In reality, there is nothing wrong with markets failing to fulfill their task of leveling the playingfield between buyer and seller. Such market failures are in fact how many organizations maketheir money—through patents (temporary monopolies) and the use of expertise that is notuniversally available (competitive advantage). Yet there are certain forms of this type of marketfailure that are so egregious that they unreasonably interfere with the rights of others andendanger the credibility of all legitimate transactions.The most common form of market failure is information asymmetries—the business decision-maker knows something that the person at the other end of the transaction does not. Most of thetime this is fine but there are circumstances where the unfairness of this asymmetry exceedssimple competitive advantage and is a threat to the rights of others and to the effective operationof the free market as a whole. This appears to be the case at Enron. Insider trading is one of theindefensible exploitations of information asymmetries. In due course, we will have a legaldetermination regarding whether or not Enron officers or directors engaged in this practice. Butlegal determinations aside, Enron officers should have been far more alert to the perception thatthey might benefit from exploitation of information asymmetry.Again ethical literacy is all about recognizing
ethical issues before they become legal problems. And incidentally, since the U.S. Supreme Court’s
case in 1969it has been unlawful for directors, as the Enron chairman was, who have inside price sensitiveinformation to trade in that stock.
The Neglect of Integrity Capacity by Managers
The neglect of managerial integrity capacity is at the moral root of Enron’s legal and financial problems. What is legally permissible today, but morally questionable, may well become legally proscribed tomorrow. Thus, it is important for managers to proactively understand and attend tothe multiple dimensions and moral antecedents of illegal activity (Paine 1994).
is the individual and collective capability for the repeated process alignment of moral awareness,deliberation, character, and conduct that demonstrates balanced judgment, enhances ongoingmoral development, and promotes supportive systems for moral decision making (Petrick andQuinn 2000). It is one key intangible asset that acts as a catalyst for reputational capital and itserosion can jeopardize the survival and credibility of organizations and markets (Petrick,Scherer, Brodzinski, Quinn, and Ainina 1999). The spectacle of top Enron executives “pleadingthe Fifth” in Congressional hearings about managerial immoral and illegal conduct is a vividexample of the consequences of the neglect of individual and organizational integrity capacity.Furthermore, the frantic effort of Arthur Andersen, LLP, one of Enron’s critical stakeholderswhose integrity capacity and reputation were shattered by their unprofessional auditing services,to stem the tide of fleeing clients while negotiating with other “Big Five” accounting firms for sale of parts of its business, is another dramatic example of the costs of integrity capacity neglect(Toffler and Reingold 2003).The Enron scandal’s adverse moral impact on the primary stakeholders is evident in . Enron’stop managers chose stakeholder deception and short-term financial gains for themselves, which