Business Ethics and the Enron Scandal: Lessons Learned

Introduction: Business Ethics and Corporate Misconduct

Business ethics are widely regarded as critically important today, yet many businesses still fail to engage in ethical behavior — whether toward their own employees or toward the distributors, suppliers, and other companies they work with. While this is unfortunate, there are cases where companies are not caught for a very long time, and this prolonged secrecy makes them feel secure in what they are doing, even though they are aware that it is wrong. Their concern lies not with doing what is right, but with avoiding detection for doing what is wrong.

In Enron's case, the company was caught in its dishonest dealings, and the entire organization virtually collapsed. However, the repercussions extended far beyond the company itself. Employees lost their pension plans and their jobs, and larger societal impacts became apparent in the days and weeks after the Enron scandal made headlines. Throughout this paper, Enron is discussed in the larger context of a societal concern that could yet befall other companies.

The concept of business ethics has been around for many years, but many companies and employees remain unclear on what is and is not ethical in many situations. Some managers believe it is important to treat employees ethically but feel that ethics are unnecessary when dealing with other companies in the competitive business world. Others do the opposite — treating employees poorly while being fair in dealings with competitors. What counts as "ethical" can become a matter of opinion, which makes business dealings difficult for many (Garrett & Klonoski, 1986).

Business ethics do not require understanding from a managerial standpoint alone. Employees should also be aware of what business ethics really mean and what the ethical rules of their company are. Most employees would agree that stealing money from their employer is wrong. However, those same employees might think nothing of taking home a pen or a notepad. While such items may seem insignificant, even small matters are part of the ethical dilemmas that face companies today.

Over and above small items are larger issues such as discrimination, sexual harassment, and the overall treatment of employees. These larger issues are more easily recognized as ethical dilemmas, but both large and small concerns are important to the ethical running of any business. Business ethics is currently a very prominent topic, yet not enough is being done to correct the wrongs that still occur every day. There is always more that companies can do to protect themselves and their employees, and the field of business ethics still has a long way to go to meet the high standard that such an important societal topic demands.

Ethical considerations in business must not be merely a line item on a company mission statement or a document signed at the time of hiring. Ethics must be an ongoing process of re-examining codes of conduct and ensuring that those codes remain up-to-date and relevant. It is also necessary to verify that employees who agreed to uphold those codes are continuing to do so. All the written codes in the world will not make a difference if management fails to act on them. Leaders must remain sensitive to employees' racial and cultural differences and assure employees that policies are in place to prevent unethical behavior.

Following Enron's collapse, calls went out to revamp the business ethics movement. Most observers believe there are still large deficits in the ethical codes of most businesses if a company like Enron can fall apart the way it did. The central question for Enron's executives is how people believed to be so intelligent could lack the moral courage to tell the truth — and why they made no effort to ensure that everyone in the company was operating in an ethical and legal manner.

Greed is one of the suspected reasons why Enron's executives failed to seek out and tell the truth. When the economy becomes unstable, the morals of some companies can weaken as well. Large companies face tremendous pressure to perform, worry about profits, and worry about their stock price on Wall Street if they fail to meet expected quotas. Even though these pressures help explain why companies sometimes fail to exercise proper moral judgment, they do not make those decisions correct or ethically viable.

One of the problems with the business ethics movement today is that ethics courses often lack real-world application. Many of these courses spend considerable time on issues such as environmentalism and affirmative action while not spending enough time on integrity and truth-telling, which are arguably more important (Bernstein, 2000). The business ethics movement is currently making strides, partly due to Enron and other large companies that have run afoul of the law. For the movement to continue and remain sound, other companies must learn from Enron's mistakes and ensure they do not subscribe to the same flawed moral codes. Anyone can hang a code of conduct on the wall, but following it is where the real work lies — and businesses that fail to follow it will, sooner or later, end up where Enron did.

The Information Dilemma and Truth-Telling in Business

Several ethical dilemmas confronted Enron during its difficulties. The first is the information dilemma. In this dilemma, employers and employees weigh whether to tell the whole truth, a partial truth, or an outright lie. "Whole truth" and "outright lie" are straightforward concepts, but "partial truth" is a grayer area. Partial truths fall under the category of misinformation — they are not the complete story, yet they are not entirely dishonest either. For example, if a prospective employee is asked why he left his previous job and says he felt it was time to explore other opportunities, while omitting that his boss was about to fire him for losing an important account, that is misinformation. Unfortunately, the information dilemma encompasses issues far more serious than a white lie during a job interview, including misleading advertising, product safety, and bargaining tactics during negotiations (Donaldson & Gini, 1984).

There are two basic schools of thought in the business world about lying. The first holds that business is somewhat like a poker game: while a minimum level of honesty is required, a certain amount of bluffing is also acceptable. Such bluffs include slogans claiming that customers "have a friend" at a particular company — no one seriously believes this to be literally true; it is understood as a statement about the friendliness of staff and service. This school of thought also deems it acceptable, for example, for an older job applicant who fears age discrimination to misrepresent their age on an application (Donaldson & Gini, 1984).

The other school of thought reflects views such as those of Immanuel Kant. According to Kant, lying for any reason at any time is completely unacceptable. Kant does, however, distinguish lies from false statements, suggesting that false statements are acceptable in games when the statement is part of the game itself (Donaldson & Gini, 1984). Those who view the business world as a game might therefore feel that false statements are entirely acceptable. Kant also considers false statements acceptable in one other circumstance — when someone is being tortured by enemies — though it is highly unlikely that such an excuse would apply in today's business environment.

Companies today seek a balance between outright lying and the strict views of Kant. Employees and employers alike are encouraged to tell the truth regardless of the cost, and many companies have open-door policies that allow employees to bring grievances to management without fear of losing their jobs. Employees are being rewarded for honesty, and managers continue to encourage communication between supervisors and subordinates. Management is also looking for ways to encourage employees to report colleagues who may be involved in something dishonest or illegal (Jones, 1982). Not all employees will take advantage of these policies, as some still fear retaliation for whistleblowing, but laws are now in place to protect the rights of employees who report misconduct by colleagues or employers.

References

Bernstein, S. (2000). "Shell in Nigeria." Business Students Focus on Ethics. Eds. Ryan, Leo V., Wojciech W. Gasparski, & Georges Enderle. New Jersey: Transaction Publishers.

Donaldson, T. & Gini, A.R. (1984). Case Studies in Business Ethics (2nd ed.). New Jersey: Prentice-Hall.

Garrett, T.M., & Klonoski, R.J. (1986). Business Ethics (2nd ed.). New Jersey: Prentice-Hall.

Goodpaster, K.E. (1984). Ethics in Management. Boston: Harvard Business School.

Jones, D.G., Ed. (1982). Doing Ethics in Business. Massachusetts: Oelgeschlager, Gunn & Hain.

Kanungo, R.N. & Mendonca, M. (1996). Ethical Dimensions of Leadership. California: Sage Publications.