"The Ethics and Legality of Financial Regulation: What Enron Revealed"

Conclusion

As the market is certainly not lacking in financial regulation, there may be a better approach to preventing corporate fraud without negatively affecting the financial health of firms, shareholders, and stakeholders. Instead of focusing solely on the financial penalties that the law assures, firm management should also emphasize the other adverse effects of unethical activity, which consequentialist and egoistic firms may underestimate. Leadership should recognize that while illegal acts clearly have legal ramifications that affect firm success, "unethical behavior can [also] affect the key elements of business success--profitability, productivity, and brand equity" (Berenbeim, 2012, p. 409). These impacts can be just as damaging as legal ramifications--perhaps even more damaging. Publicly traded corporations depend upon shareholder investments as one of their primary forms of financing. When shareholders don't agree with the decisions that management makes, they lose confidence in the firm and divest their financial interest in the company, which drives down the price of firm stock. This makes it much more difficult for firms to raise capital to fund future projects. If investors in the marketplace hold firms accountable for unethical activity, firms will realize that they can't sustain themselves by acting unethically. If management focuses solely on abiding by legal guidelines, its policies may not address behaviors that, while legal, do not align with the underlying purpose for which those legal guidelines were created--which is, arguably, to promote ethical decision-making by individuals and organizations. When firms disregard this underlying purpose, they display "a selfish desire to blur the distinction between what is ethical and what is legal," and this can cause them to "offend their stakeholders on both counts" (Bowen & Heath, p. 86-87).

Applying various ethical perspectives to the Enron fallout and its resulting increases in financial regulation helps illustrate that the decisions companies make "have both ethical and legal implications" (Bowen & Heath, p. 86) for firms and their stakeholders. Firm management can choose to act ethically or unethically, legally or illegally. While ethical analysis provides no simple way to eliminate unethical and illegal behavior in corporations, it reveals that increased legal regulation should not be relied on as the only response to corporate fraud. Leadership teams seeking to better address the concerns of market stakeholders should promote company cultures that champion ethical decision-making in addition to adherence to current financial regulation. Courses "in the recognition, analysis and resolution of ethical issues [are] a vital part of the business curriculum," as they provide both employees and market stakeholders with the tools necessary to evaluate ethical and legal decision-making scenarios (Berenbeim, p. 409). In both business coursework and companies' continuing education programs, "corruption in all its forms is a necessary subject of conversation," as all players in the market should be aware of the forms fraud can take, the impacts it can have, and how to best respond in the event of management corruption (p. 409). While education, like legal regulation, cannot force businesses to change the manner in which they make decisions, it serves to make corporate players self-aware about the reasoning behind their ethical and legal judgments.