ETHICAL DILEMMAS IN TODAYS BUSINESS Essay

This essay has a total of 4485 words and 19 pages.

ETHICAL DILEMMAS IN TODAYS BUSINESS





ETHICAL DILEMMAS IN TODAYS BUSINESS







Ethical Dilemmas in Today's
Business Environment
Rick Jones
University of Maryland University College
ADMN 630
December 18, 2002
















It is almost impossible to pick up any American newspaper and avoid reading an article
dealing with the unethical and possibly even illegal conduct of those who run our
businesses. Whether it is insider stock manipulation, off balance sheet partnerships,
questionable accounting practices, dumping of environmental contaminants, the stories
continue to appear. The ethical conduct of U.S. businesses will be examined and compared
with that of the past. The ethical climate has changed in the last couple of decades.

Unethical conduct is nothing new to the business environment. Unethical practices didn't
necessarily bring a business down ten to twenty years ago, but unethical business
practices today can lead to the premature death of a company. Companies such as Enron,
Exxon, Ford, Union Carbide and Johnson & Johnson have all had occasions where unethical
practices have reared their ugly heads and each chose to handle things differently, with
varying degrees of consequence. Each of these company's bout with unethical behavior will
be examined.

In July of 1985 Houston Natural Gas merged with Inter North to form Enron, originally
Natural Gas Pipeline Company. In 1989 Enron began trading natural gas commodities. In June
1994 Enron traded its first unit of electricity. In just 15 years, Enron grew from nowhere
to be America's seventh largest company, employing 21,000 staff in more than 40 countries.
Unfortunately, the firm's success turned out to have involved an elaborate scam. Enron
lied about its profits and stands accused of a range of shady dealings, including
concealing debts so they didn't show up in the company's accounts. As the depth of the
deception unfolded, investors and creditors retreated, forcing the firm into Chapter 11
bankruptcy in December 2001 (Zellner, 2002). Enron's deceptions include the off balance
sheet partnerships that enriched Chief Financial Officer (CFO), Andrew S. Fastow and his
cronies while concealing Enron's deteriorating financial state ("Enron Scandal at a
Glance," 2002). There was the easily manipulated " mark to market" accounting that let
Enron book revenue up front on long term deals instead of spreading it out over years
(Zellner et al. 2002). Top management abused the system to inflate bonuses while worrying
little about the deals' real profitability. Lastly, there were the money losing, horribly
run businesses around the globe, which ultimately left Enron, strapped for cash and headed
for a death spiral.

Robert Bryce and Brian Cruver, Texas journalists, account various lapses in ethical
behavior at Enron by key personnel (Zellner, 2002). In "Anatomy of Greed", Bryce sketches
the corrupt cast of characters who steered this "Titanic" (Zellner et al. 2002). Chairman,
Kenneth L. Lay, who preferred to hobnob with the politicians he bought and paid for in
Washington, rather than minding Enron. He claimed to be "kept in the dark" by Enron's self
dealing financiers. Lay had a duty to his shareholders to give them full disclosure and to
operate in good faith. He told his employees that the stock would probably rise but
neglected to tell them that he was dumping the stock (Berenbeim, 2002). The employees
could not have learned that he was doing so in a matter of days or weeks, as is ordinarily
the case. Why the delay? The stock was sold to the company to repay money that the Chief
Executive Officer (CEO) owed Enron (Berenbeim et al. 2002). Officer sales of stock to the
company qualify as an exception to the ordinary director and officer disclosure
requirement. Such transactions don't need to be reported until 45 days after the fiscal
year. Relying on this technicality, the Enron CEO cast serious doubt on his claim in which
he suspected the stock would increase in value. An auditor who recommended that the
company switch travel agencies, avoiding one that's half owned by Lay's sister, soon finds
himself out of a job (Zellner et al.). Lay's grown daughter used an Enron jet to transport
her king size bed to France.

One of the main reasons Enron laid in ruins was CFO, Andrew Fastow. He was one of the
leading conspirators in falsifying the balance sheets to mislead shareholders. In October
of 2001, Enron reported a $618 million third quarter loss and had to disclose a $1.2
billion reduction in shareholder equity partly related to partnerships run by CFO, Andrew
Fastow. The next month Enron filed documents with the SEC for $586 million in losses.
Fastow was finally fired on October 24, 2001. The Enron board twice waived the company's
own ethics code requirements to allow the company's CFO to serve as a general partner for
the partnerships that it was using as a conduit for much of its business (Berenbeim,
2002). The Enron collapse timeline follows, with associated stock prices:



Feb. 5th- Some senior Anderson officials discuss dropping Enron as a client.
Feb. 12th- Jeffrey Skilling becomes Enron's CEO.
May- Vice-Chair Clifford Baxter complains of the "inappropriateness" of Enron's partnership deals.
Aug. 15th- Kenneth Lay receives Watkins warning letter.
Aug. 20/21st- Lay sells 93,000 shares, earns 2million, urges employees to buy company stock.
Oct. 16th- Enron reveals $1.2 billion decrease in company value.
Oct. 23rd- Arthur Andersen accelerates disposal of Enron related documents.
Nov 8th- Enron admits inflating income almost $600 million since 1997.
Nov. 9th- Duncan's assistant e-mails other secretaries to "stop the shredding."
Dec. 2nd- Enron files for bankruptcy.
Jan. 15th- Enron suspended from New York Stock Exchange.
In a report that condemns Enron Corp's senior managers, directors, accountants, and
lawyers, a special committee of Enron's board said that the company had inflated its
profits by almost $1 billion in the year before it's financial collapse through Byzantine
dealings with a group of partnerships. As oversight broke down at Enron, a culture emerged
of self-dealing and self-enrichment at the expense of the energy company's shareholders
("Why wasn't Enron's," 2002). Accountants and lawyers made flawed and improper decisions
every step of the way, the report concluded. The transactions, which resulted in the
company's collapse, were caused by a "flawed idea of self-enrichment by employees,
inadequately designed controls, poor implementation, inattentive oversight, simple (and
not so simple) accounting mistakes, and overreaching in a culture that appears to have
encouraged pushing the limits. Our review indicates many of those consequences could and
should have been avoided" ("Why wasn't Enron's" et al. 2002).

An ethical dilemma is a situation, which a person must decide whether or not to do
something that although benefiting them or the organization, or both, may be considered
unethical. Often, ethical dilemmas are associated with risk and uncertainty, and with
routine problem situations. Just how decisions are handled under these circumstances, ones
that will inevitably appear during one's career, may well be the ultimate test of one's
personal ethical framework (Schermerhorn, Hunt, and Osborn, 2000).

Of the values that make up an organizations culture, ethical values are now considered
among the most important. Ethical standards are becoming part of the formal policies and
formal cultures of many organizations. (Daft, 2001). Ethics are the code of moral
principles and values that govern the behavior of a person or group with respect to what
is right or wrong. Ethical values set standards as to what is good or bad in conduct and
decision making (Daft et al. 2001). The rule of law arises from a set of codified
principles and regulations that describe how people are required to act. They are
generally accepted in society and are enforceable in the courts (Daft et al.). Ethical
standards mostly apply to behavior not covered by the law, and the rule of law covers
behaviors not necessarily covered by ethical standards. The standards for ethical or
social responsible conduct are embodied within each employee as well as within a company
itself (Daft et al.). In addition, external stakeholders can influence standards of what
is socially responsible and ethical.

When one attempts to decide if a decision is ethical or socially responsible one draws
from one's beliefs and values, moral development, and ethical framework. Every person
brings his/her own set of personal beliefs and values into the workplace. Moral reasoning
and personal values are the moral reasoning that translates these values into one's
behavior and are a critical aspect of ethical decision making in organization (Daft,
2001). The organization's rituals, ceremonies, stories, heroes, language, slogans,
symbols, founder and history also influence one's decisions. Since business practices
reflect the values, attitudes, and behavior patterns of an organization's culture, ethics
are as much an organizational issue as a personal one (Daft et al. 2001). External
stakeholders such as government regulations, customers, special interest groups, and
global market forces influence one's moral behaviors. Socially responsible and ethical
decision making recognizes that the organization is part of a larger community and
considers the impact of a decision or action on all stakeholders (Daft et al.). Lastly,
organizational systems, which are set in place to foster ethical behavior, such as
structure, policies, rules, code of ethics, reward systems, selection, and training
influence moral decision making. Formal organizational systems include basic architecture
of the organization, such as whether ethical values are incorporated in policies and
rules. Whether an explicit code of ethics is available and issued to members, whether
organizational rewards, including praise, attention, and promotions, are linked to ethical
behavior. These formal efforts can reinforce ethical values, which exist in the informal
culture (Daft et al.). Rarely can unethical or ethical business practices be attributed
entirely to the personal ethics of a single employee. Because business practices reflect
the values, attitudes, and behavior patterns of an organizations culture, ethics are as
much an organizational issue as a personal one (Daft et al.). To promote ethical and
social behavior in the workplace, organizations, should make ethics an integral part of
their culture. Ethical standards should be embedded in an organizations culture.

In the late 1960's the demand for sub compacts was rising on the market, in the United
States. The President of Ford Motor Company, Lee IaCocca's specifications for the design
of the car were uncompromising. The Pinto wasn't to weigh over 2,000 pounds and cost over
$2,000. When Ford performed crash tests, during design and production of the car they
revealed a serious defect in the gas tank. In crashes over 25 miles per hour, the gas tank
ruptured on impact. In order to fix this problem, the design would have to be strengthened
and changed.

"When it was discovered the gas tank was unsafe, did anyone go to Iacocca and tell him?
"Hell no," replied an engineer who worked on the Pinto, a high company official for many
years…. "That person would have been fired. Safety wasn't a popular subject around Ford
in those days. With Lee it was taboo. Whenever a problem was raised that meant a delay on
the Pinto, Lee would chomp his cigar, look out the window and say, "Read the product
objectives and get back to work ("The Exploding Ford Pinto," 1977)."

Ralph Nader brought automobile safety to the public's attention in 1965 with his book,
"Unsafe at Any Speed". Automobile safety was just starting to be regulated by the
government, but Ford had a way of getting around it. Lobbyists of various automakers and
Ford convinced the government to delay regulations on fuel tanks for eight years.

Ford used a cost benefit analysis as one of the tools to argue for the delay in government
regulations for fuel tanks. According to the estimates conducted by accountants at Ford,
the unsafe tanks would cause 180 burn deaths, 180 serious burn injuries, and 2,100 burned
vehicles each year. Ford calculated that it would have to pay $200,000 per death, $67,000
per injury, and $700 per vehicle, for a total of $49.73 million. However, the cost of
saving people from dying and getting injured ran even higher. The alternatives to the car
would cost $11, which added up to $137 million per year. For essentially argued that it
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