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Evaluate Business Conduct in the Clothing, Textile and Footwear Industries Using Three Ethical Principles of the Global Business Standards Codex.

Essay by   •  October 11, 2016  •  Research Paper  •  1,277 Words (6 Pages)  •  559 Views

Essay Preview: Evaluate Business Conduct in the Clothing, Textile and Footwear Industries Using Three Ethical Principles of the Global Business Standards Codex.

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Enron was once ranked the sixth largest energy company in the world. Before Enron’s collapse it marketed electricity and natural gas, delivered energy and other physical commodities, and provided financial and risk management services to customers around the world. Former Enron CEO Jeffrey K. Skilling and ex-Enron CFO Andrew S. Fastow produced ideas that led to problems that resulted in Enron’s collapse. The collapse of Enron occurred through the violation of the principles of the Global Business Standards. The management practices at Enron breached three key principles of the Global Business Standards Codex, fiduciary, property and transparency. Due to the unethical conduct, Enron initiated a conflict of interest between the company’s leaders and examiners in order to have cheated the corporation’s earnings for their sake leading to its downfall.

The management practices at Enron have violated the Fiduciary Principle of the Global Business Standards Codex. The Fiduciary Principle requires its user to carry out the company’s business in an attentive and faithful way expected of a trustee. One of the many key concepts of the Fiduciary Principle that Enron broke states that a fiduciary must ‘safeguard the company’s resources and ensure their prudent and effective use’ (Paine et al 2005, p. 125). Enron have violated this concept by placing its assets off the balance sheet and into complicated off-the-book corporations or Special Purpose Entities (SPEs) (Petrick & Scherer 2003). To prevent this Enron shouldn’t have relocated the assets of the balance sheet into off-the-book partnerships. Enron should ‘expand the scope of managerial fiduciary duties to include institutionalized stakeholder democratic participation in corporate governance’ (Petrick & Scherer, p. 42). Enron has violated one of the key concepts of Fiduciary Principle of the Global Business Standards Codex by removing assets of the balance sheet and placing them elsewhere, therefore using company’s resources wrongfully resulting in unethical management practices.

The management practices at Enron have violated the Property Principle of the Global Business Standards Codex. The Property Principle refers to the respect due to belongings and those who own it in order to abstain from steeling, embezzlement and to protect what is assigned to the employee. One of the many key concepts of the Property Principle that Enron broke declares that employees should not misappropriate company resources through theft, embezzlement, or other means (Paine et al 2005, p. 127). Enron have breached this key concept. ‘Enron parked some of its cost of capital. To avoid this, Enron parked some of its debt on the balance sheet of its SPVs and kept it hidden from analysts and investors’ (Sims & Brinkmann 2003, p. 245). This was done because a highly gripped balance sheet would threaten its credit rating as its debt equity ratio would rise and therefore increase its cost of capital. The magnitude of the debt was discovered and resulted in a disaster as ‘Enron’s credit rating fell and lenders asked for instant payment in the sum of hundreds of millions of dollars in debt’ (Sims & Brinkmann 2003, p. 245). Turning aside this situation, Enron should have not moved various of its cost capital and some of its debt on the balance sheet so to keep it hidden from analysts and investors to prevent the consequences which guided lenders to realise the condition and ask for immediate payment. This is evident in (Culpan & Trussel 2005, p. 75) ‘to avoid such unethical conducts, there is a need for new regulations, but firms must also develop and enforce a code of ethics. The top management’s commitment to business ethics is essential. Such a commitment should have been demonstrated by not only adopting a code of ethics, but also by being role models for employees and developing an organizational culture preventing unethical practices’. Enron has violated the Property Principle of the Global Business Standards Codex as employees misappropriate company resources through theft, embezzlement, or other means. Therefore resulting in unethical management practices.

The management practices at Enron have violated the Transparency Principle of the Global Business Standards Codex. The Transparency Principle refers to the duty of care with regards to honesty. This includes refusing misleading actions or immoral work, and respecting the duty of confidentiality and privacy. One of the many key concepts of the Property Principle that Enron broke expresses that companies must ‘engage in transparent accounting and financial reporting’ (Paine et al 2005, p. 128). Enron have neglected this concept by shredding some important documents with ties to Arthur Anderson, one of the largest accounting firms in the world that also collapsed due to its ties and involvement in this process after they were warned from the SEC (Culpan & Trussel 2005). To evade this, documents should of have been in place and not shredded so to hide information. Enron should motivate ethical behaviour. ‘Expand the scope of managerial accountability to include system integrity capacity development, including the regular implementation of transparent economic, social, and environmental accounting systems’ (Petrick & Scherer 2003, p. 42). Enron has violated the Transparency Principle of the Global Business Standards Codex by not engaging in transparent accounting and financial reporting, therefore resulting in unethical management practices.

In conclusion, due to Enron’s management practices breaching and dishonouring the fiduciary, property and transparency principles of the Global Business Standards Codex, conflict of interest between the company leaders and the examiners have initiated. This resulted in the corporation being cheated and losing their profit to those leaders and employees that breached the Global Business Standards Codex as pursuing personal benefit opportunities discovered through position or company resources, misappropriate company resources through theft, embezzlement, or other means and not engaging in transparent accounting and financial reporting. If those principles were followed there Enron would not have collapsed and the company would still be running. However failing to follow the principles of the Global Business Standards Codex resulted in unethical management practices, lead to the collapse of Enron. The problem was that Enron tried to do too much in a short amount of time with small or no results in return.

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