1-7c How Should Employees Deal
with Unethical Behavior?
Far too often the desire for stock options, bonuses, and promotions drives managers
to take unethical actions such as fudging the books to make profits in the manager’s
division look good, holding back information about bad products thatwould depress
sales, and failing to take costly but needed measures to protect the environment.
Generally, these acts don’t rise to the level of an Enron or a WorldCom, but they are
still bad. If questionable things are going on, who should take action andwhat should
that action be? Obviously, in situations such as Enron and WorldCom, where fraud
was being perpetrated at or close to the top, senior managers knew about the illegal
activities. In other cases, the problemis caused by a mid-levelmanager trying to boost
his or her unit’s profits and thus his or her bonus. In all cases, though, at least some
lower-level employees are aware of what’s happening; they may even be ordered to
take fraudulent actions. Should the lower-level employees obey their boss’s orders;
refuse to obey those orders; or report the situation to a higher authority, such as the
company’s board of directors, the company’s auditors, or a federal prosecutor?
In the WorldCom and Enron cases, it was clear to a number of employees that
unethical and illegal acts were being committed; but in cases such as Merck’s
Vioxx product, the situation was less clear. Because early evidence that Vioxx led
to heart attacks was weak and evidence of its pain reduction was strong, it was
probably not appropriate to sound an alarm early on. However, as evidence
accumulated, at some point the public needed to be given a strong warning or the
product should have been taken off the market. But judgment comes into play
when deciding on what action to take and when to take it. If a lower-level
employee thinks that a product should be pulled but the boss disagrees, what should the employee do? If an employee decides to report the problem, trouble
may ensue regardless of the merits of the case. If the alarm is false, the company
will have been harmed and nothing will have been gained. In that case, the
employee will probably be fired. Even if the employee is right, his or her career
may still be ruined because many companies (or at least bosses) don’t like “disloyal,
troublemaking” employees.
Such situations arise fairly often in contexts ranging from accounting fraud to
product liability and environmental cases. Employees jeopardize their jobs if they
come forward over their bosses’ objections. However, if they don’t speak up, they
may suffer emotional problems and contribute to the downfall of their companies
and the accompanying loss of jobs and savings. Moreover, if employees obey
orders regarding actions they know are illegal, they may end up going to jail.
Indeed, in most of the scandals that have gone to trial, the lower-level people who
physically entered the bad data received longer jail sentences than the bosses who
presumably gave the directives. So employees can be “stuck between a rock and a
hard place,” that is, doing what they should do and possibly losing their jobs
versus going along with the boss and possibly ending up in jail. This discussion
shows why ethics is such an important consideration in business and in business
schools—and why we are concerned with it in this book.