Agency And Stakeholder Theories To The Enron Debacle

Business and Society Assessment 110: one particular 59– 76

Applying the Agency and

Stakeholder Hypotheses to

the Enron Hecatombe: An Moral

Perspective

Blackwell

Oxford,

Organization

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BUSINESS

CULPAN

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2004 Center

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SOCIETY

Organization

Ltd.

Assessment

REVIEW

Values at The bentley College

REFIK CULPAN AND JOHN TRUSSEL

INTRODUCTION

W

e examine the famous Enron derrota from an ethical

perspective by defining its theoretical underpinnings and

analyzing the unethical execute by leading executives with the

company inside the areas of accounting, finance, and management. After discussing the Enron bankruptcy from the views of various stakeholders, we measure the implications from the Enron circumstance and unethical managerial tendencies in light in the agency and stakeholder theories.

The Enron case is important for a number of factors. It was among the largest individual bankruptcy cases in U. S i9000. business history. In 2001, it was the fifth most significant company on the Fortune five-hundred, and the market leader in energy development, distribution, and trading. Despite Enron's score as " the most admired company” six years within a row simply by Fortune publication, many investors and workers experienced significant losses. The case shows how the outside auditing firm likely cooperated with Enron's leadership in protecting up in wrongdoings in a complex network of partnerships. In the mean time, the government firms and expenditure brokers failed to catch the financial

Refik Culpan is a professor of Management and International Organization, and John Trussel is definitely an associate mentor of Specialist Accountancy, equally at the Philadelphia State School at Harrisburg.

© 2006 Center for Business Ethics by Bentley School. Published simply by Blackwell Creating, 350 Key Street, Malden, MA 02148, USA, and 9600 Garsington Road, Oxford OX4 2DQ, UK.

62

BUSINESS AND SOCIETY REVIEW

FIGURE 1 Enron's Financial Growth

conspiracy theory at the business or to notify the public regarding ongoing accounting and financial manipulations. All these reasons display that the Enron debacle, as being a perfect example of unethical business and bureaucratic conduct at a large public company,

justifies a comprehensive and systematic examination.

Enron was one of the world's leading energy, commodities, and services companies. It promoted electricity and natural gas, provided energy and also other physical goods, and supplied financial and risk management services. In 2000, its profits were $22.99 billion, it was the fifth largest firm in the Fortune 500, and it had 19, 000 personnel.

The company began in 85. In of sixteen years, that grew from a concentric firm to a diversified firm with business dealings which range from energy development, distribution, trading, to broadband trading. You can actually ambitious growth was proclaimed especially with its (seemingly) phenomenal growth in 2000. An assessment Figure 1 shows a huge increase in their revenues and assets in 2000 in comparison to the previous years. Besides this rapid progress, the rest of the business financial picture is less spectacular. Table you displays numerous financial ratios of the company for the period 1996–2000.

CULPAN AND TRUSSEL

61

DESK 1 Enron's Financial Percentages

Category

Fluidity

Ratio

1997

Current rate

1 . 06

Acid-test rate

0. forty two

Days to sell inventory

1 ) 71

Days and nights to collect receivables 31. 41

Solvency

Debt-to-equity ratio

3. 17

Times interest attained

1 . forty one

Debt-to-assets percentage

0. seventy six

Operating

Come back on resources

0. 53%

performance Come back on value

2 . 11%

Gross profit margin

18. 61%

Net profit margin

0. 52%

Market

Price-to-earnings ratio

223. 44

measures

Price-to-book proportion

3. 90

1998

zero. 97

0. 36

several. 51

21. 63

three or more. 16

installment payments on your 74

0. 76

2 . 66%

14. 10%

12-15. 61%

2 . 25%

19. 43

1 . 88

99

2000

1 ) 07

1 . 07

0. 49

0. 48

five. 76

installment payments on your 95

twenty-two. 84

twenty-seven. 32

installment payments on your 49

four. 71

three or more. 04

2 . 96

zero. 71

zero. 82

2 . 85% 1 . 98%

twelve. 75% on the lookout for. 31%

13. 34% 6. 22%

installment payments on your 23% 0. 97%

twenty. 74

thirty four. 49...

Sources: Clark, 3rd there�s r. C. (1995). Agency costs versus fiduciary duties. In J. Pratt and

3rd there�s r

Donaldson, Capital t. and Preston, L. (1995). A stakeholder theory from the corporation: Ideas, evidence, and implications, Schools of Managing

Review, twenty (1): sixty-five – 91.

Dugan, I actually. J., Berman, D. and Barrionuveu, A. (2001). On camera, people

at Andersen, Enron inform how close they were, The Wall Street Journal,

Dutton, J. Electronic. and Ashford, S. T. (1993). Advertising issues to top administration.

Eisenhardt, E. (1989). Organization theory: A great assessment and review, School

of Managing Review, 14: 57–74.

Celebridad, E. (1980). Agency concerns and the theory of the firm, Journal of

Political Economy, 88, 975 – 990.

Freeman, L. E. (1984). Strategic Management: A Stakeholder Approach.

Gruley, B. and Smith, Ur. 2002. Body structure of a land, keys to success kept

Kenneth Lay open to disaster, The Wsj, April 21, A1 and

Hill, C. W. and Jones, T. M. 1992. Stakeholder–Agency theory, Journal of

Management Studies, 29, 134 –154.

Hitt, G. and Schlesinger, T. M. 2002. Stock options come under fire in

awaken of Enron's collapse

Heugens, P. G. M. A. R., Van den Bosh, F. A. J., and Van Riel, C. B. 2002.

Quinn, D. and Jones T. 1995. A realtor morality look at of organization policy,

Schools of Management Review, 20(1), 22–42.

Sethi, S. G. 1995. Introduction of AMR's special subject form on shifting

paradigms: Societal anticipations and corporate overall performance, Academy of Management Assessment, 20(1): 18 – twenty-one.

Shankman, And. 1999. Reframing the controversy between company and stakeholder theories from the firm. Record of Business Ethics, 19(4): 319–334.

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