Please Don't Tell My Mom I Did That! ETHICS Benchmarks

Many people believe the Enron people were pure evil; that their actions were so obviously wrong that it was cut and dry - but it wasn't. They didn't do anything illegal in the beginning, but it snow-balled into ethics and legal actions when they tried to mask their discovery. It's no different than what happens in real estate, really, just on a bigger scale.  If you want to know what happened from a Business Law perspetive,  read the epilogue to my blog.

Its not uncommon to find yourself in an ethics quandary given we are dealing with OPM - Other People's Money which effects our own income, sort of a conflict of interest. Recently I was faced with an ethics challenge so to put myself back in line I published a FaceBook group ethics question. I was looking for a comment that would validate what I already knew, and viola! So I deleted the question then resolved the matter privately with no further FaceBook correspondence. Here are some ideas to help you stay in line with your personal integrity.

10 BENCHMARKS TO HELP YOU MEASURE YOUR ETHICS:

1. Would you use your case as an example of business etiquette in an ethics class?

2. Would you tell your mom what you did?

3. Would you want your colleagues to behave that way?

4. If it feels funny, ask others' opinions - the truth will unveil.

5. Should it be in your policy or operations manual?

6. If interviewed, would you talk about it?

7. Would you want to be treated that way?

8. Does it fit within your mission, vision, and culture?

9. Would you put it in a training manual?

10. WWJD?

PS - Texans Credit  Union has the right attitude! Their ethics strategy is cut and dry. See diagram above.

(Diagram courtesy of https://www.texanscu.org/Default.aspx)

ENRON EXPLAINED IN LAY TERMS

In short, "Off-Balance Accounting" resulted in over-leveraged financing and when discovered by the accountants, was silenced.  All companies leverage debt including banks. When our buyers borrow 96.5% to buy an asset with only 3.5% equity the banks too are leveraging because they borrow about 90% of that loan from the Federal Reserve. No big deal for one asset that is skillfully considered. But the reason you can't get an FHA loan (other than a 203K) on "investment properties" is that the risk outweighs the reward. So an investor who wants to buy 100 homes might create 10 LLCs holding 10 in each to limit liability but it does nothing to protect the banks. When they request to see your financial report all they see are the 10 homes owned by that single LLC, yet you own all 10 LLCs that own the 100 homes. Your accountant, whom you pay very well, starts asking questions, so the firm firm fires the guy and replaces with another accountant.

That pretty much sums up what happened at Enron! They spun off busines units who were dis-jointed which resulted in a lack of awareness of the other financing deals, then when Arthur Anderson, the #1 accounting firm in the world at the time who were being paid ridiculous sums of money, shut down chatter to keep the cash cow pipeline flowing.