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Corporate Government And Ethics

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Question:

Undertake a review of literature to develop and explain your perception of the ethical theories in relation to the character of the moral agents, their duties and ethical dimensions of their decisions/actions.
 
 

Answer:

Introduction

Ethics are the values and the morals which are followed by the people in undertaking their actions and daily activities. The ethics of any person or an entity are shaped by their beliefs, conceptions and the environment which surrounds them. When it comes to the businesses, the ethics are the ones which the people running the business follow, or the ones which have been drafted by the businesses, in terms of their codes or standards of conduct. Ethics play a key role when it comes to decision making, particularly when faced with ethical dilemma. In such cases, the role of the moral agents in enhanced (Jennings, 2008).

Moral agents are the executives of company who take the decision on behalf of the different stakeholders for which the business is conducted by them. At times such decisions have positive effects, and at others, they have a negative effect over the different stakeholders, including the employees, society and the investors/shareholders. At such instances, the ethical theories prove to be of help and have to be adopted by the moral agents (Ferrell, Fraedrich & Ferrell, 2016). The following parts cover an analysis of the different ethical theories particularly in context of their duties and the ethical dimensions of their decision. Once this is done, in order to give a practical aspect to this discussion, the drawn literature would be applied in case of Bernard Ebbers, who led to the fall of WorldCom.

Ethical Theories

A moral agent is deemed as an individual who has the capability of discerning between what is right and what is wrong, and such person can be held responsible for their actions. When it comes to the companies, the executives of the company are given the responsibility to run the business of the company for the different stakeholders, which include the investors of the company, employees and the society at large. The moral agents have certain duties, the primary one in which is to act in an ethical manner, and to undertake the decisions in an ethical manner. In this regard, there are certain ethical theories which can help in identifying the character of moral agents, they duties and the ethical dimensions of their actions and decisions. In the process of making moral and ethical decisions, the respect to other human beings has to be undertaken and the moral agents have to implicate themselves more than the conventional decisions. The moral agents have to justify why he chose the particular decision or chose a particular thing and seems very unique to the ethical decision making as it plays across the others through the society (Weiss, 2008).

 


Jones, Felps and Bigley (2007) have discussed ethical theories in this context. In this regard, egoism is an important theory which involves acting for the self-interest of the person himself in an exclusive manner. The two kinds of egoism relevant here and these are psychological egoism, which is a descriptive theory of human behaviour and it covers that the individuals innately are self-interested and act in a routine manner to advance their own interests. The other one is ethical egoism which is normative perspective which holds that the individuals act only for their self-interest. As per this view, the individuals are obligated to enhance their long term welfare, and in this, the commitment of other people is not binding (Beauchamp & Bowie, 2004). There are some moral philosophers who endorse ethical egoism and other has denied that it constitutes as normative theory (Barry & Stephens, 1998). Even though there are arguments and behavioural prescriptions which are different in a great manner, it does not require an intellectual stretch to state that the ethics relate to other-regarding, instead of being self-regarding, behaviour and thought.

Utilitarianism is based on the work of Hume, Bentham and Mill which reproves the moral agents promote the overall human welfare by acting in a manner which results in the greatest of the total beneficial results and where there is a lack of harmful consequences. This cost-benefit calculus applies in a universal manner, which means that the ones who are affected by the decisions instead of an individual, as is the case of egoism, or for a company in terms of its profit maximization (Albee, 2014). Jones, Felps and Bigley (2007) further provide that that the utilitarianism is adopted by the moral agents in two forms, i.e., act and rule. The act covers the maximization of benefits relative to its costs for the decision in question. The rule part covers the rules which are formed for attaining the greatest net positive result over the course of time. As per this theory, the moral agents have the duty of undertaking such actions which maximize the utility of actions and the happiness of people.

Immanuel Kant, the well known rule base ethicist believed that the moral agents make the decision on the actions being right or wrong by thorough legislating of the capacity of reason. In such a case where the actions are compulsory, they have to cover the concept of necessity which is unconditioned and is indeed objective, making it universally valid. In case of Kant, this can be attained only where the reason continue to be non-prejudicial to the result of the actions, societal influences or personal inclinations (Thomson, Adams & Sartori, 2005). So, the moral philosophy of Kant is that in a given subjective obligation, the moral agents have to ask themselves regarding the reasonable making of the universally practical law, which is known as the categorical imperative, which states provides to act on such a maxim which holds the universal law. Under this theory, such actions are deemed as right where the course of action which is adopted is right, instead of the results of the actions (Beiser, 2014).

Though, under the consequence based theory, i.e., utilitarianism, which had been espoused by John Stuart Mill, the moral agents are under an obligation by the utility principle for maximizing the intrinsic good, which is happiness and to work on minimizing of the intrinsic bad, which is unhappiness. This consequence based approach is crucial to the ethical decision making, where no person is given more significance in comparison to the other person. And under this theory, the moral agents are expected to be fair and free from bias when they determine the happiness of all such people who have to bear the consequences of their decision, particularly where there is any relationship amongst them. Strictly speaking, the right course of action is such which promotes the greatest degree of happiness and stops the least degree of unhappiness. Only such actions which are able to attain the objective of carrying moral value in a successful manner are deemed as right (Thomson, Adams & Sartori, 2005).

Another important ethical theory in context of moral agents and their duties is the character based theory, i.e., the virtue based ethical ideology where the actions are deemed as the right ones on the basis of the character of the individuals. The proponents of this approach have argued that in the majority of situations of life where significant decisions are to be made, they do not have any readymade rules, and do not provide the requisite reliable data for allowing the accuracy of forecasting the effect or the consequence of it (Hooft, 2014). Therefore, the virtue ethics is different from the other ethical theories stated above as this theory relates to the character or the disposition of the individuals and not with such actions which could conform to impersonal principle. In this approach, the moral agents cannot rely over the earlier established rules, which can be applied in a universal manner for a specific course of action. The choices require the moral agents to choose a course of action in a voluntary and deliberate manner which is the common grounds between excess and deficiency. Such actions of the moral agents, which show the characters or virtues like honestly, integrity and the like, are deemed as the right course of actions (Kamtekar, 2004).  

 


Another important theory which needs to be considered by the moral agents in context of their actions and decision is the situational intensity, which is the work of Jones (1991). In this theory, it has been argued that in order to make an ethical decision, the moral agent has to include the characteristic of moral issues like the proximity, concentration of effect, temporal immediacy, social consequences, magnitude of consequences and probability of effect, as being an independent variable. Such models which fail to consider this show that the decision making processes is same for every moral issue. This results in neglecting of the relevant factors in the other ethical decision making models. The moral intensity is based on the normative arguments of moral philosophers who have differentiated the moral responsibility on the basis of proportionality, instead of constructing it from the descriptive models of moral decision making. The extent of the influence of the moral agent on the events, the urgency of situation and the probability of effects are some of the factors which are included in proportionality. In view of Jones, the ethical decision making is influenced by moral intensity of decision instead of the features of moral agents (Thomson, Adams & Sartori, 2005).

Application of ethical theories

Bernie Ebbers, the ex-Chief Executive Office of WorldCom, on March 02nd, 2004, was charged with conspiracy to committing securities fraud, false filing under SEC due to the numerous accounting irregularities which resulted in the previous executives of the company being prosecuted. Ebbers was found guilty by all the nine courts and faced a maximum penalty of eight five years in prison, along with a fine of $8.25 million as fine (Scharff, 2005). After the incident took place, the news was filled with character assassination of Ebbers, where his history was traced, from the time he was a schoolteacher. He built the second biggest telecom company of US in fifteen years and made million for himself and even for his investors (Wray, Finch & Treanor, 2002). However, the focus on him was more in comparison to the investors which shows the ethical theory of egoism applying over his case. This theory involves the individuals acting for their self interest. Ebbers was innately self-interested he worked on enhancing his long term welfare. Even though this theory may deem his actions as ethical one, the other ethical or moral theories state otherwise.

As per Bayot (2005), Ebbers deprived the investors their money and he was the leader of criminal activity in this case. This showed his failure in working for the benefit of the many, and failed to maximize the utility for others. This meant that based on the utilitarianism theory, his actions were both immoral and unethical. Even though he maintained that he worked for thee investors, he was working for himself. He remained a believer and stated he was honest in his conduct, to comply with the virtue ethics. However, his cash withdrawals had wealth effects which spurred consumption more than the previous years and the decline in prices of stock showed that no virtue was present in this case (Norris, 2000).

Ebbers had clear knowledge about the books of the company being cooked and that he had propagated the public to do it. He told lies after lies to cover up the mounting looses and to starve off his financial downfall (Belson, 2005). He stated that he had no knowledge of the shady accounting that he had left the running of affairs of company to the underlings (Crawford, 2005). However, as a moral agent, it was his duty towards the stakeholders to work towards their benefit. Even the egoism theory in part fails to deem his actions ethical. This is because even the personal assets of Ebbers had to be attached for the settlement of investors (The Guardian, 2005). This meant that his actions were even against him. He failed to work towards his self-interest as he was convicted for the $11 billion accounting fraud (Rovella & Glovin, 2005). Ebbers actions were so unethical that the law had to be changed and this was deemed as more severe since the Depression (Norris, 2005).

 


In this case, Ebbers was the moral agent of WorldCom and as a result of which, he had the responsibility of taking the right decisions for the different stakeholders. He was running the business for the different stakeholders where he had to work for the investors, employees and the society at large. As a moral agent, he had to act in an ethical manner. Thus, he was required to work for their benefit based on utilitarianism theory and even when he was working for his own benefit based on egoism theory, he failed to do so in a proper manner, which not only resulted in the harm of the different stakeholders, particularly the investors, but for himself too. In doing the harm of others, he caused harm to himself. Thus, he should have adopted the theory of utilitarianism where he would have worked for the benefit for his investors, employees and society at large (Baker, 2009).

This would have increased the reputation of the company, resulting in its revenues rising and the growth in the stock prices. However, as his actions lacked the virtues of integrity, fairness and honesty, he caused damage to everyone. Getting sentence of such a long period of time further confirms his failure in applying the ethical theories, and in fulfilling the duties as a moral agent. Bernards’ characters showed deceit and lack of integrity, and this resulted in him being fined and jailed. At the same time, the consequences of his actions led to the fall of WorldCom. The actions undertaken by him would also be deemed as unethical based on the ethical principle of Kant. The actions undertaken by Ebbers were dishonest and were selfish, where he indulged in wrongful portrayal of the company position and present an unfair picture of the financial position of the company. He had to be non-prejudicial to the result of the actions, societal influences or personal inclinations but he failed to do so. His personal inclinations dominated the course of his actions. This denied happiness to him and the different stakeholder groups.            

He failed in choosing common grounds between excess and deficiency as he favoured his own position. This too was done in a manner which was not carefully calculated for his personal benefit, where he left evidence of his wrongdoings and failed to protect himself against any contingencies. Ebbers actions were such that the magnitude of consequences and the probability of effect were not analysed by him. This resulted in his actions and decisions being a flop when it came to the theory given by Jones of situational intensity. He had to take the moral decisions on the basis of the situation which was present. The lack of care in working towards the interests of everyone in a careful manner resulted in his downfall, along with of the others.

 

Conclusion

On the basis of the discussion carried on in the previous parts, the actions and the decisions undertaken by Ebbers were analysed in context of the literature presented where the different ethical theories had been discussed. These ethical theories were that of utilitarianism, egoism, virtue ethics, situational intensity, and Kantism, where each of these theories presented different measures for calling an action as ethical and moral. Where some theories were concentrated on consequences in terms of self or others, the others were concentrated upon the course of action adopted to carry on the acts. But, irrespective of the ethical theory which was applied in context of Ebbers, his actions proved to be unethical and these caused damage to different stakeholders, which include investors, employees and society at large, along with proving disastrous for WorldCom and for Ebbers.

As a moral agent, he failed in his duties and there was a lack of any kind of ethical dimension in his actions. His characters were deceitful, dishonest and careless, which lack a due diligence even in prospects of his own self-interest. The consequence of his actions was thus a disaster, which continues to be cited till date as a leading ethical failure. The actions of Ebbers resulted in major blunders in the financial statements of the company, and even till the end, he claimed that he had no knowledge of the entire incident. However, based on the position which he held in the company, the judges denied this and held him responsible for his actions. For instance, the theory of egoism required him to work in a manner which benefited him, which meant that he would have undertaken the actions in a manner where he would never be held liable. Kantism required him to adopt actions which depicted as being ethical. Thus, it can be concluded that Ebbers failed in his role as a moral agent in WorldCom, which resulted in the stakeholders being harmed, along with him having the bear the consequences of his actions.

 

References

Albee, E. (2014). A history of English utilitarianism. Oxon: Routledge.

Baker, D. (2009). Plunder and blunder: the rise and fall of the bubble economy. Oakland, California: Berrett-Koehler Publishers.

Barry, B., & Stephens, C. U. (1998). Objections to an objectivist approach to integrity. Academy of Management Review, 23, 162–169.

Bayot, J. (2005). Ebbers Sentenced to 25 Years in Prison for $11 Billion Fraud. Retrieved from: https://www.nytimes.com/2005/07/13/business/ebbers-sentenced-to-25-years-in-prison-for-11-billion-fraud.html

Beauchamp, T. L., & Bowie, N. E. (2004). Ethical theory and business. Upper Saddle River, NJ: Prentice-Hall.

Beiser, F. C. (2014) The Genesis of Neo-Kantianism, 1796-1880. Oxford: Oxford University Press.

Belson, K. (2005). Bernard Ebbers: Victim Himself or Mastermind?. Retrieved from: https://www.nytimes.com/2005/01/26/business/bernard-ebbers-victim-himself-or-mastermind.html

Crawford, K. (2005). Ex-WorldCom CEO Ebbers guilty. Retrieved from: https://money.cnn.com/2005/03/15/news/newsmakers/ebbers/

Ferrell, O.C., Fraedrich, J., & Ferrell, L. (2016). Business Ethics: Ethical Decision Making & Cases (11th ed.). Boston, MA: Cengage Learning.

Hooft, S.V. (2014). Understanding virtue ethics. Oxon: Routledge.

Jennings, M. (2008). Business Ethics: Case Studies and Selected Readings (6th ed.). Mason, OH: Cengage Learning.

Jones, T.M. (1991). Ethical decision making by individuals in organizations: An issue-contingent Model. Academy of Management Review, 16, 366-95.

Jones, T.M., Felps, W., & Bigley, G.A. (2007). Ethical Theory And Stakeholder related Decisions: The Role Of Stakeholder Culture. Academy of Management Review, 32(1), 137–155.

Kamtekar, R. (2004). Situationism and virtue ethics on the content of our character. Ethics, 114(3), 458-491.

Norris, F. (2000). WorldCom's Bernie Ebbers Scrambles to Raise Cash. Retrieved from: https://www.nytimes.com/2000/11/17/business/worldcom-s-bernie-ebbers-scrambles-to-raise-cash.html

Norris, F. (2005). A Crime So Large It Changed the Law. Retrieved from: https://www.nytimes.com/2005/07/14/business/a-crime-so-large-it-changed-the-law.html

Rovella, D.E., & Glovin, D. (2005). WorldCom ex-CEO Ebbers asks judge for leniency. Retrieved from: https://old.seattletimes.com/html/businesstechnology/2002329258_ebbers11.html

Scharff, M.M. (2005). WorldCom: A Failure of Moral and Ethical Values. Journal of Applied Management and Entrepreneurship, 10(3).

The Guardian. (2005). WorldCom investors to get $6bn and Ebbers's house. Retrieved from: https://www.theguardian.com/business/2005/sep/22/corporatefraud.worldcom

Thomson, M.H., Adams, B.D., & Sartori, J.A. (2005). Moral and Ethical Decision Making. Retrieved From: www.dtic.mil/get-tr-doc/pdf?AD=ADA606146

Weiss, J. (2008). Business Ethics: A Stakeholder and Issues Management Approach (5th ed.). Mason, OH: Cengage Learning.

Wray, R., Finch, J., & Treanor, J. (2002). The company sketched out on the back of a napkin that grew to $180bn. Retrieved from: https://www.theguardian.com/business/2002/jun/27/corporatefraud.worldcom7

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