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Chapter 8 –- Values and the Virtuous Manager (pp. 294-362)
Chapter 8 starts with a case study (pp. 294 - 317), entitled “The Enron Collapse.” It is the longest case
study in the book. In assigning or presenting it, you may want to ask your students to concentrate only
on some aspects of it, so review it first. It is a fairly detailed story of what happened to Enron to
precipitate the largest corporate collapse in U.S. history.
It tells us how Enron was started, how it expanded some of the internal conflicts it faced, some of the
creative trading and accounting principles that it used to prosper, the role of its public auditors (Arthur
Andersen), the internal culture of the company, the hubris of its top executives, the use of off-balance
sheet transactions and other questionable practices, and how these combined to lead to Enron’s
ultimate collapse.
Article: “Moral Mazes: Bureaucracy and Managerial Work” by Robert Jackall (pp. 317 - 334)
In his article, Robert Jackall indicates that although people are often told that if they work hard they
will succeed, in fact bureaucracy contains many more rules than that, and those rules -- along with the
behavior they demand –- shape moral consciousness.
A system of management-by-objectives often makes only the objectives seem important, therefore
making it seem that morality has no place. Further, a bureaucratic system invokes almost a feudal
system where everyone must show loyalty and respect for the “King” at all costs. As soon as people
realize this, most become anxious to meet the social factors as well as the other non-rational (and
usually non ethical) factors that they think will move them to the top.
Most people in a bureaucracy seek to avoid making any decisions, seek to survive for the short-run
(feeling that, if they do not, there is no long-run), seek to steal credit from their subordinates when
something turns out right, and seek to blame their subordinates when something goes wrong.
As bureaucrats think of business more and more as a game, their word means nothing. They become
adept at misstating and obfuscating anything other than the most positive outcomes.
According to Jackall, the bureaucratic manager rarely makes it through the moral maze with any type
of ethics intact.
Article: “The Moral Muteness of Managers” by Frederick B. Bird & James A. Waters (pp. 334 - 348)
Bird and Waters point to the relation between speech and action. Since business managers are very
reluctant to speak of their actions in moral terms, morality is left out of business - both in thought and
in action. Additionally, many managers feel that talk of morality distracts from business goals.
The consequences of “moral muteness” are listed on p. 340. They include: “the creation of moral
amnesia, an inappropriate narrowness in conceptions of morality, moral stress for individual
managers, neglect of moral abuses, and the decreased authority of moral standards.”
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Article: “Legislative Summary of the Sarbanes-Oxley Act of 2002” (pp. 348 - 356)
Article: “Limited Options” by John C. Coffee Jr. (pp. 356 - 362)
Coffee explains that legislation alone cannot solve all the problems of corporate governance and
individual greed. He points to the 1990’s as the time of the major corporate abuses, and looks at what
happened in corporate culture during the 1990’s.
One objective difference between the 1990's and all other periods is the compensation of executives,
particularly Chief Executive Officers (CEO’s). Two things happened during this decade with regard
to CEO compensation. One is the amount of executive compensation greatly increased, and secondly,
and perhaps more importantly, the compensation switched from being cash-based to being equity-
based. This gave CEO’s a greater stake in the daily stock price of their companies than ever before.
Some, as we now know, abused their position by doing things that would inflate the price of the stock
even if it hurt the long-term survival of their companies.
Coffee tells us that there is no single solution -- one size does not fit all. He is hopeful that the
Sarbanes-Oxley act will have some effect, but he also believes that the stock markets, auditors, and
lawyers will have to also play some part as watchdogs. He is most concerned that lawyers will not do
so, feeling that they will continue with the traditional belief that their client (along with attorney-client
privilege) takes precedence over all.
Discussion Questions
1. Suppose you hired someone to type your term papers. That person, as a matter of course, runs
the words, sentences, and paragraphs you gave them through both a spelling checker and a
grammar checker. They happily accept their payment. Then they go and tell each of your
professors that you hired them to type your papers and that they checked them for both
spelling and grammatical errors of which there were several, and that they hope the professors
will take this into account when marking your paper. Do you feel betrayed? Why or why not?
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2. You attend college in an affluent area and start working as a dog walker for several local
residents. When your workload becomes excessive, it occurs to you to hire other students at $7
an hour to walk the dogs but to continue billing clients at $12 an hour. Essentially you have
become a broker or trader in other people’s work product. Are you doing anything wrong; why
or why not?
3. You decide to get a job on Wall Street, figuring that trading firms pay more in bonuses than
most firms pay in salary. You gain a lot of money very quickly, essentially skirting your
parent’s admonition that only years of hard work lead to monetary reward. Have you done
anything ethically wrong? Due to a business downturn, your firm announces it will pay no
bonuses this year - as a result you can no longer afford your BMW’s monthly payments, the
mortgage on your summer home, nor the rent on your large downtown apartment - has your
firm done anything ethically wrong in relation to you?
Resources for further study -- Film, Literature, and the Web:
Lacayo, Richard and Ripley, Amanda. “The Whistleblowers.” “Time.” December 22, 2002.
www.time.com/time/personoftheyear/2002
http://www.coe.uga.edu/~rhill/workethic/hist.htm (June 1, 2007)
Securities and Exchange Commission, Spotlight on Sarbanes-Oxley Rulemaking and Reports,
September 16, 2005. http://www.sec.gov/spotlight/sarbanesoxley.htm
