Enron and Madoff investment corporations’ downfall resulted from their failure to observe business code of ethics. Their greed, improper transactions, lack of transparency and integrity, and poor reputation are some of the unethical features of the corporations. Therefore, it is vital that all the organizations that aim at excelling in their operations observe the standard code of ethics.
Enron Corporation is an American-based company that dealt in services, commodities and energy. Enron financial changed when it entered in a risky and volatile financial transaction. Upon its venture to the new markets, the company’s stock rose rapidly. Therefore, the collapse occurred after the investors’ realization of the ‘off-balance-sheet’ (Niskanen, 2007). These balance sheets had hidden liabilities worth billions of dollars. Additionally, Enron’s executives engaged in sham operations that entailed use of the investors’ money to satisfy their personal needs and interests.
As a result of too much borrowing from other corporations, the company recorded heavy debts. It also engaged in giving wrong financial statements; hence posing many questions on audit firms’ credibility. Another financial issue relating to the company’s collapse is the improper accounting transactions recorded by the company in collaboration with its independent auditor, Andersen Arthur (Cragg, 2005). Therefore, all these financial challenges finally led to its bankruptcy and its eventual collapse.
On the other hand, Madoff investment securities had its share of financial issues that eventually led to its downfall. Founded by Bernie Madoff, the company is recorded to have committed the greatest financial fraud in history. The founder is said to have engaged in a financial fraud that entailed defrauding of its investors of billions of dollars that resulted from changing the business into a Ponzi scheme. Consequently, many investors and shareholders lost a lot of money to the company (Sarna, 2010).
It is reported that the founder ran a private and secretive financial management different form the main business. Therefore, he took advantage of the new, unwitting investors and used their cash to pay clients that wanted to redeem their shares. Subsequently, the company failed to disclose its financial statements to the Securities and Exchange Commission (SEC). In addition, the founder did not allow any external auditor with an aim of keeping his business very confidential (Niskanen, 2007). This way, Bernie Madoff kept the company going; hence giving out an impression that all was going on well.
For every business firm to run smoothly and achieve its objectives, it is vital that it observes ethical codes during its operations (Cragg, 2005). Failure to operate ethically, an institution is bound to go bankrupt and thus collapse. Just like in Enron and Madoff investment companies, a lot of financial challenges occurred to the management’s failure to observe ethical standards. Integrity, transparency and social responsibility are highly indispensable issues in any organization that aims at excellent performance.
Enron and Madoff’s Collapse
Enron and Madoff’s corporations collapsed due to the executives’ unethical operations. All the investment companies should know that customers and shareholders are entitled to quality services, protection, transparency, information and integrity (Niskanen, 2007). Failure to adhere to the business ethical standards in such corporations leads to loss of customers, betrayal of customers’ trust, bankruptcy, loss of good reputation, and collapsing. This is because the public is always keen on that and will not let it remain uncovered. Therefore, it is imperative that such companies uphold ethical standards in order to retain customers and improved its business performance.
Business ethical codes are essential for any fruitful operation. Business ethics involve upholding moral uprightness in handling other people’s money. Investment companies ought to adhere to the ethical codes in order to maintain their reputation, performance, and investors. An ethical management is typical of transparency, social responsibility, integrity, and protection of the customers. According to Madoff’s case, it is explicit that he did not value ethical values in his dealings with clients. That is why cheating became one of his strategies to enrich himself at the expense of the stakeholders (Cragg, 2005).
Madoff’s act of using the customers’ cash to pay those that demanded their holdings was unethical as it indicates his greed for money. Moreover, his failure to disclose the financial reports was unbecoming as he betrayed his clients and thus gained a bad reputation. Besides, his failure to protect his shareholders, exercise integrity and transparency resulted in the company’s downfall. Madoff failed to take his social responsibility of protecting and assuring his clients about their holding’s safety (Sarna, 2010). Explicitly, Madoff held different ethical views from the standard ones.
On the other hand, Enron also seemed to have contradicting ethical views from the expected ones. Its act of cheating the shareholders is a criminal offence as it led to people losing their lifetime savings. This way, it failed to assure the investors about their security and quality services. Moreover, the company’s executive did not uphold integrity in their dealings as it gave false financial statements to the authorities in order to make things appear normal. Besides, the managers utilized the clients’ money to gain their personal interests at the expense of the clients (Niskanen, 2007).
What is more, the company failed to observe the ethical standards by display lack of integrity and transparency in their operations (Cragg, 2005). This was evident in the way they carried out improper accounting deals that led to the company’s overstocking. Its entry to the new markets and improper transactions led to bankruptcy. In turn, the company lost its customers’ trust and confidence. Therefore, it collapsed due to loss of customers and injured reputation.
In conclusion, Enron and Madoff investment corporations collapsed in their operations due to failure to observe business code of ethics. Their greed, improper accounting transactions, lack of transparency and integrity, and poor reputation are some of the unethical features of the corporations. Therefore, it is critical that all the organizations that aim at excelling in their operations observe the standard code of ethics.