Business Ethics and Damaged Trust

Enron, Worldcom, Tyco, Freddie Mac, Bernie Madoff, I could absolutely go on…..and on…..and on. If you do not recognize a single name listed, you certainly have no idea what these organizations have in common. I will tell you. Each entry on the list above is the name of a major organization brought down by massive financial scandals ranging from $150 million to $75 billion dollars, ravaging investment funds, retirement savings, and the personal wealth of anyone caught in the wake of the unethical managerial accounting and lack of oversight plaguing these organizations. Managerial accounting, when used correctly, is designed to depict a financial snapshot, providing invaluable information to decision makers, controlling spending, influencing strategy, and anchoring the organization in monetary rationality and reality. The numbers corporate leadership receives through managerial accounting are meaningless unless they have been competently, objectively, and honestly gathered, analyzed, and reported (Brewer & Garrison, 2016). So what happens when it all goes wrong? What has to happen for it all to go wrong? The answer to that is ethics. Failed ethics leads to failed managerial behavior and damaged trust between corporate America and its loyal and disillusioned public.

Recurring unethical financial accounting sagas draw the public’s attention towards the realization of how much power and trust lies in the hands of managers and corporate accountants. Huge financial debacles, results of unethical accounting, continue to ruin the lives of millions of people and diminishes trust between financial institutions and the general population. Therefore, ethics are a prominent, and valid, topic of discussion when it comes to corporate finance and accounting. Currently there are roughly 8 concepts that fall under the umbrella of business ethics; personal responsibility, representative or official responsibility, personal loyalties, corporate responsibilities, organizational loyalties, economic responsibilities, technical morality and legal responsibility. This article will focus on personal and corporate social responsibility as those two contribute directly to the large scale rise and fall of unethical behavior and practices.

Leaders have a personal responsibility in taking appropriate care in their task, duties and decisions made as they affect the lives of those who follow. Far too many leaders employed by Enron, WorldCom, Tyco, etc. lost sight of their personal responsibility in pursuit of luxury and greed. Decision makers must remain accountable for planning, strategy and financial integrity on all accounts. Leaders and followers have an ethical responsibility to represent the truth, however this becomes exceptionally difficult when those at the top are not good examples for descending ranks. Admit to and own mistakes, clear a path for a solution, and increase trust in the leader and the position. Finally, a good leader is ethically responsible for their own aptitude and capacity to perform expected functions, committing to remaining relevant and up-to-date with the technologies and strategies prominent in the field at the time.

The idea of corporate responsibility must be prefaced with the idea of a corporation as an autonomous entity….basically a person. As anachronistic as this may be, it is an American reality. Corporations are seen as people in many aspects of federal law……sooooo…..now we are here. Corporations are expected to be model citizens and extend practices beyond the criteria of written law and do everything possible to protect fellow citizens and the environment. Contribute to social welfare, philanthropy and support the interests of stakeholders, customers, suppliers and the communities surrounding the organization. Economist Milton Friedman once wrote “There is one and only one social responsibility of business—to use its resources and engage in activities designed to increase its profits so long as it…engages in open and free competition, without deception or fraud (Brewer & Garrison).” Many would argue a corporation is responsible for more than profits and need to be in pursuit of more substantial purposes. I’m not going to offer my opinion on the subject here, but feel free to leave a comment and perhaps we can discuss corporate social responsibility in a forum or blog.

When business men and women engage in unethical behavior, trust between corporate America and the public is damaged, creates tangible tension, leaves deep scars, and invokes visceral emotional reactions when media reports begin to sound like much of the same. Financial competition and social acceptance are added obstacles to ethical behavior and have a tendency to back individuals into an emotional corner that is stressful and difficult to overcome. Remaining diligent in ethics may be difficult but is absolutely necessary to maintain a fluid and trustworthy free market society.

For a more indepth look into the role of trust in business relationships, visit my article "Trust and Leadership."

Noreen, E., Brewer, P., & Garrison, R. (2016). Managerial accounting for managers. (4th ed.). McGraw-Hill/Irwin. ISBN: 9781308886718