Enron to WorldCom and Beyond: 



Where was the Ethics Industry?

It has been a long time between reflections. My last formal reflection was in the Fall of 2000 anticipating the U.S. Supreme Court's decision that opened the way to George W. Bush's election as President of the United States. Earlier reflections had predicted serious values-based difficulties ahead for the Peace Process in the Middle East. See archives

Now the big news is the collapse of global stock indices following the Enron, Worldcom, and other disclosures and restatements. In and of themselves, these events, though sobering, do not warrant much in the way of reflection, in my view. Judging by the inquiries I receive on these pages, however, they remain on many visitors' minds. So, what do they bring to my mind?

First and foremost is a question, Where was the ethics industry? Many of the best and brightest minds in the ethics industry are being quoted almost daily as to how irresponsible, if not vicious, executive management and corporate boards have been. They should not have waived conflict of interest provisions. Boards should never waive conflict of interest provisions. They should be punished. They should be punished more. They should "walk the talk" and "codes are not enough" and other such cliches that pass for wisdom.

Curiously absent, though, is any language of the "I told you so" variety. Now this may just be good taste on the part of well-intentioned people, but I suspect it is largely because the ethics industry did not aggressively push for executives and boards of directors to be active participants in ethics and compliance programs. For most ethics and compliance programs, the program look is down. That is, many, if not most, ethics and compliance programs are largely for purposes of risk reduction and crowd control. Enron's, from all appearances, was largely for show. One needs only read its provision for reporting misconduct to suspect that it was not for real. Moreover, for all the posters for sale on Ebay, I am aware of none that describes how to seek advice or report misconduct.

But back to the ethics gurus. I am not aware of anyone quoted who said that he or she had ever refused a consulting assignment because management rejected recommendations that the executives or members of the board of directors be included in training programs. I never did. [Though I do know one consultant (now a former consultant) who did just that when executives refused to include themselves in the ethics and compliance training plan.]

Moreover, these (we) ethics gurus are largely missing the point, in any event. What seems to horrify the ethics gurus is that the Enron board waived its ethics code conflict of interest provisions. What horrifies me is that the Enron business plan was based upon gaining competitive advantage in the marketplace through government intervention. The ethics gurus are concerned that the conflict of interest provisions were waived, but do not question why Wendy Gramm, a former high-level political appointee and wife of a US Senator, was on the Enron board of directors, let alone its audit committee? The process by which that occurred might suggest volumes abut the organizational culture that led to the waiver of the conflict of interest provisions.

The core of the Enron business plan was based upon government manipulation of market processes to its benefit. Campaign contributions and capturing the politically powerful were means to this end. This, in a country that espouses democracy and free markets, should be the basic sin. This is what should never be tolerated. If ethics and policy are ever to be in sync, the ethics officers and ethics gurus of this country must demand that the ethical foundations of the country itself be respected.

As I write elsewhere in this site, the good corporate citizen can lobby government to remove barriers to free markets (of which there are many). It may lobby to level market playing fields. It can lobby to defend itself. But it violates all norms of limited democracy and free markets to use funds from owners having only limited liability to influence politicians and civil servants to grant them preferences, access, and influence that gives them competitive advantage. Even using government to open foreign markets, as was the case for Enron's infamous project in India, gives the large corporations and campaign contributors clout and cachet in the long-run that outweigh the short-term market benefits.

So, who speaks for ethics and social responsibility? Who speaks for policies of stakeholder engagement such that all those involved or affected by an organization have a voice? Who speaks for those who do not have the financial clout of Enron, Worldcom, and the other corporate behemoths? If not the ethics industry, especially the academics, who? I, for one, hear few such voices. There are a few, to be sure, but they are shrill, easily ignored. They are not the ones quoted in the nation's major dailies.

It is those who are quoted who must make the case for ethics and policy integration. Or, other voices must be found. If not, the ethics gurus will remind us most of the Claude Rains character in Casablanca who is "shocked, shocked" to learn there is gambling going on," and then accepts his winnings from the croupier. In truth, the ethics gurus themselves are rapidly becoming the "usual suspects:" the predictable ones. The ones you can make a point with—without risking too much. Not too shrill, not too tepid. Just right.

Kenneth W. Johnson

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