With an all-time high of $90.75 in mid-2001, Eron Corporation was trading surprisingly at an all-time low of $0.26 just five months later, before declaring bankruptcy on the 2nd of December 2001. Titled Enron Scandal: The Fall of a Wall Street Darling Troy Segal writes on Investopedia about the US-based energy, services, and commodities company that tricked its investors in 2001 into thinking that it performed appreciably, with fictitious financial misrepresentations termed, Mark-To-Market (MTM). Would a trustworthy company put its stakeholders in such a fix? According to Troy, the company paid its creditors more than $21.7 billion from 2004 to 2011. The big question is: what did the company pay its ordinary shareholders in return for their investment?
Enron Scandal is just one of the many cases of corporate misdemeanors that come in different shades and sizes, from Ponzi schemes to product flops, ethical lapses, and high-profile corruption; all these links to one word, integrity. Hence, the need for stakeholders to look before they leap; because businesses understand this, they always try to appear promising to attract the resources they need from unsuspecting stakeholders (employees, investors, partners, customers, regulators).
What is integrity in business?
According to Online Etymology Dictionary, integrity stems from two origins, French and Latin. Coined from the French word integrité, it means innocence, blamelessness, chastity, purity, and from the Latin word, integer it means wholeness, perfect condition, soundness of moral principle and character; entire uprightness or fidelity, especially concerning truth and fair dealing.
There are four levels of integrity: systemic, industry, organizational, and individual. Organizational integrity which is what we are concerned with is defined as the application of ethics at the organizational level. On this premise, Elegido (1996) gives six fundamental ethical principles in business: efficiency, fairness, role-responsibility, rationality, solidarity, and restraint from deliberate harm to others. To add his voice, Kevin Briscoe, on The CFO’s Perspective, suggested that integrity can be built into business when genuine honesty, sincere commitment, equity, kindness, and respect in all ramifications (diversity of all sorts) exist. In other words, business integrity or integrity in business is to what extent Briscoe and Elegido’s points are adopted.
Why is integrity a matter of concern in business?
The ultimate reward for integrity is reduced cost from ethical practices that otherwise, may eventually put the organization in the red.
In April 2010, BP decided to cut corners due to schedule and cost constraints resulting in a failed 18,000 foot-deep cement cast that was supposed to contain oil and gas within the wellbore. BP was ultimately responsible for the explosion and the large-scale devastation of life, property, and environment that followed the cement failure.
What was the root cause of the failure? According to a two-part report by the Bureau of Ocean Energy Management, Regulation and Enforcement, and the Coast Guard, BP made some last-minute changes to plans without proper risk management, neglected critical indicators, and failed to ensure adequate well-control response and emergency bridge response training for operators of the offshore deep-water horizon. The report also included seven violations of federal regulations, some of which require BP to conduct reliable tests of well pressures and notify federal regulators of changes in drilling plans.
To what extent were lives, property and environment affected?
Eleven crew members lost their lives, nearly five million barrels of oil spilled, stretching miles of beaches, marshes, and aquatic habitat, and causing multi-billion dollar damage- the price of integrity.
Briscoe continued that integrity in business will bring about employee satisfaction, good corporate reputation, focus on only the things that matter (minimal waste on the things that do not matter), and better quality of results. Other reasons for integrity suggested by Freshbooks Blog comprise competitive edge in business, ability to make difficult decisions easy, and less overall costs in the long run.
Corroborating Briscoe's points on building integrity into business activities, Freshbooks Blog added five dimensions to integrity - trust, consistency, ownership, collectivity, and evolution.
What does this imply for an organization?
When an organization fulfills its obligation to its stakeholders, such stakeholders will have trust in that organization. That integrity is earned over time from consistent best practices. That when a firm owns up to mistakes and frantically makes amend, it is adjudged reputable. That reliable firms shoulder the ultimate responsibility for joint venture agreements and third-party commitments where necessary. Lastly, such reputable firms evolve to satisfy the changing needs of their stakeholders. A blend of these practices culminates in the integrity of an organization.
How should a firm build and maintain integrity?
Firms should start by creating and maintaining a corporate culture that reflects their core values. Who are some of those that have shown that a sustainable organizational culture boosts integrity? The likes of IKEA, H&M, Whole Foods, Airbnb, KPMG, Deloitte, Southwest Airlines, and Netflix. Others are Adidas, Google, Starbucks, JP Morgan Chase have a high-trust culture that has impacted their reputation significantly.
How should businesses genuinely position themselves to garner the resources they need to succeed, and what are the characteristics of a reputable organization?
Businesses should focus on their established values during recruitment to acquire and retain applicants with such potentialities. On this note, the first point of call is an Executive with the virtues to pilot the organization. According to research by Peakon Heartbeat, employee loyalty is tied more heavily to their managers than the culture of the organization. So a good manager with the right attitude will aid in the enforcement of established organizational culture.
How should the management constantly reinforce established values?
Management can reinforce corporate values through reward and punitive measures, compliance to regulations, transparency across the board, product integrity, customer-directed value strategy, quality, ethical management practices, customer service integrity, and more importantly, Kathy Kram's concept of “developmental relationships” which emphasize manager-employee bonding. Kram stressed the positive impact of two-way communication of equity, empathy, and expertise between leaders and their followers to drive a more effective and sustainable culture across the board.
Engaging in corporate social responsibility could make a difference.
With more than 200 names on The Giving Pledge and more than a billion elsewhere around the world doing charity, from private individuals to international corporations, giving back to society is not a bad idea. Striking among them is MacKenzie Scott's trust-based philanthropy or “no strings attached philanthropy,” as Lisette Voytko puts it on, Forbes. France24 titled it MacKenzie Scott shakes up philanthropy with Amazon riches. Stating that, unlike many other large donors, Scott did not attach any restrictions or even naming rights requirements to a staggering sum of nearly $6 billion in charitable gifts that she unlocked.
What does that say about her?
Scott is promoting trust by trusting that recipients will do just the right thing with her donations. By giving back to their society, philanthropists, and charity organizations affiliate with their stakeholders to enhance their reputations. Founders of corporations including Warren Buffet, Bill Gates, Jeff Bezos have created such relationships with heads of states and nations- the movers and shakers of economies, to foster beneficial partnerships that create better societies.
Segal T. (2021, June 01). Enron Scandal: The Fall of a Wall Street Darling. Investopedia. https://www.investopedia.com/updates/enron-scandal-summary/
Corporate Finance Institute (n. d.). Enron Scandal. CFI. https://corporatefinanceinstitute.com/resources/knowledge/other/enron-scandal/
FreshBooks Blog. (n.d.). The Importance of Integrity in Business. FreshBooks Blog. https://www.freshbooks.com/blog/integrity-in-business-why-its-important Online Etymology Dictionary (n.d.). integrity. https://www.etymonline.com/word/integrity
Elegido, J.M. (1996). Fundamentals of Business Ethics: A Developing World Perspective. Ibadan, Nigeria: Spectrum Books Limited.
Briscoe K. (2019, August 20). Integrity in Business - A Priceless Essential for Success. CFO Selections Perspective. https://www.cfoselections.com/perspective/integrity-in-business-a-priceless-essential-for-success
Broder M. J. (2011, September 14) BP Shortcuts Led to Gulf Oil Spill, Report Says. The New York Times. https://www.nytimes.com/2011/09/15/science/earth/15spill.html
Peacon Post (2018, February 08).10 Companies with Core Values That Actually Reflect Their Culture. Retrieved 2021, September 02 from https://peakon.com/blog/employee-success/best-company-core-values/
Wachtel T. (2020, March 13). 5 Companies with Core Values that Stand Above the Rest. Element Three. https://elementthree.com/blog/5-examples-of-companies-with-awesome-core-values/
Khoury G. & Crabtree S. (2019, February 06) Are Businesses Worldwide Suffering From a Trust Crises. Gallup. https://www.gallup.com/workplace/246194/businesses-worldwide-suffering-trust-crisis.aspx?utm_source=workplace-newsletter&utm_medium=email&utm_campaign=WorkplaceNewsletter_March_030519&utm_content=buildtrust-CTA-3&elqTrackId=C2D3C5620788C6FC17DDEFF2D65CA164&elq=13f96bd9c1a2429bbf07b672ca4fef9f&elqaid=1017&elqat=1&elqCampaignId=243
Heartbeat (n.d.) The 9-Month Warning: Identifying Quitters before it's Too Late. Retrieved 2021, September 02 from https://peakon.com/heartbeat/reports/the-9-month-warning-identifying-quitters-before-its-too-late/
The Giving Pledge (n.d.) Retrieved 2021, Seeptember 02 from https://givingpledge.org/PledgerList.aspx
Voytko L. (2021, July 07) Inside MacKenzie Scott’s ‘No Strings Attached’ Philanthropy: ‘I Was In Tears’ Forbes.https://www.forbes.com/sites/lisettevoytko/2021/07/07/inside-mackenzie-scotts-no-strings-attached-philanthropy-i-was-in-tears/?sh=434e91755bb6
France24(2021, January 31) MacKenzie Scott shakes up philanthropy with Amazon riches. Retrieved 2021, Seeptember 02 from https://www.france24.com/en/americas/20210131-mackenzie-scott-shakes-up-philanthropy-with-amazon-riches
This content is accurate and true to the best of the author’s knowledge and is not meant to substitute for formal and individualized advice from a qualified professional.