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MEDINA, Ron Edward G.

Business Ethics and Social Responsibility

REFLECTION PAPER

ABM 12C

In the class discussions, it can be concluded that ethics play a very important role in the operations of a business. Management is specifically being influenced by an individual's principles and standards. The decision making capability of managers is so critical that it could even lead the business to the bottom. The following are great examples of how ethics come into play in a business organization and how decisions can be very damaging if not given careful thought.

A. Enron Scandal This fraud is considered to be one of the largest scandals in the history of the United States. Enron Corporation is an energy trading company based in Houston, Texas that was formed in 1985 as the merger of two gas companies, Houston Natural Gas and InterNorth Incorporated (History, 2009). In the 90s, internet stocks were also valued at a very high price which accompanied Enron to skyrocket to success. The company was also ranked as seventh (7th) on Fortune magazine's top 500 U.S. companies. However, the company's success did not last long as it fell apart in a flash. After reading various articles and commentaries regarding the issue, it could be pointed out that behind the reasons which technically caused their downfall is the importance of upholding one's integrity and ethics. The main problem revolves around the use of a mark-to-market accounting when the company had so much debt and stock price was starting to go down. With this method, values are recorded at fair value rather than historical cost which explains the promising figures that Enron had been falsely reporting. In line with this, questions such as why did the management come up with this decision and who is responsible arises and it would all boil down to management's consideration of ethical values in their decision to falsify their financial statements. Being a business student, I understand the importance of accuracy and reliability of financial information. In fact, these figures go through a validation process to ensure quality. In Enron's case, it is very devastating that such decision was made resulting to a lot of investors and even financial advisors that have been victimized by false information. Clearly, not all employees especially auditors would have been in agreement with this because it denies the essence of auditing itself. Employees were absolutely pressured to compromise their values in order to comply. Although I understand that one might want to stay loyal to the company, this is where an individual's values will be challenged to go against what everyone is saying/agreeing to. The decision could have been totally different if only there were employees willing to stand up for his/her beliefs and call out even those in authority if they are doing something wrong.

As I encounter personal problems myself, I understand the desire to solve a problem quickly and easily. Often, the solutions that are easy to do are not always morally "right" resulting to committing more wrongdoings. It is important to note that wrong is still wrong and Enron should've faced the problem squarely and not through lying. It would have made so much difference if only they braved the situation and risked a lower stock price rather than continuously lying to everyone which eventually led to everything falling apart. We could use the lessons that Enron has taught us in working on ourselves for the better like the proposed revisions in the Financial Accounting Standards Board or FASB to relax fair value standards (Cohn, 2009). Enron has affected so many people not only the employees but all the stakeholders. They have put their employees at ethical dilemmas and made their employees jobless and unsecure financially. Investors lost their hard-earned money and the auditing firm partnered with Enron lost their clients. Most importantly, Enron has lost its integrity in upholding values such as honesty and respect that every organization should observe. Through these, organizations and even us as individuals can create a dynamic and healthy working environment.

B. Erin Brokovich If the Enron scandal touched the topic of compromising the sake of others for the business to continue earning, the story of how Erin Brokovich stopped PG&E dives deep into that. The movie is about a mother who gets involved in the affairs of her lawyer's firm Ed Masry because of a car accident. They work on a case together to go after coverage of medical expenses but they lose. As she is desperate to earn money, she worked at Masry's firm and eventually got an understanding of the nature of medical cases. She becomes curious in the seemingly coincidental influx of cases in Hinkley, California and the company Pacific Gas and Electric (PG&E) who has a plant in Hinkley. Erin became very devoted into finding proof of PG&E's liability for numerous cases that has severely affected the lives of the local residents negatively. Aside from the immediate short term effects, the health status of many locals and especially employees declined in the long run. There were many ethical issues presented in the movie that generally focuses on PG&E and their practices. It was horrifying to know that there are actually companies who choose to ignore the welfare of others. First, the issue of deception just like the Enron scandal comes into view. PG&E made everyone believe that they are using a chemical that is safe for the residents. Worse, they were aware of their actions as documents were destroyed by the company because it would greatly incriminate them. Fortunately, there was an employee who did not obey orders from authority and decided to go against what he is ordered to do because he feels that it is wrong to destroy such files. That example was a great way to show the importance of integrity and sticking with what you believe in, relating to Kohlberg's 5th stage of moral development which is understanding that one might work against the interest of

particular individuals (McLeod, 2013). The movie also gave light in what thrives in criminal proceedings today which are bribes. The nature of equating an amount of money to "compensate" for a wrongdoing comes into question especially when the wrongdoing involved a conscious decision to commit it. As if bribing the victims was not enough, they had also engaged in unlawful acts of bribing professionals such as doctors and paying for their testimony and ultimately their professional integrity. Next is the harm to the environment. As a company that focuses on the use of natural resources, it is expected that they should regulate their practices in accordance to existing laws about the conservation of nature. If the company had been avoiding costs for compliance, they would have preferred to do so immediately rather than paying for it so much in the future. It is a good thing that companies today are becoming more aware in their role to Earth's sustainability. It can be shown in tree planting activities and further implementation of laws that enforce the care for the environment.

It was disappointing to see PG&E continue to deny allegations of any lapses whatsoever in their

policies and actions. They were obviously at fault for not complying with environmental safety standards that costed the life of others. Aside from that, they also committed numerous unethical actions in their defense towards the issue. The company should have corrected their wrong actions as soon as it

happened. More lives would have been saved and the company chose to remain ignorant which is probably worse than being ignorant alone.

I understand how it would be very difficult to go against one's company or a person who has

authority over you. Even so, the movie showed the importance of keeping one's integrity and acting in an ethical manner. As humans, we are always conflicted with right or wrong in our lives but at the end of the day, we should at least try to do good and become the best version of ourselves. The movie provided me with a lot of insights in business ethics and it definitely would be a lesson to keep in mind to take the right actions and thrive in my ethical self.

REFERENCES

Cohn, M. (2009). FASB Caves on Mark-to-Market. Retrieved from https://www.accountingtoday.com/news/fasb-caves-on-mark-to-market

History (2009). Enron files for bankruptcy. Retrieved from https://www.history.com/this-day-in-history/enron-files-for-bankruptcy

McLeod (2013). Kohlberg's Stages of Moral Development. Retrieved from https://www.simplypsychology.org/kohlberg.html