Enron

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Enron

  1. 1. Ethics in Organisation Lessons Learnt from Enron BECG-CORE
  2. 2. Organizational Ethics: 4 «bottom lines»
  3. 3. Enron Scandal <ul><li>Enron stands for the greatest company scandal in the history of the US economy and has become a symbol of corruption for the whole Western economic system. </li></ul>
  4. 4. Legend-Out…Low-In <ul><li>7 th Largest Company </li></ul><ul><li>100Billion$+revenue </li></ul><ul><li>1.8 Million$ Benefit in 5 yrs. </li></ul><ul><li>88.6% increase in 2000 </li></ul><ul><li>New Economy’s Gem </li></ul><ul><li>CEO named as ‘Messiah in the Energy Sector’ by Economist </li></ul>
  5. 5. 4500 employees lost their jobs. <ul><li>  Investors lost some 60 billion dollars within a few days; for many it meant losing their old-age security. </li></ul><ul><li>The pension fund for the company's employees was obliterated.   </li></ul>
  6. 6. Citizen’s trust in the American economic system was destroyed. <ul><li>  Losses on the financial market amounted to the worst stock value loss in peaceful times. </li></ul><ul><li>  Banks were suspected of collusion. </li></ul><ul><li>  The auditing firm Arthur Anderson lost its accreditation.   </li></ul>
  7. 7. The rules for financial reporting were drastically sharpened: <ul><li>Sarbanes-Oxley Act </li></ul><ul><li>The close ties of the company's founder, Kenneth Lay, to US President George W. Bush came under sharp criticism.   </li></ul>
  8. 8. Political Scandal-Lack of Equity <ul><li>29 top executives : 1M $ in stock options before bankruptcy whereas employees were forbidden to sell their options </li></ul><ul><li>CEO alone : sold 67m $ worth of options </li></ul><ul><li>Severance package: 13 500 $ per employee </li></ul><ul><li>63% of the 21,000 employees lost all their pension plan (plan 401K) </li></ul>
  9. 9. Dabhol Power Corporation, India <ul><li>One of the few “real” assets of Enron </li></ul><ul><li>65% Enron; 10% G.E; 10% Betchel; 15% India, </li></ul><ul><li>Biggest gas power plant in the world </li></ul><ul><li>3 M$ in investment (10% foreign investments in India 1992-2002) </li></ul><ul><li>Project of 2 200 megawatts </li></ul>
  10. 10. Human Rights’ Violation <ul><li>Displacement of 2 000 people and appropriation of land without prior notification </li></ul><ul><li>Arrest of 300 pacific protestors a day, average of 8-day detention period, without trial and with violation of human dignity </li></ul><ul><li>Demonstrators, mostly women, dragged from their homes, and beaten (lath charge, tear gassing, helicopters), detention, humiliation, intimidation </li></ul>
  11. 11. Environmental Abuse <ul><li>No impact study; no alternative site </li></ul><ul><li>Mockery of consultation process </li></ul><ul><li>Use of drinking water from population (8 300 liters / minute) </li></ul><ul><li>Pollution of rivers by used waters </li></ul><ul><li>Contamination of sea-water (down-load of 13 million liters of warm water per day) </li></ul><ul><li>Destruction of plantations (mango, cashew) and fisheries </li></ul>
  12. 12. Characteristics of “New Economy” management: Value of Idealized Top <ul><ul><li>CEOs = 500 times average employee salary </li></ul></ul><ul><ul><li>bonus gone from 3$ to 64$ per 1000$ of value in 10 years </li></ul></ul><ul><ul><li>aggressive PR; image of “responsibility ” </li></ul></ul><ul><ul><li>only 1.5% of stock options paid to employees; etc. </li></ul></ul>
  13. 13. Complicity or cooptation of social actors : <ul><li>Governments (Enron 7M$ public investments) : USA, Germany, UK, France, Italy, Japan…); </li></ul><ul><li>Financial analysts; accounting and consultation firms; </li></ul><ul><li>Business schools; business press; host governments; etc… </li></ul>
  14. 14. Watkins Whistle blowing has paid <ul><li>Cleansing of financial markets </li></ul><ul><li>Some companies enter stocks options into their books as expenses : Boeing, G.E., G.M., Citigroup </li></ul><ul><li>U.N. Global Compact; CSR; social and environmental accounting; OECD principles, Caux Table; etc. </li></ul><ul><li>36% of CEOs more aware of integral responsibilities (but only 10% invest in CSR) </li></ul><ul><li>19% of transnational companies have disinvested from countries where Human Rights are violated </li></ul>
  15. 15. How to bring accounting firms to integrate CSR norms ? <ul><li>These norms should represent reality </li></ul><ul><li>ensure company governance </li></ul><ul><li>make companies responsible not only towards shareholders </li></ul><ul><li>“ de-co-opt” media and other organizations </li></ul><ul><li>increase the integrity of business students and managers ? </li></ul>
  16. 16. Organizational Ethics, 4 Ways

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