Causal Effect of Corporate Governance - MyAssignmenthelp.com

Question: Discuss about the Causal Effect of Corporate Governance. Answer: Introduction: From the provide case study of Enron, it can be seen that there were some major ethical issues in the organization that contributed largely towards the collapse of the company as all these ethical issues are major issues. The major ethical violations for Enron are discussed below: The funding scheme introduced by the Chiefs Financial Officer of the Enron was one of the major ethical issues for the company. The main aim of this scheme was to increase the share prices of the company. However, the actual motive behind the introduction of this scheme was to increase the managements personal wealth at the expenses of the employees. This was a major ethical violation in Enron (Schwartz 2013). Another major ethical violation for Enron can be seen in the field of strategic management. It can be seen that Jeff Skilling introduced the business of broadband in which he did not have any kind of personal knowledge in that particular field. As a result of this, he could not raise the required capital for the implementation of the project. Lack of transparency and accountability was another major ethical violation for Enron. At the beginning, the management of Enron was determined to provide the true financial information of the company to their stakeholders in order to maintain transparency and accountability. However, in the later stage of the business, it can be seen that the management of the company started to maintain an off-balance sheet in order to hide the debt and liability position of the company. This process was highly unethical as the stakeholders were deprived form this action of Enron (Markham 2015). From the provided case study, it can be seen that the accounting firm, Arthur Anderson violated all the ethical principles of accounting in order to help Enron in the scandal. This can be considered as another major ethical violation for Enron. Corporate governance refers to a formal pattern in the organizations of specific guidelines and principles so that the business operations of the companies can be run in the most ethical way. The role of ethics in corporate governance refers to the process of the application of ethics in various administration related business operations of the companies (Crane and Matten 2016). With the help of ethics in corporate governance, the management of the companies is able to manage both the internal and external ethical issues of the companies. For example, the role of ethics in corporate governance can be seen in the process of managing the various issues with the employees. In this regard, the process of selecting the employees needs to be based on the possession of required human capital in the most ethical way (Trong Tuan 2012). Apart from this, the application of ethics in corporate governance can be seen in the process of the management of external stakeholders of the companies by th e management. In addition, with the help of ethics in corporate governance, business organizations are able to address the issues of responsible corporate behaviors. One of the major roles of ethics in corporate governance can be seen in making the companies operate in eco-friendly manner. On the other hand, with the help of ethics in corporate governance, the companies become able to bring accountability and transparency in the process of financial reporting (Jo and Harjoto 2012). Thus, based on the above discussion it can be seen that the introduction of ethics in corporate governance makes the companies act in the ethical manner in every aspect. It is the responsibility of the financial managers of the companies to notify all the investors and shareholder about any kind of major material changes in the financial statements. This needs to be done as the predicted profit of the companies can be reduced due to the material changes. This same concept can be applied in the case of Enron. In this situation, it needs to be mentioned that the Security Exchange Commission (SEC) uses to notify the organizations about any kind of material change in the financial statements of the companies. In case this happens, then the manager of Enron would be seen as more ethical if he arranged specific procedures to let the investors know about this material change. This can be done in various ways. First, the financial manage can arrange a meeting with the investors and shareholders of the companies to let them notify that the profit level will not be the same due to major material change. Second, he can arrange a press release to notify the inve stors and shareholders the same (Brigham and Houston 2012). The Enron manages could take certain actions to avoid bankruptcy. First, it was a major faulty step for Enron to take their business in California. It can be seen that the experiment of Enron about the deregulation in California did not work and the company went towards bankruptcy. Thus, the managers were required to shut down the business in California to avoid bankruptcy. Second, the managers of Enron needed to take action to stop the funding scheme introduced by the Chief Finance Officer of the company, as it was one of the major reasons of the bankruptcy of the company. Third, the managers of Enron needed to take action against the maintenance of off balance sheet. The managers of Enron required to take these actions. If I was the CEO of Enron, I would make it sure that the company adopted the fair accounting policy so that the stakeholders of the company do not have to be deprived. The establishment of fair accounting policies would bring transparency and accountability in the company and would be helpful to avoid bankruptcy. In addition, I would not maintain any kind of off balance sheet to manipulate the financial position of the company. I would try to include ethics in corporate governance so that all the business operations of the company can be run in the ethical manner. Lastly, I would not adopt any kind of aggressive accounting policies for the company. References Brigham, E.F. and Houston, J.F., 2012.Fundamentals of financial management. Cengage Learning. Crane, A. and Matten, D., 2016.Business ethics: Managing corporate citizenship and sustainability in the age of globalization. Oxford University Press. Jo, H. and Harjoto, M.A., 2012. The causal effect of corporate governance on corporate social responsibility.Journal of business ethics,106(1), pp.53-72. Markham, J.W., 2015.A financial history of modern US corporate scandals: From Enron to reform. Routledge. Schwartz, M.S., 2013. Developing and sustaining an ethical corporate culture: The core elements.Business Horizons,56(1), pp.39-50. Trong Tuan, L., 2012. Corporate social responsibility, ethics, and corporate governance.Social Responsibility Journal,8(4), pp.547-560.