Essentials of Business Ethics
By Aaron Schwartz
Traditionally, business ethics was considered to be a very controversial notion because even nowadays some people believe that it is a cornerstone of any future more or less prospective company’s strategy while others perceive it like an oxymoron. Personally, I think that business ethics have to be developed yet and, unfortunately, it is mainly the question philosophers or social critics are worried about but not those who are in the center of its attention, namely businessmen, managers, employees, etc. As far as I understand, the relations between all participants of a business process have to be controlled and regulated by some ethical norms because business ethics has an overwhelming influence on so many process in a company, and these processes can have not only interior but exterior character as well.
It plays a very important role for the climate within a company, shapes its public image, and the list may be continued. One more thing I would like to emphasize is the growing importance of business ethics in the future because moral standards and ethical norms became more and more important in our society and this trend will only progress accompanying the social development. Unfortunately, not all of businessmen and top managers realize this fact and they do not treat the problem of the business ethics seriously. Moreover, very often there actions may be characterized as absolutely immoral and contradicting to the main principles of the business ethics.
Among one of the most notorious examples of such attitude to ethical norms I may name the crisis and the following collapse of the Enron that had happened in recent years. As for me, I am convinced that it was the result of a permanent violation of ethical norms that gradually transformed into the violation of laws. Despite the fact that we shouldn’t equate these two notions, I mean ethics, or it is better to say the lack of it, and the violation of laws, because immoral or unethical doesn’t necessarily mean illegal, it is still quite evident that the latter may be a logical consequence of the former. In other words if decisions contradicting to ethical norms are acceptable within a company or for some members of this company it wouldn’t be a great surprise for me if soon this company or any of its staff will break the law. So I believe that the roots of a crime lie in the moral decay of a personality or the whole social group. Probably, that is exactly what happened to the Enron at large, and to some of its top executives in particular. Now I’ll try to describe briefly the collapse of this company, find out its causes and comment on it.
First of all I want to underline the following markers of a serious ethical conflict, namely it is a presence of 1) significant value conflicts of interests of different people or groups of people, 2) real alternatives that are justifiable, and, finally, 3) significant consequences on ‘stakeholders’ in the situation (Madsen and Shafritz, 1990). Practically all of these markers may be found in the Enron situation, particularly the third one. So, what was the starting point of the disaster as it is called by many because it is one of the most serious and biggest financial scandals in history? Now it is evident that the crisis had begun after the company reported about huge debts. Certainly, an investigation had been started and not surprisingly that very soon top executives were under suspect. It is not a secret anymore that top executives hide debts because they were trying to sustain the permanent growth of their company on the market and to increase the value of its shares in order to earn more money for them despite a very probable bankruptcy. They organized a very subtle web of transaction which helped them to hide millions of dollars of debts of the company as well as they also used for the same purposes complex financial partnerships. Moreover, the Enron executives profited from the situation and sold their shares in the nick of time just before the company failure.
As for top executives they also earned millions of dollars with the help of their families, some friends and partnerships which were controlled by them.
The next question that logically arises is who exactly was guilty and what were consequences of the Enron collapse. Among the most important and guilty is often called Andrew Fastow, a former Enron finance chief who is considered by many specialists to be a mastermind of the Enron failure but it is quite natural to presuppose that one person couldn’t organize such a complicated system of transactions without any other executive or manager knowing. Another person responsible for the Enron crisis is a former Enron chief executive Jeff Skilling. But what seems to me the most shocking, immoral, and absolutely unethical is the fact that one more chief executive of the company Kenneth Lay was extensively informed and warned by middle-managers about the situation within the Enron. And in the meantime, hypocritically, he, in person, announced that he was a good, hardworking, and absolutely ignorant about all those transactions and frauds that took place in the company he was responsible for as a chief executive.
It seems unbelievable but he is really so hypocritic. I think such cynic reaction reveals great problems that existed in the Enron and that there were no ethical norms that regulated relations between the Enron staff. It is even surprising, to some extent, that having such chief executives there still were some people who were fully aware of the danger for stockholders and tried to prevent the catastrophe. Probably, these people had those moral principles that are necessary for normal work of any company in the modern world and I think if they headed the Enron they could save it.
By the way, I want to say a few words about what could be done in order to save the Enron. I’m not going to analyze financial possibility to improve the position of the company on the market. I’d like to analyze ethical part of the problem because I believe that the lack of business ethics finally led to the numerous frauds and the legal crisis in the company. So, what could be done to prevent the Enron collapse? One of the possible ways to prevent it was the Ethical Code of the company. It shouldn’t be just a set of rules, principles or regulations written by one or several persons. To create an effective Ethical Code all members of the company everyday life should work on the project of such a code. Only this condition could provide that written regulations and principles would work in real life because all opinions would be taken into account. Certainly, an effective system of the control of the execution of norms of the Code would be vitally important and would prevent such situations when a chief executive being warned by middle-managers didn’t do anything to stop the terrible fraud. But none of the measures I have just mentioned were taken and, naturally, ethical decay ended in the financial collapse of a gigantic company. As a result many stockholders were ruined, thousands of people lost their jobs, and the criminals were imprisoned. Thus, a prospective company was ruined though who knows what could happen if the ethical principles were dominant in the company’s policy. The only thing I can say for sure is that, to my mind, the Enron would have much more prospects and could hardly collapse.
Finally, I want to say that it seems to me that the main aim of those who were responsible for the Enron failure was just to make more money regardless the fact that other stockholders could lose their life savings. I think it is absolutely unacceptable in business because nobody can get richer and richer and, in the meantime, lead his or her own company to the collapse. On the one hand it is absolutely immoral, on the other hand it is a serious crime that will be severely punished and the sentences of the Enron executives prove it vividly. So, it is evident that a priori modern business, and leading executives of any company should care about prosperity of the company and society but not only about there own financial success. Nowadays, the most successful companies pay a lot of attention to the effective ethical education of there staff because really working ethical principles contribute not only to the public image of the company but they also provide for the company interior stability, and, consequently, make it more competitive on the market. In general, I think that moral values must gradually transform into the common law. Anyway, moral principles of the business ethics become evident mainly in critical situations and if the company has any they usually unite all of the company’s staff and make it stronger and more survivable.
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