Business Ethics: Both Dilemma and Opportunity for Companies
STORY INLINE POST
“Our liquidity is fine. As a matter of fact, it's better than fine. It's strong.” Kenneth Lay, former CEO of Enron.
Throughout history, business ethics have been discussed and analyzed, great debates have been held on this subject, big names and renowned economists, politicians, businessmen and even athletes have written essays on the matter; however, in recent years, we have seen business ethics "broken" more than ever. I would even dare to say that ethics are different for each person, as everyone who is questioned swears that they have "professional ethics" but they apply it in their own way and for their own convenience. But do ethics affect business ethics? Of course, yes; companies are not the production lines, nor their deliveries, nor even their products. Companies are the operators, those who make decisions and move the rudder as best suits them and from there, business ethics are engaged.
I don't know if, after the Enron scandal, anyone would dare to think that it was only Kenneth Lay's ethics that caused one of the biggest scandals and corporate bankruptcies to date.
In 2001, when Enron presented its annual report for the year 2000, analysts questioned it. It was not clear how the company had made money. It was not until the US Securities and Exchange Commission (SEC) discovered billions of dollars in liabilities that the bomb detonated.
The company’s shares fell from US$90 to less than a dollar, the company's shareholders registered losses of US$74 billion and thus the history of one of the biggest cases of lack of business ethics was written.
False reports, shell companies, misuse of the retirement fund, etc., etc. It was a bottomless pit. To learn more about the Enron case, I recommend watching the documentary, Enron: The Smartest Guys in the Room.1
Michael Hoffman,2 Director of the Center for Business Ethics at Bentley University, lists the most difficult business ethics dilemmas for companies to resolve:
1. Conflicts of interest. These compromise objective and responsible judgment, causing managers to do things that are not in the best interest of the company, its shareholders, and other stakeholders.
In this case, we can cite the famous tweet by Elon Musk on Aug. 7, 2018 – “Am considering taking Tesla private at $420. Funding secured” – in what would be a US$72 billion purchase. In a second tweet, Musk added that "investor support is confirmed" and that the deal was only awaiting a shareholder vote. Then the stock rose and many bought. It then crashed when the truth came out, causing billions in damage to investors.
2. Individual rights versus the interest of the company. These come into conflict particularly when there are layoffs, salary cuts, and administrative restructuring. It also comes into play with company surveillance of employee communications.
Here we can cite the case of the Better.com company that, in December 2021, simultaneously fired more than 900 employees through a Zoom call. The video call only took a minute and a half , which may be more or less justified from a business point of view, but which was harshly criticized for the coldness and lack of ethics shown by its executive director, Vishal Garg.
3. Marketing and delivery of products. No company should advertise falsely or sell defective or unsafe products. How many times have we seen false advertising, where the offer is tempting but the product does not work properly or has not been sufficiently tested.
A case that contains all of the above and more immediately comes to my mind: the story of Theranos, a multibillion-dollar technology company and its founder Elizabeth Holmes3, the youngest self-made female billionaire. Massive fraud made the company collapse. The case, which was documented in 2019 by the Netflix documentary The Inventor, highlighted the fraud and the lack of professional and business ethics of Elizabeth Holmes, who was several times acclaimed by the greats of Silicon Valley as the next Steve Jobs.
Among her services, she highlighted the development of a portable diagnostic platform that could perform laboratory tests from a small blood sample, avoiding the use of needles for its extraction. An investigation revealed that the company had failed to develop the revolutionary technology it claimed and that it delivered misleading or false results.
4. Multinational operations. A company must have core ethical values. How do you honor these in another culture that may have different ways of doing business and different moral behaviors?
We can mention the company Uber as an example, which is steeped in controversy. The allegations about Uber's “bro” culture was a big scandal and led to the resignation of CEO Travis Kalanick4 in June 2017. The allegations included complaints that senior staff members made sexist, racial and sexual jokes and that they had visited a brothel in Seoul. While some were unproven, the claims affected the price of the company's shares, which were privately traded at the time.
5.- Human resources. Here, the ethical dilemmas appear around how employees should be treated, disciplinary actions, how they should be protected, fairness, evaluations, and promotions.
Perhaps not as well-known is the "Only men need to apply" tag. It is a common situation in China for technology companies like Alibaba, Baidu and Tencent that offer vacancies exclusively to men. This case has been denounced by Human Rights Watch5 on many occasions.
We must more than ever strive to maintain business ethics, which are the values, rules and principles by which a company is governed when carrying out its actions, activities and decision-making.
A company that works ethically will attract talent and create a safe work environment for its employees, which will increase trust between workers and customers. All this will produce an increase in profitability.
Business ethics is an indispensable part of a company and of the utmost importance. Some benefits of business ethics are:
A. Improves the image of the company and the relationship between customers and suppliers.
B.- Creates identification with the ethics transmitted by the company so others will speak well of the company.
C.- Generates a positive work environment, creates loyalty toward the company and decreases staff turnover.
D.- Improves productivity.
“Ethics is knowing the difference between what you have the right to do and what is the right thing to do.” — Potter Stewart
Enron: The Smartest Guys in the Room – 2005 documentary based on the 2003 book of the same name about the scandal.
About Michael Hoffman https://www.bentley.edu/centers/center-for-business-ethics/about-center
Wikipedia: Elizabeth Holmes https://en.wikipedia.org/wiki/Elizabeth_Holmes
Slate: Travis Kalanic https://slate.com/technology/2019/09/uber-travis-kalanick-silicon-valley-mike-isaac-if-then.html
Human Rights Watch ““Only Men Need Apply” https://www.hrw.org/report/2018/04/23/only-men-need-apply/gender-discrimination-job-advertisements-china