The Role of Ethics in Organizational Crisis

Unethical Practices and Organizational Crisis

Task:

Confronted with the accusations of lying to the public, investors, and his own employees about the status of his company, Enron CEO Kenneth Lay denied he had done anything wrong. He claimed that his subordinates had misled him and that he was not responsible for Enron’s illegal and deceptive business practices. It was later revealed that Enron executives had manipulated stock prices, created electricity shortages so that they could charge higher rates, and bribed officials.

As we saw in Chapter 6, the collapse of Enron resulted in hundreds of employees losing their jobs and wiped out the retirement savings of many more. Kenneth Lay, like many other CEOs involved in financial crisis, used the hear no evil, see no evil defense to claim that he did not know what was going on in his own company.

In April of 2013, an 11-story building in Bangladesh housing five garment factories collapsed killing over 1,000 workers and injuring 2,500 more. The factories produced low-cost garments for well-known retailers including Benneton, The Gap, and Children’s Palace. The owner of the building had been informed of serious cracks in the walls and the floors and had told workers to ignore them. Initially, politicians claimed that the building collapse was not significant. Protests by garment workers and international outrage prompted several arrests including the building owner.

Garment industry working conditions in developing countries have been severely criticized for their conduct, including hiring of underage workers, paying very low wages, and creating unsafe working conditions. The retailers rely on very cheap labor in developing countries to produce high-profit products for sale in Europe and the United States. Critics charge they exploit workers and put them at risk to protect profits.

The crises at Enron, Bangladesh, and the Catholic Church sex scandal, illustrate the role of ethics in organizational crisis: Many crises are created by unethical and even illegal conduct on the organization’s part. Illegal and deceptive business practices, unsafe working conditions, insider trading, knowingly selling defective products, misleading marketing claims, sexual harassment, bribery, and kickbacks, among many other unethical business practices, have led to crises.

In addition, almost all crises, even if they were not caused by unethical conduct, have ethical implications. The 1989 Exxon Valdez oil spill, for example, raised questions about blame and responsibility, about environmental exploitation, and about the rights of native people. The 2011 Fukushima Daiichi nuclear disaster in Japan raised questions about the safe use of nuclear energy and the right of access to information about radiation exposure

In this chapter, we define ethics and values and describe some of the key ethical issues and values that arise during a crisis. It is important to recognize that ethics are always part of any crisis situation and failure to address ethics can make the crisis much worse. We also describe some of the ways in which values can create opportunities that inform an effective response.

Ethics concern basic judgments of right and wrong, good and bad, and desirable and undesirable. Ethics are the values, standards, principles, or guidelines we use for making these judgments. Ethical issues and questions arise whenever a situation or a decision has the potential to affect another person. A situation where someone is discriminated against is unethical because of the impact on that person. Lying is unethical because it denies the person being lied to accurate information. Everyone, however, occasionally uses small so-called white lies to help manage their lives (Bok, 1979). There is some disagreement about whether these white lies are unethical because they generally do no harm. As the potential impact on others becomes greater, issues take on more ethical significance. During a crisis, the potential to harm others is often quite large, and therefore, the ethical implications are very great (Simola, 2003; Wilkins, 2010).