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