21 Jun Ethics In Corporate Governance
Consider this…, in October 1999 the Enron board voted to suspend the organisation’s code of ethics to enable CFO, Andrew Fastow, head two controversial partnerships that kept significant company debt off of the company’s books. The particular code required that no Enron employee be involved in outside partnerships, or have any conflicts of interest. A minimum of three of such votes by the board are recorded in the accounts documenting the company’s downfall.
A question that begs answering is why they bothered to take a vote? Does a band of thieves vote, before commencing their nefarious activities, to or not to violate the criminal code of the land? I can only assume that one or two naysayers on the, then highly regarded board may have pointed out that the intended actions were in violation of a code that the board itself had committed to. And in response the dramatis personae of the entire saga simply proceeded to fulfill all righteousness by proposing the suspension of any such “intrusive” instruments.
It is pertinent to highlight that in the United States, the code of ethics is typically seen as legal documents, often drafted by the legal counsel; whereas in Europe and other parts of the world they are often little more than social statements indicating a company’s aspirations.
The conduct of the Enron executives reflects either their sheer ignorance of the ultimate consequences of their actions, or unbridled arrogance – or a combination of the two. The unspoken rationale for such an act can probably be, today, paralleled with the now infamous declaration by France’s sun king, Louis XIV in the seventeenth century:“l’etat ces’t moi” (simply translated “I am the state” and by implication I can change the rules of the game as I desire). Fortunately for us all, contrary to such sublime royal pronouncement, ethics – and the principles that embody them, cannot be owned, suspended or manipulated at will.
Stephen R. Covey in discussing principles succinctly states “you cannot break principles… you can only break yourself against a principle”. How many organizations on a daily basis are breaking themselves against principles? It may be difficult to tell right now, but the reality is often soon evidenced by the rising mounds of organizational debris and rubble accumulating from broken promises to customers, sub optimal productivity, violated employees, tarnished brands, and so on.
It is critical that those with executive responsibility for organizations understand that ethics are not a mere wish list, and that their application, or the lack thereof, has increasingly telling outcomes on the outlook of a business or professional practice.
In the case of Enron, let’s consider some of the outcomes and the toll on various lives and fortunes:
- Kenneth “Ken” Lay, Enron Chairman / CEO, who was subsequently guilty of 10 out of 11 counts of fraud and died of heart attack just before he was to be sentenced to 20 to 30 years imprisonment
- It was the ultimate trigger for the demise of firm of Arthur Andersen (and the hosts of jobs and lost interests associated world wide with it at the time)
- Enron’s shenanigans resulted in incalculable personal losses to staff and stakeholders. Noteworthy is fact that Enron shares were selling for a whopping $90 in 2000, a year before the company’s deceptions became public
- Possible murder or suicide when Cliff Baxter, another high-ranking Enron executive was found dead in his car with a suicide note beside him; though many suspected foul play. The view of one of the observers close to the unfolding events reveals much, “There’s billions of dollars missing. If the people involved are capable of cheating, lying and stealing money, it’s not going much further to hire a hit man and have someone whacked”
The truth is, ultimately, no one wins; and corporate boards and executives will do well to remember this anytime faced with an ethical conflict