Agency And Stakeholder Theories To The Enron Debacle

6344 Words May 4th, 2015 26 Pages
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 defining its theoretical underpinnings and analyzing the unethical conduct by top executives at the company in the areas of accounting, finance, 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 financial 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 difficult 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 firms.
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 first commodity transactions

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