Ethical and Legal Issues Surrounding Solyndra Company
|Business Ethics, 🙋♂️ Management, 👨🏻⚖️ Criminal Justice
Table of Contents
Solyndra was a solar manufacturing company based in Fremont California. It manufactured cylindrical solar panels which were made of copper, indium and gallium selenide thin-film solar cells. The company built panel system and hardware for large low-slope commercial rooftops, the optimum result was felt when they were mounted horizontally and packed closer together. This company claimed that by covering significantly more than the typical roof area it produced more electricity per roof per annum than other panels. Solyndra used cylindrical panels that are said to have the capacity to absorb solar energy from any direction. Absorption would be possible for direct, indirect and reflected light, unlike the conventional flat solar panels. In the year 2006, the company began deploying demonstrations in various regions of the world (Cole, 2007).
Solyndra products received significantly immense acceptance in the market as it was said to use the most up-to-date technology. The panels were low cast and easy to mount because unlike the traditional solar panels these panels did not require concrete sand. The company was seen as the face of green technology in California and other states; this prompted the government to earmark the company to receive a loan guarantee from the department of energy. Doing so, the government wanted to show its support for clean energy in regards to sustainable development goals (Cosan, 2008).
Troubles began when the company filed for Chapter 11 bankruptcy just twenty-four months after receiving a federal loan of $535 billion dollars from the department of energy. Solyndra Company is said to have received an additional 25.1 Million US dollars as tax break form the state of California’s Alternative Energy & Advance Transportation Authority. All these financial assistance was made possible by a law passed in 2005 that authorized the department to issue federally backed loans for innovative projects that help limit air pollution. The aim of the loans was to finance the construction of a solar manufacturing plant (Elaine & Terry, 2011).
However, in September 2011 the company filed for bankruptcy when liquidity crisis reached an unsustainable level despite it being a face of clean energy with new and latest technology. Managers of the company failed to inform the shareholders that the company was making losses, and the sales were dwindling day by day. The company went ahead to cease all business activities and lay off its workers; this news was not welcomed by the employees and authorities involved (Elaine & Terry, 2011).
In its defense, the company cited several reasons that led to them being bankrupt. Expensive production, weak sales, plummeting solar panel prices and competition from Chinese manufacturers were mentioned. The last nail on Solyndra Company was hammered in on August 2011 when the administration failed to agree on the injection of additional capital hence leaving the company twisting in the wind with basically no money to run its operations. Employees and other stakeholders felt the company shortchanged them as they were unfairly dismissed without adequate notice (Jonathan, 2015).
When the company collapsed it became a center of media attention; people wanted answers. The House of Representatives Energy and Commerce Committee launched an investigation so as to unearth the triggers of poor performance and the eventual filing for protection under bankruptcy 11 provisions. Several weeks after, the federal criminal investigations under the US attorney’s office and Department of Justice also launched an investigation (Jonathan, 2015).
The result of the investigations revealed that Solyndra management team failed to disclose the truth about the company losses and instead gave faulty information. This was in regards to their operations, financial reports and the viability of their prospective projects. Moreover, the investigations revealed that Solyndra loan guarantee was hurriedly approved due to the white house influence. This was despite a warning from the staff in the office of management and budget (Cole, 2007).
It was said that the ministry of energy knowingly ignored these warnings and hurriedly approved the said loan. The collapse of Solyndra and the loss of taxpayer’s money were attributed to white house influence as it was later realized that the biggest shareholder of Solyndra Company was the largest financier of President Obama’s Presidential campaign. This might have affected the speedy approval and complete disregard of the advice of the office of management and budget (Jonathan, 2015).
Legal and Ethical Issues
The reports from the investigations done reveal that the Solyndra case had violated energy act of 2005. This is especially to the department of energy that approved loan guarantee without following due process stipulated. The House of Representatives Energy and Commerce Committee evaluated how the department of energy managed federal loan guarantees. The investigation report disclosed there was a conflict of interest in awarding Solyndra the loan guarantee as the major shareholder had political affiliations with the white house (Cosan, 2008).
The committee concluded that this might have influenced the speedy approval of Solyndra loan guarantee. Thus, this indicated unethical conduct by White House officials and the managers of Solyndra as they were aware of the conflict of interest. The directors of the company violated tax evasion laws as they filed for bankruptcy so that they can keep millions of federal loan money as operating losses. This clearly shows that there was a moral deviation from their moral obligation to follow company laws and rules as well as protect the interests of the workers (Jonathan, 2015).
The legal issues addressed were whether the company and those responsible misrepresented the actual state of the company’s finances or if accounting malpractice was involved. An issue was raised on Solyndra’s refusal to discuss customer contracts as it was in the process of engaging a trustee to take charge of the flagging energy firm. Another issue was that of private investors being given their money back if Solyndra went bankrupt before the taxpayers’ were seen as going against power law of 2005 (Elaine and Terry, 2011).
The company disregarded the provisions provided for under Workers Adjustment and Retraining Notification Act. This Act states that workers have to be given sixty days warning before dismissal. The management of the company failed to acknowledge this law and laid off all the employees when it filed for bankruptcy. The workers of the business who were more than 1,100 went ahead and filed a suit and sought payment for the 60 days, contributions and health benefits minus the severance pay. In the end, the workers got 3.5 million US dollars as compensation (Jonathan, 2015).
It is said the department of energy realized that the company could not make its loan repayment which was a violation of federal loans deal. In the year 2010, the Department of Energy agreed to restructure conditions of the loan guarantee. The terms were controversial as they stipulated that in the event the company went under, the first $75 million would be given to a private equity firm associated with the primary financier of Obama campaigns. This violates the energy act 2005 and shows the unethical conduct of both the energy department and the company’s managers (Elaine and Terry, 2011).
There was every indication that Solyndra Company was not performing as initially perceived. The Congress report indicated that politics drove much of the administration pressure to approve the loan guarantee as soon as possible. Political pressure influenced the loan approval despite the company experiencing severe liquidity crisis, a clear violation of ethical customs and legal guidelines. The managers were aware of the requirements of these guidelines and yet failed to meet moral threshold as enshrined in modern business management. Moreover, the managers failed in their role as transformational leaders capable of steering a company through cutting-edge competition. The managers failed when they decided to consider an unpopular action that among others effects left workers jobless (Elaine and Terry, 2011).
Two laws that apply to this scenario
In Solyndra case, some laws were ignored such as the energy policy act of 2005. This Act clearly states that the Department of Energy shall consult with the office of management & budget and the secretary of the treasury before granting any deviation in the loan. As we had already seen this law was apparently ignored when they chose to award private investors their dues before the others (Mulligan, 1986).
The second law that applies to this situation but was ignored by the solar company was the evasion of paying tax. The company did so when they filed for bankruptcy so that they could keep the millions of dollars of net operating losses that could be used in the reorganization of the company as they claimed. Solyndra abused an ethical code of honesty as it failed to inform the department of energy about their financial woes at the time. Investigations proved that the solar company was in straits before getting the restructured loan (Cole, 2007).
An ethical framework that applies to this scenario and its influence on the executives
An ethical framework applicable in this case is one that incorporates integrity transparency and ethical consideration. Responsible managers should not only consider making profits by marginalizing ethical aspects of the company or business. Other than free market ethics the management team of the solar company would have instilled honesty, transparency and integrity while carrying out their duties. It would have in many ways saved the company from collapse and upheld the spirit of the utilitarian rule that advocates for significant benefits for all (Elaine and Terry, 2011).
The managerial team should have evaluated the social impacts of bankruptcy to workers and shareholders of the company. In a completely opposite manner the managers of the company ignored the principles of moral equality to protect the welfare of the workers. Going ahead to file for bankruptcy is not the only option the managers of the company had, they could have listed in the security exchange but instead chose to halt all business activities and file for bankruptcy. It was a wrong approach to the situation as it was uninformed and unsustainable managerial decisions such as financial mismanagement that brought the company to its knees (Cosan, 2008).
The responsible leaders of the company would have relied on the moral rule to consider social benefits of all stakeholders of the company instead of concentrating on the major shareholders of the enterprise. Aspects of ethical and utilitarian rules might have influenced them to make practical decisions geared towards saving the solar company from collapse. However, the managers of the business were under obligation to uphold justice rule as an ethical framework that seeks to distribute benefits and harm with impartiality (Elaine and Terry, 2011).
However, the leaders and decision makers of the company chose to halt business operations and dismiss all employees in order to retain the millions of dollars taxpayers funding. In doing so, they ignored the plight of their workers. Moreover, the managers of the company were significantly influenced by the economic principle of maximizing shareholders wealth and making a profit by marginalizing ethics and social responsibility. It can be clearly seen that this strategy is not sustainable in the present business market (Cole, 2007).
Milton Friedman philosophy and how it may have influenced the executives of Solyndra
Milton was a 20th-century economist who advocated for free markets without the meddling of the government. His argument is that without government regulations the market would flourish, he drew a sharp distinction between the market and the state through his television show, free to choose. Milton used simple language to relay the importance of unregulated markets; many countries followed this line of thoughts through privatization of state corporations (Mulligan, 1986).
Milton argues that people with responsibility for decision making should not exercise social responsibility in their capacity as company executives. Instead, they should concentrate on increasing the profitability of the enterprise. This approach may have influenced the managers of the company to cease all business operations and file for bankruptcy despite having received a stimulus loan from the government through the department of energy so as to increase their productivity in green energy (Elaine and Terry, 2011).
When the company filed for bankruptcy, they were able to retain the millions of dollars as operating losses; this was beneficial to the principal shareholders of the enterprise. Moreover, the owners employ the managers who pledged their loyalty by dismissing all the workers to avoid losses through the cut-throat competition from Chinese solar manufacturers characterized by dwindling prices. In regards to Milton’s theory, the government should have left the energy firm to its own devices and leave the market speculation to market experts such as venture capitalist. Hence, what transpired in the closure of the firm and loss of taxpayer’s money would have been avoided (Jonathan, 2015).
Managers have a responsibility to conduct their business according to their desire to make the profit and increase shareholders equity while conforming to societal rules embedded in ethical customs and law. Thus, the managers should not have disregarded the interest of the workers by dismissing them. Instead, they should have re-strategized to keep the company afloat. If this were done, it would have increased the competitiveness of the enterprise and improve the welfare of the workers. They should have sought the input of the employees before making a rush decision to dismiss them (Elaine and Terry, 2011).
Friedman argues that companies are best when left to run their own business without the interference of the government. Analyst of the Solyndra’s case supports Milton’s theory as they say maybe the company would have weathered the storm without government’s interference. The argument is that the intervention brought more harm than a remedy to the enterprise. Thus in consideration of Milton Friedman’s philosophy, the government should have left the company to find solutions to their problems within the markets. The company would have been saved by engaging all stakeholders instead of rushing to the government. According to Friedman, some managers may misuse money that would have otherwise used for organizational growth and development (Upton, 2012).
Although Milton Friedman champions for a market devoid of government intervention, he argues that as an ultimate good is necessary. He goes on to say that freedom may be applicable in grounding other principles of organizing the society such as integrity, ethical considerations as well as the pursuit of moral impartiality and equity. The Solyndra management team apparently ignored all these moral fabric values and principles. The role of employees in the modern business world decision making should not be undermined (Cole, 2007).
In conclusion, the case of Solyndra solar panel manufacturing company should be used in the school of business precisely to demonstrate consequences of the illegal and unethical behavior of people in management. Ethical and legal laws were clearly flawed in this case. Business operations should be founded on an ethical, moral and legal framework to ensure sustainability of all parties involved; the government should only intervene as a last resort.
- Cole, J. (2007). Milton Friedman, 1912-2006. The Independent Review, 12(1), 115-128.
- Cosans, C. (2008). Does Milton Friedman Support Vigorous Business Ethics? Journal of Business Ethics, vol. 87, 391-399.
- Elaine I. & Terry H. (2011). Law and Ethics in the Business Environment. Cengage Learning.
- Jonathan W. (2015). Ethics in Economics: An Introduction to Moral Frameworks. Palo Alto: Stanford University Press.
- Mulligan T. (1986). A Critic of Milton Freidman’s Essay’ the Social Responsibility of Business is to Increase Profits. Journal of Business Ethics, vol. 5(4), 265-269.
- United States Bankruptcy Court for the District Of Delaware. (2012). Bankruptcy Trustee Objects to Confirmation of Solyndra Bankruptcyplan. (In Re: Solyndra Llc Et Al.) No. 11-12799
- Upton F. (2012). The Solyndra Failure, Majority Staff Report, House Of Representatives 112th Congress. Congressional Report.