英国assignment指导：职业道德与治理

英国assignment指导：职业道德与治理
Professional Ethics and Governance

Executive Summary执行概要

本报告的目的是通过讨论的经典案例“安然丑闻”进行审查和评价的单位一些议题的认识和了解。通过个案研究，我们可以得到一个深层次的理解的职业道德和治理。主要内容如下：安然公司的企业文化和领导的理念，使所有员工在安然的自我感兴趣和决策。安徒生亚瑟并没有保持其业务的独立性，在其与安然公司的业务中，因为该公司一直接受来自安然的大量咨询顾问费。安然公司，曾经在纽约证券交易所挂牌上市，是美国的能源商品和服务的公司。它的前身是北方天然气公司成立于1932年，在内布拉斯加州奥马哈市。 1979年，该公司被重组为一家控股公司的主要附属在米兰是一个多元化的能源和能源相关产品的公司。其破产前，拥有约20,000名员工，声称收入在2000年连续6年约为111亿的收入，它被命名为财富“美国最具创新精神公司”

This report is intended to review and evaluate knowledge and understanding of some topics in the unit by discussing the classical case ‘Enron Scandal’. By means of case study, we can acquire a deep comprehension of Professional Ethics and Governance. The primary contents is as follows: Enron’s corporate culture and the notion from the leadership drove the self-interested decision making among all the staff at Enron. Arthur Andersen didn’t maintain its professional independence in its dealings with Enronbecause the firm was receiving large quantities of consultancy fees from Enron. According to Kohlberg’s theory of cognitive moral reasoning and development which consists of three levels, 2 stages in each level, Jeff Skilling is at stage 3 because of this Enron-centered thought, Ken Lay is at stage 2 because of this self-centered thought and Sherron Watkins is at stage 6 because of his public-centered thought.   

1.0 Introduction 简介

Enron Corporation, once listed on the New York Stock Exchange, was an American energy, commodities and services company. Its predecessor was the Northern Natural Gas Companywhich was established in 1932, in Omaha, Nebraska. In 1979,this company was reorganized as the main subsidiary of a holding company, InterNorthwhich was a diversified energy and energy related products company.  Before its bankruptcy, it owned about 20,000 employees with claimed revenues of approximately ﹩111 billion in the year 2000. For 6 consecutive years, it was named by Fortune ‘America’s Most Innovative Company’ (Wikipedia, 2014a). 

Arthur Andersen, the pioneering accounting services firm was established in Chicago in 1913 by a Northwestern University professor, Arthur Andersen, and his partner called Clarence DeLany (Wikipedia, 2014c). At the beginning, it offered customers assistance with new federal income taxes and many other relative accounting issues. During the 1920s, it opened another 6 subsidiary  offices in Americaand its annual billings climbed dramatically up to ﹩2 million. Between 1947 and 1973, Andersen's client base rose from 2,300 to 50,000, and the Chicago office’s employees increased from about 250 to more than 1,500. Expansion continued in the period of the late twentieth century, as the company became more and more international and created a fast-growing management consulting division. In 1989, it separated into consulting group and accounting group andthese two units wereboth controlled by Arthur Andersen & Co., S.C.

What makes Enron Corporation and Arthur Andersen famous all over the world is not only their enormous success but also the ‘Enron Scandal’ which happened on December 2, 2001. At the end of 2001, it was revealed that its reported financial condition was sustained by an institutionalized, systematic, and creatively planned accounting fraud. Since then, Enron has became a well-known example of willful firm fraud and corruption. The scandal also affected the greater business world by leading to the dissolution of the Arthur Andersen accounting company.At the same time, the scandal brought the accounting practices and activities of many corporations in the United States into question.

From then, there have been a mass of researches on the causes of this event from different points of view, such as corporate culture, ethics, independence, SPE, market-to-market and so on. Despite of substantial studies on this scandal, in order to fully understand the theory of ‘Professional Ethics and Governance’, it is still necessary to discuss this event in person. This report will analyze this case by answering 3 questions and apply the knowledge of corporate governance scandals and the need to restore public trust, moral reasoning and ethical decision making, professional independence and the codes of ethics and the theories of ethics.

2.0the corporate culture at Enron and its management’s behavior 企业文化及其管理层的行为

2.1The normative theory of ethics

The normative (or prescriptive) theories of ethics describe what people ought to be or what should one do by offering some theoretical underpinning as a basis for us to make decision, create and evaluate moral standards. The main reason for learning the normative theory of ethics is the complexity in business. In business we are driven by many competing forces, like the need to make profits versus the need to consider the impact of how those profits are gotten. Under this condition, The normative theory of ethics can serve as the criteria for judging the moral rightness of an action and provide a structured approach to resolving ethical dilemmas. What’s more, Awareness of a range of ethical theories provides alternative approaches to analyzinga situation with moral implications, making an ethical outcome more likely.

Normative theories can be divided into 3 different categories: Consequential (teleology), Non-consequential (deontology) and Agent-centered theories.

Consequential theories of ethicsdistinguish right from wrong on the basis of results of the action or decision. That means if the benefits exceed the costs, the decision is defined as morally correct. Key examples of consequential theories are Ethical Egoism and Utilitarianism, which are based on from whose perspective the consequences should be evaluated.

Non-Consequential theories of ethics determinerightfrom wrong not by its consequences, but by its intrinsic value. Most known examples are rights and justice theories.

Agent-centered theories focus on the kind of person we should be rather than the rules that people should follow. It was constituted by virtue ethics and ethics of care.

However, every normative theory has strengthens and weaknesses and no one normative theory is superior over another one. What matters is how we can better utilize them.

2.2Definition of corporate culture and its effects 

According to the March 2008 issue of “T+D” journal, corporateculture or organizational culture is defined as a type of social system that consists of groups who share similar interests, values and norms. Values and norms can be based on professional similarities, religious similarities or philosophical similarities.

Corporate culture can influence many features of an organization, such as organizational behaviors. By having a cultural system that supports like-mindedstuff, it is possible for the behaviors and conduct of those employees to run the show at the company, or spread their culture out among the organization. Eventually, this can impact the firm’s appearance, image, professionalism and performance.

2.3Corporate culture and Management’s behavior at Enron

In view of corporate culture and management’s behavior at Enron, we can make sure thatthe normative theory of ethics that most relevant in driving the decision making at Enronis Egoism. Related analyses are as follows:

Enron has been described as having a culture of arrogance that led people to believe that they could handle increasingly greater risk without encountering any danger. According to Sherron Watkins, “Enron’s unspoken message was, ‘Make the numbers, make the numbers, make the numbers—if you steal, if you cheat, just don’t get caught. If you do, beg for a second chance, and you’ll get one.’” Enron’s corporate culture did little to promote the values of respect and integrity. These values were undermined through the company’s emphasis on decentralization, its employee performance appraisals, and its compensation program(Sims and Brinkmann, 2003). 

Each Enron division and business unit was kept separate from the others, and as a result very few people in the organization had a “big picture” perspective of the company’s operations (Rockness, and Rockness,2005). Accompanying this emphasis on decentralization were insufficient operational and financial controls as well as “a distracted, hands-off chairman, a compliant board of directors, and an impotent staff of accountants, auditors, and lawyers.” 

Jeff Skilling implemented a very rigorous and threatening performance evaluation process for all Enron employees. Known as “rank and yank,” the annual process utilized peer evaluations, and each of the company’s divisions was arbitrarily forced to fire the lowest ranking one-fifth of its employees. Employees frequently ranked their peers lower in order to enhance their own positions in the company. 

Enron’s compensation plan “seemed oriented toward enriching executives rather than generating profits for shareholders” and encouraged people to break rules and inflate the value of contracts even though no actual cash was generated. Enron’s bonus program encouraged the use of non-standard accounting practices and the inflated valuation of deals on the company’s books. Indeed, deal inflation became widespread within the company as partnerships were created solely to hide losses and avoid the consequences of owning up to problems (Sims and Brinkmann, 2003).#p#分页标题#e#

3.0Professional independence专业独立性

3.1Principles of accounting profession

An orientation toward the community rather than self-interest is fundamental to the role of a profession. Members of the accounting profession have a responsibility to act in the public interest. In doing so, members shall observe and comply with the fundamental principles in the Code:

1) Integrity, one ought to be straightforward, honest, sincere and using one’s convictions to withstand pressure from significant others. This principle creates an obligation to report, advice and communicate information in an open manner with clear andunambiguous language to avoid misunderstanding or confusion. 

2) Objectivity, Professional advisers have an obligation to offer guidance free from external direction or influence.

3) Independence, Independence is achieved when the member avoids situations or relationships that impair objectivity or create personal bias which could influence delicate judgments, even subconsciously.

4) Confidentiality, Clients and employers who own the information provided to professionals have a right to expect that their adviser will not reveal their affairs to third parties. However, disclosure is permitted when is required by law, for example, to produce documents or to give evidence in legal proceedings, professional duties such as compliance with mandatory technical or ethical requirements, orresponse to a formal investigation by the professional association.

5) Competence, The attainment and maintenance of a level of knowledge that enables professionals to render services with expertise to ensure client and employer receive the advantages of a competent service.

6) Due care, quest for excellence centered on performing services to the best of one’s ability, requirements for the timely fulfillment of commitments through planning and supervision and observation of the legal, professional and ethical standards relevant to their work (compliance).

7) Professional behavior, it is a general catch-all principle reflecting behaviors that demonstrate exemplary professional conduct. Professional behavior requires members to enhance and maintain the profession’s public image and its ability to serve the public interest , behave with dignity by showing respect and courtesy to clients (and others) , comply with appropriate rules, regulations and professional requirements and avoid irresponsibility and refrain from any conduct which might bring discredit to their profession.

3.2Definition of independence

It was without any clear explanation of what independence actually entails, what it means as an operational concept in the context of commercial affairs, without any serious debate regarding why it was such an important characteristic, or how it might best be manifested in the ordinary course of corporate affairs( Michael , 2005).

An independent auditor is one who forms judgments solely, or primarily, upon on the basis if the evidence presented, one who is not influenced by other than that evidence.

Threats to independence

1) Self-interest threats, which may occur as a result of the financial or other interests of a Member or of an Immediate or Close Family member.

2) Advocacy threats, which may occur when a Member promotes a position or opinion to the point that subsequent objectivity, may be compromised. 

3) Familiarity threats, which may occur when, because of a close relationship, a Member becomes too sympathetic to the interests of others.

4) Intimidation threats, which may occur when a Member may be deterred from acting objectively by threats, actual or perceived( Michael , 2005).

Arthur Andersen’s lack of independence in Enron case

Anderson’s audit independence was necessarily compromised because the firm was receiving consultancy fees from Enron. Those fees were large that it became vital factor in the firm deciding to keep Enron as a client.

Anderson lacked independence rests upon the fact that he offered non-audit and audit services to the same client.Assisting Enron’s income management, through its use of the mark- to- market model mechanism and keeping liabilities off its balance sheet through its use of SPEs, appear to underpin the fact that Anderson lacked independence.Anderson had been accused that the large consultancy fees influenced its judgments on how it viewed Enron’s accounting practices, the structure of its business and how it account for the outcomes.

Long-term employment relationship between Anderson and Enron as well as some former staff and partners of Anderson entered Enron’s management, indicating that the independence has beenimpaired (Fearnley and Beattie, 2004).

3.3Influence of Enron scandal on audit independence 

Independence is the foundation for this CPA. What is independence, how to maintain independence, independence and the independence of the formal essence what relationship and other issues, the CPA profession has been controversial .After Enron, the entire CPA profession has a new understanding of the independence, independence is not maintained, the industry would be difficult to survive, not only to remain independent in substance, form must remain independent. Enron reminds us that independence is the soul of Certified Public Accountants. CPA principle of independence is the most basic code of ethics principles, principles of justice and is also an objective basis for other professional ethics. Thus, independence is a Certified Public Accountant to win the trust of society premise. Lack of independence, the reliability of its audit quality will lose the basis of existence (Dahlia Robinson, 2008). The CPA profession has lost the meaning of existence. Now some of the large international accounting firms to audit business initiative and consulting business separate from , the United States introduced a new "public companies Reform and Investor Protection Act " is also clearly defined for audit clients , there are nine kinds of non- audit services are not allowed to do , its purpose is to maintain the independence of the industry

4.0Kohlberg’s theory 科尔伯格的理论
4.1Definition of moral reasoning

Moral reasoning is concerned with the process (how and why) that individuals follow in making decisions with ethical implications.

Moral development

There are three levels of moral development. Two stages within each level: total of 6 stages

Level 1. Preconventional Morality

Stage 1 - Obedience and Punishment

The earliest stage of moral development is especially common in young children, but adults are also capable of expressing this type of reasoning. At this stage, people see rules as fixed and absolute. Obeying the rules is important because it is a means to avoid punishment.

Stage 2 - Individualism and Exchange

At this stage of moral development, people account for individual points of view and judge actions based on how they serve individual needs. In the Heinz dilemma, people argued that the best course of action was the choice that best-served Heinz’s needs. Reciprocity is possible at this point in moral development, but only if it serves one's own interests.

Level 2. Conventional Morality

Stage 3 - Interpersonal Relationships

Often referred to as the "good boy-good girl" orientation, this stage of moral development is focused on living up to social expectations and roles. There is an emphasis on conformity, being "nice," and consideration of how choices influence relationships.

Stage 4 - Maintaining Social Order

At this stage of moral development, people begin to consider society as a whole when making judgments. The focus is on maintaining law and order by following the rules, doing one’s duty and respecting authority.

Level 3. Postconventional Morality

Stage 5 - Social Contract and Individual Rights

At this stage, people begin to account for the differing values, opinions, and beliefs of other people. Rules of law are important for maintaining a society, but members of the society should agree upon these standards.

Stage 6 - Universal Principles

Kohlberg’s final level of moral reasoning is based upon universal ethical principles and abstract reasoning. At this stage, people follow these internalized principles of justice, even if they conflict with laws and rules (Kohlberg, 1973).

4.2Jeff Skilling- stage 3 

Jeffrey Keith "Jeff" Skilling (born November 25, 1953) is the former CEO of the Enron Corporation, headquartered in Houston, Texas. In 2006, he was convicted of multiple federal felony charges relating to Enron's financial collapse, and is currently serving 14 years of a 24-year, four-month prison.The government prosecuted Skilling under the statute that makes it illegal Kirkendall says the goal of this law was to punish executives for accepting bribes at the expense of their employer. Skilling, on the other hand, only had Enron's best interests at heart, according to Kirkendall. From his blog:#p#分页标题#e#

"The Task Force faced a big problem with prosecuting Skilling at all because he never stole a dime from Enron (that is, no private gain). In fact, the Task Force conceded at trial that, not only did Skilling not embezzle any money from Enron, the case against him was not about “greed,” that Skilling always sought to pursue Enron’s “best interests,” and that every act for which he was being prosecuted was undertaken for the purpose of protecting Enron and promoting its share price."While a federal appeals court in New Orleans upheld that conviction in 2009, it found his sentence was too harsh and prosecutors might have been guilty of misconduct(Business Insider, 2013). 

According to Kohlberg’s theory of cognitive moral reasoning and development, we can judge that he is at the stage 3. Person at stage 3 is motivated to conform to the norms and needs of the group. A good decision is defined as one which pleases or helps the members of the group. what Skillingdid is to pursue Enron’s “best interests” and make profits for this company to benefit shareholders and employees. He never stole a dime from Enron (that is, no private gain).

4.3Ken Lay -stage 2

Kenneth Lee "Ken" Lay (April 15, 1942 – July 5, 2006) was an Americanbusinessman. He played a leading role in the corruption scandal that led to the downfall of Enron Corporation. Lay and Enron became synonymous with corporate abuse and accounting fraud when the scandal broke in 2001. Lay was the CEO and chairman of Enron from 1985 until his resignation on January 23, 2002, except for a few months in 2000 when he was chairman and Jeffrey Skilling was chief executive officer (CEO).

From the survey, we know that Lay liquidated more than $300 million in Enron stock from 1998 to 2001, mostly in stock options.  Lay dumped large amounts of his Enron stock in September and October 2001 as its price fell, while encouraging employees to buy more stock, telling them the company would rebound. His cheat caused large losses of employees’ money. What he did is to obtain his own interest regardless of the interest of the public. What’s more, his management and illegal business behavior leaded to Enron's collapse which wiped out more than $2bn in employee pensions, $60bn in Enron stock and cost thousands their jobs (the guardian, 2013).

According to Kohlberg’s theory of cognitive moral reasoning and development, we can judge that he is at the stage 2. Person at stage 2 is motivated to pursue his self-interest. An action isconsidered ethical if the benefits to the decision-maker exceed the costs (Gilligan, 1982).4.4Sherron Watkins-stage 6

Sherron Watkins (born August 28, 1959) was Vice President of Corporate Development at the Enron Corporation. She is considered by many to be the whistleblower who helped to uncover the Enron scandal in 2001.

In August 2001, Watkins blew the whistle internally by alerting then-Enron CEO Kenneth Lay of accounting irregularities in financial reports. However, Watkins has been criticized for not speaking up publicly sooner about her concerns, as her memo did not reach the public until five months after it was written.However, she has testified before Congressional Committees from the House and Senate investigating Enron's demise (Wikipedia, 2014b).She became the most important witness in congressional investigation. Because of her courage to expose company wrongdoing, and thus won the respect of the whole Americans.

According to Kohlberg’s theory of cognitive moral reasoning and development, we can judge that she is at the stage 6. Because her moral decisions are independent and based on ethical principles (justice, duties and human rights)without influence from authority, rules, consequences or the group.

5.0Conclusion and recommendations结论及建议

Enron’s corporate culture did little to promote the values of respect and integrity. These values were undermined through the company’s emphasis on decentralization, its employee performance appraisals, and its compensation program. So we can make sure thatthe normative theory of ethics that most relevant in driving the decision making at Enron is Egoism.

Anderson’s audit independence was necessarily compromised because the firm was receiving consultancy fees from Enron. Those fees were large that it became vital factor in the firm deciding to keep Enron as a client.

According to Kohlberg’s theory of cognitive moral reasoning and development, Jeff Skilling is at stage 3 because even though his management leaded to collapse of Enron, what he did was for the purpose of protecting Enron and promoting its share. Ken Lay is at stage2 because was motivated to pursue his self-interest, even at the cost of this employees and by means of cheating his employees and share holders. Sherron Watkins is at stage 6 because although she has been criticized for not speaking up publicly sooner about her concerns, she has testified before Congressional Committees from the House and Senate investigating Enron's demise and became the most important witness in congressional investigation.

There are some enlightenment we can get from Enron scandal and what have been talked about, following enlightenments are taken as example:

1. Honesty is the important factor to ensure the healthy development of the market economy.

2. Some reform measures stimulating, if there is no corresponding legal regime to regulate them, then this reform measures will inevitably have a negative effect.

3. Independence is the foundation for this CPA. What is independence, how to maintain independence, independence and the independence of the formal essence what relationship and other issues, the CPA profession has been controversial.

4. Correct attitude should be made toward the scandal of securities. Since market Securities market is very complex, some problems are inevitable, and the most important is how to solve these problems.

6.0References文献

 

Business Insider (2013) LAWYER: It's 'Preposterous' Former Enron CEO Jeff Skilling Spent A Day In Jail. Available at: eff-skilling-early-release-2013-4 (Accessed: 5April 2013).

Dahlia Robinson (2008) Auditor Independence and Auditor-Provided Tax Service: Evidence from Going-Concern Audit Opinions Prior to Bankruptcy Filings. AUDITING: A Journal of Practice & Theory: November 2008, Vol. 27, No. 2, pp. 31-54.

Fearnley, S., & Beattie, V. (2004). The Reform of the UK's Auditor Independence Framework after the Enron Collapse: An Example of Evidence‐based Policy Making. International Journal of Auditing, 8(2), 117-138.

Gilligan, Carol (1982). In a Different Voice: Women's Conceptions of Self and Morality. Harvard Educational Review 47 (4).

Kohlberg, L. (1973). The Claim to Moral Adequacy of a Highest Stage of Moral Judgment. Journal of Philosophy, 70(18), 630–646.

Michael K. Shaub (2005), THE IMPACT OF THE SARBANES-OXLEY ACT ON THREATS TO AUDITOR INDEPENDENCE, in Cynthia Jeffrey (ed.) Research on Professional Responsibility and Ethics in Accounting (Research on Professional Responsibility and Ethics in Accounting, Volume 10) Emerald Group Publishing Limited, pp.123 – 138

Rockness, H., & Rockness, J. (2005). Legislated ethics: From Enron to Sarbanes-Oxley, the impact on corporate America. Journal of Business Ethics, 57(1), 31-54.

Sims, R. R., & Brinkmann, J. (2003). Enron ethics (or: culture matters more than codes). Journal of Business ethics, 45(3), 243-256.

The guardian (2013) Enron's Jeffrey Skilling sees jail sentence reduced to 14 years. Available at: http://en.wikipedia.org/wiki/Enron (Accessed: 21June 2013).

Wikipedia (2014a) Enron. Available at: (Accessed: 5 September 2014).

Wikipedia (2014b) Enron. Available at:  (Accessed: 28 August 2014).

Wikipedia (2014c) Arthur Andersen. Available at:  (Accessed: 14 July 2014).