Recall that ethics comprises the principles of right and wrong and the morality of the choices we make in everyday life.
Let's explore two different case studies that serve as examples of unethical behavior at the company-wide level.
Suppose you are an investor in 1999, and your broker approaches you with a great deal that you want to get in on. So far this year, the stock for this company has gone up 56%, beating the market by 36%. You think that is rather impressive, so you go ahead and buy it, putting all the money that you have into it.
The next year, in 2000, that stock goes up 87%. At this point, the sky's the limit.
Well, that company was Enron, and it made a lot of people very wealthy for a while. The problem was that they weren't doing it ethically.
Enron was an energy, commodities, and service business. They were in the business of providing, selling, and transmitting electricity and natural gas, among other things. The problems began when they started using something called mark-to-market accounting in the early 1990s. Mark-to-market accounting is an accounting practice that--while perfectly legal at the time--had never been used for Enron's particular sector.
Well, Enron was using mark-to-market accounting to hide the failures in their business. They were hiding the debt they had incurred. This created a huge problem for them. As a matter of fact, in 2000, the press finally started to notice and began to dig deeper into Enron's books. Suddenly people realized that they had no idea how Enron was making their money.
At this point in the story, Arthur Andersen enters the picture. Arthur Andersen was the accounting firm that did the books for Enron. Not only did they do the books for Enron, but they also consulted. This created a conflict of interest for Arthur Andersen. You see, having the same firm advise you on how to do your accounting and then turn around and audit those very same practices is probably not a good idea.
At this point, Enron was pressuring the CEO of Arthur Andersen to make their calculations work and to hide things from the general public on their annual statements.
After Enron collapsed in 2000, the CEO of Enron, Jeffrey Skilling, and a few other people from that company went to jail. The company went into bankruptcy, and the stockholders were devastated.
So, circling back to the fall of Enron, suppose, once again, that it's 2000, you own that stock, and you're up 100+ percent. Then, the collapse occurs. The beginning of the graph below shows August of 2000. The end of the graph is January 2002. Enron lost $90.00 and change in a two-year period.
Everybody who owned stock, every retirement account that had stock, suffered a complete loss. This devastated people's retirement programs, not to mention putting 30,000 people who worked for Enron out of a job.
The Rana Plaza building in Bangladesh was owned by a man named Sohel Rana, who was an international shirt manufacturer, among other things. This was the business he owned in this particular building--manufacturing shirts to be sold on a worldwide stage.
So, Rana would make the shirts there, taking advantage of the country's cheap labor, and crank out shirts at a ridiculously low price in order to undersell the competition internationally. Of course, this attracted buyers from all over the world.
In April of 2013, people ran from the building in terror after hearing explosion-like sounds inside. An evacuation was ordered after an engineer inspected the building and deemed it unsafe. Now, the problem with the building was that it was never engineered or designed to house a factory. In addition, it was illegally raised from one story to five stories a few years earlier. Do you see an issue yet?
The Rana employees were forced to return to work, despite the building being unsafe. Mr. Rana himself had a press conference on the bottom floor of the building on April 24, 2013. He assured everyone that everything was fine, that it was just the plaster cracking. He claimed that the engineers had no idea what they were talking about.
On April 24, everyone went back to work. A generator on the roof started, which sent vibrations through the building, and the building collapsed. Over 1,100 people lost their lives in that collapse. Not only did all of these people perish, but there were 2,500 injured, and it sent the global market into disarray for shirt manufacturers.
The stakeholders were devastated. Now their names were tied to this tragedy which cost 1,100 lives. There was an alliance called for to improve the working conditions within Bangladesh. Mr. Rana was arrested, and the stakeholders were permanently tarnished for doing nothing else but seeking the best price they could get on shirts, and assuming that the company that was making the shirts would take care of their employees.
What are the overarching similarities between these two case studies?
Source: adapted from sophia instructor james howard