Ethics Information

By Matt Morrison

History of Business Ethics

Early Judaism introduced the 10 commandments by the hands of Moses, which are still used as a guide for morality for many today. The 10 commandments provide practical principles for truthfulness and good ethical behavior. For example, Exodus 20:16 states, “You shall not bear false witness against your neighbor”. This verse gives great value to honesty in all aspects of business and life. Many ideas found throughout the Bible can be and have been used in business for a long time. Other religions also have similar sacred or ancient texts that help to guide people’s actions.

Philosophers also played a role in identifying and influencing morality and ethics in society. Plato was known for his discussions of justice in his work The Republic:

If what I am morally required to do can (in some circumstances) be different from what I would choose do for my own benefit, then why should I be moral? Plato wrote the remainder of The Republic in an attempt to provide an adequate, satisfying answer to this question.

Aristotle discussed economic relations, commerce and trade under the heading of the household in his Politics. He discussed trade, property and money which all apply to modern times. He made moral claims about greed and perverted use of one’s abilities in the quest of wealth for its own sake. He attacks exploitation because it includes a profit from money itself instead of the method of exchange in which money is simply a means.

After the fall of Rome, Christianity influenced business in the context of justice and honesty in buying and selling. Later, Luther, Calvin, and John Wesley among other Reformation figures led the way in the development of the Protestant work ethic. The Protestant work ethic is a biblically based idea of the importance of hard work, striving for perfection and the goodness of labor.

John Locke developed ideas pertaining to the defense of property as a natural right. He believed that people acquire property by mixing their labor with what they find in nature. Adam Smith, often called the father of modern economics, believed that morality and economics are intertwined and not mutually exclusive. Most focus on his economic influence, but Smith was also a moral philosopher and the author of The Theory of Moral Sentiments.

Why People Behave Unethically: An Enron Case Study

In the span of six months, how could one of America’s most respected and successful companies go bankrupt? Enron’s board of directors authorized their chief financial officer to create Enron-funded partnerships that defrauded shareholders by hiding real losses and creating phony profits. One of the most critical board meetings at Enron in 1991, where executives gave approval to set aside their ethics statements on behalf of fraudulent activities with partnerships, lasted only one hour.

Pressures from management often cause employees to consider and use unethical means to achieve success to please their superiors. Enron recruited exclusively at major business schools. They wined and dined the prospects. Recruiters promised young job-seekers huge bonuses and fed their egos as much as they would take. Once they were hired, it was an up or out culture. Those who survived began to think they were something extraordinary. Former CEO of Enron, Jeffrey Skilling, was an aggressive manager. “He used to pit them against each other. He knew that as long as he could keep them scared of one another and competing, he would have control. When you create an environment in which, if you want to be among the best and the brightest, you’ve got to play the game the way the boss has set it up, that’s not a culture where people are going to challenge top management”.

Personal greed frequently drives people into doing unethical activities. Andrew Fastow, the CFO of Enron, sold $36 million of his investments before the company went down. Kenneth Lay had many sweetheart deals with members of his family. Skilling is said to have gotten away with around $200 million. One might call that profuse greed. Business ethics is most important among the leaders of an organization. The leaders set a precedent for the behavior of all the employees, giving grave importance to the model that they supply for their actions. “Employees model – that is emulate – their boss’s behavior. That makes the top leader, ultimately responsible for the culture of his organization – including the ethical culture”.

Cronyism can often affect organizations in a negative way causing people to behave unethically. Enron had a tendency towards cronyism, which is partiality towards friends or family. Managers at Enron’s divisions grew arrogant, thinking themselves to be invincible. They had a tendency to seal themselves off from things on the outside. Skilling set up a system of ranking among employees that determined the fate of their jobs. If fellow employees gave you a poor report, you were out. This instantly created alliances among the groups that were willing to play ball and ousted the “Boy Scouts.” “They had something called a rank-and-yank performance appraisal system, which eliminated anyone who fell behind, a real Darwinist system that took care of anyone who might potentially disagree. All of the whistleblowers were rebuffed, humiliated or treated in an intimidating way by the various players. And finally their 1999 annual report in which all of the members of the board of directors are listed by their nicknames suggests a tendency towards cronyism”.

Prospering in an Unethical World: An R. G. LeTourneau Case Study

R. G. LeTourneau is considered by some as one of the most influential people of the past hundred years. LeTourneau made giving to others a priority – He gave away 90% of his income and only lived off 10%. He based his business on moral, ethical and religious principles. He set a great example for his employees and instilled a sense of gratitude and giving in them. “At the age of 44 I lost so heavily on contracts that my employees, with more faith in me than I had in myself, took up a collection to get me back on my feet”. LeTourneau was a school dropout from a small town, but that didn’t stop him from competing with some of the biggest companies in the land. Letourneau had fierce competitors consisting of Caterpillar, General Motors, International Harvester, Allis Chalmers and several others, all large corporations with high-powered executive staffs. During World War II, LeTourneau produced some of the most important earth moving tools to date. During World War II, more earth had to be moved than through all the combined wars of history. LeTourneau’s machines made up more than 50% of all the earth moving tools used in the war.

An example of LeTourneau’s moral and ethical principles is apparent in a story from his autobiography Mover of Men and Mountains. LeTourneau’s partner had fired some of LeTourneau’s family members who worked for the company. LeTourneau and his partner had an argument and his partner decided to leave. After the split, the company completed a project for Southern Pacific that turned out to be a near disaster, almost killing some of his workers. LeTourneau ended up coming out about even on the $100,000 job. Some time after that, his former partner came to him and said he heard they had made quite a bit on the Southern Pacific job; he felt he was entitled to the money. LeTourneau’s partner happened to be an elder in his church and LeTourneau was stunned that a Christian man would behave in such a way. He knew that the money was rightfully his. One of LeTourneau’s friends had even advised him to let the partner sue, because “he didn’t have a leg to stand on”. After some deliberation and prayer, LeTourneau decided to give his former partner the money to avoid a court battle and a possible split of his church. He would leave the rest up to the Lord. It turned out that a year later, after two bad contracts on his own, his former partner was wiped out. LeTourneau was convinced that if the Lord doesn’t think you are worthy of having money and responsibility, he will find ways to take it away. In his autobiography, LeTourneau says, “real partners don’t try to see how much one can get from the other. They work for the good of the partnership. They try to help each other.”

LeTourneau based his life principles on many scriptures from the Bible. His favorite was Matthew 6:33: “But seek first His kingdom and His righteousness; and all these things shall be added to you.” LeTourneau sought after God’s righteousness and he certainly achieved great prosperity.

Good Ethical Process: A Johnson & Johnson Case Study

In 1982, Johnson & Johnson experienced a crisis with reports of cyanide in their Tylenol Extra-Strength bottles. Seven people died from the incident. Johnson & Johnson could have been tarnished forever from this episode. Instead, against all human nature, they relinquished all financial influence on their decision process. They based their coming decisions on what they felt was right for their customers. The company ordered a full recall of 31 million bottles that cost more than $100 million. They ceased production of the original bottles and began production of a new tamper-resistant bottle. Johnson & Johnson was competent enough to “use the crisis to demonstrate to [its] customers [its] commitment to customer safety and to the quality of the Tylenol product”. Johnson & Johnson also displayed the company’s willingness to be honest with the public and to correspond with the media, which assisted in building credibility and customer trust during the incident. After the incident, Johnson & Johnson’s stock dropped seven points and lost 27% of the 35% pain-reliever market it once enjoyed. Several months after their ethically-based efforts to make the crisis right, Johnson & Johnson reclaimed and surpassed their previous market share. Johnson & Johnson’s actions are a strong testament to the benefits of acting ethically in a time of crisis, when it is most important.

Conclusion: You Can’t Prosper Unethically

In this writer’s opinion, it is impossible to prosper unethically. You may have prosperity in the very beginning, but it will invariably come to an end with either the loss of your job or business, the seizing of any wealth you might have built up, and in the worst case, a first class ticket to jail. There may not be a greater case for the effects of unethical behavior than the events that unfolded at Enron. Behaving unethically will tarnish your reputation forever and leave you little room to gain people’s trust again. Michael Hackworth, CEO of Aspirian Corp., believes that good ethics is good business and ethical leadership saves money. Good ethical practice ensures a prosperous and confident career or business, even in an unethical world.

Matt Morrison is a regular author for Rollingsphere.