Ethical Values Set Standards example essay topic

ETHICAL DILEMMAS IN TODAYS BUSINESS Ethical Dilemmas in Today " business Environment Rick Jones University of Maryland University CollegeADMN 630 December 18, 2002 It is almost impossible to pick up any American newspaper and avoid reading an article dealing with the unethical and possibly even illegal conduct of those who run our businesses. Whether it is insider stock manipulation, off balance sheet partnerships, questionable accounting practices, dumping of environmental contaminants, the stories continue to appear. The ethical conduct of U.S. businesses will be examined and compared with that of the past. The ethical climate has changed in the last couple of decades.

Unethical conduct is nothing new to the business environment. Unethical practices didn't necessarily bring a business down ten to twenty years ago, but unethical business practices today can lead to the premature death of a company. Companies such as Enron, Exxon, Ford, Union Carbide and Johnson & Johnson have all had occasions where unethical practices have reared their ugly heads and each chose to handle things differently, with varying degrees of consequence. Each of these company's bout with unethical behavior will be examined. In July of 1985 Houston Natural Gas merged with Inter North to form Enron, originally Natural Gas Pipeline Company. In 1989 Enron began trading natural gas commodities.

In June 1994 Enron traded its first unit of electricity. In just 15 years, Enron grew from nowhere to be America's seventh largest company, employing 21,000 staff in more than 40 countries. Unfortunately, the firm's success turned out to have involved an elaborate scam. Enron lied about its profits and stands accused of a range of shady dealings, including concealing debts so they didn't show up in the company's accounts. As the depth of the deception unfolded, investors and creditors retreated, forcing the firm into Chapter 11 bankruptcy in December 2001 (Zellner, 2002).

Enron's deceptions include the off balance sheet partnerships that enriched Chief Financial Officer (CFO), Andrew S. Fastow and his cronies while concealing Enron's deteriorating financial state ("Enron Scandal at a Glance", 2002). There was the easily manipulated " mark to market" accounting that let Enron book revenue up front on long term deals instead of spreading it out over years (Zellner et al. 2002). Top management abused the system to inflate bonuses while worrying little about the deals' real profitability.

Lastly, there were the money losing, horribly run businesses around the globe, which ultimately left Enron, strapped for cash and headed for a death spiral. Robert Bryce and Brian Cruzer, Texas journalists, account various lapses in ethical behavior at Enron by key personnel (Zellner, 2002). In "Anatomy of Greed", Bryce sketches the corrupt cast of characters who steered this "Titanic" (Zellner et al. 2002).

Chairman, Kenneth L. Lay, who preferred to hobnob with the politicians he bought and paid for in Washington, rather than minding Enron. He claimed to be "kept in the dark" by Enron's self dealing financiers. Lay had a duty to his shareholders to give them full disclosure and to operate in good faith. He told his employees that the stock would probably rise but neglected to tell them that he was dumping the stock (Berenbeim, 2002). The employees could not have learned that he was doing so in a matter of days or weeks, as is ordinarily the case.

Why the delay? The stock was sold to the company to repay money that the Chief Executive Officer (CEO) owed Enron (Berenbeim et al. 2002). Officer sales of stock to the company qualify as an exception to the ordinary director and officer disclosure requirement. Such transactions don't need to be reported until 45 days after the fiscal year.

Relying on this technicality, the Enron CEO cast serious doubt on his claim in which he suspected the stock would increase in value. An auditor who recommended that the company switch travel agencies, avoiding one that's half owned by Lay's sister, soon finds himself out of a job (Zellner et al. ). Lay's grown daughter used an Enron jet to transport her king size bed to France. One of the main reasons Enron laid in ruins was CFO, Andrew Fastow. He was one of the leading conspirators in falsifying the balance sheets to mislead shareholders.

In October of 2001, Enron reported a $618 million third quarter loss and had to disclose a $1.2 billion reduction in shareholder equity partly related to partnerships run by CFO, Andrew Fastow. The next month Enron filed documents with the SEC for $586 million in losses. Fastow was finally fired on October 24, 2001. The Enron board twice waived the company's own ethics code requirements to allow the company's CFO to serve as a general partner for the partnerships that it was using as a conduit for much of its business (Berenbeim, 2002). The Enron collapse timeline follows, with associated stock prices: Feb. 5th- Some senior Anderson officials discuss dropping Enron as a client. Feb. 12th- Jeffrey Skilling becomes Enron's CEO.

May- Vice-Chair Clifford Baxter complains of the "inappropriateness" of Enron's partnership deals. Aug. 15th- Kenneth Lay receives Watkins warning letter. Aug. 20/21st- Lay sells 93,000 shares, earns 2 million, urges employees to buy company stock. Oct. 16th- Enron reveals $1.2 billion decrease in company value. Oct. 23rd- Arthur Andersen accelerates disposal of Enron related documents. Nov 8th- Enron admits inflating income almost $600 million since 1997.

Nov. 9th- Duncan's assistant e-mails other secretaries to "stop the shredding". Dec. 2nd- Enron files for bankruptcy. Jan. 15th- Enron suspended from New York Stock Exchange. In a report that condemns Enron Corp's senior managers, directors, accountants, and lawyers, a special committee of Enron's board said that the company had inflated its profits by almost $1 billion in the year before it's financial collapse through Byzantine dealings with a group of partnerships. As oversight broke down at Enron, a culture emerged of self-dealing and self-enrichment at the expense of the energy company's shareholders ("Why wasn't Enron's", 2002).

Accountants and lawyers made flawed and improper decisions every step of the way, the report concluded. The transactions, which resulted in the company's collapse, were caused by a "flawed idea of self-enrichment by employees, inadequately designed controls, poor implementation, inattentive oversight, simple (and not so simple) accounting mistakes, and overreaching in a culture that appears to have encouraged pushing the limits. Our review indicates many of those consequences could and should have been avoided" ("Why wasn't Enron's" et al. 2002).

An ethical dilemma is a situation, which a person must decide whether or not to do something that although benefiting them or the organization, or both, may be considered unethical. Often, ethical dilemmas are associated with risk and uncertainty, and with routine problem situations. Just how decisions are handled under these circumstances, ones that will inevitably appear during one's career, may well be the ultimate test of one's personal ethical framework (Schermerhorn, Hunt, and Osborn, 2000). Of the values that make up an organizations culture, ethical values are now considered among the most important.

Ethical standards are becoming part of the formal policies and formal cultures of many organizations. (Daft, 2001). Ethics are the code of moral principles and values that govern the behavior of a person or group with respect to what is right or wrong. Ethical values set standards as to what is good or bad in conduct and decision making (Daft et al. 2001). The rule of law arises from a set of codified principles and regulations that describe how people are required to act.

They are generally accepted in society and are enforceable in the courts (Daft et al. ). Ethical standards mostly apply to behavior not covered by the law, and the rule of law covers behaviors not necessarily covered by ethical standards. The standards for ethical or social responsible conduct are embodied within each employee as well as within a company itself (Daft et al.

). In addition, external stakeholders can influence standards of what is socially responsible and ethical. When one attempts to decide if a decision is ethical or socially responsible one draws from one's beliefs and values, moral development, and ethical framework. Every person brings his / her own set of personal beliefs and values into the workplace. Moral reasoning and personal values are the moral reasoning that translates these values into one's behavior and are a critical aspect of ethical decision making in organization (Daft, 2001). The organization's rituals, ceremonies, stories, heroes, language, slogans, symbols, founder and history also influence one's decisions.

Since business practices reflect the values, attitudes, and behavior patterns of an organization's culture, ethics are as much an organizational issue as a personal one (Daft et al. 2001). External stakeholders such as government regulations, customers, special interest groups, and global market forces influence one's moral behaviors. Socially responsible and ethical decision making recognizes that the organization is part of a larger community and considers the impact of a decision or action on all stakeholders (Daft et al. ). Lastly, organizational systems, which are set in place to foster ethical behavior, such as structure, policies, rules, code of ethics, reward systems, selection, and training influence moral decision making.

Formal organizational systems include basic architecture of the organization, such as whether ethical values are incorporated in policies and rules. Whether an explicit code of ethics is available and issued to members, whether organizational rewards, including praise, attention, and promotions, are linked to ethical behavior. These formal efforts can reinforce ethical values, which exist in the informal culture (Daft et al. ). Rarely can unethical or ethical business practices be attributed entirely to the personal ethics of a single employee. Because business practices reflect the values, attitudes, and behavior patterns of an organizations culture, ethics are as much an organizational issue as a personal one (Daft et al.

). To promote ethical and social behavior in the workplace, organizations, should make ethics an integral part of their culture. Ethical standards should be embedded in an organizations culture. In the late 1960's the demand for sub compacts was rising on the market, in the United States. The President of Ford Motor Company, Lee IaCocca's specifications for the design of the car were uncompromising. The Pinto wasn't to weigh over 2,000 pounds and cost over $2,000.

When Ford performed crash tests, during design and production of the car they revealed a serious defect in the gas tank. In crashes over 25 miles per hour, the gas tank ruptured on impact. In order to fix this problem, the design would have to be strengthened and changed. "When it was discovered the gas tank was unsafe, did anyone go to Iacocca and tell him? "Hell no", replied an engineer who worked on the Pinto, a high company official for many years...

"That person would have been fired. Safety wasn't a popular subject around Ford in those days. With Lee it was taboo. Whenever a problem was raised that meant a delay on the Pinto, Lee would chomp his cigar, look out the window and say, "Read the product objectives and get back to work ("The Exploding Ford Pinto", 1977)". Ralph Nader brought automobile safety to the public's attention in 1965 with his book, "Unsafe at Any Speed".

Automobile safety was just starting to be regulated by the government, but Ford had a way of getting around it. Lobbyists of various automakers and Ford convinced the government to delay regulations on fuel tanks for eight years. Ford used a cost benefit analysis as one of the tools to argue for the delay in government regulations for fuel tanks. According to the estimates conducted by accountants at Ford, the unsafe tanks would cause 180 burn deaths, 180 serious burn injuries, and 2,100 burned vehicles each year. Ford calculated that it would have to pay $200,000 per death, $67,000 per injury, and $700 per vehicle, for a total of $49.73 million. However, the cost of saving people from dying and getting injured ran even higher.

The alternatives to the car would cost $11, which added up to $137 million per year. For essentially argued that it would be cheaper to let people die than repairing the car ("The Exploding Ford Pinto", 1977). The public eventually learned that the Pinto had a tendency to explode when it got rear ended. The families of the victims and the victims themselves sued Ford over their negligence. Jurors were outraged over Ford's lack of ethics and their low value of human life.

They awarded the victims and their families huge settlements. The final shocker came when Ford actually got around to fixing the flawed gas tanks. The cost benefit analysis, which was done by Ford and submitted to the government was completely wrong; the actual cost of fixing each car wasn't $11, but rather $1 ("The Exploding Ford Pinto" et al. 1977). In 1978, three girls driving the Ford Pinto, from Goshen Indiana, were hit by a van that was attempting to pull out of a gas station. The Ford Pinto exploded killing all three girls in the resulting fire.

When the police conducted their investigation, it was discovered that a fuel tank rupture in the car caused the explosion. Ford Motor Company was indicted in August 1980 in Winamac, Indiana. This was the first case of this kind because of reputation reasons ("Business Ethics", 1999). Indiana law allowed corporations to be tried based on criminal charges. The charges against Ford were criminal homicide. Ford ended up winning the case, but several facts came out.

First, Ford designed the Pinto to compete with foreign import models, which got better gas mileage. Ford wanted to get it out to the public as quickly as possible so it rushed its design. Second, Ford knew about the potential of fire if the car was in a rear-end accident at a speed of greater than 25 mph ("Business Ethics" et al. 1999). The model met the current year's safety standards, so Ford management decided to go ahead with production even if it meant customer deaths. Third, the rear impact explosion could have been avoided if a rubber bladder was installed to cushion impact.

Fourth, Ford had performed a cost benefit analysis, which resulted in the cost of installing the part to be higher than the damage given to the victims resulting from the fatalities. Lastly, Ford recalled the Pinto in an attempt to save their reputation. Ford made many bad choices in its decision to continue manufacturing the Pinto without adding any king of safety improvements. They acted unethically, using profits as the measuring stick of what to do with the car. Ford knew the Pinto was unsafe and lobbied for years to keep the safety standards from rising. While Ford's actions were technically within the law, they were unethical.

Their management team put a numerical value on life, which is impossible to do. They acted mainly to satisfy their stockholders, but because of their actions ultimately hurt the stockholders. Ford had an ethical responsibility to all who had a claim in the company, the suppliers, stockholders, employees, community, and customers. Not only did they put people's lives at risk, they ultimately tarnished their name by providing a bad product, and by not fixing the defect once they knew about it. Their actions were finally exposed to the public and ruined the integrity of the company. Their actions caused the Pinto to go out of production.

In the morning of December 3, 1984, a holding tank at the Union Carbide pesticide factory in Bhopal, India burst due to overheating. The result was a release of methyl iso cyanate (MIC), a highly toxic gas. MIC, hydrogen cyanide and at least 65 other gases spread across the city in a cloud killing 5,000 people within the span of three days. The leaves of the trees in the city turned black. Some people drowned in their own bodily fluids; others were trampled to death trying to escape ("17 Years after", 2001).

Eighteen years later, survivors suffer from breathlessness, depression, deadly cataracts, loss of appetite, memory loss, menstrual irregularities, persistent coughing and recurrent fever. At least 20,000 people have died from being exposed to the gases. Approximately 15 to 20 more die each month ("17 Years after" et al. 2001). Warren Anderson, The CEO of Union Carbide, was charged with culpable homicide in India. Under his direction, the interests of profit were paramount at the expense of safety standards.

The number of operators in the MIC unit at Bhopal was cut by 50% between 1980 and 1984. Of the three safety systems that should have averted the disaster, one was switched off, one malfunctioned and one was under repair ("17 Years after", 2001). In 1989, Union Carbide paid $470 million on the condition it could not be held liable in any future criminal or civil proceeding, as part of a court settlement. As of June 2001, 90% of death settlements were for $550, the minimum amount allowed by Indian federal regulators ("17 Years after" et al. 2001). In many cases this was much less than what the victims initial debts were for medical and funeral services.

Over the last 18 years, Union Carbide which has now become Dow Chemical have refused to supply documents which reveal the composition of the gases, claiming the company would be jeopardizing trade secrets by making the documents public. Union Carbide's lack of ethical behavior in this case was reprehensible. The senior management's lack of ethical behavior led to the catastrophe. They decided to throw money at the situation and make the problem go away. It might have gone away here in the United States, but the suffering continues in Bhopal. The unethical treatment of the victims continues today by holding the composition of the gases as a secret.

Union Carbide's name and integrity was irreparably tarnished. They minimized the damage by merging with Dow Chemical and taking their name. Their moral duty, to the victims as the result of their callous and immoral behavior, hasn't come close to being paid. The reason they got away with this kind of tragedy is because it happened in a third world country and because they paid off the Indian government. An estimated $240 million of the settlement is in the Indian government's stewardship. Accrued interest will not be passed along to survivors.

The Indian Attorney General has recently suggested that all the charges against Anderson may be dropped ("17 Years after", 2001). Johnson and Johnson experienced a major crisis when it discovered that numerous bottles of its Extra Strength Tylenol capsules had been laced with cyanide (Hogue, 2001). By the end of the crisis, the death toll reached seven. Johnson and Johnson was faced with some tough decisions, initially that would impact the future of the company.

Instead of thinking in financial terms, unlike the previously mentioned companies, CEO James Burke, immediately turned to the company credo. Written by Robert Johnson in 1943, the document defined the focus of the company as its customers (Hogue et al. 2001). Tylenol used the media immediately to begin alerting people of the potential dangers of the product. To determine the source of the tampering, Tylenol dispatched scientists to the manufacturing plant. The company ordered a massive recall of more than 31 million bottles at a cost of more than $100 million (Hogue, 2001).

It temporarily replaced the capsules with more tamper-resistant caplets after temporarily ceasing all production of capsules. This type of drastic response had never been attempted before, which prompted much criticism. Tylenol used the crisis to demonstrate to its customers that its commitment to customer safety and to the quality of the Tylenol product was paramount. Directly following this incident Johnson and Johnson's stock fell several points. It's percentage of the non-prescription pain reliever market dropped from 35 percent to 8 percent (Hogue et al. 2001).

The company's willingness to be open with the public and communicate with the media facilitated the company in maintaining a high level of credibility and customer trust throughout all of the troubled times. Within days, the company aired commercials to regain the public's trust. In November of 1982, it promised to have the product back on the shelves with a new triple resistant package. It offered incentives such as special coupons and free replacement of caplets for the capsules, in an attempt to maintain it's customer base (Hogue, 2001).

In the following spring, Johnson and Johnson had regained its previous market share and built up customer brand loyalty. Four years later another isolated capsule incident occurred resulting in a woman's death. Despite the fact this case was identified as an isolated incident, Johnson and Johnson decided to permanently discontinue capsule products. Top management's good ethical compass solidified Johnson and Johnson's good reputation with people. Their first loyalty was to their customers and not to their pocketbooks. This ethical behavior will be rewarded for years to come.

Exxon Corporation caused one of the worst environmental disasters in 1989. The Exxon Valdez oil tanker ran aground on March 24, spilling more than 10 million gallons of oil into Alaska's Prince William Sound. Exxon's efforts to contain the spill moved at a snail's pace and their response was even slower. Exxon's top priority was cleaning up the 10 million gallons of spilled oil. It took company officials 10 hours after the accident to deploy booms to contain the spill (Hogue, 2001). Exxon refused to acknowledge the extent of the problem, which in part, was due to the advice of the company's legal counsel.

In an attempt to further stonewall, company executives refused to comment on the accident for almost a week. The CEO Lawrence Rawl waited for 6 days to make a statement to the media. This led the public to believe something shady or immoral was being done. It took him nearly 3 weeks to visit the scene of the accident.

Cumulatively, these actions left the public with the impression that Exxon didn't take the accident seriously. Exxon's slow response, insufficient communication, and futile attempts to remedy its damaged reputation fell far short of their goals. Exxon blamed state and federal officials for the delays in containing the spill initially. When an Exxon executive was asked how they intended to pay for the cleanup costs, he responded by saying it would raise gas prices to pay for the incident (Hogue, 2001). Exxon spent $18 million to take out full page adds in 166 papers, 10 days after the spill, to apologize for the spill. It still refused to accept responsibility (Hogue et al.

2001) Exxon's lack of ethics led to them paying a steep price in several different ways. $2.5 billion was spent on the cleanup effort. $1.1 billion was paid in various settlements. A federal jury rendered $5 billion fine in 1994 for its recklessness. After appeal, it was lowered to $4 billion (Wallace, 2002). Exxon's image was permanently tarnished.

Many customers were so angered by Exxon's actions that they cut up their Exxon credit cards and mailed them to Rawl. Others continue to boycott Exxon products to this day, as do I. According to a study by Porter / Novell i several years after the accident, 54% of the people surveyed said they were still less likely to buy Exxon products. (Hogue, 2001). The attempts to evade responsibility and defer blame angered Exxon's customers. By the time the media was finished with Exxon, their name was synonymous with environmental catastrophe.

We have looked at several companies that had lapses in ethical judgment in dealing with a crisis. Crises do not discriminate based upon a company's notoriety or size, and can strike when an organization least expects them. Crises come in many different forms: allegations of misconduct, environmental disasters, layoffs, product recalls, and strikes, but while some may seem tiny, each and every crisis has the potential to cripple a company's reputation. (Hogue, 2001).

Regardless of how big or small a situation is, the crisis poses a serious threat to a company's financial well being as well as their reputation. The factor, which determines an organization's ability to withstand a crisis, is its ability to respond to the crisis quickly and honestly, with a good moral compass. The public will forgive accidents, but will bury a corporation that responds unethically or inadequately. In the public relations field, perception is, in fact, reality (Hogue et al.

2001). One survey discovered some unsettling facts: Seventy five percent of people surveyed said organizations don't take responsibility for crises. Seventy five percent said organizations don't usually tell the truth, (Hogue et al. ).

Overcoming the high level of cynicism is crucial. How the public perceives the organization will ultimately determine the future of the organization. Time is at a premium during any crisis. Companies need to plan for the future by having a crisis management plan in effect in case of an emergency.

This plan will spell out who, what, when, where and how the organization will deal with crises (Hogue et al. ). The materials needed to handle a crisis such as press releases, initial official statements fact sheets are already printed and ready to have the missing information filled in. Enron failed because their ethics disappeared from top management down, their responses were slow to the crisis, their unethical business practices and unlucky South American business ventures caught up with them.

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