Introduction
Kenneth Lay was a senior executive of Enron, a giant Texas energy company. In 2004, Lay stood trial on charges of corruption, fraud, and conspiracy and was eventually found guilty (Kenneth Lay: Biography, n.d., para. 5). An analysis of Lay’s ethical conduct outlined below is conducted through the prism of Kidder’s ethical checkpoints, the principles of moral sensitivity, moral judgment, moral motivation, moral character, as well as the CEO’s power and influence on his staff. The provided analysis helps gain further insight into the ethical dimension of Kenneth Lay’s work.
Kidder’s Ethical Checkpoints
Rushworth Kidder’s nine ethical guidelines provide instructions for making ethically sound decisions when running a business. The first point, i.e. recognizing that there is a moral question, requires distinguishing ethical issues from simple etiquette and personal opinions. Regarding the first step, it is possible to say that Kenneth Lay distinguished the moral issues, as the ethical guidelines did exist at Enron. A code of ethics was adopted by the company, so the necessity to recognize the moral questions is indisputable. The second checkpoint, i.e. determining the actor, is supposed to help distinguish between involvement and responsibility.
Kidder emphasized that one bears responsibility for affairs that we can influence. In this case, it must be said that Lay did not act according to the second checkpoint. In an interview with Ferrell and Ferrell (2011), Lay admits that he was not aware of ethical misconduct that went on in the company (p. 3). Therefore, his accountability is unclear, according to Lay. Thus, the third checkpoint, i.e. gathering the relevant facts, also failed.
Keeping up with the course of action is crucial for a business executive. According to Lay, he did not know what his subordinates were doing. The fourth checkpoint, i.e. testing for right versus wrong issues, involves four parts – checking the legal questions, intuitive test (stench test), front-page test, and mother test. The fourth step would be easily circumvented by Lay, as he admitted that it was not unusual for a company with a damaged reputation to overcome the difficulties and gain substantial profits nonetheless (Ferrell & Ferrell, 2011, p. 3). Moreover, he is known to have said in court “you should not be a slave to rules” (Enron: How leadership led to the downfall of the company, n.d., p. 6).
Therefore, it is hardly believable that Lay would bother asking himself whether his mother would be concerned with his ethical judgments, or whether a front page announcing Enron’s activities would be a problem. As for the stench test, it is also unlikely that Lay applied the step, as together with Skilling, they ensured that all employees were encouraged to succeed no matter the cost. The fifth checkpoint, i.e. testing for right versus right paradigms, is crucial to analyzing Lay’s ethical decisions. Kidder distinguishes three types of decisions: justice versus mercy, short-term versus long-term, and truth versus loyalty.
Short-term gains were a priority for Lay (Enron: How leadership led to the downfall of the company, n.d., p. 7), and loyalty was clearly valued more than truth, as the CEO maintained he was not aware of the illegal incidents by the accountants and managers he trusted. Regarding the sixth checkpoint, Lay determined what was important for Enron: succeeding against all odds, no matter what ethical misconduct could occur.
The seventh and eighth steps include considering the possibility of compromise and making a corresponding decision. This step was employed, as when choosing between a legal course of action and an illegal course of action Enron chose the latter, with a third option that was supposed to present their success as achieved in a legal way. The last checkpoint is supposed to help the manager revisit and reflect on the decision when the matter is resolved, and think about what mistakes were made and what lessons could be drawn from them. Judging by the answers Kenneth Lay gave in the Ferrell and Ferrell interview (2011), he kept maintaining he was innocent, as to his mind, he never made a decision without consulting his lawyers and accountants, which could be seen as malicious (p. 5).
Moral Sensitivity, Judgment, Motivation, and Character in Decision Making
Moral sensitivity is one of the key elements of ethical action. It is intertwined with moral imagination, which presupposes an ability and willingness to consider the reaction our behavior might cause in others and an impact that a business campaign might have. Challenging the norms is crucial in applying the ideas of moral sensitivity, as it often requires noticing subtle differences and inventing innovative methods. Meanwhile, a moral judgment is an ability to decide on the most ethically appropriate issue, and choose the most ethically sound standpoint.
Cognitive biases are identified as a hindrance to an effective moral judgment, including the issue of forgiving our own unethical behavior and overlooking such conduct in others. The latter was especially evident in Lay’s case, as he put his trust in his subordinates without considering the possibility that they might take advantage of the situation and commit fraud. Judging based on outcomes is also a crucial element among the obstacles to a moral judgment, which is clear in Enron’s case. The outcomes were a priority for Lay. Such an approach encouraged illegal activities aimed at achieving the goals at any cost. Moral motivation implies that personal gain cannot supersede the social acceptance of moral values.
However, Enron demonstrated that gaining high profits was a priority second to none. Henderson, Oakes, and Smith (2009) employ the metaphor of Plato’s cave to indicate the dubious nature of Enron’s course of action (p. 463). The self-image the company built was strikingly inconsistent with the truth. Overall, moral character was lacking in Kenneth Lay, or perhaps it was present only in a theoretical dimension. Loyalty and high profits proved to be a priority, which eventually resulted in the company’s downfall.
Ethical Interpersonal Communication
Trust-building is a major aspect of ethical interpersonal communication. As the company was progressing, employees were asked to trust their superiors. It was an essential component of the company’s ambitious financial plans. As the illicit operations were revealed, nearly twenty thousand employees were left jobless, with no retirement savings, and convinced that the company betrayed their trust. Moreover, mindfulness was not valued at Enron, as it would imply a full awareness of the nature of conducting operations, which was not the case.
Lay’s Power and Influence
Lay had a major influence on his subordinates. He created a vision of the pathway to success to which a vast majority of his employees eventually subscribed. Being a charismatic leader, Lay could easily mold their minds to suit the needs of the company. Thus, it is evident that his influence on the subordinates was substantial, as loyalty counted more than truth, and results mattered most.
Conclusion
Overall, an ethical dimension of Kenneth Lay’s leadership was dubious. Despite the fact that he inspired and encouraged his subordinates, he neither acknowledged the necessity of making morally sound decisions nor encouraged it in others. Nowadays, Enron’s serves as an example of a company destroyed by unethical decision-making.
References
Enron: How leadership led to the downfall of the company. (n.d.). Web.
Ferrell, O. C., & Ferrell, L. (2011). The responsibility and accountability of CEOs: The last interview with Ken Lay. Journal of Business Ethics, 100(2), 209-219.
Henderson, M.C., Oakes, M.G. & Smith, M. (2009). What Plato Knew About Enron. Journal of Business Ethics, 86(4), 463 – 471.
Kenneth Lay: Biography. (n.d.). Web.