wfn.org | Close Up: Enron debacle offers tough lessons in ethics

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May 20, 2002   News media contact: Tim Tanton*(615)742-5470*Nashville, Tenn.
10-21-71BP{228}

NOTE: Photographs and a sidebar, UMNS story #229, are available with this
report.

A UMNS Report
By Diane Huie Balay*

The collapse of Enron Corp., the one-time energy trading giant, and the
collateral damage to accounting bastion Arthur Andersen LLP continue to
generate repercussions around the United States, from the halls of Congress
to the pews of United Methodist churches. 

Charges of conflict of interest, securities fraud, insider trading, cooked
books, hubris and a gross breach of fiduciary responsibility are being
hurled about with considerable emotion, while Andersen is on trial after
being indicted for obstruction of justice related to the destruction of
Enron documents. The financial impact of Enron's collapse has been
widespread, leaving a blot on investors' balance sheets and erasing the
retirement savings of many employees who sank everything into the company's
401(k) plan.

Beyond the dollars and cents, the Enron debacle offers a new textbook
example of failed ethics in business. It has prompted standing-room-only
attendance in business ethics classes at schools such as United
Methodist-related Duke University and Cox Business School at Southern
Methodist University.

What do ethics have to do with corporate responsibility? In a word:
Everything.

It is unclear whether the interest in business ethics classes is a trend or
a fad, or whether the students really want to learn ethical behavior or want
to stay out of jail and congressional hearings. However, leading financial
experts, both church and corporate, do make clear that ethical behavior is
good for business, employees and investors.

"One of the potent messages of Enron is that ethics matter, and matter a
lot," says Thomas Donaldson, author, ethicist and Wharton School business
professor. The economy depends on the integrity of the markets and the
companies that operate in them, he notes.
 
Ethics begin with individual character, says Richard O. Mason, director of
Carl M. Maguire Center for Ethics and Public Responsibility at Southern
Methodist University in Dallas

Mason, an author and management consultant who also teaches corporate ethics
at SMU's Cox Business School, calls Enron and the attendant corporate damage
"tragedies."

"A lot of really fine people got clobbered who were innocent of wrongdoing,"
he says. "One needs spiritual and religious resources to draw on in those
tough times."

'Over the pale'

In 1984, Mason says, Enron was on the right track under the leadership of
chief executive Ken Lay, an active member of First United Methodist Church
in Houston. At some point, the company began "taking things off the books,"
failing to reveal the full truth about certain business transactions. Says
Mason: "They went 'over the pale.'

"It was classical hubris," he continues. "They were doing things well, got
patted on the back by individuals and by the marketplace, and they bought
into it."

Ultimately, he says, the corporate culture became destructive. The company
hired the brightest and best graduates, but then subjected them to a
corporate culture of "rank and yank" - ranking 10 employees and yanking, or
dismissing, the bottom three. Big money was awarded to those who did well in
the eyes of the corporation, he says. 

"These practices built up a culture of backbiting and a very destructive
atmosphere compared with, say, Southwest Airlines' organization that really
cares about their employees," Mason says. 

What causes a destructive atmosphere? Do some companies have so much stress
at the highest levels of management that no one's ethics could withstand it?
Are the pressures so intense that a good corporate culture may become
destructive? And, if so, what can people of faith do about it?

So much money is at stake that "a lot of people don't want to hear the
straight truth," Donaldson says. "Investors don't want the CEO to say
something negative that will drop the stock, even for the short term.
There's a culture of puffery, a culture of winking." 

The mere presence of a code of ethics is not likely to make much difference,
he says.

As a consultant in corporate ethics, Donaldson says he knows within reason
the content of a corporation's code of ethics before he even looks at it.
All of the top corporations have such codes, he says.
 
Recently, he says, he showed his class a copy of a letter that an insurance
executive received from Enron last fall. The letter, signed by Lay, boasted
about Enron's high ethical standards. In addition, Enron passed out
paperweights to employees reminding them of the corporation's ethics.
However, none of that prevented acts of deception, Donaldson says.

"What is important in corporate ethics is the example provided by the
leadership - what they say and do and how they reward people," he says.
"That is especially true at the top of the organization."

At Enron, for example, then-chief executive Jeffrey Skilling held a
celebration for an employee who broke the rules, Donaldson says. 

"One of the great lessons here is that all the bells and whistles, all the
fine high talk, all the codes of ethics and all the lawyers amount to
nothing if the culture is ethically dysfunctional," he says.

Donaldson describes two business movements that strongly influence corporate
culture.
7	The "shareholder" movement promotes ever-increasing shareholder
values. The chief executive officer's primary goal is to continue pushing
the company's stock prices up.
7	The "stakeholder" movement is based on the premise that profits can
be made by holding the interests of the stakeholders - customers,
shareholders, employees and the communities where they live - in balance. 
	
Other business experts add a third movement, the "social" model, which holds
that companies are in business to provide jobs for employees and to generate
tax revenues for government. In this concept, companies may be used to
engineer social change.

If a corporation subscribes to the shareholder model, could the drive to
increase stock value put pressure on corporate officers to withhold
information that would drive share prices down? Could it lead to unethical
and illegal behavior? Could it lead to a corporate culture in which any
attempt to say "the emperor wears no clothes" would be discouraged, ignored
or worse?

'Good' people

Whether or not such a corporate model influenced some Enron and Andersen
officers, interviews show that many employees of those firms believed the
companies were good. Those people suffered real grief at their company's
plight.

"Few of the executives were high-fliers," says the Rev. Steve Wende, pastor
of First United Methodist Church in Houston. "Many, if not most, are very
solid, churchgoing, community-minded people. These are people who went out
of their way to invest in ministry with the poor and to sharing the Gospel
with people in need."

Wende says that Lay was attracted to First Church because of its diversity. 

"Here, folks of great means can be found sitting next to street people. Ken
liked that," he says. "He is a good guy."

Like many Houston congregations, First Church had members who were hurt by
the Enron collapse. Some lost jobs. Some were retirees who lost significant
amounts of money in pensions.

"Our church has tried to stand beside those in Enron," Wende says. "People
have a good deal of maturity in the business meltdown. We're not the judge.
God is the judge.

"One member said, 'If Christian fellowship is just for the good times, it's
not Christian.'"

The church has tried to help those who were laid off find other jobs, Wende
says. For the most part, he says, those efforts have been successful.

"Enron was a major player in support of organizations in Houston for
community betterment. These social agencies will suffer," says United
Methodist Bishop Alfred Norris of the denomination's Houston Area.

Sometimes the difference between right and wrong can be lost in a corporate
environment. 

The Rev. Rebekah Miles, associate professor of ethics at SMU's Perkins
School of Theology in Dallas, writes that Christians working or investing in
the business culture need to remember that others do not always operate with
the same values.

"To assume that all will act like faithful Christians," she writes, "and
that we don't need laws and other protections against evil is, as Martin
Luther says, 'like placing lions, sheep and eagles together in the same
fold' and saying, 'Help yourself and live in peace with one another.' You
don't get peace and happiness in that setting. You get a lot of fat lions.

"So we need to set up laws and guidelines to protect the sheep and eagles
against the lions in the fold," she says.

"It can be tough for Christians not to give in to corporate values that may
be different from the ones they learned in church - especially when their
financial future and that of their family seems to be at stake," she says.
"The pressures and temptations can be overwhelming.

"If their commitment to doing the right thing, to living well as Christians
and to telling the truth is not as strong as their desire for financial
security or their ambition for advancement, then they can easily fall into
trouble," she continues.

"It is important, then, for Christians to foster strong, faithful
communities where people not only learn basic moral principles but learn to
live them out," Miles says. "It is important to practice them and to
practice so long and faithfully that these principles become second nature.
Then they might stand a better chance of withstanding the temptations to put
their own interest before their responsibilities to the truth and to their
fellow employees and society."

# # #

*Balay is a free-lance writer in Dallas and a frequent contributor to
church-related publications.

*************************************
United Methodist News Service
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