This paper argues that individual responsibility in ethical decision-making fundamentally surpasses corporate responsibility, because corporations — as non-intentional bodies — cannot truly be punished or held culpable for actions. Drawing on three high-profile case studies — Enron, WorldCom, and Nike — the paper examines the legal proceedings, sentencing of executives, and regulatory reforms that followed each scandal. It concludes that while corporate culture and codes of conduct can shape individual behavior, and while legal reforms may impose preventative restrictions on all businesses, meaningful accountability ultimately rests with the individual. The paper further argues that ethics education is essential to populating corporations with individuals capable of sound moral judgment.
As Beauchamp and Bowie stress in their work, it is true that individuals who come together in a group have the ability to collectively act in ways different from how they would act alone, but this does not give the collective a consciousness that would constitute an entity culpable for its actions. This paper argues that the role of the individual in ethical action surpasses that of the corporation, because by default the corporation is not an entity that can be held accountable for its actions. The corporation is not an intentional body.
Corporate character and corporate social responsibility have tended to rank high among social and ethical concerns in modern times. Developing systems in which corporations feel and act in a socially responsible manner is essential to the development of a business today, and yet it must also be made clear that corporate responsibility is limited. The corporation itself is the product of the limitations of liability upon the individuals who comprise it. Seeking redress for actions collectively conducted by a corporation is therefore difficult, as each individual's personal knowledge, action, and therefore liability must be investigated.
To discuss the concept of individual responsibility as it applies to corporate culture, this paper examines three high-profile case studies and discusses the ethical and legal issues surrounding them and the actions taken toward accountability. To better understand the reality of holding corporations accountable for collective or individual actions, one can choose from a plethora of corporate scandals and conduct changes that have occurred over the last twenty years. The three that stand out most are Enron, WorldCom, and Nike, as all three companies went through monumental accountability phases and two completely disbanded. Finally, this paper discusses the fact that altering the landscape of corporate responsibility requires essential changes in the individual, as ultimately the individual is the only party truly capable of action.
The foundation of the argument that individual responsibility surpasses corporate responsibility lies in the fact that there is no meaningful ability to pursue collective punitive action against a corporation, because the corporation cannot truly experience punishment. The corporation can be closed or forced to disband based on financial constraints imposed by a civil court, but it cannot be "punished" per se for the actions of the group. The actions of the individual are the only actions capable of receiving punishment, and in truth they are the only "actions" capable of occurring.
Enron and WorldCom are two names that will likely go down in infamy with regard to fraudulent business practices. They are also responsible for one of the most sweeping alterations in tax and accounting laws ever produced by a single piece of legislation. These changes impact all levels and sizes of business, as well as the accounting firms that serve them, for years to come. Yet these changes are external forces, not an imposition of individual ethics. In a sense, the changes that have occurred as a result of the Enron and WorldCom scandals, in conjunction with broader ethical concerns, are punitive and collective, applying to all corporations in order to protect the public from future fraud. In other words, they are preventative — restrictions on future actions — yet again, those who will be held liable if the rules are broken are the individuals who break them, not the corporations themselves. In business, much more thought must now go into both the real financial situation of a company and the financial situation reported to the public and stakeholders.
Enron has a long history of accounting discrepancies that have in the past verged on fraud and in some cases were deemed fraud by courts. As far back as 1987, individuals within Enron were fraudulently, and without corporate authorization, trading in oil stocks. Had those trades gone in favor of the two internal traders responsible, the fraud would likely have gone unnoticed, as the traders created separate books reporting to Enron that no such trading was occurring and that the financial situation of the company was far better than it actually was. Yet the traders' gamble was called when the trades went bad and were discovered by an internal Enron investigation, as were previous illegal above-limit trades that had resulted in the company paying the two traders significant unearned bonuses. In short, this was just the tip of the iceberg — an example of individual internal fraud against both Enron and its stakeholders.
What this episode points out is the ease with which individuals within very large corporations can shelter their fraudulent acts through the use of separate accounting books. Keeping two sets of books is a common business practice and was not previously illegal. One set displays the real day-to-day financial health of the company, while the other represents the close of the business quarter or fiscal year and is frequently adjusted to make the company appear more favorable. The work of accounting auditors — both internal and external — has in large part been to reconcile each set so they more closely reflect the company's actual health. Because this reconciliation is a retrospective practice rather than an ongoing one, individuals who knowingly sought to manipulate the budget could do so easily in the time between reconciliation periods.
Enron executives repeatedly engaged in questionable trades and charged consumers excessive prices for energy services to cover bad bets. To conceal the damage, they frequently misrepresented the company's financial health to stakeholders. Enron then managed to persuade individual auditors at Arthur Andersen LLC to help cover up its bad trades, which were under investigation by the Securities and Exchange Commission. All of this occurred between 1999 and 2001. Enron's gambling had not paid off, and for various reasons — including bad business deals and poor exchange speculation — the company filed for bankruptcy in 2001. In doing so, the company settled for pennies on the dollar with shareholders, many of whom had never diversified their portfolios and who lost everything.
The frauds committed by Enron, and more specifically by its top executives, were multiple, including wire fraud, securities fraud, and money laundering — the most significant charges that were eventually prosecuted against individuals rather than the company. A notable detail is that Enron itself was never charged with any crime. Its top executives faced an unprecedented investigation that ended very badly for them personally, but no compensatory damages were awarded to those who lost money.
The response to the Enron debacle was the formation of the Enron Task Force, comprising assistant U.S. attorneys drawn from multiple jurisdictions, joined together to confront what was characterized as the fiercest threat to the U.S. investor. Beginning with middle management, the Task Force was able to construct, through testimony given in exchange for leniency, a criminal case against the two figureheads of Enron: Ken Lay, former CEO and Chairman of the Board, and Jeff Skilling, former President and CEO. Lay and Skilling came to symbolize everything that was seen as wrong with corporate greed — two millionaires who continued to enrich themselves as their empire burned, taking investors and employees down with it.
Lay was charged with multiple counts of conspiracy to commit securities and wire fraud, securities fraud, and wire fraud. He was also charged with four counts of bank fraud, which were tried in a separate bench trial. Skilling was charged with conspiracy to commit securities and wire fraud, multiple counts of securities fraud, false statements to auditors, and insider trading. Lay was found guilty on all counts and faced a maximum prison term of 165 years; Skilling was found guilty on nineteen counts and faced a maximum prison term of 185 years. After Lay's death in July 2006, his conviction was vacated on all counts. Skilling was sentenced to slightly longer than the minimum allowed under the Federal Sentencing Guidelines — twenty-four years — and his sentence was subsequently appealed.
The development of the Enron Task Force created an additional layer of shelter for many participants, as those willing to divulge information were shielded from prosecution. The legal system, and to some degree society at large, felt that if the men at the top escaped consequences entirely, the system would have substantially failed the nation.
"WorldCom's collapse, Ebbers's conviction, investor losses"
"Nike's labor ethics violations and code of conduct reforms"
"Public and legal response to corporate accountability failures"
A leading expert on corporate social responsibility reasons that these companies are not populated by enough people with universal ideals of social responsibility. This is a statement that many experts agree on — that culpability lies ultimately with the individual working for any corporation, who must speak out when problems are identified and force action. Sims suggests that the value of educating individuals about corporate social responsibility serves the best interests of both the public and the corporation. This perspective successfully amends the thesis: it becomes the shared responsibility of both the corporation and the education system to teach ethics in a manner that is applicable to individual decisions made within a corporate context. Sims calls this creating a "universal ethical principle orientation," which he defines as follows:
You’re 46% through this paper. Sign up to read the remaining 3 sections.
Sign Up Now — Instant Access Already a member? Log inAlways verify citation format against your institution’s current style guide requirements.