Introduction and Background
From an economic standpoint, organizations from across the globe require energy in order to run their operations smoothly. In an effort to exploit cheap and sustainable energy resources, the government supports green initiatives and provides incentives to individuals, groups, or firms that wish to explore renewable energy resources. With respect to solar energy, specially designed solar panels convert the solar power into energy that can be used by consumers. Fundamentally, the growth and development of solar power market relies on the cost as well as availability of solar panels. Solyndra Solar Power Company ventured into this market and specifically dealt with designing and manufacturing solar photovoltaic systems. Its clients included energy service firms, government agencies, owners of large commercial buildings, roofing contractors, developers, and utilities amongst others. It was founded in 2005 by Christian Gronet, who later changed its name to Solyndra.
From the onset, Smith (2012) posits that the project was promising and its products were unique. This made it attractive to various private investors and the government. Indeed, it was an ideal exemplification of how green entrepreneurs and the government could collaborate to provide sustainable energy for the populace, create numerous job opportunities, and sustain a healthy energy industry. The government committed itself to supporting the firm and proceeded to providing it with a loan guarantee of a significant 535 million dollars (Energy and Commerce Committee, Subcommittee on Oversight Investigations & US House of Representatives, 2011). Undoubtedly, the financial resources were vital and could enable it run operations with ease. However, this changed dramatically in 2011 when the company collapsed and ceased its operations. It culminated in a dismissal of its 1100 employees. The failure of this important venture was influenced by various factors and involved different stakeholders. This paper reviews the ethical and legal issues that surround it. In addition, it underscores the influence of Milton Friedman’s philosophy on the executives and evaluates an ethical framework that can be applied to the case.
Research evidence shows that just a year earlier, before Solyndra filed for bankruptcy, the Department of Energy had accorded it half a million loan grant (Simpson, Westerman & Dorsman, 2013). Further, California Alternative Energy and Transport Authority gave it a $25.1 million tax break (Energy and Commerce Committee et al., 2011). The law that was passed in 2005 allowed projects that sought to reduce or combat air pollution to receive financial assistance through loans. Thus, the legislation enabled the company to access up to half a million funds as a loan. The failure of the company is attributed to the stiff competition that it faced from Chinese manufacturers. Furthermore, the administrators refused to inject in the firm additional capital when they realized that its operations were not rewarding. The limited resource base implied that it did not have sufficient finances to sustain its operations.
This state raised various concerns regarding the management of financial resources by the company. The FBI sought to determine whether the management of the company failed to realize the financial problems that it experienced in a timely manner or if there were some hidden financial irregularities. The Department of Energy and the Office of Management and Budget were equally questioned because of the fact that they were responsible for the loan approval that the company received. Seemingly, the duo was aware that new investors had refrained from investing in this company after they realized that its operations were economically unyielding. Nonetheless, it proceeded to approving the loan and released the funds to the company.
One of the notable legal shortcomings of Solyndra pertained to its illegal access to loan. Loan agreement reports indicate that Solyndra was required to furnish the subsidiary that was building its factory with five million dollars (Simpson et al., 2013). However, it defaulted because of limited resources. This compelled the Department of Energy to intervene by reconstructing the respective loan agreement. The efforts were geared towards helping the firm to stay afloat and sustain its operations. The move enabled it to access credit even after it had initially defaulted.
Pursuit of the Energy Law of 2005 by the company raised various problems because it had entered a loan agreement that had different provisions. The private sector had given it a seventy five million loan (Kennedy, 2012). One of the rules was that in an instance where the firm was to be liquidated, they would be the first to receive payment. However, Solyndra’s administration wanted this to be overruled by claiming that they were protecting the interests of the tax payer. Resultantly, the government was the first to receive payment, a move that was in violation of the terms of the loan agreement. Initially, the Department of Energy had promised private investors that payment of their funds would precede the compensation of taxpayers. Presumably, this was in an effort to attract and secure private sector investment. Ultimately, private investors did not get back the money they had put in the project.
Another legal provision that the company violated was tax evasion. According to Washington Times (2012), it had accumulated a significant twelve million dollars as solar tax credit. When it filed for bankruptcy, it became extremely difficult to follow up this debt and recover the lost finances. In this regard, the government faced significant losses that it could not follow up accordingly. Issues pertaining to the laying off of its workers also raised various legal concerns. After its liquidation, its workers were dismissed before prior notification. Ideally, the Workers Adjustment and Retraining Notification (WARN) requires employers to notify all workers about the termination of their employment sixty days before effecting the same. The dismissal of workers in this context was not procedural and as such, the employees went to court and filed a suit under the WARN Act. Besides their contributions, they demanded the company to pay them health benefits too.
Apparently, there are specific laws that apply to this scenario and whose contravention led to the state of affairs. The guilty parties in this case ignored the 2005 Energy Policy Act that stipulates that the Department of Energy should liaise and consult with Secretary of the Treasury and the Office of Management and Budget before permitting loan deviation. Then, the company’s move to file for bankruptcy in order to evade payment of taxes was illegal. This helped it to retain the net operating losses that would otherwise be useful for reorganizing it.
Investigations reports revealed that “the renowned George Kaiser, who was one of the biggest funders of the presidential election, was a major stakeholder of this company” (Mulkern, 2011, p. 117). This greatly influenced the funding decisions in respect to the company. Further, the Department of Energy advised the management of the company to halt employee lay-offs until after the 2010 elections. As aforementioned, it also proceeded to approving the loan even after understanding the financial crisis of the company.
In this regard, the department acted unethically and failed to protect the individuals it is obligated to. The guilty parties had little consideration for the investors and tax payers. Upon bankruptcy, the senior officials who were responsible for making the bad decisions incurred few losses. The tax payer, employees, and the private investors suffered the most from the firm’s failure. Essentially, the government has the power and sufficient resources to protect the masses by influencing credible decision making. However, it ignored its responsibility and instead decided to safeguard its wellbeing at the expense of the investors.
Milton Friedman’s Philosophy
In his model, Milton Friedman provided an in-depth evaluation of the concept of free markets (Snoeyenbos, Almeder and Humber, 2001). Accordingly, he indicated that governments should restrain from interfering with market operations. Active involvement of the government prevents firms from exploring their full potential and flourishing. The rules and policies prevent firms from exploring opportunities fully. Assumedly, forces from the higher power undermine effective pursuit of justice and fairness. This is particularly so because the government has an upper hand in almost all incidences. Higher powers often influence market decisions in an effort to pursue their individual interests.
In the case under review, the government used its power and influence to determine critical decision making. Its involvement culminated in a host of irregularities and financial problems. In as much as the government tried to make the scenario seem as if it was helping the company to stay afloat, various incidences of foul play emerged. The objective of Milton’s philosophical model was to enable parties in the market make independent decisions without direct influence by the government. In this scenario, the government manipulated this firm to further its individual agendas (Snoeyenbos et al., 2001). This contributed to immorality by both the organization and the company. In the long run, the malpractices hurt less powerful parties including private investors and the tax payers. Basically, investors dislike government control of their investments. This explains why they refrained from making additional investments after realizing the degree of government control of the Solyndra.
Equally imperative are the shortcomings of Friedman’s philosophy with respect to the situation at hand. In case the government’s intention to maintain the operation of the company was genuine, then its involvement in this case would have been positive. The only limitation pertains to the recognition that there were various guideposts that could have informed credible decision making. The government ignored varied warnings even as the condition of the firm grew progressively worse. Nonetheless, stakeholders maintain that active involvement of the government in the company operations contributed significantly to its failure.
Besides the free markets theory, the government’s code of conduct is applicable to this case study. The ethical framework states that governments should always embrace moral governance and ethical decision making. Morality in this regard is complex and constitutes of both legal and social ethics. In this scenario, the government fails in its responsibility to protect and serve its citizens. According to Kennedy (2012), it breaks the ethical standards that inform its general functioning as well as its very existence. The losses that the tax payer and private investors incur due to its insincerity are immense. Lack of transparency and bad decision making practices have direct negative effects on the affected population.
At the time of its establishment, Solyndra was a promising company whose pursuits were consistent with the provisions of sustainable economic development. Through manufacture of solar panels, it aimed at providing the population with green energy that was convenient and cost effective. Since its products were unique, it ability to flourish was high. The government, through certain legislations, allowed the company to access financial help. This was instrumental in enabling it to run its operations effectively. However, there are several issues that undermined its effective operation and ultimately led to its failure. Stiff competition from the Chinese market made it difficult for the company to explore and benefit optimally from the market niche.
Although some of the contributory factors were overwhelming and beyond the control of the organization, others were attributed to its management’s bad decision making practices. Yet others were caused by government involvement in the operation of the company. From the preceding review, there are various legal and ethical implications of the decisions that the stakeholders make at different points. The wrong choices were contrary to various Acts and ethical provisions that guide decision making in the sector. The outcomes are consistent with Milton Friedman’s philosophical prepositions. The wrong decisions and choices that the company made were greatly influenced by a higher power. This led to its inability to meet its objectives as well as goals. Notably, the government contravened the universal ethical code of conduct that mandates it to cater for the entire needs of its citizens. In this case, it failed to protect the vulnerable task payers and private investors. This is irrespective of its having sufficient resources, power, and influence.
Energy and Commerce Committee, Subcommittee on Oversight Investigations & US House of Representatives. (2011). Solyndra and the Department of Energy loan guarantee program: House hearings on stimulus funding for solar energy company. New York: Progressive Management.
Kennedy, D. (2012). Rooftop Revolution. USA: Berret-Koehler Publishers.
Mulkern, A. (2011). Solyndra bankruptcy reveals dark clouds in solar power industry. The New York Times. Retrieved on 9th November 2014 from: http://www.nytimes.com/gwire/2011/09/06/06greenwire-solyndra-bankruptcy-reveals-dark-clouds-in-sol-45598.html?pagewanted=all.
Smith, A. (2012). Solyndra settles WARN Act claim for 3.5 million. Retrieved on 9th November 2014 from: http://www.shrm.org/legalissues/federalresources/pages/solyndra-warn-act.aspx
Simpson, J., Westerman, W. & Dorsman, A. (2013). Introduction: Energy economics and financial markets. New York: Springer Berlin Heidelberg.
Snoeyenbos, M., Almeder, R. & Humber, J. (2001). Business ethics. New York: Prometheus Books.
Washington Times. (2012). IRS says tax avoidance at the heart of Solyndra bankruptcy plan. Retrieved on 9th November 2014 from: http://energycommerce.house.gov/icymi/irs-recognizes-solyndra-deal-was-rotten-and-seeks-rejection-solyndra-bankruptcy-plan