Creating and evaluating ethics programs is a crucial component of a strong ethical corporate culture. Without a focus on the creation of an ethics program that allows a healthy ethical culture to develop, the ability of individuals to behave ethically is often severely damaged. Understanding a strong ethics program that supports ethical behavior requires that we first evaluate companies that have failed spectacularly. Perhaps one of the most well known corporate failures related to unethical behavior is Enron.
Enron is interesting for several reasons. First, the organization had a very well-written ethics policy that espoused ethics as an important and valued part of their corporate culture. However, the unethical behavior that was rampant within the company clearly illustrates the need to embed into the culture an ethics program based on the espoused ethics policies. Second, the unethical behavior became embedded in all levels within the organization.
• ABC News. (2011, February 28). A cautionary tale (Links to an external site.)Links to an external site. [Video file]
Retrieved from https://www.youtube.com/watch?v=zSt9Ovt9ksY
• Sims, R., & Brinkman, J. (2003). Enron ethics (Or: Culture matters more than codes). (Links to an external site.)Links to an external site. Journal of Business Ethics, 45(3), 243-256.
Using your text, the readings from this module, and at least three additional resources, evaluate Enron’s corporate ethics policies, ethics programs (if any existed), and corporate culture.
Consider the following questions in your case analysis:
• What cultural elements within Enron supported unethical behavior?
• Imagine that the company survived the scandal. What changes would have to be made to the ethics program to shift the corporate culture to one that valued ethical behavior?
• Based on what you have learned from this case, how would you evaluate a company’s ethics program? Make sure that you use what you have learned from ethics theories and the material throughout the course to support your argument. Be specific in the conclusion and recommendations section of your paper.
Develop your case analysis using the five following sections:
Section 1: Introduction and situational analysis: Describe the ethical dilemma, giving appropriate background information. The term “dilemma” implies that there are pros and cons to various options, even if some are clearly more socially acceptable than others. This is also where you do your situational analysis – identifying factors related to the individual(s) involved (consider the readings from this module), company and managerial practices and policies, external factors such as economic pressure, and any other aspects of the situation that you believe helped create the dilemma.
Section 2: Stakeholder analysis: Identify the key stakeholders and how they are potentially impacted by the various options inherent in the dilemma.
Section 3: Analysis based on ethical theories: Analyze the ethical dilemma from the perspective of cultural relativism (how it relates to cultural norms – what society would view as acceptable, as well as what is legal), teleology (looking at consequences and acting for the greater good), deontology (duties and principles), and virtue.
Section 189 provides that if a director of a company relies on any information given by an employee of the company in good faith, whom he considers to be reliable and acting towards the benefit of the company, then such reliance of the director upon that employee is considered as reasonable in law. Section 190 (2) provides that if certain powers are delegated by the director of the company to a person then he will not be responsible for any acts done by that person only if the director believed: In good faith; On reasonable grounds and; Did proper inquiry if the inquiry was indicated by the existing circumstances; that the delegated person was reliable and exercised his power carefully. Sections 1317S and 1318 of the Act grants powers to the court to provide relief to a director from civil liabilities, if he fairly deserves to be excused. 1317 E: The ASIC can apply to the court to declare contravention of the breach of director’s duty. 1317G: After the declaration, it can also seek for order of pecuniary penalty under this section 588 (H): This is the defense available to a director who makes a breach of duty under section 588 (G). He can escape liability by proving the three required conditions; he had reasonable ground to believe the company to be a solvent, but he did not participate in the management of company on account of being a non-executive director, Section 26 (2) of the Corporate Affairs Commission: may impose a civil pecuniary penalty of $200,000 and if he makes a breach of provision of civil penalty, then he may be subjected to criminal proceedings as well under the Section 184 (2) of the Corporation Act. The Australian Securities and Investment Commission (ASIC) can definitely take action against Roger. It can apply to the court for the following: A contravention declaration. Order for pecuniary penalty. Order for compensation. Section 206C: provides that the commission may disqualify a director from his position. Section 588 (G): provides that it is the breach of duty by the director if: At the time, the company incurred debt, he/she was director of that company. The company had been either already insolvent or became insolvent due to the incurring of debt. There existed reasonable grounds to suspect that the company would become insolvent The director was aware of such grounds; or Any reasonable person, in similar circumstances would be aware. He/she became unsuccessful in preventing the company from insolvent trading. Application 1.Question- Growfast Pty Ltd (Growfast) operates a wholesale nursery growing and selling garden plants. Sam, Peter and Rose are the only shareholders and directors. Sam manages the company's day-to-day operations. Peter, who left school at 14 and has no tertiary qualifications, is in charge of the nursery. Rose is a non-executive director who does not take an active part in the management or operations of the company. Until recently, Growfast has been very profitable. However, six months ago, a competing business opened nearby and since then Growfast's profits have dropped considerably. Sam thinks that Growfast should move to larger premises in a different area. Without consulting Peter or Rose he starts looking for new premises and he decides the first place he inspects is perfect, although the price is more than Growfast can comfortably afford. Sam does not think this will be a problem, because there is no competition nearby and he expects that profits will recover immediately. Sam calls a board meeting and tells Peter and Rose that moving will solve all the company's problems and that this property he has seen is absolutely perfect for Growfast. He says they will have to act quickly as there is another interested purchaser. Sam does not tell Peter and Rose that he only looked at this one property. He is so enthusiastic that both Peter and Rose agree to the proposal even though Rose is doubtful, feeling that they are being rushed into making a decision without being given time to consider other alternatives. Peter agrees to Sam's proposal without really understanding the financial implications. Growfast purchases the new premises but, because of continuing dry weather, its profits remain low. Rose is becoming worried about her obligations as a director, especially if Growfast's financial position deteriorates any further. (a) Advise Rose about: (i) her position in respect of any breaches of her general law or statutory duty of care and diligence as a director; (ii) whether her decision to agree to the purchase of the new premises would be protected by s 180(2); and (iii) any possible liability for insolvent trading under s 588G if Growfast became insolvent. (b) Advise Peter as to his position in respect of any breaches of his duty of care and any possible liability for insolvent trading if Growfast becomes insolvent. Solution I: a.(i) Rose does not seem to have fulfilled the conditions of section 180, 189 and 190. In spite of being suspicious about the circumstances, she did not try to inquire about the reasonableness of the Sam’s decision with regard to the future aspects of shifting the nursery. She could take the defense of sections 189 and 90 only if he had done suitable precautions in ding inquiry about Sam’s decision and would have found Sam to be taking an appropriate decision in her opinion. Her carelessness amounted to breach of her duties as a director. In the recent case, James Hardie decisions: ASIC v Hellicar & Ors; Shafron v ASI, it was held that the several non-executive directors breached their duty of care and diligence in exercising their powers as directors and are expected to be cautious in the major decisions. In another case, Australian Securities and Investments Commission v Rich and Others, it was held, in spite of the fact that a director was a non-executive director, owing to his qualification and experience, he had a responsibility towards the corporation and also had the duties of a director and was thus accountable for breach of duty of care and diligence on his part. (ii) Hence, it can be said that Rose would be liable for breach of duty of care and diligence as a director and would be liable for the consequences. In this case, although Rose had no dishonest intention or personal interest in the judgement decision taken by her, but she had some doubt that the business judgement decision was being taken in a hurry. But, she did not take necessary precautions as required by section 1318. Nor did she herself believe that the decision was actually in the best interests of the company, as required by the last condition of section 180 (2). As demonstrated in a similar case, ASIC v Rich, It was held that it was not a reasonable explanation given by director that an important duty of financial transaction was delegated to a person and he completely relied on that person. It was >GET ANSWER