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Duty and Ethics: Enron

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Discuss how the Enron case informs our understanding of what it means for companies to be "socially responsible."

1.In the context of CSR, in what ways did Enron demonstrate - not social responsibility - but social irresponsibility? Consider how the company's actions ran counter to the tenets of CSR through its neglect of duty to the company's shareholders, its employees, and even the larger public trust. Be sure to cite specific examples.
2.What have been the long-term consequences of Enron's actions, and how did the company's implosion change our view of what it means for a company to be "socially responsible"?

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Solution Summary

Using the Enron case, the Solution identifies social irresponsibility and the long term consequences experienced by Enron. It is answered in 810 words. Six references are cited.

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Often, businesses concentrate only on their financial results; however, there are an increasing number of businesses that expand their contributions to society in the form of Corporate Social Responsibility (CSR). Businesses can practice solid business principles and activities that benefit our society and community. Note that CSR includes:
• Legal responsibilities
• Responsibilities to communities
• Environmental responsibilities
• Donations to charities
• Community service [1]

Enron's executives acted in an irresponsible manner regarding the company's financial reporting. Mark-to market accounting is a method of accounting for projects or assets before they have been completed. The asset, such as a machine or a plant, is projected to make a certain amount of profit, based on historical evidence. The asset's projected profit is recorded on the financial statement. As the asset's actual profit is realized, the financial statement is supposed to be adjusted to reflect the true financial situation. Enron's executives did not adhere to these methods as set by the Financial Accounting Standards Board (FASB). Instead, the company's executives, headed by Ken Lay, created Special Purpose Entities (SPE) to hide the assets' losses [2]. This was irresponsible of the executives as it provided a distorted view of the company's financial standing. The losses incurred were shifted to the SPEs instead of being noted on the financial statements. As a ...

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J Pye, MSc
Education
  • MSc, California State Polytechnic University, Pomona
  • MBA, University of California, Riverside
  • BSc, California State Polytechnic University, Pomona
  • BSc, California State Polytechnic University, Pomona
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