Ethics and Corporate Social Responsibility should work in harmony in a corporate world. These are key traits defined for maintaining good business morals, hiring employees with personal ethical values, and behave ethically and sensitively towards the society, economy and environment as a whole. We will discuss four theories in the context of Bernie Madoff and Enron two of the top financial scandals in the history of America.
Profit Maximization Theory - This ethical theory requires decision makers to maximize the profits of their business within the limits of the law. According to the theory the role of government and lawmaking body is to ensure that the free market is running and there is no interference in economic liberty (Inkling.com, 2014). Profit maximization theory ensures that the decision maker maximizes profits for himself or his organization and not for the society as a whole. Bernie Madoff was one of the smartest and devious man in the financial business world who is currently serving time in prison for securities fraud. With the profit maximization theory he tried to maximize the profits for himself and his company giving false promises to his investors. He had a very good reputation as an investor and could easily manipulate people’s minds and have them invest in his Ponzi scheme.
Enron also followed the profit maximization theory and tried to hide financial details which looked bad. Enron’s management created the conditions which encouraged them to concentrate only on improving financial performance, neglecting stakeholder’s interest.
Rights Theory - Rights theory comprises of a variety of ethical philosophies ensuring that certain human rights are fundamental and need to be respected by others. The focus of this theory is on each individual of society and their rights. Thus falsehood is restricted, and is very critical for businesses as they rely mostly on mutual trust. Bernie Madoff was very well reputed in the business world thus he could cheat people easily. The investors had blind trust in him the clients were not smart enough to judge whether or not the hedging of funds would produce high returns which he promised. The people who invested seemed to like what they saw on paper and did not make efforts to know beyond that. Bernie’s lack of ethics made people cost their entire life savings. Bernie Madoff was sentenced to 150 years in prison (Accounting-Degree.org, 2014).
Ken Lay and Jeff Skilling of Enron were the main players in the Enron scam and eventually the downfall of the company. They were very powerful and could easily deceit people with their position. They only respected people who could make more money for them and had a dangerous management incentive system and destructive work culture. In both cases justice theory was not followed.
Justice Theory – In his book “A Theory of Justice”, John Rawls reasoned that it was right for government bodies to redistribute wealth in order to help the underprivileged. The justice theory has application in the business context. Justice theory requires decision makers to be guided by fairness and impartiality. The strength of Rawls’s justice theory is in its basic premise, the protection of those who are least advantaged in society. The financial scam created by Bernard Madoff was possibly the biggest fraud ever committed by a single person. After the arrest of Bernie Madoff, Andrew Calamari of the Securities and Exchange Commission (SEC) said - “a stunning fraud that appears to be of epic proportions," (Politonomist.com, 2014). It was difficult to say that how many people and institutions would suffer from losses that Madoff privately measured at $50 billion. This gives an idea of how big the scam was and there was so much unjust done to people. Many people lost their lifetime savings.
For Enron an unjust reward system was responsible for the downfall of the company. The company gave extra rewards to candidates contributing to the productivity promotion process and those who contributed to controlling resources were not entitled to any incentives. Thus in both cases the justice was neglected.
Utilitarianism - Utilitarianism theory requires a decision maker to maximize utility for the whole society. Achieving the highest level of satisfactions is what is termed as maximizing utility. Note that the focus is on society as a whole. This theory is a bit different from profit maximization theory where the decision makes does something for himself , while here he may do something that is not good for him but for the society. Madoff assured his clients that the hedge funds would provide double-digit returns for their investments, and everyone assumes that he was doing this for the betterment of the society as a whole and not just for himself or his company. People trusted him because he had easy access to the system being the chairman of NASDAQ. Similar is the case of Enron. Its investors used to believe that the company is doing well for the society but in reality it was just underperforming but the fact was hidden. In both cases people assumed that this theory was followed but in reality it was breached.
The unethical practices of Enron and Bernie Madoff and likes have caused ruthless financial losses to the American people. These incidences could have been prevented if there was more stringent ethical rules in place and were enforced within the four walls of the financial institutions. In any economy, billions of business transactions occur every day that if not policed by federal authorities have the potential to run the economic structure. These senior officials involved in the process willingly accept their contributions and that they tampered with legal leniency. They hurt people financially and emotionally. Corporate culture if not followed by top officials who are the core of the company or an institution as a whole can lead to dire consequences such the two discussed. A high ethical and moral standards are expected from someone managing too much of money; blind faith for top stakeholders can lead to situations like Enron and Bernie Madoff.
References
Accounting-Degree.org,. (2014). The 10 Worst Accounting Scandals of All Time. Retrieved 23 October 2014, from http://www.accounting-degree.org/scandals/
Inkling.com,. (2014). Inkling. Retrieved 23 October 2014, from https://www.inkling.com/read/business-law-jane-mallor-15th/chapter-4/ethical-theories
Politonomist.com,. (2014). SEC Investigates “Stunning Fraud” of “Epic Proportions”. Retrieved 23 October 2014, from http://www.politonomist.com/stunning-fraud-0060/
