouts and
fires

Employees should have known better rather than to succumbed to complicity. They should have taken a morally and ethically right step.

2. Conflicts of interest occur when the personal interests of managers interfere with the personal judgments of managers. Discuss some of the examples of conflicts of interest in the Enron scandal

Below we have looked at two examples of conflict of interest in Enron

3. What were the responsibilities of the accountants of Arthur Anderson? To whom did they owe these responsibilities?

Donald Duncan had responsibilities to all of the parties mentioned and he failed in the areas of due diligence, was guilty of acting negligently, and showed a complete lack of ethics throughout his involvement with Enron.

As the head auditor, Duncan had the responsibility to maintain the highest professional accounting and auditing ethics and to lead the auditing team in a responsible, unbiased manner. Due to several factors taking place at Enron, most of which surrounded Duncan and his firm collecting in excess of $100 million per year in Enron consulting fees, a healthy, sceptical auditor/client relationship was never maintained.

All auditors, including Duncan, are to maintain an unbiased attitude and they are also required to maintain a healthy level of scepticism - knowing fraud and misstatements could be present, but not judging without the supporting evidence that would arise from a proper audit, which is another element that was never actually provided by Duncan. Duncan was responsible for providing the best professional service that he was capable of, to his employer, Arthur Andersen. Duncan also had a responsibility to Enron's management, which was to perform a thorough, clean audit. Auditors don't audit companies for the benefit of the company; they audit companies for the benefit of the shareholders. Duncan had a duty to shareholders to produce a clean audit, which would have showed the stockholders were losing money. When Enron collapsed, it actually was big enough to impact the market and the economy. This could have been mitigated earlier if Duncan had acted, as he should have. Duncan's actions, including the ordering of Enron documents to be shredded, were and still remain a disgrace to the accounting profession and to business ethics.

4. Who, if anyone, was harmed by Andrew Fastow’s dual roles as Enron’s CFO and as managing partner of SPEs (“off-balance sheet” partnerships)?

Enron Employees, Investors and Stockholders were harmed by Andrew Fastow

5. Whistleblowing is the process in which an employee informs another responsible employee in the company (or outside agency) about potential unethical behaviour. Who was the primary Whistleblower in this case? What are some of the risks involved in “blowing the whistle”? Under what conditions is “whistleblowing” ethically permissible?

Sherron Watkins is considered as the primary whistleblower in this case She was is the former Vice President of Corporate Development at the Enron Corporation.

Some of the Risks include

Conditions under which Whistleblowing is ethically permissible

1) When the company will cause serious harm to the public.

(2) When the employee identifies a serious threat of harm he or she should report it and state his or her moral concern.

(3) When the employee’s immediate supervisor does not act the employee should exhaust the internal procedures and chain of command.

(4) The employee must have documented evidence that is convincing that the practice, product or policy seriously puts the public in danger.

(5) The employee must have valid reasons to believe that revealing the wrongdoing to the public will result in changed necessarily to remedy the situation.

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