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The following article was published in the Charleston Post & Courier's Business Major, a featured monthly column in the Business Review Section on January 28, 2002. When Company Actions Veer From Values, Everybody LosesBy DOROTHY P. MOORE Special to The Post and Courier Business Major Under pressure to increase revenues and profits, leaders can be tempted to push into legal and ethical gray areas. The results can present the organizational rank and file with unpleasant consequences. It would be easier if life gave us clear-cut choices between right and wrong. But people are seldom confronted with clearly unlawful activity taking place under the control of their company. More commonly, employees must decide what to do when they perceive actions that, while perhaps lawful, nevertheless appear to constitute wrongdoing. The issues raised by Sherron S. Watkins, Enron's vice president for corporate development, in her unsigned August 2001 whistleblowing letter to Enron chairman Kenneth L. Lay are a case in point. "She thought it was the right thing to do," her attorney later explained to a New York Times reporter, "She saw that there were some problems and she was concerned." The bold outlines have been widely reported. Enron borrowed heavily to create a number of limited partnerships to purchase Enron assets that were in trouble. The Board of Directors suspended the company ethics code so Enron executives for lucrative compensation could run some of these limited partnerships. When assets in the partnerships declined in value, Enron pledged its stock to cover the bank loans. The financial manipulations kept debt and losing ventures off Enron's books and resulted in inflated or non-existent earnings. Enron concealed these activities by limiting public disclosures. When Enron stock began to lose value in the general market decline, the whole business was revealed as a financial house of cards and Enron collapsed. In the troubled period before the full extent of Enron's problems were known, chairman Lay was cheerleading employees to believe in a bright future and hold on to their company stock. Many would soon lose jobs, pensions, and their investments. Few of us have any difficulty understanding that what took place inside Enron well before the company's collapse into bankruptcy was inappropriate behavior. (Whether or not any of the Enron activities were also illegal is the subject of numerous civil and criminal investigations.) Sherron Watkins' letter, printed in full in the January 16, 2002 issue of the New York Times, among other places, makes precisely this point. "There is a veil of secrecy around (the limited partnerships) LJM and Raptor," she wrote. "Employees question our accounting propriety consistently and constantly." Suggesting the probability of discovery had risen significantly in recent weeks, and with "the estimated damages to the company too great," she advised, "[W]e must quantify, develop damage containment plans, and disclose." Watkins had blown a very loud whistle. When illegal, immoral, illegitimate or, at the very least, inappropriate practices take place in an organization over a period of time, a small number of employees may conclude they have a responsibility to reveal what is going on in a way that ensures corrective action will be taken. Who are these whistleblowers and what pushes them to action? Answers are described in a path breaking study conducted by Marcia P. Miceli, Georgetown University; James R. Van Scotter, The University of Memphis; Janet P. Near, Indiana University; and Michael T. Rehg of the Air Force Institute of Technology, in an award winning paper presented at the 2001 annual meeting of the Academy of Management. Examining a sample of over 3000 military and civilian air force employees, the authors found that several important personality traits appear to suggest who is likely to blow the whistle. One set of candidates consists of people who are upbeat and positive. Active, alert, and outgoing, with high levels of self-esteem and optimistic about their chances of success in initiating organizational change, they are less constrained than others when faced with conduct they perceive as wrongdoing. Two other groups of potential whistleblowers come from opposing ends of the employee spectrum. One is made up of people who strongly identify with the organization. Believing the company will always treat them fairly, organizational loyalists may assume they will be supported and report wrongdoing so the higher-ups can correct it. In direct contrast are employees who have little affinity for the organization. Among these near-outsiders are people who experience more anxiety, anger, fear, guilt, and stress than the average person. Because they interpret neutral or ambiguous situations negatively, these employees can be more likely than others to spot organizational wrongdoing early on and react by blowing the whistle on the organizational conduct. Whatever the motivation, with few exceptions, whistleblowers take their concerns outside the organization only as a last resort. Like Sherron Watkins, nearly all whistleblowers first attempt to get the problems corrected internally. Miceli and her co-authors make an equally important point about the effects wrongdoing has on the organizational membership. Though most employees who observe the misdeeds or inappropriate activity do nothing about it, they are severely affected. When knowledge of wrongdoing in the firm spreads, it communicates something demoralizing. As Watkins reported in her letter to Lay, "I have heard one manager-level employee say, 'I know it would be devastating to all of us, but I wish we would get caught. We're such a crooked company.'" Uncorrected wrongdoing causes employees to lose confidence. They begin to distance themselves from management. Commitment to the job declines. Everyone has read of the unfavorable publicity and lawsuits reaped by organizations whose misdeeds became public knowledge. Corporate misdeeds also carry other high costs in the form of negative employee attitudes that impact work performance. What can employees do to spot potential trouble? There are no sure answers. The best advice is to retain your independence and stay alert. Organizations work very hard to encourage a loyal and dedicated workforce. The importance of teamwork or "being on the team" is voiced constantly. There is nothing inherently wrong with this, but carried too far the team culture can merge into groupthink. Groupthink tends to redefine ethics and appropriate behavior in terms of follow the leader norms and organizational loyalty, creating the conditions in which misdeeds can occur. Beware of groupthink tendencies in your organization. When leaders begin to refer to everybody in it as a "family" and everyone seems to sign on, it can be an early warning sign. Companies are not families. Families don't retrench in difficult times by laying off children and telling them to find another place to eat and sleep. Pay attention to your organization's statements of principle. Companies may call these documents a mission statement or a values statement or a vision statement (or all three) but the language always speaks to high standards of performance and ethics. Compare what your organization is actually doing with what it is publicly professing, and also to your own standards. If ethics and company actions begin to diverge widely, you may face the problem down the road of whether or not to draw the line in complying with what you are asked to do. No one likes to discover bad news. But it can be invaluable. It is in your interest to know as early as possible if your organization is dysfunctional or heading down this path. For Questions/Comments about this site, contact dot.moore@comcast.net. Site designed by Jackye Cocoros. |