Unethical Business Procedures: Worldcom, Enron, & Philip Morris

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Table of Contents

Introduction
Business Ethics
Enron
WorldCom
Philip Morris
Conclusion
References

Introduction

Three of the most influential and powerful companies in the world were charged with fraudulent acts. These are unethical business procedures that should not go unpunished. On the other hand, some argue that this is part of the game, the Darwinian view that only the strong will survive is also applicable in the world of business. In other words, there are times when business executives can be pardoned for trickery to gain that much-needed advantage. The following cases will show that there is no excuse for their actions because, in the long run, they indirectly destroy lives.

Business Ethics

Some believe that business ethics should be thrown out of the window because business is all about the survival of the fittest. One of the golden boys behind the rise and fall of Enron, Jeffrey Skilling believed in this philosophy so much that he developed a brutal system for evaluating employee performance, forcing several employees to be given the pink slip at the end of the year (Fusaro & Miller, 2002). This idea is prevalent in many circles that many are willing to cut corners to achieve that much-needed competitive advantage. Age-old wisdom also dictates that a lie can be said so many times and in so different ways that the general public is forced to accept it as truth even if it is not.

The story behind the scandals and the media frenzy that it has generated seems to support the idea that crime does not pay and in the end, it is not profitable to break the law or to engage in ethically wrong business practices. The top leaders of Enron and WorldCom are now spending time behind jail while the image of Philip Morris has been tarnished beyond repair. In the long run, it will be discovered that companies, adhering to high ethical standards are those that will survive the test of time. These are also the companies that offer a product or service that customers continue to patronize even after many decades of existence.

The meteoric rise and the equally devastating fall of Enron and WorldCom is a classic example of greed and how human passion and hubris can easily destroy a company even if it is one of the world’s biggest enterprises. Philip Morris on the other hand experienced a backlash when it tried to cover up a health issue regarding their product. Although government agencies and the general public continue to make the business a challenge for Philip Morris, the tobacco giant stands apart from Enron and WorldCom because Philip Morris was not involved in any financial chicanery just like the other two. This would explain why Philip Morris’ image may have been damaged and its revenue stream affected somehow by the discovery of a cover-up, yet on the other hand, it still stands, owing to its success not in small part to its continuous production of a very addicting product, which is another issue that will not be covered in this study.

Enron

Enron started as an obscure company in Houston. Its core business at that time has to do with natural gas and the laying down of pipelines. This is a business model that is easy to understand. An investor can easily follow the evolution of the company and it is also fairly easy to monitor if it is profitable or not. In this manner, they can decide to invest more or to pull out their money. But the rising prices of crude forced the industry to reevaluate the importance of natural gas. The sudden increase in value allowed Enron to become a major player in the region and then after some time, it became one of the most important companies in the United States.

Although Ken Lay the CEO of Enron was a brilliant man himself, it was his protégé, Jeffrey Schilling who came up with the idea that Enron should not be limited to the selling of natural gas and the distribution of the same (Fusaro & Miller, 2002). Schilling proposed that Enron can be more proactive and instead of connecting consumers to the source of natural gas via pipelines, Enron will become a trader of energy. It required a paradigm shift for the company because for them to do that they had to transform Enron from a supplier of natural gas to a company that behaves like Wall Street.

In the beginning, the ploy was a magical idea. It provided Enron hundreds of millions of dollars in revenue (Saporito, 2002). The rapid success coupled with Schilling’s philosophy of only the best will survive created a culture in Enron that is not much different from other cutthroat businessmen who wore a suit. This time around Enron’s success gave them respectability and they were able to leverage deals, making it difficult to resist (Saporito, 2002). How can an investor resist a proposition that will allow them to make money in the shortest possible time? The corporate leaders, as well as the traders at Enron, understand this aspect of human nature so well and they are willing to exploit it as long as they could.

Things began to go out of hand. People at Enron started to get greedy. To create an image of high profitability, the corporate leaders began tolerating an unethical practice, which is the manipulation of financial data. For instance, in preparing their financial reports some expenses were listed as assets. Those who are not accountants can easily be fooled by this trick. Others may not care but for many investors, financial statements are important tools to gauge the company’s profitability. The increase in the number of investors’ money pouring into Enron is proof that this strategy worked but it is unethical. This is because, in the long run, people will come to realize that the company is not doing great and the moment panic ensues then all the stakeholders – including employees and other businesses connected to Enron – will suffer.

WorldCom

In 2001 Enron was under the microscope. A year later it was WorldCom, the nation’s second-largest long-distance company filing for bankruptcy and embroiled in yet again another major financial scandal (Beltran, 2002). That statement is enough to make corporate America shudder. But there is more. At the time of filing for Chapter 11, WorldCom had $107 billion in assets, almost double that of Enron which was only listed as $63.4 billion (Beltran, 2002). How can a corporate giant like WorldCom succumb to external and internal pressures? What kind of force will make an organization like that bend its knees?

The simple answer can be traced to another business chicanery not much different from the trickery used by Enron officials. The official report from WorldCom was an attempt at euphemism when it declared that, “…it had improperly booked $3.8 billion in expenses. The next question must be raised, how is it possible to make a mistake as big as three billion and eight hundred million dollars? This is not a few hundred dollar bills that were erroneously filed by an erring accountant; this report is talking about billions and millions of dollars.

Just like Enron, WorldCom was led by brilliant strategists and business executives such as Bernie Ebbers. And like Enron it started as an obscure company called LDDS, when it purchased MCI, the country’s second-largest long-distance provider behind AT&T Corp., Ebbers changed its name to WorldCom (Beltran, 2002). The problem began when WorldCom officials started to manipulate its financial statements and incorrectly accounted billions of dollars in operating expenses and intentionally capitalized it as assets (Young, 2008). This was made possible by another sleight-of-hand which is the paying down of expenses using money from reserve accounts allocated for other purposes (Young, 2008). Naturally, this gave a false idea that WorldCom is robust, going strong, and ready to take in more investors’ money. This is where unethical business practices come in.

The motivation for doing all of this trickery can be easily understood. WorldCom needed to survive in a tough competitive environment. But what made many people angry is the fact that business executives are not only breaking the rules to save the company they exist to line their pockets with money acquired wrongfully. In the ensuing investigation, it was discovered that CEO Bernie Ebbers was able to access $366 million in personal loans from the company. No one can explain why he needed that much money considering that he was paid well. There is no question that these practices are fraudulent because when WorldCom went under, it brought with it hundreds of jobs and threatening a telecom infrastructure that promised to serve its customers by providing quality products and services.

Philip Morris

The case of the tobacco giant Philip Morris – part of the Altria group of companies – is much different from that of Enron and WorldCom. There was no manipulation of financial statements and intentionally deceiving investors to pour in more money to a company that is not profitable but in reality losing money. The issue with Philip Morris has something to do with full disclosure. This leads to the question of whether a company is obligated to tell the truth and nothing but the truth knowing that it will hurt its sales performance.

This is where the argument about ethical standards comes in. At first, it is not easy to decide against Philip Morris because it can be argued that they are businessmen and they are only doing whatever they can to make a profit. On the other hand, there are other factors regarding their product that make it a challenge to form a conclusion regarding ethical standards.

First of all, at the time when Philip Morris was found guilty of covering up information regarding health issues and its link to tobacco smoking, there was not enough solid scientific evidence that smoking kills. Without a doubt, one can observe the deterioration of the health of a regular smoker but it can also be argued that if taken moderately smoking is beneficial to the person. If smoking makes a person happy, then how can anybody prevent him or her from buying a pack of cigarettes? The problem with Philip Morris is that it is aware of the health risks created by its products and yet chose to continue selling (Salinger, 2005). Upon the discovery that passive smoking is also dangerous to the health of people, Philip Morris went on the offensive.

Philip Morris went as far as to infiltrate the British scientific establishment. This was uncovered due to a massive lawsuit filed in the state of Minnesota and this document containing the strategy to infiltrate science was part of the cache of 39,000 that was used against the said company (Dyer, 1998). According to investigators, “Philip Morris, the world’s biggest tobacco company, is shown to have masterminded a global campaign to influence opinion on passive smoking through the secret recruitment of paid scientists” (Dyer, 1998). If undetected the tobacco giant could increase revenue while at the same time increase the number of people who will die due to the inhalation of tobacco smoke.

Conclusion

The cover-up, the unethical campaign meant to discredit critics and the manipulation of financial data are all examples of fraudulent business practices. All of these are unethical behavior and these companies deserved to be punished. The most deplorable action is not only the use of deception to lure in investors and to keep the companies afloat, it is also the way the executives made obscene profits out of the hard-earned money of honest people. This is true for WorldCom and Enron. This is also true for Philip Morris who continues to sell products that kill (PhilipMorrisUSA, 2009). There should be a law against that.

References

Beltran, L. (2002) WorldCom files largest bankruptcy ever. CNN.com. Web.
Dyer, C. (1998). Philip Morris Skulduggery in England. Guardian Media Group.
Fusaro, P. & R. Miller. (2002) What went wrong at Enron. New Jersey: John Wiley & Sons, Inc.
PhilipMorrisUSA. (2009) Smoking and Health Issues. Web.
Salinger, L. (2005). Encyclpedia of white-collar & corporate crime. CA: Sage Publications, Inc.
Saporito, B. (2002) How Fastow Helped Enron Fall. Time.com.
Young, B. (2008) WorldCom. In Corporate Governance. R. Monks & N. Minow (eds.) New Jersey: John Wiley & Sons, Inc.

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