Business Practices

Business practices came under fire when America's seventh largest firm Enron collapsed due to unethical accounting strategies. This case triggered a series of unwelcome events where one after the other, large organizations in the US collapsed or run for bankruptcy cover with one case even implicated the infamous Martha Stewart for insider trading. The various deceitful activities of some larger companies resulted in widespread public mistrust of business practices and values. Companies as big as Adelphia, ENRON, Global Crossing, Kmart, Qwest communications, WorldCom and Xerox are all under thorough investigation by one of the few reliable authorities, Securities and Exchange Commission (Royal Bank of Scotland). All the aforementioned names were business of international repute that were charged with the unethical act of projecting inflated profits to trick stakeholders and earn higher profits and generate greater revenue from expensive stocks (Royal Bank of Scotland). WorldCom ran for insolvency in July 2002, making it one of the biggest bankruptcies of all times (Royal Bank of Scotland). Both World Com and ENRON hugely overstated their profits and hence committed the major crime of misleading stockholders. â€Å"World Com Inc. , the US No. 2 long distance Company fraudulently overstated profits by nearly 7 billion dollars in last few years. Analysts, brokers and accountants moved like herds to promote their stock† (Royal Bank of Scotland). Enron was another major setback to the industry and economy when its unethical accounting practices resulted in a huge financial crunch. The accounts of the company showed that Enron's revenues in 2000 were over $100 billion. Enron was growing rapidly as it was selected by Fortune magazine as one of those companies whose stocks were most likely to last the entire first decade of the 21st century. Enron was performing well in all its three business namely energy, wholesale and global services. Enron's bankruptcy then took the world by complete surprise, as this was not only the biggest collapse in the United States in recent years, it was also the fastest. Before filing for bankruptcy in December last year, Enron was the seventh largest company of the United States as it turned its businesses into monopolies by dominating all areas of its various operations. But a company that looked so powerful only a year ago collapsed dramatically when one of its accountants began raising questions about those shady transactions which had managed to conceal the company's negative debt position from its accounting books. But slowly and gradually Enron's problems began unrolling in front of the public and it became clear that all the profits shown by the company were simply an illusion. ENRON as well as World Com both had managed to make these blunders with the Arthur Anderson, that was reportedly, â€Å"one of the top five accountancy firms in the world† that doctored accounting books of ENRON â€Å"and later shredded vital documents at several of their office locations including London† (Royal Bank of Scotland). Ethical crisis in business is definitely a hot issue these days. With no respite in sight and probably no long term solution available, public has become wary of American corporate world. It appears that every other day, a large organization makes headlines for fraudulent actions. What is even more ironic is that these unethical practices have mostly involved large accounting firms: organizations that are created with the sole purpose of providing honest third-part services. The major accountancy organizations that have been found involved in ethical crisis included Arthur Andersen, KPMG, Price Waterhouse Coopers and others (Royal Bank of Scotland). In addition to these â€Å"in May 2002, Myrill Lynch was fined $100 million for over rating various stocks of blue chip companies and apologized for doing so in N. Y district court† (Royal Bank of Scotland). Furthermore, â€Å"many of the analysts of investment/Merchant Banks hype stock prices and profit forecasts of companies with whom they do business with† (Royal Bank of Scotland). Apart from accounting errors, there are other illegal and unethical practices that companies have been consistently resorted to. Unethical activities like â€Å"dumping polluted chemical wastes into rivers, insider trading on Wall Street, overcharging the government for Medicaid services, and institutions like Stanford University inappropriately using taxpayer money to buy a yacht or to enlarge their President's bed in his home as morally wrong† (Ronald: 505) are the bane of business today. Nonetheless, such unethical practices are undertaken every other day with little or no regard for the well being of people. Sense of social responsibility is thus missing from our mighty corporate world today. Two important cases in this regard are as follows: Allegheny Bottling is one of the Pepsi-Cola Bottling franchises, which came under severe criticism when it was found guilty of price-fixing. It is a common practice which is nonetheless unethical (Ronald: 505). The case went to federal courts where it was decided that since ever senior executive knew of the price fixing practice and did not report it, they were all partners in crime. The court then ordered three years in prison for the entire senior management, some of whom were not directly involved but knew of the plan and chose to remain silent. The firm was also fined 1 million dollars as fine but the problem with the sentence was that a firm cannot be imprisoned under the Constitutional Law and thus what the federal court ordered was not applicable in practice. (Ronald: 505). Another such case that underscores the need for better practices and more ethically sound business code concerned Harris Corporations. This firm had incurred huge losses, amounting to more than $500,000 when they were heavily fined for their fraudulent practices. But instead of pleading not guilty or contesting, the firm quickly and calmly â€Å"pleaded no contest to charges that it participated in a kickback scheme involving a defense department loan to the Philippines† (Ronald: 506). This was an irresponsible strategy to cover up unethical practices of the firm and the CEO explained it later in these terms: â€Å"The firm and its employees were not guilty of criminal conduct; top managers pleaded no contest because the costs associated with litigation would have been greater than the fines, and litigation would have diverted management attention from firm operations† (Ronald: 507). Both the aforementioned cases reflect the loopholes and the weakening moral and ethical values in the corporate world. Nonetheless, the former case pertaining to the unethical practices of the Pepsi-cola franchise reveals that there are various firms that though realizing, knowingly commit crimes and conform to illegal and unethical practices. However, in the latter case, the management as well as the executives performed an unethical act, which they were ignorant of due to vague laws. Consequently, the above discussion reveals that one of the major motivations behind performing illegal acts is the reward that is offered by the executives or the employers themselves to induce unethical behavior for personal gains in terms of huge profits by illegal means. It has been observed that executives who offer bribes to other parties involved in business dealings are rewarded for transgressing code of ethics and many a times righteous individuals are scared to let the cat out of the bag, fearing the dire consequences that might place their jobs in danger. Therefore, another apparent reason of unethical behavior in the workplaces that promotes illegal practices is the fact that employees at all levels are either directly or indirectly rewarded for unethical acts or harshly abandoned by the materialistic world for going against the norm of practicing evils. Another reason as explained by Jansen and Von Glinow through their exhaustive study is that encouraging â€Å"counternorms† in an organization is also a form of promoting unethical standards in a company in order to save the firm's name or to avoid charges. These experts believe that â€Å"within organizations, it is often considered not only acceptable but desirable, to be much more secretive and deceitful. The practice of stonewalling, willingly hiding relevant information is quite common. One reason for this is that organizations may actually punish those who are too open and honest† (Ronald: 505). There are innumerable examples and real-life situations wherein employees were offered special incentives and bonuses as well as other monetary benefits for deliberately not disclosing the actual picture thereby hiding the true story. B. F. Goodrich is one of the employers utilizing such filthy strategies to gain acceptance and to enhance the international reputation. He offered great monetary gains to all his employees who provided him with and generated pseudo figures, with the help of which, he managed to receive a certificate for high â€Å"quality aircraft brakes† (Ronald: 509). In addition to the above, Metropolitan Edison also bribed their employees and compelled them to keep all the necessary and relevant details pertaining to the Three Mile Island endoplasmic mishap from the governmental agencies and other investigation firms (Ronald: 511). Thus the cases mentioned above lucidly prove the experts view that organizations advocate â€Å"counternorms of secrecy and deceitfulness. Because these practices are commonly rewarded and accepted suggests that organizations may be operating within a world that dictates its own set of accepted rules. This reasoning suggests a second answer to the question of why organizations knowingly act unethically namely, because managerial values exist that undermine integrity† (Ronald: 512). We all know by now that ethical problems exist in firms and when it is not in the form of major unethical practices like accounting fraud, monopolistic strategies or price-fixing issues, they can exist in the form of small white lies. While they may not be intended to harm anyone, but they certainly mislead the public thus creating a huge gap between actual reality and projected reality. And what is really disturbing is the fact that while some unethical practiced are condemned by law, there are others for which no legal respite is available. False advertising is one such issue. False advertising is certainly an ethical issue, which cannot be controlled through legal action. This is because while there are certain trade laws, which prohibit misrepresentation, advertising firms and their clients can always invoke First Amendment in order to retain their right of freedom of speech. But it is the ethical duty of the companies to present their commodities in the positive light without completely altering the reality. There are different ways in which advertising can deceive the viewers and potential customers. The one important method often used by most advertisers is the misrepresentation method where products are made to appear better than they really are. While we cannot do anything about instilling a sense of ethical responsibility in these people, it is still important for the customers and viewers to ignore useless and senseless advertisement. The Editor of The World & I (1996) writes, â€Å"The Supreme Court has held that advertising, at least much of it, is protected by the First Amendment's freedom of speech provisions. Thus, advertising is an important and protected form of speech, similar to journalism or statements of political opinion. So, rather than reject advertising outright, we need to learn how to discern the acceptable and useful from the unacceptable and worthless. Besides, everyone actually does accept and use advertising–namely that which promotes products or services or causes that one favors. † For this reason, while we may not always be able to control unethical problems concerning the business world, we must realize that it is the responsibility of companies to ensure that ethical violations are avoided at all costs. Firm must introduce the codes of ethics and make them suitable according to the nature of the job. These rules and regulations must envelope â€Å"relations with government organizations, relations with customers and suppliers and employee conflicts of interest, honesty, etc. † (Creating an ethical organization). It is also recommended that the organizations â€Å"provide general principles and detailed guidelines, including policies related to violations† and must make sure not to â€Å"overload people with unnecessary information† for that might result in the loss of interest and extreme agitation of the entire notion. Moreover, executives as well as managers are advised to enforce the code with proper training and effective communication.