Organizational ethics issues and resolution strategies

Organizational Ethics Issues Resolution

The Enron debacle that occurred in late 2001 illustrated how an ethically unsound business can have devastating and widespread effects on the international business community. At the core of the collapse of Enron was an absence of ideation and practice of ethical values. Market failure occurred due to information asymmetries, in which unfairness of the imbalance exceeded simple competitive advantage, while compromisinf the rights of others (Berenbeim, 2002). The six ethical decision-making steps can be applied to the organizational ethics issue of Enron in order to further understand the process involved in solving ethical issues.

Issue Clarification

The first step in ethical decision making is issue clarification. It is necessary to thoroughly understand the issue at hand in order to effectively construct a solution. In regards to the Enron scandal, ethical practices were compromised in order for executives within the company to profit while investors and the general public experienced losses. The scandal involved irregular accounting procedures, and Enron filed for bankruptcy in December 2001. This file of bankruptcy resulted in Enron shares plunging from a price of U.S. $90.00 to U.S. $0.30. The plunge was amplified when it was brought to light that much of the revenue and profits experienced by Enron resulted from deals with special purpose entities. Enron fraudulently created an illusion that their profits were greater than they actually were. As executives began to gain inside knowledge about the hidden losses accumulated by Enron, they began to sell their stocks. However, as executives sold their stocks, investors and the general public were ill-advised to buy the stock under the belief that the stock would resume its upward climb.

The collapse of Enron was based in a lack of a firm ethical foundation. The Enron scandal gave birth to the term "Enron ethics," as explained in an article by Sims and Brinkman (2003). These writers described how "Enron ethics" encompassed the phenomena of ethical demise due to deep problems with the company's culture and the company's leadership.

Stakeholder Analysis

The collapse of Enron at the end of 2001 resulted in the second largest corporate bankruptcy in American history to date. The fraudulent practices of Enron executives resulted in stakeholder betrayals (Petrick & Scherer, 2003). Stakeholders were deceived by Enron executives, betrayals which contravene any ethical code. This choice among Enron executives to betray stakeholders in order to promote short-term financial gain resulted in the destruction of their own personal and business reputations, exposure to the possibility of criminal and civil prosecution, as well as bankruptcy (Petrick & Scherer, 2003). Stakeholders, including institutional and individual investors, were misinformed regarding the financial stability of Enron due to fraudulent accounting practices, and this resulted in a loss of millions of dollars. Secondary and tertiary stakeholders were also negatively affected by the Enron scandal (Petrick & Scherer, 2003). For example, Enron executives placed pressure on accounting and law firms to partake in unethical practices in order to accrue short-term, temporary gain (Petrick & Scherer, 2003).

Petrick and Scherer (2003) described how the several damages sustained by stakeholders in the Enron scandal are due to marked lapses in the four dimensions of management integrity capacity. These four dimensions include process, judgment, development and system (Petrick & Scherer, 2003). These lapses must be comprehended and corrected in order to structurally ensure moral foundations of remedies for current stakeholders, as well as effectively prevent the occurrence of Enron-type incidents in the future (Petrick & Scherer, 2003).

Values Identification

In order for businesses to be ethically sound, there must be a cohesive and uniform identification of values. This values identification must be instigated and promoted by those involved in leadership roles. Sims and Brinkmann (2003) described leadership as the most important component of an organization's culture because of the creative power they have within the organization. These authors outlined 5 main mechanisms by which an organizational leader can influence culture within the organization. These mechanisms included attention, reaction to crises, role modeling through their own leadership behavior, the allocation of rewards, and criteria used for selection and dismissal (Sims and Brinkmann, 2003). Employees will pay attention to issues that leaders pay attention to. In the Enron case, the two main leaders Jeffrey Skilling (former CEO) and Andrew Fastow (former CFO) focused primarily on the bottom line, including personal and company gain, and emphasized attaining these things by any means possible (Sims and Brinkmann, 2003). The values of the leaders of Enron were especially apparent during the crises within the company during 2000 and 2001 when the leaders responded to crisis situations by continually shifting blame, destroying documents, overtly lying, and lying by omission. These behaviors conveyed the message that any ethical wrongdoings must be concealed at all costs (Sims and Brinkmann, 2003).

Sims and Brinkmann (2003) described how employees often times mirror leaders behavior, which is a reflection of underlying values. With the Enron issue, the leaders did not establish and conduct themselves as ethical role models. The leaders of Enron were deceitful to investors regarding the debt of the company. This deception was accomplished through illegal partnerships. This behavior conveyed the message that full disclosure was not required or considered as important. Furthermore, Enron executives continually stressed the importance of the bottom line regardless of ethics by promoting employees who had openly disregarded executive decisions and rules when disobedience would prove to be profitable (Sims and Brinkmann, 2003).

Another illustration of the dysfunctional ethical environment promoted by Enron executives is evident in the company's evaluation methods. Employees of Enron were evaluated on performance alone, and the bottom 20% of performers each year were dismissed from the company (Sims and Brinkmann, 2003). This practice stressed the core value of the company to profit at any given cost even if it required crossing ethical lines. This also contributed to a work environment characterized by distrust (Sims and Brinkmann, 2003).

Issue resolution

Resolution of the organizational ethics issue in the Enron scandal could have been obtained through process integrity capacity (Petrick & Scherer, 2003). Process integrity capacity is essentially the alignment of moral awareness among individuals and collectively, deliberation, character and conduct. This alignment is executed on a sustained basis in order for reputational capital to result (Petrick & Scherer, 2003). Moral sensitivity among executives is necessary to ensure ethical business practices. In the case of Enron, executives were morally deaf mute and blind. They claimed themselves to be responsible citizens of the corporate world while they defrauded employees and investors in order to obtain short-term gains in profit (Petrick & Scherer, 2003).

Overall the ethical decision making style utilized by Enron executives was faulty. One of the most important components to ethical decision making is moral deliberation, the second part of process integrity (Petrick & Scherer, 2003). Moral deliberation encompasses the capacity to take part in the comprehensive and critical assessment of factors involved in moral issues and the recognition of options in order to establish an inclusive, reasonable, and balanced resolution policy that provides the foundation for future ethical determinations (Petrick & Scherer, 2003). Enron executives did not partake in effective moral deliberation. The decision-making style utilized by these executives focused only on short-term financial impact of issues and the preservation of decisive action and perks experienced by executives (Petrick & Scherer, 2003). Furthermore, these executives also ignored the harm their actions caused to stakeholders. In order to achieve issue resolution, executives must become committed to reasonable and honest moral deliberation (Petrick & Scherer, 2003).

Another key component to issue resolution is moral character. This involves the individual and collective capacity to readily act ethically (Petrick & Scherer, 2003). The Enron scandal was characterized by greed, arrogance, dishonesty, cowardice, selfishness, disrespect, hypocrisy and injustice among executives (Petrick & Scherer, 2003). All trust among employees disintegrated due to the executives' focus on financial gain at the expense of ethics and consideration of others. The Enron scandal illustrated a distinct lack of wisdom among leaders, further intensifying the absence of moral character (Petrick & Scherer, 2003). Moral character must be established in order for organizational ethics issues to be resolved effectively.