Agency And Stakeholder Theories To The Enron Debacle

Business and Society Review 110:1 59– 76 Applying the Agency and Stakeholder Theories to the Enron Debacle: An Ethical Perspective Blackwell Oxford, Business BASR  © 0045-3609 O 1 110 BUSINESS CULPAN riginal 2004 Center UK Article and and Publishing, and TRUSSEL Society for SOCIETY Business Ltd. Review REVIEW Ethics at Bentley College REFIK CULPAN AND JOHN TRUSSEL INTRODUCTION W e examine the infamous Enron debacle from an ethical perspective by deï ¬ ning its theoretical underpinnings and analyzing the unethical conduct by top executives at the company in the areas of accounting, ï ¬ nance, and management. After discussing the Enron bankruptcy from the perspectives of various stakeholders, we evaluate the implications of the Enron case and†¦show more content†¦Despite the company’s poor (and declining) operating position and its increasing debt levels, the market was still enamored with Enron’s stock. Seemingly ignoring the fundamentals, the stock price continued to rise during this period. The milestones in Enron’s developments are listed in Table 2. As Table 2 attests, the rapid growth of Enron brought many managerial and ï ¬ nancial problems. The company experienced the pains of fast development by diversifying itself into new businesses and attempting to exploit every opportunity while losing its strategic focus. In other words, Enron had failed to make its transition from its entrepreneurial stage to the elaboration stage. The transition had become more difï ¬ cult with the company’s complex web of partnerships and the management could not resolve the problems associated with the transition. The remainder of this paper proceeds in two stages. First, we review two major theories: agency and stakeholder theories, which have relevance to ethical conduct of managers at business ï ¬ rms. Then, we apply these theories to the case of Enron in the subsequent sections. 62 BUSINESS AND SOCIETY REVIEW TABLE 2 Timetable of Enron July 1985 1989 1994 1997 Feb Aug Oct 1999 2001 2001 2001 Nov 2001 Dec 2001 Jan 2001 Houston Natural Gas merges with InterNorth to form Enron Begins trading natural gas commodities Begins trading electricity Announces its ï ¬ rst commodity transactionsShow MoreRelatedThe Ethical Dilemma Of Enron Essay1404 Words   |  6 PagesEnron was formed in 1985 following the merger of Houston Natural Gas Co. and InterNorth Co. The Chairman Kenneth Lay, CEO Jeffrey Skilling, and CFO Andrew Fastow were the backbone of Enron during its growth period. These executives exercised their power and expertise to unethically â€Å"increase† Enron’s profits by hiding the company’s debt. 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