SMV896 – Human Values in

Management

Assignment # 1

Enron’s Fall
Case Study of Enron’s Fall

Who were the key actors?

Following were the key actors in the case:-

1. Sherron Watkins, Vice President

2. Kenneth Lay
3. Jeffrey Skilling, Head of finance department
4. Andrew Fastow
5. Arther Anderson, Auditor

What were the major acts in the case and whether they need an ethical
analysis?

Following were the key acts in the case:-

1. Kenneth Lay - Borrowing money to buy up other companies and making

debt of 75% of stock value.

This seems to be a business strategy and is not an ethical issue as

far as the same is being reported correctly in the financial
statements. Hence does not require an ethical analysis.

2. Kenneth Lay – Hired Jeffrey Skilling to be Head of finance department

Since the case study does not show that the Kenneth Lay has hired
Skilling specifically for some wrong intensions in mind. This seems
to be an operational aspect of the business and hence does not
require an ethical analysis.

3. Jeffrey Skilling – Firing the bottom 10 percent in performance and

rewarded the top performers

Firing of bottom 10 percent performers and rewarding the top

performers seems to be just a practice of enhancing productivity at
first glance. But always firing of bottom 10 percent always without
any benchmark seems to be an ethical issue which need an ethical
analysis.

Principle here applies is of Care.

The act when tested on above principles it is seen that the act was
immoral.

4. Jeffrey Skilling – Hired Andrew Fastow

Hiring and Andrew Fastow seems to be an ethical issue because

immediately after hiring they started the wrong accounting
practices which means that this was already in the mind of Jeffrey
Skilling at the time of hiring Fastow.
 Principle here applies is of Utilitarianism.

- Maximum goods for maximum numbers

The act when tested on above principles it is seen that the act was
immoral as it failed to look into the interests of the share holders.

5. Jeffrey Skilling and Andrew Fastow – Persuaded the authorities to allow

them for using mark to market method for valuation of the contracts.

This also seems to be an ethical issue since they persuaded

authorities to allow them to use “ mark to market” which was
otherwise not possible at that time just to take advantage out of it.

Principle here applies is of Utilitarianism.

- Maximum goods for maximum numbers

The act when tested on above principles it is seen that the act was
immoral as it failed to look into the interests of the share holders.

6. Jeffrey Skilling and Andrew Fastow – Traders were pressured to forecast

high future cash flows and low discount rates of their contracts to report
high asset value and profit to investors.

This also seems to be an ethical issue as pressurising traders to

forecast high future cash flows was done just to report high profits
which was actually not going to happen. Hence it need ethical
analysis.

Principle here applies is of Utilitarianism.

- Maximum goods for maximum numbers

The act when tested on above principles it is seen that the act was
immoral as it failed to look into the interests of the share holders.

7. Andrew Fastow – Set up a series of “Special purpose Entities” and

appointed himself and other Enron People as heads of the special purpose
entities. These SPEs were established to borrow money from the market
and not to report them on Enron’s statements and to transfer existing
debts of Enron to the statements of these SPEs.

Setting up of SPEs was done with a preset objective of transferring

the debts of Enron on SPEs and to report high profits despite of high
debts. Hence it need ethical analysis.

Principle here applies is of Utilitarianism.

- Maximum goods for maximum numbers

 The act when tested on above principles it is seen that the act was
immoral as it failed to look into the interests of the share holders.

8. Arther Anderson – Certified that the company’s financial reports provided

an accurate accounting of the firm.

Arther Anderson had wrongly certified about the financial reports of

the firm which need ethical analysis.

Principle here applies is of Right.

The act when tested on above principles it is seen that the act was
against legal rights of the share holders (right of information) and
hence is immoral as it failed to protect the legal right of the share
holders.

9. Sherron Watkins – Even after being alarmed in 1993 about the accounting
practices of Fastow she remained silent and did nothing.

Need ethical analysis.

Principle here applies is of Justice (Retributive Justice).

- Punish the Wrong doers

The act when tested on above principle it is seen that the act was
immoral as it failed to punish the wrong doers and take corrective
action in time.

10.Jeffrey Skilling – Resigned due to personal reasons

Need ethical analysis.

Principle here applies is of Utilitarianism.

- Maximum goods for maximum numbers

The act when tested on above principles it is seen that the act was
immoral as it failed to look into the interests of the share holders.

11.Ken Lay – He was alarmed by Sherron Watkins in 2001 about the financial
irregularities but he could not do anything.

Need ethical analysis

Principle here applies is of Justice (Retributive Justice).

- Punish the Wrong doers

The act when tested on above principle it is seen that the act was
immoral as it failed to punish the wrong doers and take corrective
action in time.
12.Lay and other executives started selling much of Enron stocks.

Need ethical analysis

Principle here applies is of Utilitarianism.

- Maximum goods for maximum numbers

The act when tested on above principles it is seen that the act was
immoral as it failed to look into the interests of the share holders.

13.Sherron Watkins – Publically revealed everything she knew about the

company’s accounting practices. She also noted that Andrew Fastow had
tried to have her fired and to seize her computer when he learned of her
attempt to alert her superiors of impeding trouble.

Need ethical analysis

Principle here applies is of Justice (Retributive Justice).

- Punish the Wrong doers

The act when tested on above principle it is seen that the act was
immoral as it failed to punish the wrong doers and take corrective
action in time.

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