This paper responds to Daniel Terris's critique of Lockheed Martin's corporate ethics program, focusing on whether the program adequately addresses ethical breaches at the highest organizational levels. Drawing on examples from Enron, Tyco, and Adelphia, the paper argues that ethics training alone is insufficient when structural incentives, conflicts of interest, and weak oversight persist. The paper evaluates proposed remedies including independent board structures, Sarbanes-Oxley compliance, executive compensation clawbacks, and whistleblower protections. It also addresses group dynamics in ethical decision-making and recommends cultural and governance reforms to foster accountability throughout the organization.
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There is good reason to agree, at least in part, with the notion Terris presents regarding Lockheed's ethics program. As stated by Terris on page 117, "Lockheed Martin's ethics program addresses people, but it does not address systems." With this observation, Terris makes the point that ethics programs within the corporation are far more reactionary than forward-looking. Similarly, according to Terris, little is done to oversee the ethical standards of top-level management. In the case of Lockheed Martin, lower-level employees often have standards and procedures to guide ethical conduct, but high-level management frequently neither maintains nor complies with those same standards.
For one thing, there is very little oversight and pushback for top-level executives in the organization. In many instances the board of directors is subject to the information provided to them by senior leaders (Hoffman, 1982). As such, board members — who are often closely connected to executives through formal relationships — are frequently complicit in any unethical behavior on the part of those executives. Terris uses the examples of Enron, Tyco, and Adelphia to illustrate unethical practices by higher-ranking corporate executives. In each case, the executives essentially lied, obfuscated, and concealed vital information from the board of directors and the investors they were supposed to represent. These executives went to extraordinary lengths to hide critical information from regulators and government authorities as well.
Even more alarming, many employees' pension and retirement assets were tied to Enron stock, which eventually became worthless during the company's bankruptcy. All of these circumstances support the point Terris makes — that ethics programs do little to prevent breaches by top-level executives (De George, 1994).
Unfortunately, efforts such as requiring higher-level executives to participate in ethics training are not sufficient on their own. Although training is helpful and a welcome addition, more safeguards are needed to prevent unethical behavior. As Terris alludes to, many of the most unethical executives at Tyco and Enron had received some form of ethics training, either through college or through continuing education courses. Nevertheless, the incentives, conflicts of interest, and principal-agent problems they faced created compelling pressure to behave unethically.
These same issues are pervasive throughout the business world. Globalization, for example, places greater pressure on executives to compete and grow relative to industry peers (Stafford, 2005). As a result, executives may engage in unethical practices in order to meet earnings-per-share targets, analyst expectations, or bonus thresholds. This, in turn, can lead to behavior that undermines the overall viability of the organization. For example, management may pursue inappropriate acquisition activity, use complex accounting treatments to hide poor performance from investors, or mislead investors with overly optimistic projections. Each of these elements is present within the ethical minefield that Terris describes on page 123. Without proper structural safeguards, that minefield will continue to exist regardless of training (Hoffman, 1982).
"Independent boards, Sarbanes-Oxley, and clawback remedies"
"Whistleblower culture and board oversight counter groupthink"
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