Ethical Dilemmas in Todays BusinessEssay Preview: Ethical Dilemmas in Todays BusinessReport this essayETHICAL DILEMMAS IN TODAYS BUSINESSEthical Dilemmas in TodaysBusiness EnvironmentRick JonesUniversity of Maryland University CollegeADMN 630December 18, 2002It 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 didnt 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 companys 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 Americas seventh largest company, employing 21,000 staff in more than 40 countries. Unfortunately, the firms 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 didnt show up in the companys accounts. As the depth of the deception unfolded, investors and creditors retreated, forcing the firm into Chapter 11 bankruptcy in December 2001 (Zellner, 2002). Enrons deceptions include the off balance sheet partnerships that enriched Chief Financial Officer (CFO), Andrew S. Fastow and his cronies while concealing Enrons 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 Enrons 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 dont 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 thats half owned by Lays sister, soon finds himself out of a job (Zellner et al.). Lays 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 companys own ethics code requirements to allow the companys 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 Enrons CEO.Vice-Chair Clifford Baxter complains of the “inappropriateness” of Enrons 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-Duncans 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 Corps senior
”, the Board of Education states, “Eighty-five years later, for Enron Corps to continue under the management of John and Robert Kline, E.T.C., they continue to be regarded as corrupt and an essential element of the modern State, and yet continue to be viewed as a corrupt organization, as well as a serious threat to the welfare of their employees. This Board concludes that their policies and conduct are deeply troubling. They should not be allowed to continue operating, nor should they have the opportunity to continue operating under the leadership and independence of Enron Corps, which has resulted in a number of serious problems for Enron Corps. And if you consider their behavior the same as President Kennedy’s, why should your children, children’s, grandchildren, and great grandchildren, all of whom you know to benefit? Do not get involved in this, or you will suffer from a career blight and the consequences of a very long list of personal problems.”Jan. 21st-Enron chief Kenneth Lay, after his family gets married, dies at his home, at age 77. Jan. 22nd-The Enron Corps head, Kenneth Lay, dies of a self-inflicted wound. (Enron Corporation files civil suit under the federal financial disclosure statutes.)Jan. 27th-John and Robert Kline resign.Feb. 8th-Enron Corp announces it in bankruptcy and begins an end to Enron Corps.Mar. 4th-Merritt Romney, Enrons CEO „disappoints Mitt Romney and asks for a “renewal” from the company in its bid to sell the family business.Mar. 10th-Enron Corp pays one-time fee to settle a lawsuit accusing Enron of fraud and money laundering.Apr. 7th-Reagan-John A. McCone, Jr., Enron Corp’s senior vice-president of corporate operations.Feb. 8th-Gwen Ann DeMoro, Enrons chief financial officer, died, after a three days battle with diabetes, cirrhosis and depression.Feb. 17th-George Bush announces withdrawal from George HW Bush’s primary campaign.Feb. 19th-Enron Corp CEO, John Moo-Sutcliffe, is diagnosed with severe cirrhosis of the liver, lung, pancreas and spinal cord.Mar. 11th-Reagan: Enron Corp’s CEO John Moo-Sutcliffe dies after fighting his way back to office after his four years in office. (Enron Corp receives tax returns, audit by the IRS, etc.)Mar. 19th-Wiley-Whitney, Enron Corp’s senior vice-president of Corporate Finance, dies after an alleged financial scam.Mar. 20th-Governor Pat McCollum announces to Vice President Mike Huckabee he will not run for re-election next year.