Running head: RESEARCH PAPER: Corporate Ethics Ethical Issues in Todays Business

Research Paper: Corporate Ethics Ethical Issues in Todays Business

Marlito M. Urmanita
California Miramar University
Managerial Accounting
ACC 6140
Prof. John Knight, Ed. D
October 24, 2013

RESEARCH PAPER: Corporate Ethics Ethical Issues in Todays Business

My intention for this research paper is to suggest that todays business community can
recover from the many corporate scandals that have sprung from the business world in the last
few years. Transforming positive changes as a result of the negative implications of the scandals
can be beneficial both for business itself as well as for the larger society, overall. These scandals
have negatively impacted the business world by causing the American public to distrust company
executives by thinking that there is something is seriously wrong with its current practice. It may
take some time for the business world to regain the trust of the American people. It may require
the implementation of far-reaching changes. The lack of any mitigating action can mean more
punitive and necessary reforms imposed by the government. Experts say that the business
community needs sweeping changes that are ethical in character. These changes represent the
new order in the world of market capitalism. My main point in this paper is to identify the need
for drastic changes in the business behavior within the market capitalism in the United States in
order to be able to jumpstart or invigorate a new era of enlightened self-interest. The American
public expects effective modifications in the way American business operates and behaves
especially at the top echelon of organizations. Their expectations have been elevated as a result
of the many scandals that have arisen in the past years. Development of a coherent set of social
normsboth to diffuse the negative forces leading to the scandals and to meet the challenges of
the global economy that call upon business to take on many new responsibilities. More and more
organizations are jumping on the band wagon to affect new changes in their procedures. That is
good news. For it has it become critically important to catch up with all of the changes
happening in the state of the business society.

RESEARCH PAPER: Corporate Ethics Ethical Issues in Todays Business

In order for the business community to put the scandals behind them and provide a
complete recovery, a revitalized standard of ethical norms is needed. The same set of norms, one
that is known as stewardship ethics can serve both purposes (Yankelovich, 2006). Alfred
North Whitehead, a well-known philosopher, proclaimed that a great society is a society in
which its men of business think greatly of their functions. Whitehead believed that business
leaders should broaden the orbit of their concerns from those of their individual company or
industry to the society at large. He added, I would like to add that a great society is one in
which its business, political, and civic leaders (men and women) exercise their leadership within
a frame of stewardship ethics.
There has been one too many scandals in our business society. These scandals have
created a plethora of public mistrust of corporate America. Involved in these scandals are many
high-profile corporate Chief Executive officers (CEOs) who have violated the shareholders trust
and ruined the company image they have represented. These are individuals who have been
entrusted by their shareholders and key management executives to lead their respective
organization to achieving company goals. They are delegated to create an effective and financial
successful company and lead them to the promised land. They are considered as the economic
gurus in their business field. Unfortunately, there are some of them who chose to take
advantage of their position and took care of their own interest instead of the shareholders.
Luckily, these CEOs were identified and charged, tried and convicted of their wrong doings.
Among them was Kenneth Lay. Enrons downfall, and the imprisonment of several of its
leadership group, was one of the most shocking and widely reported ethics violations of all time.
It not only bankrupted the company but also financially devastated Arthur Andersen, one of the

RESEARCH PAPER: Corporate Ethics Ethical Issues in Todays Business

largest audit firms in the world (Thorpe, 2013). In 2001, the Securities and Exchange
Commission (SEC) made an announcement that it was looking into the questionable accounting
methods of Enron. This decision was reached after several years of questions raised by analysts
and shareholders. The negative effects of misrepresentations and lapse in sound judgment by the
executives ultimately degraded the trust and investor confidence as well as Enrons credit rating.
Consequently, the company was forced to declare and file for bankruptcy in December 2001.
After an intensive research and collaboration with authorities, criminal charges were brought up
against Lay, former CEO Jeffrey Skilling, Chief Finance Officer Andrew Fastow and other highranking employees. The charges brought up against these executives are tied to breaking and
manipulating accounting rules. They also managed to hide from the investors and the public the
enormous losses and liabilities of the company. Lay and Skilling were tried together on 46
counts, including money laundering, bank fraud, insider trading and conspiracy. Skilling was
convicted on 19 counts and sentenced to over 24 years in prison. Lay was convicted on six
counts of fraud and faced up to 45 years in jail. Lay died in 2006, three months prior to his
sentencing hearing. As a result of the criminal case, the US Congress passed the Sarbanes-Oxley
Act to improve corporate accountability.
Other prominent CEOs who failed to exercise sound business judgment include Bernard
Ebbers of WorldCom. He was convicted of starting an aggressive campaign to prop up the stock
price by creating outright fraudulent accounting entries. Great investigative work by the
companys internal audit department uncovered the fraud. The resulting investigation by the SEC
convicted Ebbers of fraud, conspiracy and filing false documents. He is still serving 25-year
sentence which began in 2006. Conrad Black of Hollinger International committed fraud and
evaded paying taxes which earned him 78 years in prison. He was released after serving 42 years

RESEARCH PAPER: Corporate Ethics Ethical Issues in Todays Business

in jail time. Another infamous CEO was Dennis Kozlowski of Tyco, a massive security and
electronics company. He was caught taking unauthorized bonuses and loans in the amount of
$600 million. Consequently, he was convicted along with Mark Schwartz, the companys CFO
of grand larceny and securities fraud (Wikipedia, 2013). Finally, there is Scott Thompson whose
transgression may not seem so egregious compared to the other CEOs mentioned. What shocked
shareholders and media alike were the brazenness of his deception and the lack of oversight that
allowed it to happen. Yahoo hired Thompson to reverse the struggling companys fortunes.
However, an activist group discovered that Thompson did not have the computer science degree
that he claimed in his resume. Afraid of the ramifications of his actions, Thompson decided to
step down as CEO of Yahoo.
Todays shareholders and investors expect CEOs to maintain high ethical standards and
behaviors. Although it doesnt always happen, todays regulatory environment makes it easier to
identify accounting violations and bring the perpetrators to justice. It will take some time for our
society to gain a clear explanation for the first major business scandalthe 2001 Enron/Arthur
Andersen implosion. Experts have attempted to decipher the root causes for the business
scandals and slowly these explanations begin to grow clearer. They have come to the realization
that these nonconformance are not the result of a sudden outburst of greed in the nation,
contempt for the law, a breakdown in corporate governance, or the arrogance of power, though
elements of each are present. They have determined that the main cause is an extraordinary
existence of three trends, the sort of rare phenomenon that creates what experts like to call a
perfect storm.

RESEARCH PAPER: Corporate Ethics Ethical Issues in Todays Business

I believe one trend is deregulation. There were many unintended consequences after the
government imposed deregulation during the 1980s and 1990s. The removal of many legal
restrictions that prevent blatant conflicts of interest, many business professionals saw new ways
to serve their self-interests. In other words, these trusted officials whom stockholders expected to
protect the organizational goals, chose to sacrifice the principles of their professions for their
own economic gain (Yankelovich, 2006). Without much of a deterrent agency watching their
every move, these professionals (whom the business world refers to as watchdogs like CEOs,
bankers, accountants, etc.) were able to become enablers. Instead of saying a firm no to
questionable business initiatives, many of these supposed watchdogs said instead, Heres how
you can do it and get away with it.
The second trend involves the practice of linking the richest part of CEO compensation to
the vagaries of the stock market. In todays performance-based business environment, it became
a common practice to provide these executive incentives to the price of the companys stock. The
main purpose is to ensure that the CEOs share the same level of interest with those of the
companys ownersthe companys shareholders. This is commonly known as shareholder
value. Studies have shown that the theory has been disproven many times especially after a lot
of the scandals came to light. Company executives saw the temptation to take questionable
shortcuts, or even cheat with such huge sums of money at stake. It was very difficult for the
CEOs to resist temptation. In my opinion, there are CEOs that are underperforming and have
abused their company status and still are able to reap the extravagant organizational incentives
afforded them by company executives as well as the unsuspecting shareholders. This in itself is
very outrageous and needs to end before it is too late. If it isnt already.

RESEARCH PAPER: Corporate Ethics Ethical Issues in Todays Business

To sum up the third trend, Yankelovich proclaimed that Ironically, American business,
whose deepest tradition is rooted in the ethic of enlightened self-interest, now finds itself caught
up in a frenzy of unenlightened self-interest (Yankelovich, 2006). Many business executives
having a more traditional self-interest have migrated into the criminal side of the business and
chose to find ways to pad the pockets of authorities who would accept bribes as well as their
own. They have lost the sense of value in their profession and instead taken upon themselves to
take advantage of the deregulation. Fierce competition among executives abound as to who can
built the biggest empire. To them, winning is everything and it doesnt matter who the trample on
the way to the top. They believe in the Darwinian concept of if I win, you lose. Failure is not
an option to these executives and the unfortunate thing is that for most of them, it is just a game.
To live up to the challenge of the rigors of the business industry is like a life blood for them. As
long as they can manipulate the system and somehow benefit them in the end.
Even though a lot of major college and university campuses have increased the learning
opportunities on business ethics courses, it seems like new forms of business scandals are still
arising. Furthermore, the addition of stringent company behavior codes of conduct and social
responsibility reports have not have a positive effect on this economic phenomena. On many
academic campuses, the main focus typically is on reinforcing sound ideals among the students.
In companies, however, corporate executives have developed and designed ethics behavior codes
that are expected to be followed by all personnel. These codes of ethics are fundamentally about
policies and instructions designed to created and foster strict compliance cultures. On the other
hand, reports tend to be about huge strategies and corporate investments. Ironically, these reports
are often times written inadequately and lack tangible measurements of effectiveness. However,
these efforts are not at all wasted even though they may seem to be disconnected from everyday

RESEARCH PAPER: Corporate Ethics Ethical Issues in Todays Business

business behavior. Management must provide needed support to all employees and motivate
them to think critically about every decision and action, every day: Is this ethical? What would
this behavior say about the kind of person I am? What is the impact of this decision or behavior
on my colleagues, my community? These questions may seem to be simple as they tend to
introduce stricter standards than written codes of conduct can possibly do on their own. The
business world sees them as protector for the companies as well as the entire industries. It is not
enough to be motivated in order to avoid prosecution as it is not similar to as behaving ethically.
After all these efforts are not all the time guaranteed that one could avoid any sanctions resulting
in conviction.
There was a young business man who worked as a consultant to commodities exchanges
in New York and Chicago back in the 1980s. He collaborated with traders to assess their
reactions to situations that can happen in trading pits this could involve a peek at someone's
place of trading or perhaps an order deck that had fallen to the floor. Considering if in fact other
traders got this information accidentally or not, the expectation is for them to realize that they
need to conduct a self-check and learn to ask themselves if the information acquired gave them
an unfair advantage among the other traders? They need to look in the mirror and as themselves
what their behavior says about them by other people.
Non-accountants sometimes ask the question, Well, if these accounting principles are
only generally accepted, that must mean that there are other perfectly good accounting principles
that have less than general acceptance that are fine to use. Unfortunately for those desiring
creativity and uniqueness in their accounting principles, this is not the case. Generally Accepted
Accounting Principles (GAAP) are the rules that need to be followed by all organizations (profit

RESEARCH PAPER: Corporate Ethics Ethical Issues in Todays Business

or not-for-profit) if they want to proclaim that their financial statements are prepared in
accordance with GAAP (Minbiole, 1998).
Todays business schools such as the Leeds School of Business, the Center for Education
on Social Responsibility (CESR) prepare students to become ethically ready to function in the
business world as decision makers and business leaders. There curriculum includes multiple
array of business courses geared toward reinforcing sound business judgment and behavior. It
starts from day one for the students as well as the faculty who themselves undergo a rigorous
ethics training. The faculty curriculum deals with ethics training and concentrated on the
corporate aspects of all of the functional areas of business. As part of the students education,
they are exposed to many scenarios and case studies about the diverse issues of ethics and social
responsibility that are expected to encounter during their career. It is important that the students
are aware and made ready to tackle this kind of situation when they leave the comforts of the
universities or colleges. In addition, emphasis is put on the realization of the importance of how
many organizations are working towards closing the gap between their organizational strategic
goals and their employees everyday actions as contributing member to the organization.
Assessment reports have indicated that these early training have positive impact and really make
a difference in post-school behaviors. For instance, one of their young graduates was hired by a
famous sporting goods company. During the graduates first year on the job, he identified a
source of company waste of resources in the manner by which some of their products were
packaged for sale. Clearly, his education in ethics behavior paid dividends. Another example is
when a young alumna who had witnessed unacceptable behavior in the form of sexual
harassment in her workplace. She happened to be working in a company that prided itself on
being one of the most value-driven and successful company in the industry. Not following the

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advice of others, she stepped up to the plate and volunteered the information to the authorities.
She vowed to leave the company if it continues to tolerate such unacceptable behaviors.
It is evident that more and more college and universities are committed to make sure that
every graduate recognize the value of their educational model. They trust that every graduate
will behavior ethically and recognize the issues they may encounter in all business activities.
They believe that accepting social responsibility is the outmost goal of these organizations. They
realize that it could be the difference between a company's creating or avoiding lapses. The also
realize the great opportunity to further contribute to their legacy as well as become a contributing
partner of the community. All it takes is one employee who cares enough to stand up above the
crowd and ask the right questionsa big enhancer for others to follow. Simply by being
courageous enough to ask the right questions and bring the scandal to light can motivate and
encourage others to do the same right thing. This would definitely result in transforming the
workforcemanagement and employeesand work harmoniously towards the mission
accomplishment. It is imperative that companies must not simply tell their workforce to be
ethical and socially responsible; they need to encourage and reward broad thinking about the
consequences of actions (De George, 2003). Its more than just proclaiming "we're an ethical
company. It's about re-invigorating and putting emphasis on employees ethics and
responsibility.
Todays organizations are afforded many forms of tactics in order to realize the transition
to stewardship ethics. It varies from one company to another depending on their organizational
strategy and culture. One recommendation for these companies to adhere to is for the companys
CEO to organize a special task force inside the organization that is responsible to report directly

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to the CEO. There are many lessons that can be learned for companies that are serious about
implementing stewardship ethics. The task force needs to be cognizant that the task involves
communicating across traditional lines of organization if they are to achieve the huge task of
reconciling thee pursuit of profitability with an expanded orbit of care for the companys many
stakeholders.
The task force can be organized to be a small group of the most thoughtful executives
from a variety of functions and divisions. Diversity is a good quality of the group. For example,
marketing executives can find themselves working together with engineers, finance specialists,
human resource executives. The main thing is that it involves stakeholders from across the
spectrum of the companys activities. Former CEOs may be invited to serve in these groups.
They bring continuity and much-needed experience opportunity.
One of the main purpose of this task forcewho may never have worked together before
will be to initiate strategic dialogue on how best to take advantage of changes occurring in the
markets in which the company operates. This involves formulating new methods as to how the
company can create new opportunities for itself through repositioning existing products or
creating new products or services. Their efforts can be isolated to domestic issues but it could
also involve global exposure if the company is large enough to involve international dealings. In
other words, both domestically and in foreign markets, these work groups should engage the
issues that are strategically vital to the companys future. Most importantly, for the group to
succeed in their endeavors there must be a very effective CEO leadership and very strong
management or board support (Wild & Shaw, 2014).

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The ethical renewal of the nations business sector will not, in my view, come about as a
result of throwing a few executive icon men in jail or passing a slew of new punitive laws. Nor
will it come from moral exhortations to business from social movements with roots outside the
business community. I am not opposed to these approaches as I think they are important and very
much a necessity to curb criminal behaviors. However, they are not sufficient. I believe that the
major initiative must come from within the business sector itself. The whole business industry
must realize that each company has the responsibility to police themselves and perhaps this
approach can be passed on from one company to the next. Effective CEOs who become
convinced that stewardship ethics gill give them a strategic competitive advantage in the
marketplace and who know how to use their boards for the judgment, support, and validation key
they need to implement their policies. In the end, this will provide success models for other
companies to emulate. I firmly believe that this may be an optimistic conclusion and may not be
realistic. Nevertheless, I bet on stewardship ethics to become the legitimate successor to
shareholder value, along with the more thoughtful forms of Corporate Social Responsibility
(CSR).

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References
De George, R. T. (2003). The Ethics of Information Technology and Business. Malden: Blackwell
Publishing.
Minbiole, E. A. (1998). Accounting Principles I. New York: Hungry Minds, Inc.
Thorpe, D. (2013, February 05). 5 Most Publicized Ethics Violations By CEOs. Retrieved from
www.forbes.com: http://www.forbes.com/sites/investopedia/2013/02/05/5-mostpublicized-ethics-violations-by-ceos/
Wikipedia. (2013, September 12). Business Ethics. Retrieved from www.en.wikipedia.org:
http://en.wikipedia.org/wiki/Business_ethics
Wild, J. J., & Shaw, K. W. (2014). Managerial Accounting. New York: McGraw-Hill Irwin.
Yankelovich, D. (2006). Profit With Honor. Grand Rapids: R R Donnelley.