The Solyndra Scandal - Term Paper Example

? The Legal and Ethical Issues Surrounding Solyndra Introduction Ethics have become a major and important part of daily business operations. As businesses and organisations operate, it is important for them to look at the ethical issues which may surround their operations. Businesses should be able to look at how their operations affect those who are stakeholders to their operations. Stakeholders includes the government with regard to tax collection, the creditors in terms of how they will regain their money, the customers, in terms of how they will get the best products at the most fair prices, the list is just endless. Businesses and organisations must look at the legal issues surrounding their operations. Failing to do this will most likely land the firm in a situation where they have to deal with law suits which may lead to the firm closing its doors from the public (Shaw, 2007). Legal issues as well as ethical issues must especially be considered in a very careful way in cases where public funding is concerned. Failing to do this can lead to inquiries which may lead to criminal prosecution in court. Yet, there are so many firms today which ignore these issues. A good example is Solyndra which died only about five years after its founding. The Solyndra Scandal The Solyndra scandal raises a number of both legal and ethical issues. Scandal like this cost the tax payers hundreds of millions and sometimes billions of dollars. One of the ethical issues which arises from the Solyndra case is the fact that the involved officials were aware of the big financial risk but continued with the project anyway (Leonnig & Stephens, n.d.). According to emails retrieved from correspondence between the Solyndra officials and the White House officials who were aiding in the acquisition of the loan, it was clear that there was little chance of the project breaking even and succeeding and the officials knew it. According to investigation done by the FBI, there were a number of issues which indicated that the officers involved were engaging in unethical or illegal affairs. White House Aide is actually revealed to have warned officials not to have any official communication through their personal email accounts as this would make the personal email accounts to be subpoenaed in case of a legal enquiry (Leonnig & Stephens, n.d.). This was one indicator that the officials, even prior to the over $500 million loan, already knew that things were not working out for Solyndra and that sooner than later it would have to collapse. Why officials of such high ranks would engage in such casino-like transactions with public funds in case a case of official negligence and abuse of power and office. While there may not be a directly illegal issue with the aide telling the officers to watch the way they communicate because they could be subpoenaed, it does show that these people were operating way outside the ethical thresholds. The actions of the Department of Energy also show a number of ethical issues. For instance as Stephens, Leonnig and Leonnig (2011) say, the DOE failed to warn the state house about the failing of Solyndra. In fact as the firm continued to fade and sink into its own operating costs, the DOE failed to pull the plug and instead additional funds were given to a failing firm even when it was very clear that the firm was failing drastically. Legal issues To understand the legal issues surrounding the Solyndra case scandal, it is important to revisit how the scandal unfolded. First, Solyndra had managed to secure conditional loan from the government in line with the department of energy regulations. The loan failed to work and this is where the firm sought to get another loan in order to make up for the fact that the first loan did not help the firms to be able to get on its feet. However, due to the risk issues surrounding the restructuring of the loan, the loan restructuring would have to get approval by the justice department. In other words, Solyndra would have to get clearance from the department of justice in order to get a loan restructuring from the government. However, although this was supposed to happen, this was not done and the loan was given to the firm which was to collapse a few months later. This, combined with the other ethical issues discussed raised a number of questions. First, it would seem that the involved officials were well aware that the firm had no chance to get into its feet even if it was to get a restructuring of its loan. Yet, even before August 31st when the bankruptcy of the firm was announced, the firm officials were still seeking a refinancing of the firm despite that the firms had shown that it would not be able to break even. Filing for bankruptcy In the filing for the bankruptcy for Solyndra, a number of legal as well as ethical issues come to light. The legal issue which arises from this point is the Net Operating Loss (NOL) carryovers from the previous firm. The company that was to take over was the take advantage of the Net Operating Loss (NOL) carryover provision that would come with the bankruptcy filing. NOL carryovers protect firms from excessive taxes in special cases and the tax clause was intended to ensure that firms are not unfairly overtaxed. However, as Nellen (2008) says, this has been seen by some people, especially some officials from California as a loophole which allows some firms to abscond tax obligations. With the firm filing for bankruptcy and a new organisation taking over Solyndra, the new firm would be in custody of over $350 million initially given as loan to the Solyndra firm, but with tax obligations intended to be dropped down in the provision of the NOL provision. This would mean that the new firm taking over Solyndra would acquire so much money in form of assets but at the same time avoid the tax obligations. The tax payer in this case would have lost in at least two ways. First, because of the bankruptcy field by Solyndra, the tax payer would not be able to get his money back. Secondly, with the new firm hiding under the NOL carryover clause, the firm would not pay any taxes which were owed by Solyndra. This also raises a number of ethical issues because the officials involved seem to understand very well that this will lead to the taxpayer losing a lot of money. It seems unfortunate that the officials were able to engage in an economic endeavour which they knew very well that the risks outweighed the potential of the project to succeed, yet, when the project financial failed, the tax payer is the one who ends up taking the burden. Obama connections also played a major role in raising ethical issues in the case. Although the scandal had begun way before the Obama administration had come to power, Obama also seemed to not be able to directly admonish the project in a clear way. For instance, a few days after one of Obama donors raised the alarm about the legality of the Solyndra project, Obama visited the place and gave an affirmation of the project citing on its ingenuity and is potential of providing the nation with clean energy. This close and personalised support from the highest office in the land must have boosted the officials to continue with their illegal and unethical transactions. Involvement of the White House officials pushing for the various officers to cooperate even when it was clear that the right procedures were not being followed also adds to the issue. For instance, in august 2008, a white house aide pushed the Office of Management and Budget to finalise the financing of Solyndra because the OMB officials were hesitant in finalizing the loan to Solyndra. With the white house pushing the OMB to finalise the financing, the loan was finalised in the following month (September 2008) and Biden attended a ground breaking ceremony only three days later. This shows a number of worrying issues. First of all, with the OMB being a very vital of the White House and the Office of the President, their role in finalising such projects should have been left to them to decide whether this was a project that was worth investing in. Yet, internal interference with the internal business of the OMB was apparent in the case, with the White House top officials pushing the OMB to a corner where they had to carry out a process that they did not find worthwhile. It also indicates a bad picture on the part of the Obama administrations because it shows the White House which is split and departments within the government which are not working in unison. The Solyndra case is a good reminder of the argument of the two schools of thought with regard to how the economy should be managed. This can be seen in terms of the principles of Milton Friedman who supported a free market where the economy is governed by the private sector using the laws of demand and supply. Milton Friedman, like most of those who were in his school of thought with regard to the way a national economy should be governed, argued the private sector should be left to be the main guardian of the economy (Sowell, 2007). He argued that the gold standard was not as good as the classical economist outlook and also that it would not be feasible to achievable in any way. What this position on the way that the economic system should be managed looks to argue is that the government should not be the one managing the economy including and especially the regulation of money in the economy (Sowell, 1994). This is unlike what Keynesian economists would argue that the governemtn shodul have a central role in managing and reguating the economy (King, 2003). Classical economists believe that the government should not be able to control the economy or the regulation of the flow of currency because doing so interrupts the natural and better self-balance of the natural laws of economics (Rutherford, 1997). This is because Keynesian economists, led by the famous john Maynard Keynes argue that the private sector cannot be able to regulate itself especially because it’s bottom-line is making profit and not stabilising the economy. Keynesians therefore argue that it is necessary for the government to have a control in the market in order to make sure that the private sector is not misbehaving (King, 2003). This, as Holt and Pressman (2007) says, however has been challenged by a number of post-Keynesian economists who have argued that neither the classical not the Keynesian economics outlooks have been seen to be optimal for any economy. Looking at the Solyndra case, these issues about whether the private sector is able to regulate itself and therefore properly manage the economy come out. The Solyndra case is just one for the major scandal cases which have happened in American that has shown that the private sector may not be able to manage itself completely. This and other cases such as the Enron Case, the Bank of America case and many others only go to indicate that the private sector may not be able to provide the necessary mechanisms which make it possible for the private sector to be able to manage the economy. The government is needed to be able to provide a number of mechanisms which will make it possible for a framework to be developed which will guide on such issues as the expenditure of public funds, the regulation of currency flow in the economy, the regulation of the private sector etc. Conclusion Solyndra officials as well as the White House officials definitely acted in a way which was neither ethical nor legally acceptable. Their actions cost the tax payer hundreds of millions of dollars in tax payer’s money. Looking at the case reveals that the officials completely disregarded the right procedures for getting funding from the government. This is one case which should be used as an example for other firms to learn that they have a mandate to be professional and ethical in the way they operate business, especially where public funding is concerned. References Holt, P.F. & Pressman, S. (2007). Empirical post keynesian economics: Looking at the real world. Boston, MA: M.E. Sharpe. King, J. E. (2003). A history of post Keynesian economics since 1936 awarded Choice Outstanding Academic Title for 2002. London: Edward Elgar Publishing. King, K. (2003). The Elgar companion to post Keynesian economics. London: Edward Elgar Publishing. Leonnig, C. D., & Stephens, J. (n.d.). Energy Dept. Loan Chief warned staff that personal e-mail could be subpoenaed. Retrieved July 12, 2013, from Washin Post Politics: http://www.washingtonpost.com/politics/energy-department-loan-program-staffers-were-warned-not-to-use-personal-e-mail/2012/08/14/900621fa-e61f-11e1-8f62-58260e3940a0_story.html Nellen, A. (2008). NOL Carryovers: Loophole or Legit. Retrieved July 12, 2013, from AICPA Store: http://www.cpa2biz.com/Content/media/PRODUCER_CONTENT/Newsletters/Articles_2008/Tax/Legit.jsp Rutherford, D. (1997). Classical economics. London: Routledge. Shaw, H. (2007). Business ethics. Stamford, CN: Cengage Learning. Sowell, T. (1994). Classical Economics reconsidered. Princeton: Princeton University Press. Sowell, T. (2007). On Classical Economics. Boston, MA: Yale University Press. Stephens, J., Leoning, C. D., & Leonings, D. C. (2011). Energy Department failed to sound alarm as Solyndra solar company sank. Retrieved July 12, 2013, from Washington Post Politics: http://www.washingtonpost.com/politics/solyndra-energy-department-failed-to-sound-alarm-as-solar-company-sank/2011/11/04/gIQAGQgfBN_story.html Read More