“Corporate responsibility is part of the liberal elites campaign to destroy capitalism”. Discuss. Based on the view of the economist Michael Friedman (1970), the sole responsibility of any business is to make profit and nothing else. According to him only people fully have actual responsibilities. But his view is now unfashionable due to the fact that recent businesses are now exposed to other areas of corporate responsibility apart from the sole aim of profit making which is based on capitalist perspective.
Therefore, it is possible for us to arguevthat corporate respornsibility is part of the liberal elites campaign to destroy capitalism. Businesses today are in a radical state of change and operate in complex societies. To justify the meaning of our argument, it is helpful to analyze how corporate responsibility and capitalism affect modern societies.
First of all Many people view corporate responsibility in different perspectives. Some view it in the aspect of responsibility while others in a different form. The concept of corporate responsibility has been largely debated, addressed, discussed, and applied all around the world. In short, corporate responsibility aims to express the relationship of business and society. According to Buchanan & Huczynski (2010), corporate responsibility is the view that organizations should act ethically, in ways that contribute to economic development, the environment, quality of working life, local communities, and the wider society..
In modern times, the corporate responsibility movement has been expanded by liberal elites to promote social and environmental or ‘green’ issues. To many, this area is the most obvious and visible face of corporate responsibility. It involves the environmental impacts of firm’s activities as well as carries the highest public profile which is focused on public relations. For example the oil spillage from the tanker Exxon Valdes is estimated to have cost Exxon over US$7,000 million in clean-up costs and compensation. “There is a clear emphasis on sustainability defined by the World Commission on Environment and Development (1987) as ‘(meeting) the needs of the present without compromising the ability of future generations to meet their needs’. This emphasis of sustainability was adopted by the United Nations” (Needle D, 2004 p- 303).
On the other hand, capitalism is actually the private ownership of systems of production. Most modern societies are capitalistic by nature. The basis of a capitalist system lies in its ability to make profit not on its ability to contribute to the society. Many proponents therefore have resulted to view the system of capitalism as innovative in its own way and therefore see corporate responsibility as an alien system which doesn’t have any meaning despite it being the integral part of the capitalist societies.
Capitalism was actually expoused by Adam Smith in his book The Wealth of Nations published in 1776. According to Smith, competition alone would ensure that consumers received the best products at the best prices (Boatright,2003, p 372). In the kind of competition assumed by Smith, a seller who tries to charge more for his products than other sellers won’t be able to find any buyers. A job-seeker who asks more than the going wage won’t be hired. Because the “invisible hand” of competition will make the market work effectively, there will be no need to regulate prices or wages. In light of this position is the consumers self-interest together and the love to make better profit.
In contrast, the liberal elites fully support that corporate responsibility is a concept that ensures honesty in all business to do public good. In view of capitalism, the liberal elites examine the concept as all about corporate greed based on vested self interests. Typical example is the Enron case where free market deregulation and love of profit led the strong organization to their tragic end.
Furthermore to this, the evolution of the concept of corporate responsibility of business has its roots in capitalism. At first, Business began merely as an institution for the purpose of making money and nothing else (Boatright R., 2003). But by the 1920’s the position changed and business leaders as a whole were becoming increasing conscious of the fact that the public was integral part of the general business scheme. Economic orders came to recognise social order as their very foundation. It is now increasingly recognised and publicized that what is not for the public good is not for the good business.
Thus, based on the above assumptions being made, the love for corporate reputation to be gained through recognizing that capitalism will be most successful when it embarks on other aspect of social responsility is also serving as the bedrock for liberal elites to damage capitalism through humanizing the entire ideology of the economic system. Additionally, it has been agreed upon that capitalism generally can never be socially responsible due to economic greed being behind the core of its existence.
Q2. ‘Men and women are inherently dishonest and many are plain evil.’ Discuss.
Ever since the emergence of civilization, social behaviour has become an integral part of human life and activities of mankind. The moral, cultural and social behaviors can help one comprehend the aspect of responsibility he has towards various things. Therefore, it is often suggested that men and women are inherently dishonest and many are plain evil. To justify such a view, it is necessary to analyze factors behind such deviant practices and behaviors individuals possesses.
There exist widespread differences among human behaviour. By these individual differences, we mean differences among individuals that distinguish or separate them from one another. Basically, this relies on the nature of individuals (Mangal S.K., 2008, p.156). As humans, we are all capable of adapting to situations which eventually affects our behaviours leading us to be evil and dishonest individuals.
Changing Organization trends have lead to proposed views from expert psychological thinkers on how the human nature works. The Milgram’s experiment is one such study carried out to explain human psychology. The study showed how far many people will go to obey someone in authority even if doing so means violating their own principles (Morris, G., 2009, p 291). Stanley Milgram (1974) who carried out the experiment suggested that the reason was because people come to see themselves of the agents of another person’s wishes and therefore as not responsible for the obedient action of their consequences. Obedience follows as soon as there is a shift in self-perception because in their own minds they have relinquished control of their actions. For example in the aftermath of the Abu Gharaib prison scandal, the enlisted personnel who were photographed abusing prisoners insisted that they did so only on orders from high authorities (Morris G., & Maisto A., 2009 p 458)
William Golding (1962) explored the concept of behavioural addiction in his novel The Lord of the Flies which depicts the transformation of good British Choir boys into murderous beasts. In addition to this, the book centers on the point of change in one’s external physical appearance which leads to a change in one’s mental state and behaviour. In other words this clearly shows the situational factors could impact both internal and external envirnonment as well as the internal and behavioral process.
The fact of being dishonest has not only come to be true in the societal moral but also has affected most popular organizations such as Enron. Enron’s case has deceived the entire of humanity through its alien accouting methods it carried out. The case explained that 286 senior staff received bonuses up to the value of US $72 million. If carefully examined, the Enron case was an example where situational variables and factors were playing side by side, thereby affecting individuals ability to make honest decisions.
Thus, human mind is so amazing that without any hindrance it can dominate to virtually any known environmental circumstances in order to survive, form or destroy as usual. Based on the sound arguments i made, we are not born with any variable towards behaving in a good, evil or dishonest manner, but instead with mental value and ability to do either. It is then possible to say that we are all vulnerable to situational forces and its inherent decisions. To curb this situation, we must dedicate our lives towards examining strange variables or values that causes a lot of people to do so much evil and dishonesty within the society and organizations we work in.
Q. In your opinion, did Enron behave ethically and, if not, why not? How do you place your position on this issue alongside that of Frank Partnoy?
Many people have had a say concerning Enron’s moral ethics. In my opinion, Enron’s case is completely a disgrace to the whole of ethical corporations. At first, Enron grew rapidly with an absolute probability that it would not face any ethical dilemma or problem. With energy industry being the cornerstone of its operation, the company was praised by both white house and wall street (DesJardins, J., 2006).
Enron popularized itself as a highly competitive global business. It further favoured free market deregulation and also portayed itself as a socially responsible organization through its concerns for the environment and other standardized activities it carried out in third world countries. In order to diversify its activities, Enron capitalized upon deregulation and financial product innovation such as derivatives. As the financial product and other deals became more complex, Enron began to engage in fraudulent accouting practices.
Enron’s misleading ethical culture can be reflected upon in almost every circumstance. According to Needle, D., (2000) the innovation Enron took advantage of in its financial instruments to malign earnings and avoid regulation were all supported by its firms and accountants namely Arthur Anderson and Wall Street investement Banks. Due to the complicated accounting procedures, Enron had to borrow heavily to finance its funds. Significant amount of debts were concealed in companies and didn’t appear on Enron’s balance sheet (Vinten G.,2002). The process brought about inflation in the value of the company and drove up the share price.
Enron’s deception took the form of high-debt, off the book gambles. Enron created several subsidiaries, named, for whatever reason, for “star wars” characters and saddled each with millions in debt (Guell C., 2010, p 455). Each of the subsidiaries had a high-risk, high-return niche market. None of
this would be interesting except for the fact that the debt of these firms was secured by asset of the larger corporation. That in turn would not be interesting except that this debt was deceptively noted in Enron financial statements.
Additionally, Enron due to their selfish interest made high speculative and ultimate poor investments (DeGeorge T.,2014 p325). Many of the investments being made were not connected with energy and were also buried in subsidiary companies and not on the balance sheet.
Enron’s ethics was also doubtable and questionable in the criteria that it set privatized energy industry in India. With this fact, it was soon clearly founded out and that it was violating human right at a power station in Dabhol.( Enron was not popular in india. Due to this fact, it was also accused of political bias and corruption.
Another practice Enron was fond of was Mark-to-Market accounting. The practice of mark-to-market accounting proved to be particularly hazardous for Enron management becausee their bonusess and performance ratings were tied to meeting earning goals The result or else outcome of the entire event was that their judgement on the fair value of these energy contracts, some as long as twenty years into the future, was greatly biased in favor of present rocognition of substatntial value.
The value of these contracts is dependent upon assumptions and variables, which aren’t discussed in the financial statements, not readily available to investors and shareholders, and include wide cards such as the weather, the price of natural gas, and the market conditions in general (Jennings M 2012, p234) One analyst noted, “Whenever there’s a considerable amount of discretion that companies have in reporting their earningss, one gets concerned that some companies may overstate those earnings in certain situations where they feel pressure to make earnings goals”. A FASB study showed that when a hypothetical example on enegy contacts was given at a conference, the valuations by managers for the contracts made ranged from ＄40 million to ＄153 million.
Furthermore, Enron’s management compensation was thus tied to stock performance, and in the eyes of Enron shareholders, this was good. Their perception was that the management decisions that affected the company in good ways were rewarded while those that affected the company in bad ways were punished. It unfortunately also put management in a position such that if it coud deceive the markets into thinking that it was doing better than it actually was, then the management or organization could enrich itself.
In addition to this manipulation, Enron would state that it was owed money by other companies; it would report this as an asset but would not mention that it was aslo a vey huge debt on them. Even more troubling, the smaller subsidiaries would borrow from banks to pay Enro the interest, thus raising Enron’s reported profits. After the final analysis of the company, Enron was founded to be surprising overstating its profits by $1.2 billion and its assets by even more.
It was also reported that as the financial crisis was growing larger from bad to worse, Enron had whistleblowers. Enron had to act quickly towards the whistle-blowing in order to avoid its impact. Many agreed that the reaction Enron carried out was in a threatening manner thereby proving how unethical and aggressive they were
I have no doubt concerning Frank Partnoy’s statement. But to further my perspective, Enron’s case has left a permanent mark of selfishness to the society in general. The lage number of attention it called upon cannot be compared to the other organization which collapsed soon after it. Indeed, it is hard to imagine anyone who was even loosely affiliated with Enron who did not suffer harm as a result of the ethical failings of Enron.
Q. Examine the role of Arthur Andersen in the Enron affair. What impact will this have on the auditing profession? Is it deserved?
Enron was supported in its accounting scandal through accounting firms such as Arthur Andersen. Arthur Andersen was basically an accounting and auditing firm which served as both a consultant and auditor to Enron ( Brooks J & Dunn P., 2010 p 130). It was responsible for auditing Enron- that is
providing information that investors and creditors rely on when making a decision to a corporation.
Historically, Arthur Andersen evolved into a multiservice company of management consultants, audit services information systems and virtually all aspects of operations and financial reporting. Ultimately, Andersen would serve as auditor for Enron, WoldCom, Waste Management, Sunbeam, and the Baptist Foundation, several of the largest bankruptcies of the century as well as poster companies for the corporate governance and audit reforms of the Sarbanes-Oxley Axt, federal legislation enacted in the wake of Enron and WorldCom collapses ( However, it would be Andersen’s relationship with Enron that would be its downfall.
Sooner or later Arthur Andersen which was normally called the “gold standard of setting” was also now earning millions of dollars a year for consulting and advising work from Enron. In addition to this issue, Arthur Andersen began engaging itself in Enron’s dirty games. Apart from encouragement given to Enron, Arthur Andersen was convicted of obstruction of justice. Arthur Andersen had no choice but to dismantle itself and declare that it has resigned from office.
Debates have been going on and questions have been asked such as: Was the punishment received by Arthur Andersen fair enough? The answer is yes. The punishment received by Arthur Andersen was very right for the firm. After all the firm seemed to be unstoppable in accounting fraud and injustice. It supported Enron in almost all of its affairs and definitely was the reason for concealling large amount of debts. Since after Arthur Andersen’s eventual fall, it has been argued that firms which act as both consultants and auditors are likely to be compromised in their auditing duties by their close association with companies especially wher high fees are involved.
Additionally, Arthur Andersen case has served as a lesson to model upon in both auditing and accounting companies. Profound changes have been made and still going on in auditing companies. Some of the changes have gone as far as possible to be implemented in agencies of the government, accounting agencies or companies, and other outside interest or sources.
The strategy by many businesses to employ auditors to analyze their past audits, soon after Andersen corruption had been known was a wise decision to make.This allows the public to see that companies no longer misbehave or misrepresent their information just to satisfy a want. The changes made in recent accounting industries have been done in order to restore public confidence in auditors working in public traded organizations.
On the whole, Arthur Andersen began as a praised company which focuses on the culture of ethics. Many people around the world saw them working with honesty and good integrity. However, as they were seeking more profit, the success that they previously had began to damage. The management began to bring about wrong practices which contradicted accounting standard and eventually led Enron to its collapse.
Moreover, if reflected upon by an open mind concerning Arthur Andersen role in Enron’s affair, it would totally be agreed that no matter the consequences, it was the utmost duty or else compulsory for Arthur Andersen to protect the responsibility of the free market system (Enron). After the tragic trial, the public interest were eventually lost in both Arthur Andersen and its auditors. In short, it was the greed and love of making profit which lead both Arthur Andersen and Enron to their downfall. Probably, we are now seeing some radical changes being made in the accounting and auditing sectors.
Q. What aspects of corporate social responsibility are represented by the Enron case? Ans. Enron’s success and corporate social responsibility took precedence to all the commotion it was soon to see. Enron was a globally competitive organization and therefore worked to increase shareholder’s wealth. As a globally operative firm, Enron had to look at the greater benefit of all its investors and therefore acted to increase its business operations into a field that was out of its comfort shell of the energy sector. Enron was also an advocate of free market and wanted less government intervention, a true form of the capitalistic structure. G6. Its support for the Kyoto summit on greenhouse gas emissions also put Enron high up on the corporate social responsibility since it showed it was involved in a concern that it itself had a dire effect on and perhaps wanted to show that it was searching for innovative solutions to create a win-win situation for the world, where there was energy solution available as well as a sustainable environment for the future generations to come.
Enron was also an advocate for education and donated generously towards school and education. Its contributions to developing countries like India also showed that Enron wanted to increase the living standards of all societies alike. If it was searching for innovative energy solutions for the Americans, it had set up a power plant in India to provide that part of the world with a solution to the energy crisis it frequently faced. Energy is a solution to most problems in developing countries, such as running industries most reliant on the agricultural raw materials produced by such countries. Since India is one of those countries that has a majority of the population living below poverty line, such a corporate social responsibility indeed would have helped increase living standards for most people living under base wage level. It worked to enhance corporate social responsibility internally also as it stressed empowering employees to speak their mind and contribute productively to the goals of Enron. This meant that an open communication existed and there were no boundaries between the top and the lower levels of the organization.
Such contribution to the growth of Enron meant that there was transparency in all information that was passed around the organization and that employees were to be involved and meant to have a sense of ownership in Enron. After its demise, the new CEO of Enron, Stephen Cooper stated that Enron “is in the midst of restructuring its business with the hope of emerging from bankruptcy as a strong and viable, albeit smaller, company”. This showed Enron’s commitment to being a practical and accountable organization by having stakeholders’ interest at heart.
Q. What steps can be taken and by whom to ensure that an Enron case never happens again? Ans. The Enron case provided all organizations in the world to dwell over their financial and ethical practices. There were many lessons learnt from the Enron case and there are several steps that can be taken in light of all the mistakes made by Enron to ensure that such a case never happens again. The most important step that any management can take is to analyze the culture the organization is operating in and to enforce and instill the ethical culture with all the employees to guarantee that all employees, managers, and owners are on the same page regarding what is expected of them. The employees should be taught and given incentives whilst also safeguarded from external pressures and influences to conform to unethical practices.
The managers would have to “walk the talk”, as being role models instills deeper commitment and a sense of involvement in a clique. The employees themselves should be a major part of setting goals and mission and vision of the organization as this would mean that their self beliefs are a part of the organization and anyone would think twice before taking a step against their own beliefs as compared to a mission or vision that is simply imposed on an employee. Honesty, transparency and zero tolerance for misconduct should be placed as the main code of ethics, not only posted and printed all through out the organization but acted upon by the senior level and also by giving high regards and praise to those at the lower levels who show a resistance to all forces that go against these ethics. Such ethics should be made public as well so that the community also knows what the employees and the organizations stand for, believe in and are committed to before trying to influence their practices.
A step that is essential for most large organizations is to have non executive Directors on the Board to ensure that ethics are in place that all employees are complying to the code as laid down in the company by-laws and code of ethics. The employees should be trained as well as promote ethics by creating helplines where employees can be assured that their grievances and whistle blowing will be handled with complete anonymity so that the employees do not fear that acting in an ethical manner may cause them to be social outcasts. As learnt from the Enron case, the auditing and consulting firms should be separate as there should be independence in the information handled by both the interested parties.
It important that an open communication system is adopted in the organization so that employees at the operational level feel comfortable talking to and sharing their concerns with those at the top. Sometimes, the employees at the lower level know more about what is happening in the organization especially at operational levels that can help companies with avoiding future law suits or charges on unethical conduct. It is important for all employees in an organization to live their corporate values in order to ensure a secure working environment and maximum job security.