Organizational ethics continues to be a serious issue in the US. Companies such as WorldCom and Enron highlighted this issue and set into motion new laws governing accounting practices and other ethics related practices. Despite the fact that these laws have been successful in reducing ethical issues, the problem still persists. The primary reasons that ethics issues continue to persist is due to social pressures, personal and organizational ethical conflicts, and legal and ethical conflicts.
The pressure to make money and be successful continues to push organizations into unethical practices. In 2011 Hewlett-Packard having endured poor sales in the PC market sought to increase its software and information management services through the acquisition of a firm strong in these areas. The United Kingdom based company, Autonomy, appeared to be the acquisition needed (Niccolai, 2011). HP purchased Autonomy in 2011 for $11.1 billion, only to discover that purchase was based on unethical practices.
In 2012 Hewlett-Packard became aware of the situation when an autonomy executive came forward after the departure of the former CEO Mike Lynch who had overseen the acquisition.
“after a senior member of Autonomy’s leadership team came forward, following the departure of Autonomy founder Mike Lynch, alleging that there had been a series of questionable accounting and business practices at Autonomy prior to the acquisition by HP.” HP added that this person “provided numerous details about which HP previously had no knowledge or visibility (Drucker, 2012).”
Accounting improprieties allowed Autonomy to be overvalued at the time of the acquisition. Autonomy bolstered revenue, core growth rate and gross margins in a seemingly willful act to make the company appear more profitable than it was in reality. This seemed to be an ongoing practice and revealed a top-down unethical approach in management and leadership that was driven by bottom-line thinking.
Personal and Organizational Ethical Conflicts
One of the major issues with ethics is that organizational and personal ethics can conflict creating dilemmas. This matter is worsened when leadership lack ethics and reinforces poor ethical behavior. After HP performed an examination in the fraud the matter was over to the authorities due to the legal nature of the problem. The fraud which occurred in this situation pertained to accounting practices which magnified the revenue, core growth rate and gross margins of the company. These accounting practices were part of an ongoing unethical practice of misappropriating financial data.
Autonomy accelerated, miscategorized and “created” more than $200 million in revenue over a two-year period beginning in 2009, said John Schultz, Hewlett-Packard’s general counsel in an interview. That would equate to about 12 percent of Autonomy’s $1.61 billion in revenue for 2009 and 2010, based on the company’s 2010 annual report (Drucker, 2012).
This ongoing practice allowed Autonomy to sell for $11.1 billion dollars when it was overvalued by $8 which HP has attempted to write-down on its taxes. The fraud was characterized by leadership that allowed and rewarded bottom line thinking without questioning the methods used. Despite the fact that there were employees and managers who believed that the behavior was unethical, they were too scared to speak out and either left the organization or waited until the company was sold. This situation highlights how the conflicts between persona and organizational ethics can create outcomes and decision making which negative in nature when there is no process for reporting and discussing ethical issues.
Legal and Ethical Conflicts
Another driver in unethical behavior is the conflicts between law and ethics. While many of the practices at autonomy were legal they were not ethical because they hid the true value of the company. Conflicts such as this occur often in business because there are loopholes and lack of laws to govern every behavior and practice. At Autonomy, the unethical practices ultimately led to a $11 billion fraud because they were used to overvalue the company and this action is illegal. For this reason, companies need to create ethical standards which surpass legal limitations in order to safeguard against practices of this nature.
Aubin, D. (2012 , November 28). Audit firms sued in hp’s autonomy acquisition. Retrieved from http://www.reuters.com/article/2012/11/29/us-hp-autonomy-auditors- idUSBRE8AS00220121129
Drucker, J. (2012, November 21). Hp’s accounting claims are seen as cover for bad deals. Retrieved from http://www.businessweek.com/news/2012-11-20/hp-s-accounting-claims- are-seen-as-cover-for-bad-deals
Niccolai, J. (2011, October 3). Hp completes autonomy acquisition uk software vendor autonomy is now under the control of hp. Retrieved from http://www.computerworld.com/s/article/9220479/HP_completes_Autonomy_acquisition