Corporate Failure: The Enron Case Page 2

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By Rahul Gladwin | December, 2003.

Part 2: Yes-men: agreeing to unethical decisions by superiors

Andrew Fastow was Enron's Chief Financial Officer from May 1998 to October 2001. He joined Enron in 1990, and was responsible for the company's inventive financing deals. However, Enron asserts that he was sacked for his alleged involvement in dubious business partnerships. He was also accountable for producing a network of off-balance sheet partnerships with external firms that allowed him to hide Enron's very large losses (Senate, 2002). By an internal investigation at Enron, he was found to have secretly made $30 million from managing one of the partnerships (Swartz and Watkins, 2003). Mr. Fastow was one of the first Enron executives to be beckoned by the Securities and Exchange Commission (McLean and Elkind, 2003). Upon his sudden disappearance, some people thought he had fled the country. Michael Kopper, who was Mr. Fastow's right hand, is presumed to have revealed information on the actions of his former boss. Mr. Kopper knew about Fastow's fraudulent practices, but never questioned them (Lay, 2002). Thus, Fastow was the authoritarian figure and Kopper was an obedient subordinate, who never questioned his boss's actions despite knowing the truth, which was deception and lies. In the words of Deputy attorney general Larry Thompson, "In the process, as alleged in the complaint, Fastow and his co-conspirators systematically and thoroughly corrupted the business of one of the largest corporations on the world" (Lay, 2002).

The case of Andrew Fastow and his partners is a typical case of lying. Importantly, yes-men working under Fastow didn't want to blow the whistle on him. If the Enron code of ethics was strictly followed, and everyone's actions were supervised, this type of lying in accounting practices wouldn't have occurred. Fastow cunningly stole large amounts of money from the company. Of course, to hide his evil deeds, he created a web of off-sheet partnerships with external firms - some of which didn't even exist. Furthermore, he could legally remove Enron's losses from accounting books, if these losses were passed to independent partnerships (McLean and Elkind, 2003). Lying and various other ways of misusing the truth are wrong. Of course, white lies can sometimes be moral, but in the case of Fastow, white lies are immoral because Fastow intentionally, or at least knowingly conveyed false or misleading information. A helpful way to visualize this is to consider Lying from the standpoints of ethics of respect for persons and utilitarianism; each can provide valuable suggestions for thinking about moral issues. Furthermore, Fastow went against the 'Business Ethics' section of the Enron Code of Ethics, which clearly states, "No bribes, bonuses, kickbacks, lavish entertainment, or gifts will be given or received in exchange for special position, price, or privilege." Fastow finally surrendered to the F.B.I. and was charged with fraud (Lay, 2002). Mr. Fastow cannot be fully blamed for all that happened at Enron because his subordinates intentionally ignored his evil deeds. The more important question to consider is - was it the corporate culture that nurtured this type of behavior? Could this have been avoided in Enron? How do we ensure that history doesn't repeat itself?

Most managers encourage their people to question them, and challenge their beliefs. However, most managers are not good subordinates themselves. These managers don't question the decisions of their bosses, and agree with all their decisions. This was a very important lesson learned from Enron: subordinates like Michael Kopper never questioned the decisions of their seniors like Fastow - even of the decisions were fraudulent. Ethics should be strictly enforced - not only by the managers on their people, but also vice-versa, and, if possible, everyone should oversight the work of their peers. In its foreword, the Enron Code of Ethics clearly states to new employees, "If you have any questions [about the Code of Ethics], talk them over with your supervisor, manager or Enron legal counsel." What if the supervisors and managers have questions about the Code of Ethics, or don't even follow the Code? Hence, managers should ethically question their subordinates, and vice versa; these terms should be agreed upon when people take up their jobs at corporations, thus, the 'yes-men' attitude should be discouraged.

The Enron Case Page 1 The Enron Case Page 2 The Enron Case Page 3

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