Ethics in Business

December 14th, 2011

For just over a decade now, Enron has been a symbol of corruption, greed, and everything wrong in the American political and business sphere. In October, the Brandeis campus had the opportunity to learn more about how this giant corporation fell to its knees when Sherron Watkins visited to discuss her experience blowing the whistle.

Watkins spent much of her day here discussing ethics in business with classes at the InternationalBusinessSchool. Her whistle-blowing event, targeted towards students in the journalism program, focused on her personal experience with the Enron scandal.

One of the most poignant points she made over the course of the night was that unethical behavior is not gone from American business culture. It is, however, much harder to identify. Enron cooked the books in the late 90s and early 2000s, and scammed the stock market with false projections. Once this was out in the open, no one could deny that this was unacceptable behavior.

Watkins personally shared an experience she has had in recent years to provide contrast; asked to speak at an event, a company flew her entire family in, and provided them with a free week-long stay at the hotel. Watkins spoke for twenty minutes and that was the entirety of her participation. It’s difficult to say something is unethical when benefiting directly from it, but today this is standard practice. Sherron Watkins herself struggled with her own feelings on receiving such perks, and so did her audience.

Ethics are hard enough to define, putting them in the context of running a business leaves a lot of leeway, and in the past decade we’ve seen a lot of attempts to both cheat the system and find a good balance. Despite the evolving system, Watkins had solid ideas for change.

Consistently, she discussed her frustration with a law that former President Clinton passed in an attempt to curb excessive salaries. Essentially, the law limited executives from receiving more than $1 million as pay unless specified performance goals were met. Businesses found a loophole for this stipulation quickly: through stock options. As Watkins explained it, in order to match the previous salary the executive was making, the company would provide the equivalent amount in stock. Due to the unpredictable nature of the market, however, in order to match that difference in salary, more than the defined amount of stock would have to be offered. For instance, if an executive had previously made $4 million per year, he would now need to be provided with $3 million in stock options. To ensure that the options actually resulted in $3 million, the executive would need to be provided with more like $7 million in options.

This, Watkins emphasized, has led to the giant gap between the rich and poor today, as all of the stock options have been utilized to make much more than the executive would have been able to previously. Repealing this law is a key to closing the income gap, and will also lead to a more ethical society where the potential to make money is not the paramount thought of the heads of our most important corporations.

Contrary to the most accepted definition of “whistle-blower”, Sherron Watkins did not choose to go to the press. She went to her boss to report what she saw to be an injustice, and she knows now that the only reason she was not taken down by the company was that they did not have enough time to ruin her.

As she discusses the fall of Enron with a decade of perspective behind her, she recognizes the struggle that still exists to create and maintain a truly ethical business model. As the generation responsible for taking over, I ask to all of you: what do you think an ethical business is? And what practices are needed for such a model?

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