Enron Article

Business and Society Review 110:1 59– 76

CULPAN BUSINESS O 1 2004 Publishing, Review 110 © riginal Article 0045-3609 Business and SocietyLtd. BASR UK and SOCIETY Oxford, Center for Business Ethics at Blackwell and TRUSSEL REVIEW Bentley College

Applying the Agency and Stakeholder Theories to the Enron Debacle: An Ethical Perspective

REFIK CULPAN AND JOHN TRUSSEL

INTRODUCTION

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 unethical managerial behavior in light of the agency and stakeholder theories. The Enron case is important for a number of reasons. It was one of the largest bankruptcy cases in U.S. business history. In 2001, it was the fifth largest company on the Fortune 500, and the market leader in energy production, distribution, and trading. Despite Enron’s rating as “the most admired company” six years in a row by Fortune magazine, many shareholders and employees experienced considerable losses. The case shows how the outside auditing firm likely cooperated with Enron’s leadership in covering up in wrongdoings in a complex network of partnerships. Meanwhile, the government agencies and investment brokers failed to catch the financial

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Refik Culpan is a professor of Management and International Business, and John Trussel is an associate professor of Professional Accountancy, both at the Pennsylvania State University at Harrisburg.

© 2005 Center for Business Ethics at Bentley College. Published by Blackwell Publishing, 350 Main Street, Malden, MA 02148, USA, and 9600 Garsington Road, Oxford OX4 2DQ, UK.

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BUSINESS AND SOCIETY REVIEW

FIGURE 1 Enron’s Financial Growth

conspiracy at the company or to warn the public about...