Case description
This memo regards the ethical case that is currently developing in this company. It has been established that Excel Power Company, which supplies electricity and its subsidiary Excel Energy that produces electricity have been involved in ‘round-trip’ power trading. The roundtrip trading refers to a situation where power producers sell power and then buy the same quantity back, which leads to significant increase in the amount of power marketed by the involved companies.
This leads to a situation where the company is seen as making profits though bigger sales, whereas none is being made because amount bought equaled amount sold, which means no extra profit. You will notice that the memo has four distinct sections. The first one describes the ethical case; the second one explains why it is important that we deal with this issue as soon as possible. The third section provides some solutions to this problem, whereas that last section lists several recuperations to this company’s management.
In regard to the company, Excel Energy has been selling power to Excel Power Company and then buying the same units of power back. The changing of power between the to companies has see accounting books expanding rapidly, yet not increase in profits that has been see. Investors are mistakenly seeing the increase in volumes trading as indication that both companies would report higher profits in the upcoming accounting period. However, we could end up reporting a significant increase in profits, which might not augur well with investors. We could find the company being investigated by the Securities and Exchange Commission as well as other trade and regulatory bodies.
We should kindly note that companies like Enron had used the same roundtrip trading to illustrate the increasing volumes of their power traded. Should we allow the same practices to continue within Excel, we could see the market staring to respond with fear that our company so going Enron’s way. This is a very serious matter that had seen other power companies being investigated, which would lead to investor panic. The investigations at both state and federal levels would end up tarnishing the Excel’s reputation among stakeholder in the industry. As a growing company, we should avoid such a scenario as soon as possible.
Why Roundtrip Power Trading is Unethical
As noted in the earlier section, power trading leads to the increasing volume of power traded by both of our companies. However, the increase in the volume of power traded does not come with increases in profits. This is because both companies end up buying back the same volume of power that had been sold out. This means that instead of selling power to customers, power is just being sent back and forth between the two companies.
However, it is only the engineers involved with and the accounting department that know that the company is not making profit from these trades. Investors are on their part buying Excel stocks in the anticipation of bigger dividends. It hurts to think of the shock they will go though when it becomes clear that increase in trading volumes was occasioned by roundtrip trading.
Continuation with these practices could see the company becoming subject to Sarbanes-Oxley related investigations. These shall be bad times for the company because the practice has been rendered unethical by regulators. Having the company go through such investigations will lead to a situation where the management is attending hearings instead of being in the office developing techniques that will improve company performance in the future. Being dragged in the mud of investigations will open the company to media scrutiny that will tarnish our reputation. It has to be remembered that this is a young company that is still paying debts that were used to finance its establishment. Incase the financiers’ loose hope with the company and investors avoid purchasing stock, it shall be very hard to keep a company afloat.
The continuation of these practices tends to be creating a situation where the company is looking for shortcuts to solving its operational problems. This is because Excel Energy is producing more power that the Supplying unit number of customers. Thus instead of increasing customer base to shore up trading volumes, both companies are collaborating into increasing volume through roundtrip trading. Such organisational culture of looking for shortcuts to company problems should not be tolerated at all. Company employees should be encourages in laboring for company’s success other than following onto shortcuts that could lead to this firm’s downfall.
Failure to take such actions could lead the company into serious investigations that will have long lasting impact on its future operations. The immediate repercussion could lead to loss of current customers to rivals who would be happy to see one of their most serious competitors going down—this should not happen.
Possible Solutions
There are several solutions that could be used in dealing with this crisis. First, Excel Power Company together with its subsidiary, Excel Energy should consider establishing internal mechanisms that will ensure that these roundtrip power trading are investigated to the fullest. Heads of departments should be encouraged to take part in the process since they are the ones that have conclusive information regarding such practices. Upon receiving complete information regarding the situation from heads of departments, company management should ensure that employees involved in the practices are asked to explain reasons behind their unethical actions, which would help in preparing measures to counter such malpractices. This should be followed by stern actions that will ensure that such mistakes do not happen again in the company’s operation period.
Secondly, the company could consider utilizing outside help in establishing whether there was roundtrip trading in both companies’ operations. Being experts in such a field, the contracted consultants have a higher tendency of providing conclusive report that will make it possible for the company to develop conclusive solutions, as well as taking the necessary measure to punish the offenders. These consultants could also be requested to talk to the employees through the illustration of the dangers that could befall the companies were industry regulators came to understand what was going on. Consultants should also be asked to help the company establish organisational culture that will help in escaping the temptations of roundtrip power trading or looking for shortcuts in dealing with short and long term crisis.
Thirdly, upon internal investigation and ensuring that the necessary measure had been taken, the management should consider informing regulatory authorities regarding the incidence. Authorities should further be informed that the company had asked for external help from well qualified and experienced consultants who help evaluate the extent of the ethical issues. Measures taken on the guilty employees and what the company is doing to avoid repeat of similar practices in the future. Everything should be laid on the table to avoid a situation where authorities could feel that Excel Management was hiding something. Incase it is felt that authorities have to perform further investigation, Excel management and employees should be obliged to cooperate.
Fourthly, the company should ensure that employees of both companies, especially those ones that deal with engineering and accounting related operations, adhere to the laid down procedures. All employees should be provided with reading materials that will enhance their knowledge regarding such practices and the importance of following rules. Management should also consider utilizing the help of outside consultants in employee education process. This is because the employees will have the advantage of dealing with people qualified to provide education services such as telling of the lesions that companies had to learn from the collapse Enron and the thorough investigations that other companies had gone through.
Recommendations
There following four steps should help Excel overcome the current crises and also prevent any occurrence:
- Internal Investigation and Employee Education: Since the current roundtrip practices are not widespread, the company should consider performing internal investigations and taking the necessary measures. It is at this point that the company should consider the help of outside professionals that will advice on the necessary measures. This outside help is really important because its professionals have a wide experience in dealing with such scenarios; they can see dangers that the management could have avoided. In addition, other than investigating the cases, the professionals can also provide the proper education the company’s labor force—this will lead to greater pool of employees that is well versed in matters pertaining to ethical issues in the industry.
- Sharing Between Employees; Engineers and accountants involved with the case should be encouraged to inform their peers on what was leant from the experience of engaging in the practices. The teaching employees will end up with complete understanding of ethical problems that they had engaged in. professionals that had counseled the employees should be present; they can tell employees what they could not have understood. In addition, member of the workforce that was not involved in the practices will have an opportunity to ask questions regarding the practices.
- Inform regulators: The company management should consider informing regulators regarding the malpractice that had been witnessed. This would make the regulators understand there was nothing that the company was trying to hide in the case. Involvement of professionals that are registered with the authorities shall show the concern that the company had over the malpractice. The management and employees should consider being completely cooperative with the authorities. By doing that, Excel Power Company and its subsidiary could end up sending the procedures that companies would follow if they find themselves facing the same scenario.
- Regular Checks by Department Heads: Excel management should consider undertaking regular checks on employees’ adherence to the rules and procedures set to avoid roundtrip power trading or other unethical malpractices could lead the company into having problems with authorities. These department heads should further keep reminding the employees of the importance of ensuring that the laws were followed despite the situation that could face them.
Works Cited
Colero, Larry. A Framework for Universal Principles of Ethics. 2008. Crossroads Programs Inc. Web.
Lewis, John W. Ethics and the Learned Professions. Camden, Maine: Institute for Global Ethics, 2001.
Olson, Andrew. (1998). Authoring a Code of Ethics: Observations on Process and Organization. Illinois Institute of Technology. Web.