In terms of advice of how to avoid the downfalls of companies like Enron and Worldcomm, one has to look closely at the actual occurrences of these scandals and ethical breaches, and then come to conclusions about real world problems which avoiding these breaches can solve. There are many leadership roles that can also be factored into the examination, such as human relations leadership, charismatic leadership, autocratic leadership, and other structures. When people start having major differences about issues like ethics and corporate issues of social responsibility and ethical adherence, those who are involved need to do a costs benefits analysis in order to start “adopting higher standards before declaring any proposed policy solution to be the obvious best choice. That sort of analysis has been woefully absent, and instead we are witnessing the rise of ethics by intimidation” (Kapstein, 2001).
One leadership solution for the company seeking to avoid and Enron like situation would be to use human relations style leadership. The human relation theory covers many different environments, including ethical considerations, legal considerations, and considerations for the level of teamwork in the organizational environment. The main ethical imperatives that are included in this theory are openness and transparency, equal participation, involvement, conflict resolution, consensus, and morale building. This is basically a theory that values the social and ethical fabric of the organizational environment over any sort of rationalized behavioral standard, but still follows basically rational structures for control of the organizational environment through controlling social and ethical factors. For example, a manager in an organization may hold assumptions about their employees that they are all frauds who don’t deserve their degrees, and therefore adopt behaviors that emphasizes ethical leadership as control rather than teamwork.
To learn from mistakes like Enron, the company also has to study what exactly happened with Enron. Enron was a company with a great deal of strength in integration and market development, but this company had the sort of retrenchment and financial opacity weaknesses that led to its ultimate downfall and scandalized position in the market. Andersen was Enron’s auditing firm which had extensive internal dealings with the organization. Enron was called out on corruption and its leaders have been indicted for fraudulent financial statements and business practices. The company folded by 2001, and Andersen folded soon afterwards. Enron folded, but in its prime was considered to be an innovative company and industry leader. This shows the economic nature of many American lobbying practices, in which money is brought to Washington by companies rather than interest being brought from Washington to companies, which is my personal opinion. “During the first Bush Administration, the government deregulated the energy industry… one of the leading advocates for this was Wendy Gramm, who at the time was chairwoman of the US Commodity Futures Trading Commission… Senator Gramm had received over $100K in campaign contributions from Enron” (DesJardins and McCall, 2005).
A dynamic leader at the company can learn from Enron and then make that vital step of applying knowledge. Basically what the ethical breach was at Enron was that the company paid out over fifty million dollars in bonuses to its executives before going bankrupt and letting thousands of lower level employees go without any similar re-compensation. The company was also accused of using off-balance-sheet financing to hide the fact that it was going bankrupt from shareholders and investors. What people mainly don’t realize about Enron, since it has been demonized in the mass media, was that before the downfall, it was very successful in terms of organizational structure. The target market of Enron changed drastically due to progressive industry deregulation and heightened opportunities for companies with a risk-positive attitude towards change. In essence, the target market preferred by the organization overall was the recently-deregulated market. The threat of new entries into the industry in this market was lessened by the amount of capital required, as well as the hesitation and risk-averse behavior of many of Enron’s established competitors.
The major solution to the problem is to be honest with stakeholders and open and accountable as a business. Some might argue that Enron’s kind of secrecy can actually be valuable in companies because it highlights proprietary information and helps the company stay united. But to counter this objection, from another perspective, not only does this secrecy increase the risk of mixed messages and crossed wires, but it also ensures that the employee and stakeholder will not feel as if they have any degree of freedom to organize and plan their own agenda (even if that agenda is beneficial to the greater good of the company). “This view of business is especially worrisome to people who don’t have much business experience. A minister of my acquaintance once protested that business cannot possibly function in our society unless it is based on the Judeo Christian system of ethics” (DesJardins and McCall, 2005). Companies need to be socially responsible to their stakeholders.
The company can also install a strict code of ethics that is readily accessible to the corporate workforce. Although there are many definitions of ethics, perhaps the most universally accepted definition regards ethics as an individual or group’s ability to make choices regarding how to behave. This pattern of choice must start with the individual, rather than the code or structure; there cannot be a structural ethic that is in agreement without individual ethics. This often emerges as one of the key problems in organizational ethics.
The company setting ethics codes is a potential problem because although many people have highly-evolved consciences, there are possibly an equal number of people who are more goal- than conscience-oriented in their behavioral and business choices, especially in the real estate market. Ethics is ultimately a personal decision that may or may not be reflected by an external structural or group based philosophy. It also involves issues of privacy and civil rights. “Information about another’s sexual orientation, about his or her private finances, or about personal phone calls has more of a claim to privacy than information about a person’s actions as a corporate executive or a government official” (Nadler, 2007).
DesJardins, J and J McCall (2005). Contemporary Issues in Business Ethics. New York:
Kapstein, E (2001). The corporate ethics crusade. Foreign Affairs.
Nadler, J (2008). Whistle blowing in the public sector.