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ENRON

Ethical Theories of Leadership In the following paragraphs two ethical frameworks will be utilized to help explain what was missing in the leadership at Enron that allowed its particular culture to develop. From an ethical perspective, one need look no further than the tradition of ethical egoism to help explain how and why a culture of narcissism emerged within Enron. According to Pojman (2006), ethical egoism is loosely defined as, the doctrine that it is morally right always to seek ones own self-interest (p. 81). Within the broad parameters provided by that definition, Pojman argues that there are roughly four different types of ethical egoism: psychological egoism, personal egoism, individual egoism, and universal ethical egoism (pp. 81-82). Of the four kinds of egoism proposed by Pojman, universal ethical egoism most closely aligns itself with how Enrons culture developed. The theoretical basis for universal ethical egoism consists of, a theory that everyone ought always to serve his or her own self-interest. That is, everyone ought to do what will maximize ones own expected utility or bring about ones own happiness, even when it means harming others (p. 87). In order to become theoretically grounded, universal ethical egoism makes use of a sophisticated argument that consists of individuals giving up their short-term interests in pursuit of long-term ones. At the core of the argument lies the concept that everyone is encouraged to seek their own self-interest, however, in order to do so, some compromises are necessary. This type of rationalized self-interest forms the basis of the universality of ethical egoism and helps to conceptualize, at least from an egoist perspective, the basic foundations of Hobbesian liberty. Remarkably, the leaders at Enron (i.e. Lay, Skilling, Mark, et. all) were all complicit in the propositioning of this inimitable form of ethical egoism. They surmised that the short-term compromises promulgating the long-term development of selfinterest within the companys organizational culture were indeed derivative of ethical corporate behavior. At Enron, the pursuit of rationalized self-interest was taken to such an extent that the concept of compromise, even at the expense of other ethical considerations like integrity, became nomenclature for how to do ethical business in a capitalistically based free market economy. The effect of leaderships validation of this type of business philosophy was the development of a narcissistic corporate culture. In an article by Gini (2004), business ethicist and accountant John Dobson comments that in this way, Ethical guidelines are viewed in the same way as legal or accounting rules: they are constraints to be,

wherever possible, circumvented or just plain ignored in the pursuit of selfinterest, or in the pursuit of the misconceived interests of the organization (p. 2). The overt application of the universal ethical egoistic framework subverted any attempts within Enrons organizational structure to maintain other ethical principles or the integrity of accountability systems of management such as the Peer Review Committee (PRC). Self-interest and ethical compromise provided the platform for Enrons leaders and employees to justify behavior like the PRCs policy of rank and yank that should not have been condoned. As mentioned above, integrity was a non-factor and a complete missing link for leadership when it came to establishing a bottom line for subordinates, a bottom line based solely on profit maximization and performance increase in the market share value of the company. Without an honest system of accountability or practiced standard of ethics in place within the leadership hierarchy at Enron, group members fell prey to a culturally reinforced mentality of serving their own rationalized self-interests at the expense of the overall health of the company and its shareholders. Another ethical perspective from which one may view the development of the culture at Enron is from the framework provided by mixed deontological ethics. The architect of mixed deontology was the University of Michigan philosopher William Frankena. In Frankenas philosophical model, the opposing systems of teleology and deontology were reconciled through the principles of beneficence and justice (Pojman, 2006, p. 150). According to the first principle, human beings were to strive to do good without demanding that there be a measurement or weight put on good and evil. Frankena further provided four subprinciples arranged hierarchically to help explain the principle of beneficence: 1. One ought not to inflict evil or harm. 2. One ought to prevent evil or harm. 3. One ought to remove evil. 4. One ought to do or promote good. The second principle in Frankenas system of mixed deontology is the principle of justice (Pojman, p. 150). In the words of Pojman (2006), the principle of justice, involves treating every person with equal respect because that is what each is duethere is always a presumption of equal treatment, unless a strong case can be made for overriding this principle (p. 150). Of the two fundamental principles, the principle of justice is considered a priori within the Frankenaian system. Although Frankenas innovative approach provides fertile territory for the reconciliation of the competing systems of utilitarianism and deontological ethics, one major criticism of the theory rests with how one adjudicates between the

two principles amidst a moral conflict or ethical dilemma. In response to this criticism, Frankena offered an intuitive approach to resolving moral conflict and competition between the principles of beneficence and justice. Pojman states (2006), We need to use our intuition whenever the two rules conflict in such a way as to leave us undecided on whether beneficence should override justice (p. 151). In the case of Enron and its cultural development as an organization it seems that the principles of beneficence and justice were neither in conflict nor markedly present despite the companys robust motto of, Respect, Integrity, Communication, and Excellence, and vision and values statement of, We treat others as we would like to be treated ourselvesWe do not tolerate abusive or disrespectful treatment. Ruthlessness, callousness and arrogance dont belong here (Ruined by Enron, 2002). Enrons leadership simply did not live out the ethics they claimed to have valued. Not surprisingly, this disconnect between words and action developed into a major cultural problem for leadership within the organization. In reference to ethical corporate leadership, Roger Leeds, the Director of the Center for International Business and Public Policy at the Paul H. Nitze School of Advanced International Studies at Johns Hopkins University, states that, These are the individuals who set the behavioral tone for their legions of employeesTheir personal behavior ultimately defines the ethical culture for everyone in the company and they inflict untold damage when they fail to recognize the enormity of this responsibility (pp. 78-79). Overall, the ways in which Enrons leaders responded to the kind of moral conflict alluded to in Frankenas hybrid system of mixed deontological ethics helped to define the cultural atmosphere at Enron. Considering the complete absence of the leadership trait of integrity in Skilling, the abuse of transformational and charismatic leadership by Lay and Mark, the overindulgence of rationalized selfinterest and universal ethical egoism on the part of the traders, and the lack of either a utilitarian or a deontological system of practiced ethics at Arthur Anderson, it should come as no surprise that an organizational culture deeply rooted in narcissism developed at Enron. The corporate behavior engendered from this kind of cultural environment compromised the long term health of the company and eventually led to Enrons demise. In the following paragraphs the paper will examine the United States Congress policy response to the implosion of Enron as well as identify and apply two policy theories to help explain whether

or not the legislative response in dealing with the development of this kind of corporate culture was effective.