“The above all: to thine own self be true, and it must follow, as the night the day, thou canst not then be false to any man.”
―Polonius, a character in Shakespeare’s Hamlet, discussing the importance of moral integrity with his son, Laertes.
The Enron financial debacle in the latter half of 2001 thrust corporate accounting and auditing into the spotlight, subsequently bringing closer attention to other companies that have been forced to issue restatement of previous earning reports. One such company is Peregrine System, a San Diego firm that develops software for businesses to track their assets, such as IT equipment and fleets of vehicle.
On May 5, 2002, the firm announced that its board of directors had authorized an internal into potential accounting inaccuracies uncovered by its KPMG auditors. Based on preliminary information, certain transactions that involved revenue recognition irregularities amounting to $100 million—one-fifth of the firm’s 2001 revenue—were called into question. Additionally, the board announced the resignation of its chairman of the board, chief executive officer, and chief financial officer. Peregrine’s stock plummeted to $.89—a huge markdown from its split-adjusted high of $79.50 in Mach 2000. A firm that Business Week named one of the 100 best performing IT companies for 2001 and whose customers include 92 percent of the Fortune 500 companies had fallen on hard times.
Some of the company’s investors wondered how revenue could have been overstated. Actually, there are many different and legal ways companies can report revenue figures. However, investors tend to sue first and look for facts later—more than a dozen of class—action shareholder lawsuits were filed against the company.
Adapted from Chris Gaither, “Peregrine Shares Hit Skids on Disclosure of an Audit,” The New York Times on the Web, May 7, 2002, accessed at www.nyties.com; “Peregrine Systems Announces Internal Accounting Investigation; CEO and CFO resign,” Press Release May 6, 2002 from Peregrine Web site at www.peregrine.com; and Kim Peterson, “Numbers Get Massaged in Corporate Accounting,” San Diego Union Tribune, May 12, 2002, accessed at www.signonsandiego.com.
As you read this chapter, consider the following questions:
1. What are ethics and why is it important to act in ways that are consistent with a code of principles?
2. Why are business ethics becoming increasingly important?
3. What actions are corporations taking to reduce business ethics risks?
4. Why are corporations interested in fostering good business ethics?
5. What approach can you take to ethical decision making?
6. What trends have increased the risk of negative impact due to the unethical use of information technology?
WHAT ARE ETHICS?
Each society forms a setoff rules that establishes the boundaries of generally accepted behavior. Often, the rules are expressed in statements about what people should or should not do. These rules fit together to form the moral code by which the society lives. Unfortunately, there are often contradictions among the different rules, and you can become uncertain about which rule you should follow. For instance, if you witness a friend copy someone else’s answers while taking an exam, you might be caught in a conflict between loyalty to your friend and the value of telling the truth. Sometimes, the rules do not seem to cover new situations, and you must determine how you apply the existing rules or develop new ones. You may strongly support personal privacy, but when a time employers are tracking employee e-mail and Internet usage, what rules do you think are acceptable to govern appropriate use of company resources?
The term morality refers to social conventions about right and wrong that we are so widely shared that they are the basis for an established common consensus. However, one’s view of what is moral may vary by age,...