Are Ethics in the Workplace Disappearing?

Feb. 21, 2002 — -- Enron executives allegedly made millions selling company shares while urging employees to buy the soon-to-be-worthless stock, and set up private partnerships that cloaked huge losses as they touted their successes to investors.

While investigators struggle to determine who knew what when in the Enron debacle, the giant energy firm's implosion promises to be a virtual case study in corporate ethics.

Was the downfall the fault of a few executives who knowingly misled others, the outcome of a distorted corporate culture, or mere incompetence?

The history of business in the United States is littered with tales of fraud, deceit and corruption, not only by the hands of a greedy few at the top, but also with the help of employees willing to go along with the charade.

Unethical behavior at the office can sometimes stem from a few "bad apples" among the bunch, people like Nick Leeson, the young stockbroker whose huge losses from illegal trades led to the downfall of the venerable Barings Bank.

But experts note that ethical breaches are often the result of the corporate culture or pressure from management, pressure that can emerge when a company finds itself unable to live up to financial forecasts or expectations and tries to bend the rules to achieve them, says Linda Treviño, professor of organizational behavior at Penn State's Smeal College of Business Administration.

"Most people will try to do what they're being asked to do because they want the company to succeed and they want to feel good about achieving their goals," says Treviño. "Most people do not have the moral development to resist those pressures."

Treviño points to appliance maker Sunbeam, which was accused of manufacturing results under its controversial former CEO Albert Dunlap and eventually filed for bankruptcy early last year. Dunlap, widely known as "Chainsaw Al" for his record of aggressive cost-cutting strategies, recently agreed to pay $15 million to settle a shareholder lawsuit accusing him and other former executives of mismanagement. Dunlap and the executives have denied wrongdoing.

"You had a CEO who was pushing people to the limit," says Treviño. "All he cared about was making the numbers and they were pushed to continually make impossible goals."

To make matters worse, standing up and saying no to the boss is often not an attractive option for many employees, who just want to make a living and not make waves, lest they be alienated or even fired by management. People like Enron whistle-blower Sherron Watkins are a rare breed, says Treviño.

The good news is more companies in the last decade have adopted enforced codes of ethics and ongoing educational programs to help to combat ethical breaches.

There is some evidence that such programs help, according to a recent study from the Ethics Resource Center, a Washington-based organization that promotes ethical behavior.

Its research showed that while 13 percent of employees from companies with ethics programs in place still felt pressure to compromise their companies' standards, that compares favorably with the 23 percent of employees who felt this pressure in workplaces that had no ethics program.

And despite grim revelations over Enron and fears that "Enronitis" — or revelations of more opaque or misleading accounting practices — is spreading to other companies, other observers say ethics in the workplace is actually improving. Indeed, the Ethics Officer Association, a group formed a decade ago to promote ethical business practices, now counts more than 700 U.S. corporations in its membership.

That's partially because government incentives were put in place in 1991 for companies that adopt such programs. That year, the U.S. Sentencing Commission put together a set of organizational guidelines for companies to set up effective compliance programs, which included setting up a system in which employees can report wrongdoing without fear of reprisal.

Companies who adopt these programs have a major incentive. Even though organizations can be held liable for their employees' illegal actions, a company that can show it had an effective compliance program can greatly reduce the potential fines that they might have to pay as punishment.

"Corporations have sort of been running, not walking, to jump on the ethical bandwagon because it's sort of like having a house without fire insurance if you do not try to meet these ethical requirements," says W. Michael Hoffman, executive director for the Center of Business Ethics at Bentley College in Waltham, Mass., and one of the founders of the Ethics Officer Association.

But as the Enron debacle illustrates, even corporate oversight is no panacea for ethical breaches. Enron's board of directors, which has responsibility for the company's conduct, twice waived its conflict-of-interest rules to allow Chief Financial Officer Andrew Fastow to set up separate private partnerships that would do business with the company. Copies of Enron's code of ethics manual are now for sale on eBay.

And one disheartening result of the Ethics Resource Center's study found that about a third of employees surveyed said they had witnessed ethical misconduct in the workplace.

"There's a lot of room for improvement," says Joshua Joseph, the center's research director.

Still, some ethicists are optimistic that good can come from Enron's downfall. A more critical eye on auditors, analysts and management may bring about stricter regulations and greater assurance that corporations can be trusted.

"I think that right now things are probably getting better, in reaction to what's happening at Enron," says Joseph L. Badaracco, the John Shad professor of business ethics at Harvard University. "My guess is that lots of audit committees and boards are asking questions."