Organizational Justice, Ethics, and Social Responsibility Chapter discussed Organizational Justice, Ethics, and Social Responsibility. While watching CNBC on television, I viewed a documentary on the energy company Enron. Their practices and ethics, or lack thereof are an excellent example of the topics contained in this chapter. Their disregard for ethical behavior and social responsibility, ultimately led to the demise of the company and also caused several members of the company in management positions to be brought to justice in the court systems.
Enron was a energy company that was seemingly very profitable, ethical, and successful, as was reflected in their stock price. However, there was a great deal of information withheld from the stockholders and the public, that was evidence of their unethical and deceptive practices. First, Enron was withholding information from stockholders and the general public with regards to their financial statements and positions. Besides being an unethical practice, it is a good example of informational justice.
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Enron was hiding debts and making transactions with other companies, primarily banks and investment banking companies, that were allowing them to seem profitable on paper, although they were not. There were many companies that were participating in these transactions with Enron, and these companies were making loans or buying assets from Enron, and Enron’s financial statements showed these transactions as revenue, when they were actually debts. They even created companies to make transactions with, that allowed the other, such as Merrill Lynch, to essentially make bets on Enron’s stock prices and profitability.
These transactions were appealing to other companies, because Enron basically allowed them to “bet” using Enron’s chips. It was a very deceitful and unethical practice that misled the general public as well as Enron’s stockholders. Financial positions and revenue weren’t accurately described in their balance sheet, income statement, and other financial statements, which could have lead to the public making misinformed and unsafe financial and investment decisions. Another OB principle relevant to this situation is the Fair Process Effect. Employees want a voice and to be included in decision making.
However, Enron’s lower level workers weren’t accurately informed about their practices. The traders that worked for Enron weren’t explicitly told about the company’s unethical practices, but over the course of time they became more aware of the things that Enron was doing. However, traders were making a great deal of money from the success of Enron and it’s increasing stock price. During the time of the rolling blackouts in California, there were also wildfires burning. The fires decreased the level of electricity that was allowed to be produced and distributed.
Enron used this to their advantage, and greatly increased the cost of electricity to consumers. The traders knew this and profited greatly. So although they were informed of the unethical practices that were going on, their greed made them take advantage of the situation and profit as much as they could. The traders also participated in the unethical practices by asking electric companies to limit their production and output, and even shut down their plants for specified time periods. In essence, they were completely manipulating the costs and prices of electricity to the consumer and profiting greatly in the process.
Finally, the Sarbanes-Oxley Act which audits companies to ensure that there is ethical behavior in the workplace, is an issue that may have prevented the situation. Had Enron been audited more in depth during this time, they may have been forced to change their practices or worse much sooner than they did. Also, the company’s code of ethics was obviously not enforced. Enron also did not practice any sense of corporate social responsibility. The didn’t do anything to help the community, and in fact they did the opposite.
They used problems going on in the community such as the blackouts and wildfires, to profit. The idea of the Virtuous Circle, wherein companies that do good for the community are generally rewarded with successful operations, definitely came in to play. Because of their completely unethical behavior and practices, Enron eventually was ended as a company and several of the upper level decision making managers, were held liable for their actions in the court of law. Conclusively, I find that Enron makes a perfect example of the topics discussed in Chapter 2.
They were a completely unethical company that participated in deceptive practices and mislead the stockholders and the general public. The withheld information regarding their financial situation and positions, which affected the publics investment decisions. They were listed as one of the most innovative companies in Forbes and yet, they were little more than educated and experienced crooks. I find it fitting that in the end they were held liable for their unethical and illegal practices and the company was destroyed and the individuals responsible were tried in court.