Managing Your Business
Business Ethics 101: The Importance of Integrity in Business
Jeffrey K. Skilling, the former CEO of Enron and contributing mastermind for the energy company’s historic scandal, was released from federal custody last month after serving 12 years in prison. Enron was one of the largest corporate bankruptcies to date, caused by an intricate fraud and conspiracy scheme led by Mr. Skilling, other Enron executives, and Enron’s partnering accounting firm, Arthur Andersen.
As an entrepreneur, ethical and moral practices are critical for working with investors and building your team, as well as cultivating relationships with partners and customers. One temporary lapse in integrity can affect your business’s entire future, so make sure you do your due diligence.
Consequences for Lack of Integrity in Your Company
Temporary and seemingly small poor decisions will come back to haunt you. The consequences of unethical behavior include:
Poor Company Performance
Integrity and values in a company are like the foundation. As we’ve noted many times before, company culture begins with leadership—if healthy business practices are absent in leadership, management and eventually employees will also have a weak performance in your company. For example, if an employee is too focused on receiving money from the customer and ignores procedures, your company is more prone to errors along the way.
Loss of Business
Once the press release about your ethical mistakes reaches the public, say goodbye to your partnerships and sales. A combination of unsatisfactory customer experience (which was derived from weak company performance) and bad reputation discourages future hires, customers, and vendors from working with you as well.
The legal implications for unethical actions vary. For example, class-action lawsuits are likely filed when management mistreats an employee or acts negatively within their rights. On the other side of the spectrum, CEOs and other leaders can face criminal charges for, for instance, falsifying financial statements or other forms of fraudulent acts.
Infamous Cases of Unethical Behavior
Although these examples are larger-scale than most small businesses, we can still learn from their mistakes. As the years progress, “integrity” becomes blurred and decisions are a little less clear:
We’ve all heard about the ground-breaking Enron scandal… In 2001, a Wall Street giant hid its billions of dollars in debt behind a complex and fraudulent scheme, and was cited as the biggest audit failure in American history at the time. The scandal led to Enron’s bankruptcy and new legislation (Sarbanes-Oxley Act), and executives at Enron were indicted for a variety of charges, including money laundering, insider trading, conspiracy, and several counts of fraud. The primary mistake was that they couldn’t be honest with themselves and deal with the truth—the business was in debt and the executives couldn’t adapt fast enough.
In 2006, HP chairwoman Patricia Dunn contracted a team to investigate journalists who have covered the company and board members who may have been potentially leaking information. Part of that investigation included pretexting, or posing as the board members to gain access to the journalists’ personal phone records. Although a legal gray area at the time, the act was considered a violation of personal identifying information without authorization. The company settled $14.5 million in a civil claims lawsuit, and the main private investigator saw jail time.
In 2017, a United Airlines passenger was, quite literally, yanked from his seat and dragged off of the plane due to it being overbooked. Although this incident didn’t happen at leadership-level, many questioned the employee training and policies that were established during a situation such as this. It wasn’t just the situation that caused a rise in the public; CEO Oscar Munoz’s initial response was to describe the passenger as “disruptive” and support how his employees dealt with the situation. After 2 more days of heightened disapproval from the public, the CEO issued a full apology.
Facebook - Cambridge Analytica
The Facebook-Cambridge Analytica scandal was a major political scandal in early 2018. Cambridge Analytica harvested data without consent from as many as 87 million users on Facebook, and used the data to target U.S. citizens with political advertising based on personality. Although Facebook is a “social” media, the public discourse centered around Facebook’s data consent policy, criticizing its need for more awareness when personal data is shared with the public. The company has since made changes to its data policies, and is constantly finding ways to improve security.
"I think life is about learning from mistakes and figuring out what to do to move forward. A lot of people ask what I'd do differently," said Mark Zuckerberg. "The reality of this is when you're building something like Facebook, there are going to be things you mess up. I don't think anyone is going to be perfect, but I think everyone should learn from mistakes and continuing to be better."
Live, Learn, & Prevent
In the event that a scandal or other negative situation occurs, act fast. Almost like a disease, cure the issue before it spreads to other parts within your business. Although it’s nearly impossible to prepare for all the mistakes that your company may have, consider creating a solid business code-of-conduct to cover any ethical issues and protect your business.
As for Jeff Skilling, we can only hope that he continues to live and learn from his mistakes, and serve as an example for businesses and people alike.