Business and Society Assessment 110: one particular 59– 76
Applying the Agency and
Stakeholder Hypotheses to
the Enron Hecatombe: An Moral
Values at The bentley College
REFIK CULPAN AND JOHN TRUSSEL
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.
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
DESK 1 Enron's Financial Percentages
1 . 06
0. forty two
Days to sell inventory
1 ) 71
Days and nights to collect receivables 31. 41
Times interest attained
1 . forty one
0. seventy six
Come back on resources
performance Come back on value
2 . 11%
Gross proﬁt margin
Net proﬁt margin
three or more. 16
installment payments on your 74
2 . 66%
2 . 25%
1 . 88
1 ) 07
1 . 07
installment payments on your 95
installment payments on your 49
three or more. 04
2 . 96
2 . 85% 1 . 98%
twelve. 75% on the lookout for. 31%
13. 34% 6. 22%
installment payments on your 23% 0. 97%
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.