Business Ethics Recent High Profile Bankruptcies in Term Paper

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Business Ethics

Recent high profile bankruptcies in the U.S. corporate sector such as the ones filed by Enron, WorldCom, and Global Crossing in 2001 have highlighted the importance of financial ethics in business since lack of ethical practices were identified as the main cause of their failures. The business scandals underlined the importance of stricter regulation of the corporate sector and forced the U.S. legislature to pass the Sarbanes-Oxley Act of 2002 that contains a number of important provisions relating to business ethics. This paper about business ethics focuses on the impact of financial ethics in business.

Greed and an over-riding focus on increasing the profits and "share-holder value" usually leads managers and business leaders to disregard financial ethics in business. Although the impact of such "over sight" may be beneficial in the short run, it is invariably disastrous in the long run -- both at the individual as well as the collective levels. Examples of the negative effect of disregarding ethical practices abound.

At Enron, for instance, ethics was put on the back burner as the company's corporate culture was obsessively focused on making "deals" and increasing Enron's share value.

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Its Board of Directors disregarded the company's own Code of Ethics by doing business with thousands of Special Purpose Entities (SPEs), some of which were owned by Enron's Chief Financial Officer himself. The BOD turned a blind eye as the CFO made use of the SPEs to "park" Enron's troubled assets that were falling in value and unethically received more than $30 million in management fees from the SPEs. (Thomas 2002). Kenneth Lay, Enron's CEO and later Chairman, unethically exercised his stock options and pocketed profits, even as he was promoting Enron shares as a bargain buy to the employees. Since lower level employees emulate the behavior of their bosses, such cavalier attitude of the Enron managers towards ethics, created a culture in the company where "cooking of books" to hide losses and showing non-existent profits through dubious accounting practice became common practice. (Thomas 2002)

Some business people also erroneously assume that adherence to high ethical standards costs money. Contrary to this perception, it has been repeatedly observed that ethical practice in business actually saves money in the long-term. For….....

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