Ethics and Business Decision Making. Worldcom , Enron and others…. Ethics can be defined as…. The study of what constitutes right or wrong behavior.
Worldcom, Enron and others…
The study of what constitutes right or wrong behavior.
Business ethics focuses on what constitutes right or wrong behavior in the business world and on how moral and ethical principles are applied by business persons to situations that arise in their daily activities in the workplace.
An in depth understanding of business ethics is important to the long run viability of a corporation. Also important to the well being of the individual officers of the corporation, as well as to the welfare of the firm’s employees.
Officers/partners in the corporations owe a fiduciary duty (a duty of trust and loyalty ) to each other and to the firm.
Many unethical decisions are made simply because they can be. In other words, the decision makers not only have the opportunity to make such decisions but also are not too concerned about being seriously sanctioned for their unethical actions.
Looking the other way-a manager who looks the other way when she or he knows about an employees unethical behavior also sets an example-one indicating that unethical behavior will be tolerated.
Periodic evaluation-some companies require their managers to meet individually with employees and to grade them on their ethical behavior. This serves two purposes, it demonstrates to employees that ethical matters and it gives the employees an opportunity to see how the measured up.
See page 105 for Enron case study, in a nutshell….
Enron was the first company to benefit from the deregulation of electricity market. By 1998, Enron was the largest energy trader in the market. Enron diversified into water, power plants, and high speed internet and fiber optics. Because Enron's managers received bonuses based on whether they met earnings goals, they had an incentive to inflate the anticipated earnings on energy contracts, which they did. Enron included anticipated earning in its current earnings report. Then, to artificially maintain its reported earnings, Enron created a complex network of subsidiaries that enabled it to move losses to its subsidiaries and hide its debts. The overall effect of these actions was to increase Enron's apparent net worth. These transactions were frequently carried out in the Cayman Islands to avoid paying federal income taxes. Enron's CEO started a pattern of self dealing by doing business with companies owned by his children. Enron's management was informed about these incidents of misconduct on numerous occasions, yet the company concealed the issues for years until they were bankrupt.
Foreign Corrupt Practices Act-passed in 1977 prohibits U.S. businesspersons from bribing foreign officials to secure beneficial contracts, has accounting requirements, and has penalties for violations.
Prior to that, press and government officials uncovered a number of business scandals which led to the law being passed.
Are passing laws, in 1997 the Organization for economic Cooperation and Development created a treaty that made bribery a serious crime. By 2004, at least 35 countries had adopted the treaty.
Ethics Resource Center-non-profit organization devoted to promoting ethics since 1922.