Page 121 - Introduction to Business

CHAPTER 3 Business Governance, Ethics, and Social Responsibility 95

The Underground Economy

ecent estimates are that close to 9 percent of the U.S. gross domestic
product is “underground,” or “off the books.” On the basis of studies of
Roverall economic activity, it appears that the amount
of unreported income in the United States more than doubled during the
1990s, reaching $1.25 trillion in 2000. Thousands of unrecorded cash busi-
ness transactions are conducted in the United States daily, with all levels of
taxation being avoided. Similarly, the growth of the U.S. service economy has
created a situation where literally millions of child-care, lawn-care, domestic
help, and other workers toil completely off the books. Unrecorded barter
transactions, such as an orthodontist providing a neighbor’s son free braces
in exchange for a free racing bicycle from the bicycle store the neighbor
owns, are also not uncommon. The trillion dollars plus annual U.S. under-
ground economy involves a wide range of significant governance, social
responsibility, and ethical issues and presents a situation where at times
hard-working tax-paying citizens are supporting government services for
working citizens who pay no or little taxes. 1

Introduction

To say that issues of business governance, social responsibility, and ethics have
recently commanded a lot of public attention is, of course, to put it mildly. From
Martha Stewart, to Enron, to Tyco Corporation’s Dennis Koslowski, to Arthur
Andersen, news of corporate scandals has been front and center in the media. For
2
its 2002 Persons of the Year, Time magazine chose three whistleblowers. Two of whistleblowers Employees who inform
these were Sherron Watkins, who early on questioned the accounting practices at the appropriate authorities about an
employer’s wrongdoing
Enron Corporation, and Cynthia Cooper, an accountant at WorldCom Corporation
who in June of 2002 alerted WorldCom’s Board of Directors to accounting trickery
that inflated 2001 and 2002 profits by $3.5 billion. 3
Sometimes stories of corporate misdeeds are quite straightforward; for example,
executives stole money directly from the company. Usually, however, matters are far
more complex, and discerning “right from wrong” can be far more complicated.
As we see, business ethical, governance, and social responsibility issues can
arise in a wide variety of contexts. In addition, improved computer technologies
such as permanently saved e-mails have vastly increased the ability of government
agencies and others to monitor business activities in this regard. In this chapter we
will examine a variety of business governance structures, as well as various types of
possible conflicts of interest that can arise between shareholders/owners of busi-
nesses and the managers of said businesses. We will also discuss new developments
in the area of governmental regulation of business governance, and new ways busi-
nesses are working to prevent ethical problems from arising at their enterprises.
The case of former Salomon Smith Barney star stock research analyst Jack
Grubman illustrates some of the pressures that may lead to issues involving ques-
tionable ethics. It also shows the role of Internet technology in investigating
possible corporate misdeeds.

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