Ethical Aspects in The Separation of Ownership and Control in Enron Company
Abstract
This case study report investigates the ethical aspects in the separation of ownership and control in Enron Company on the basis of agency theory. The report discovers that ethical issues of Enron have originated mostly because of the merging of its agential and principal branches. That allowed the CEO and board of directors’ chairman, Kenneth Lay, to gain full control over the company and exploit his authority to gain personal benefits at shareholders cost. Within the framework of stewardship theory, Lay also used his reputation and the brand of the company to conceal the fraud and maintain his influence of Enron. All these business ethic violations harmed the shareholders and, eventually, collapsed the company. The report suggests that ethical issues in the separation of ownership and control in Enron could be resolved by introducing more outside directors into the board. Another effective solution might be minimizing Kay’s influence on the company via designation of the new chairman of the board of directors’. However, all these measures could only prevent the aftermaths of ethic’s violation.
Table of Contents
Ethical aspects in the separation of ownership and control in Enron Company4
Introduction4
Analysis4
Goals of Principals and Agents5
Principals’ Control of Agents6
Recommendations7
Conclusion9
Ethical aspects in the separation of ownership and control in Enron Company
Introduction
The modern structure of business presents the stubborn challenge to the parties involves in governing. Top managers make many crucial decisions of how the business should develop and operate. At the time, shareholders, equity holders and other people who own the business are the first who incur risks associated with managerial decisions. Even though the law and ethic attach the liability for their conducts to officers and employees (Wells 2001), owners risk losing all of their investment in case of management failure. Therefore, one may assume that the owners may try to keep a weather eye on the company, as well as maximize their influence on the enterprise via voting conduits. However, riskless managers potentially have greater expertise in business than owners obtain, which complements the issue of ownership and control separation.
Enron Public Corporation case is the vivid example of how much impact ethical issues of ownership and management can have. This American energetic and telecommunication company bankrupted in 2001, which was a result of problems that lasted for a long time (Culpan & Trussel, 2005), but have been concealed by the top management (Sims & Brinkmann, 2003). Hence, shareholders incurred massive losses, and the entire company was ruined. The following is the case study report of Enron Public Corporation which analyzes the ethical aspects in the separation of ownership and control and gives a recommendation of how the ethical issues might have been resolved.
Analysis
The study of Enron’s case requires a precise theoretical framework as far as the story of this corporation contains numerous sophisticated challenges. First of all, the stakeholders received little or no reimbursement after the bankruptcy as Enron had to pay its creditor first (Axtman 2005). …
