Term Paper on "Corporate Character and Individual Responsibility"

Term Paper 10 pages (3677 words) Sources: 8 Style: Turabian

[EXCERPT] . . . .

Corporate Character Individual Res

As Beauchamp & Bowie stress within their work, it is true that individuals who come together in a group have the ability to collectively act in ways different from how they would act alone, but this does not give the collective a consciousness which would constitute an entity culpable in actions. This work will argue that the role of the individual in ethical action surpasses that of the corporation, as by default the corporation is not an entity which can be held accountable for its actions. The corporation is not an intentional body.

Corporate character and corporate social responsibility have tended to be high on the list of social and ethical concerns in modern times. Developing systems in which corporations feel and act in a socially responsible manner is essential to the development of a business today and yet it must also be made clear that corporate responsibility is limited. The corporation itself is the product of the limitations of liability upon individuals who comprise it. Seeking redress for actions collectively conducted by a corporation is therefore difficult as each individual's personal knowledge, action and therefore liability must be investigated.

To discuss the concept of individual responsibility, as it applies to corporate culture this work will look at three high profile case studies and discuss ethical and legal issues surrounding them and actions taken toward accountability. To better understand the reality of holding corporations accountable for collective or individual actions one can choose from a plethora of corporate scandals and/or conduct changes that have occurred over the last 20 years. The three that stand out to me the most are Enron, WorldCom and Nike, as all three companies went through monumental accountability phases and two completely disbanded. Finally this work will then discuss the fact that altering the landscape of corporate responsibility requires essential alterations in the individual as ultimately the individual is the only party truly capable of action.

Punitive Action against the Corporation

This work will argue that the role of the individual in ethical action surpasses that of the corporation, as by default the corporation is not an entity which can be held accountable for its actions. The corporation is not an intentional body. The foundation of this argument lies in the fact that there is no ability for collective action against the corporation as the corporation cannot experience punitive action. The corporation can be closed, forced to disband based upon financial constraints imposed by a civil court but it cannot be "punished" per say for the actions of the group. The actions of the individual are the only actions capable of receiving punishment and in truth they are the only "actions" capable of occurring.

Enron and WorldCom are two names that will likely go down in infamy with regard to fraudulent business practices. They also boast being responsible for one of the most sweeping alterations in tax and accounting laws that has ever occurred in a single piece of tax legislation. These changes will impact all levels and sizes of business, not to mention accounting firms who work for them for years to come. Yet these changes are external forces, not imposition of individual ethic. In a sense the changes that have occurred as a result of Enron and WorldCom in conjunction with ethics are punitive and collective, applying to all corporations to protect the public from future fraud. In other words they are preventative, restrictions on future actions, yet again those who will be held liable if the rules are broken are the individuals who break them, not the corporations themselves. In business much more thought must now go into the real financial situation of a company and the reported financial situation of a company expressed to the public and stakeholders.

Enron has a long history of accounting discrepancies that have in the past verged on fraud and in some cases were deemed fraud by courts. As far back as 1987 individuals within Enron were fraudulently and without Enron corporate authorization trading in oil stocks. Had the success of such trades gone in the favor of the two internal traders responsible the fraud would likely have gone unnoticed, as the traders created separate books that reported to Enron that no such trading was occurring and that the financial situation of the company was far better than it actually was. Yet, this was not the case and the traders' gamble was called when the trades went bad and were discovered by an Enron investigation as were previous illegal (above limit) trades which had resulted in the company paying the two traders significant bonuses they had not deserved. In short this was just the tip of the iceberg and this was an example of individual internal fraud against both Enron and it stakeholders.

Yet, what it does point out is the ease at which individuals within very large corporations can shelter their fraudulent acts through the use of separate accounting books, which is a common business practice, keeping two sets of books not committing fraud. It is not uncommon or was it previously illegal to keep two sets of books, one displaying the real financial day-to-day health of the company and one set that represents the close of the business quarter or fiscal year and is frequently skewed to make the company look better than it might actually be. The work of accounting auditors (both internal and external) has in a large part been to reconcile each set so they more closely match the real health of the company. The reconciliation is a posthumous practice rather than an ongoing one so if individuals in the corporation knowingly sought to play with the budget, in the case above to increase profitability they could do so easily in the time between reconciliation. Enron executives repeatedly committed fishy trades, and charged consumers over the top prices for energy services to cover their bad bets and to seal the deal frequently misrepresented their financial health to their stakeholders. Enron then managed to get individual auditors at Arthur Anderson LLC to cover up its bad trades, which were being investigated by the Securities and Exchange Commission. All this occurred between 1999 and 2001. Enron's gambling had not paid off and for various reasons, some having to do with bad business deals and bad exchange gambles the company filed for bankruptcy in 2001. In so doing the company settled for pennies on the dollar with people who held stock in the company, many of whom had never diversified and who lost everything.

The frauds that Enron and more specifically the top executives at Enron committed were multiple including wire fraud, securities fraud and money laundering as the most significant and the ones that were eventually prosecuted, against individuals rather than the company. A piece of information that many find interesting is that Enron itself was not charged with any crime, its top executives faced an unprecedented investigation that ended very badly for them, but did not offer compensatory damages to anyone who lost money.

The response to the Enron debacle was the formation of the Enron Task Force, (11) comprising assistant U.S. attorneys from other locations, joined together to bring down the fiercest threat to the U.S. investor. Beginning with middle management, the Task Force was able to construct, through testimony given in exchange for leniency, a criminal case against the two figureheads of Enron: Ken Lay, former CEO and Chairman of the Board, and Jeff Skilling, former President and CEO. (12) Lay and Skilling symbolized to the nation all that was wrong with corporate greed; two millionaires who fiddled while their empire burned, taking its investors and employees down with it. Lay was charged with multiple counts of conspiracy to commit securities and wire fraud, securities fraud, and wire fraud. (13) He was also charged with four counts of bank fraud, and those counts were tried in a separate bench trial. (14) Skilling was charged with conspiracy to commit securities and wire fraud, and multiple counts of securities fraud, false statements to auditors, and insider trading. (15) Lay was found guilty on all counts and faced a maximum prison term of 165 years; Skilling was found guilty on nineteen counts in his indictment and faced a maximum prison term of 185 years. (16) After Lay's death in July 2006, his conviction was vacated on all counts. (17) Skilling was sentenced to slightly longer than the minimum allowed under the Federal Sentencing Guidelines, twenty-four years. (18) Skilling's sentence is being appealed.

The development of the Enron task force, in a sense created an additional shelter for many, as those who were willing to divulge information were then sheltered against prosecution. The legal system and to some degree society felt that if the men on top, got off completely that the system would have failed the nation as a whole substantially.

WorldCom is another example of the manner in which big business challenges the rules, right to their very edge… READ MORE

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