Can you remember making a snowman as a child? Perhaps you are one of the many who grew up without snow days, but still saw children your age making snowballs in movies. In any case, everyone knows the best way to make a snowball is by initially compacting a small amount of snow, slowly adding more and more, until it becomes too big for your hands. Eventually you start rolling the snowball around on the ground and end up with something sizable enough to use as the base for a towering snowman.
Compounding microscopic pieces of snow is a great technique for building snowmen, but unfortunately can also be used for unethical behavior. We can see this theory clearly demonstrated in the movie, The Smartest Guys in the Room, in which case white collar crimes of many of Enron’s top executives caused their collapse and possibly the largest scandal of any major American business. These crimes started off small, but each quarter the fraud increased until their ultimate collapse.
The Smartest Guys in the Room, highlights the different characters who played a part in Enron’s scandal. The film begins by introducing Kenneth Lay as the founder of Enron. Interestingly enough, Enron was involved in scandalous behavior very early on in the company’s history. Two of its traders who were gambling with Enron’s reserve money had managed to deplete all of its reserve and were subsequently fired. Rather than accept the company may not survive, Enron involved Mike Muckleroy who manipulates stock prices.
After the facts were known, Kenneth Lay said that he did not know anything about it. Kenneth Lay was acting in stage 1 of Kohlberg’s model of behavior because telling the truth was the right thing to do, but instead he was concerned with the survival of his company and ultimately his image. This scandal should have been a clear indication for investors, but the company survived along with their unethical practices.
The ethical dilemma in the movie, The Smartest Guys in the Room is that Kenneth Lay and Jeffrey Skilling, along with other top Enron executives do not want the stock prices to drop, which would disappoint investors and the public. They used many tricks including many accounting tricks to artificially increase their stock prices. Their accounting firm, Arthur Anderson was privy to the knowledge that they were manipulating the numbers and therefore the stock prices. Instead of issuing a proper opinion, Arthur Anderson chose to turn the other way and not out the company for their unethical practices.
Jeffrey Skilling and Kenneth Lay were in stage one of Kohlberg’s stages of moral development. They are only concerned with themselves and satisfying their own needs. All of Enron’s executives made millions of dollars in their scandalous behavior, while their lowest level employees ended up with nothing. The top executives knowingly deceived employees by expressing that Enron was a safe bet in which they could invest all of their retirement savings, which in the end, left many penniless.
In addition, Enron’s accounting firm, Arthur Anderson was acting in stage two of their moral development because they were getting paid a million dollars a week from Enron. Because of the large sum of money, they chose to go along with their client’s scandalous behavior, ultimately failing their duty to uphold the best interest of the public at large. If Arthur Anderson had held true to their duty to public interest and investors, they may still be around today.
I think that of the six pillars of character, Arthur Anderson chose to focus on trustworthiness the most, and more specifically loyalty, loyalty to Enron. This loyalty should not have taken precedence over the trust of the general public. Accountants can learn a great deal from Enron’s unethical behavior as well as Arthur Anderson’s. Full transparency is what accounting and specifically auditing are all about. An accounting firm’s highest duty of transparency is to the general public.
Accounting firms have a duty to uphold and maintain the trust of general public, not private businesses. Accountants should know that people’s quality of life depends on their honestly. The general public needs to rely on their fair accounting practices to make beneficial financial decision regarding their future. If nothing else, accountants and accounting firms can learn the lesson that all unethical behavior eventually catches up to you and you stand to lose everything.
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