The
gravest consequence of the Enron debacle might be
its contagion impact. It may unleash a public crisis
of confidence in the honesty of America's business
leaders. They, for their part, dare not sit back
now. They need to urgently consider ways of convincing
their employees and shareholders that trust and integrity
are genuinely their watchwords in running their major
corporations.
If
this scandal were just about the plight of
one company, however large, it would not
call for the current avalanche of innumerable
governmental investigations. Nor would institutional
investors be showing all the signs of deep
distress and selling every stock of every
firm that is rumored to have polished its
accounts. The Enron fiasco is first and foremost
about corporate ethics.
What
makes AmericaíAmerica's business
machine so powerful and so resilient is the
fundamental trust that exists between employees,
investors and the nation's top business leaders.
When workers trust their supervisors, then
productivity is high and stress is low. When
investors believe people of integrity run
major firms, then they provide capital and
add to the nation's economic momentum. But,
to use a phrase I recently heard from a sports
columnist, the 'enronising of the balance
sheet' may not be a practice confined to
the former Houston energy giant alone. Analysts
are now looking at the auditing practices
of scores of major corporations in microscopic
detail. Fears abound that even some of the
largest blue chip companies may be found
to have cut corners, hidden debts and overstated
earnings.
The media will be bombarding us with daily
accounts of wrong doing at Enron. Each individual
item might not amount to much, but the cumulative
impact on the psyche of the American worker
and ordinary investor could be damaging.
Tens of millions of American workers and
investors may start to doubt the integrity
of America's business captains.
The suspicion of corporate leaders that
will flow from the unfolding Enron saga is
sure to be welcomed by many in the anti globalization
movement as further evidence in their arguments
against multinational firms. For the business
leaders seeking to secure support, for example
for the World Summit on Sustainable Development
(Rio+10) later this year, the Enron affair
just adds to an already complex mission.
Across the US, and indeed across Western
Europe as well, increasing numbers of workers
in large firms and ordinary shareholders
will be asking if corporate CEOs are telling
the truth. Are companies strong, as so many
business leaders say, or are they so weak
that they are about to lay off tens of thousands
of workers, suddenly cut dividend payments,
and even risk a sudden fall into bankruptcy
as we have just seen with Enron and Global
Crossing?
As the media coverage multiplies, will more
and more people start asking whether corporate
leaders have lost sight of their basic responsibilities
to put their employees and shareholders first?
Are they, instead, just like Enron's Lay,
Skillings and Fastow, serving themselves
first with huge salaries, massive stock options
and large corporate loans?
Politicians and regulators will propose
all manner of new laws and rules. Regulation
of pension plans and auditors will be improved,
the enforcement powers of the SEC will be
sharpened and the villains will be punished.
But is this enough?
Business leaders must understand that this
affair runs deep and wide and demands pro-active
strategies. Let me make a simple recommendation
to business leaders: announce immediately
that you are reviewing every aspect of the
corporate code of conduct to determine both
whether it is fully current and up-to-date
and whether it is being fully implemented.
Then, announce to all employees and shareholders
that an iron rule will be that under no circumstances
will the board of directors ever be asked
to suspend the code of ethics.
Further, CEOs should announce that outside
consulting experts are being engaged to provide
independent appraisals of the corporation's
ethics performance and to propose improved
means for ethics communications and training
across the corporation. The costs of such
actions are small, but business leaders must
move fast to demonstrate that they put integrity
first.
As a footnote, let me suggest to CEOs that
they get on the Internet right now and contact
experts who can assist them. I am a volunteer
member of the board of the Ethics Resource
Center (ERC), whose knowledge of corporate
codes and ethics training is superb
Then,
if CEO's want to understand what it takes
to be an effective ethics leader in a major
enterprise, let me recommend my colleague
on the ERC's Fellows' Program, Professor
Linda Trevino, Chair, Department of Management
and Organization, The Smeal College of
Business Administration at Pennsylvania
State University (ltrevino@psu.edu). Finally,
another outstanding ERC Fellow is Professor
Michael Hoffman, Executive Director at
the Bentley College Center of Business
Ethics, who has counseled scores of business
leaders. Incidentally, his website
Frank Vogl is President of Vogl Communications,
Inc and a Director of the Ethics Resource
Center
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