Preview

Lehman Brothers Ethical Reasoning

Better Essays
Open Document
Open Document
1111 Words
Grammar
Grammar
Plagiarism
Plagiarism
Writing
Writing
Score
Score
Lehman Brothers Ethical Reasoning
Describe the situation at Lehman Brothers from an ethics perspective. What’s your opinion of what happened there?

The ethical issue here was that Lehman’s executives exploited loopholes in the accounting standards to manipulate their balance sheet in order to mislead the investing public. Using “Repo 105”, Lehman was able to clear huge amount unprofitable assets off its balance sheet instead of selling at loss. Evidence pointed out that the chief executive, Richard Ruld, knew about the use of it but faked ignorance in defence. Even the auditors from Ernst and Young knew about the use of the suspicious Repo 105 but chose to keep quiet.
I believe that the prime motivation behind the act was to retain investors’ confidence by preventing a plummet in stock price. Hence, the implication was that Lehman was projecting a false image of its strong financial position, meaning that its stock price was overvalued. Through falsified accounting reports, investors were tricked into believing that their investments were safe, incurring huge losses when Lehman defaulted. Investors lost faith. The consequences were devastating as it created a systemic crisis of confidence in the banking industry as all other banks froze lending to reduce their exposure of Lehman’s undesirable Repo 105. Lehman’s employees suffered too as they lost their jobs overnight.

Could anything be done differently at Lehman Brothers to prevent what happened? Explain.

After extensive research, it was apparent that a written “Code of Ethics” was present at Lehman Brothers. However, for an ethics code to be effective, the tone at the top executives needs to be set right so that the entire organisation can feel connected to the firm’s ethical values and beliefs. The obvious failure we witness in Lehman’s case was that the top management, led by Ruld (CEO) and Erin Callan (CFO), were guilty of unethical negligence and wrongdoing.
Therefore, it is vital for the Shareholders to screen through their

You May Also Find These Documents Helpful

  • Better Essays

    As the case of Excello Telecommunications is reviewed it can be seen that the CFO was facing financial difficulties due to increased competition. In 2010 the earnings estimate was not going to be met and this would have affected the bonuses, stock options, and the share prices of the Excello stocks. After discovering a large sale that was pending until the shipment could be made for the following year the CFO asked the company controller to find a way to capitalize on the sale in the current year so that the budget shortfall could be met. The only way to accomplish the task was to work around the rules of accounting. The intent to find a way around the rules presents possible legal issues. This case can be evaluated by the Sarbanes-Oxley Act and the AICPA and we look at the financial reporting standards and ethics involved.…

    • 1254 Words
    • 6 Pages
    Better Essays
  • Powerful Essays

    The Sarbanes-Oxley Act

    • 1677 Words
    • 7 Pages

    Enron’s failure spotlighted corporate America’s moral failures and tremendously injured those that condoned and benefited from the unethical practices. This failure resulted in a major overhaul of accountability guidelines of the Securities and Exchange Commission and the American Institute of Certified Public Accountants. Code of Ethics was promulgated along with other support mechanisms that monitor a company’s ethics program that extends to the core values of company management and personnel. Of the five components of ethical behavior, honesty is perhaps the most complex and difficult to implement since the ultimate decision to disclose information to the public relies mostly on the individual’s ethical values or interpretations that can be manipulated to produce a desired…

    • 1677 Words
    • 7 Pages
    Powerful Essays
  • Good Essays

    Ethics, ethical values, and social responsibility should all work in unison in a corporate business structure. These key traits are better defined as maintaining overall good business morals, obtaining employees who possess personal ethical values, and finally to behave ethically and with sensitivity toward social, cultural, economic and environmental issues. For a business to better ensure these quality business traits a code of ethics should be adopted by the business. In the cases of Bernie Madoff and Enron, the most well-known financial scandals in history, I feel, gave a major hand in pushing business all across America to have and enforce the code of ethics.…

    • 919 Words
    • 4 Pages
    Good Essays
  • Better Essays

    In conclusion, I believe that the current state of business requires clarity now more than ever. Technology is advancing at an incredible rate, which requires companies to not only innovate much faster, but also to be able to make decisions faster. As observed by Martin Marietta and the defense industry in general, without an ethical framework to guide companies in their decision making process, fraud, waste and—more importantly—unnecessary mistakes are inevitable. A company’s ethics program is a rudder to steer them through uncertain business conditions. To use an analogy, had many of the companies that issued subprime mortgages had an ethical framework in place to prohibit loans to people that clearly could not afford them, the world would not be in this current economic downturn. The fact is that there were no laws preventing such business decisions. If these companies would have had a relevant ethics program—one that incorporated the tenants of corporate social responsibility, perhaps we would have avoided the…

    • 1481 Words
    • 6 Pages
    Better Essays
  • Good Essays

    Walt Pavlo Case analysis

    • 440 Words
    • 2 Pages

    This case is a best example of how ethical behavior at top management plays such an importance role in the success or failures of its employees and the organization as a whole. MCI’s upper management was not concerned about ethics; their main focus was to boost its profits to meet Wall Street’s expectations. It was evident that the culture at MCI did not recognize or act against misconduct which created negative work environment. When management put pressure on their employees to meet unrealistic goals and forcing them to do whatever to get the job done will essentially force the employees to unethical practices to meet their targets, and in most cases employees do so to save their job. MCI’s aggressive sales and marketing programs, management preoccupied with meeting analyst expectations, neither conducting proper background checks nor reporting known customer fraud to authorities and shareholders are the best examples of negative work environment and unethical practice.…

    • 440 Words
    • 2 Pages
    Good Essays
  • Best Essays

    Madoff Securities

    • 3488 Words
    • 14 Pages

    This report discusses and illustrates the role of the internal and external environments, ethics and social responsibility in a modern organization. The main case study used is Madoff Securities, the US finance company that collapsed last year after a web of fraudulent and unethical activities were exposed. The discussion blends theory and facts, from which…

    • 3488 Words
    • 14 Pages
    Best Essays
  • Better Essays

    Bernie Madoff Analysis

    • 998 Words
    • 4 Pages

    In the business world, there are certain codes, rules, and regulations each business company or organization must abide by. Without these laws, businesses would be faced with more conflicts and complications than they already do. Large organizations have taken up certain codes to help pilot and supervise their employees and executives in attempts to avoid fraudulence. These codes are called ethics codes, or codes of conduct. Ethics codes are created to help maintain a satisfactory level of ethical behavior within a business or organization and to help companies function more successfully (Mallor, Barnes, Bowers, & Langvardt, 2013, p. 101). Codes of ethics are broken numerous amounts of times in the business world. When these codes are broken, it can lead to multiple complications and scandals for corporations. Two examples of scandal and fraud in the business world are Bernard Lawrence Madoff and ENRON.…

    • 998 Words
    • 4 Pages
    Better Essays
  • Good Essays

    The author's ethic perspective coupled with his educational experience has only aided in strengthening his resolve in the importance of ethical behavior. The critical thinking skills garnered by the author while completing his undergraduate degree has only made it more apparent that personal and professional ethics are needed now more then ever. Situations like Enron, World Com and Arthur Andersons demise are just a few examples of how ethical deviations have a huge impact on the world.…

    • 481 Words
    • 2 Pages
    Good Essays
  • Better Essays

    Enron's Code of Ethics

    • 1288 Words
    • 6 Pages

    This writing will analyze Enron’s Code of Ethics and examine the sections on values and corporate responsibility, it will also use applicable theories and concepts and will detail Ken Lay’s view of ethics and Enron’s corporate social performance, as well as reflect Enron to be socially irresponsible to everyone with any type of financial investment in Enron because of the deception it practiced with employees and investors about its true financial status, despite having stated in its company code of ethics that transparency, integrity, and respect for the law would be the cornerstones of its daily operations.…

    • 1288 Words
    • 6 Pages
    Better Essays
  • Good Essays

    The code of ethics is adopted by organizations to assist members in understanding the difference between 'right' and 'wrong' and in applying that understanding to their decisions. An effective code of ethics should also help to delineate the proper procedures to determine whether a violation of the code of ethics has occurred and, if so, what remedies should be imposed. After reviewing the company’s code of ethics, we found that it has well established the concept of business ethics and the company’s objective, and also several kinds of encouragement to promote the ethical business behavior effectively. The company’s code of ethics, however, is not practical enough for implementation as the content is too general and vague, and there are not enough guidelines and regulations to help the staff to detect or solve the ethical issues.…

    • 829 Words
    • 4 Pages
    Good Essays
  • Better Essays

    Personal Ethical Framework

    • 2597 Words
    • 11 Pages

    According to Johnson (2012) leaders are powerful role models, and policies will have a little effect if leaders do not follow the rules they set. In Enron case, corruption and ethical misconduct were deeply embedded in their business culture where profitability was more important than ethics. In this paper, I will address the factors that had led to the development of the culture of profit before principle at Enron. Also, I will create my personal code of ethics that will guide me in my professional and personal decision making and doing the right thing when faced with ethical challenges.…

    • 2597 Words
    • 11 Pages
    Better Essays
  • Powerful Essays

    The Enron's Ethics Breakdown

    • 2754 Words
    • 12 Pages

    It is perhaps the most compelling business ethics case in a generation—a textbook version of what can go wrong in an organization that lacks a true culture of ethical compliance. Investors and the media once considered Enron to be the company of the future, but as its demise suggests, it was in reality not a particularly modern business organization, especially in its approach to ethics. On the surface, at least, it appeared to reject progressive innovation in governance and ethics programs and instead sought to circumvent systems that were designed to protect the company and its shareholders. The purpose of this report is not to comment on the legal or political ramifications of the case but rather to focus on the business ethics issues raised by the conduct of the company’s directors and officers, its accountants, and lawyers as it is known to date. It is meant to be a reminder that simply having a detailed code of ethics on the books (as Enron certainly did) is not enough. Organizations need to infuse ethics and integrity throughout their corporate culture as well as into their definition of success.…

    • 2754 Words
    • 12 Pages
    Powerful Essays
  • Better Essays

    Next, I compared Enron’s Code of Ethics ("Enron’s code of ethics," 2000) to the designed code of ethics for A-Z Universal. The main weakness found in this code was although lengthy, there were no written instructions for training and code enforcement. A code is only as good as those guaranteeing its regulation and utilization are. Johnson gives credence and significance to this area advising that we must include “ethical development as part of [our] overall development as a leader” (Johnson, 2015, p. 60).…

    • 1783 Words
    • 8 Pages
    Better Essays
  • Powerful Essays

    Business ethics is an area of ethics that examines ethical rules and principles within a commercial perspective using cases such as: Accounting Irregularities at WorldCom and Arthur Andersen…No More: What Went Wrong? (Business Ethics 4th Ed: Cases 5 & 6 pg.101-109), both clearly present various moral and ethical problems that arise that are real life business scenarios as well as question the impact of certain ‘special’ duties/obligations that apply to particular individuals and employees who choose to engage in these activities in the organization leading to their downfall. The WorldCom case and scandal occurred because accountants as well as former CEO Bernie Ebbers and Scott Sullivan failed to live the virtues of accountancy as well as failed to adhere to the moral principles and ideals of their profession and further analysis reveals the ways in which these irregular accounting practices were carried out along with the consequences and charges laid by investigators such as conspiracy, fraud and many false claims regarding their accounts and profitability. The Arthur Andersen…No More: What Went Wrong? case is another scenario where a series of unethical accounting practices resulted in the firm’s decline and the role they played in the accounting fraud at Enron. The way in which these corrupt practices took place is an obvious indication of the culture of the organization and the moral standings of employees, close relationships which affected both the company and clients such as Enron.…

    • 4546 Words
    • 12 Pages
    Powerful Essays
  • Satisfactory Essays

    Lehman Brothers at the time had approximately $650 billion to $700 billion of assets on its balance sheet, most of it tied to the subprime market. With this being said, Lehman Brothers strategy focused on the subprime and commercial real estate markets. Their strategy was fully endorsed by the board of directors, which involved heavily borrowing to make increasingly risky loans. These loans took its leverage ratio up to 30 times its underlying stockholder’s…

    • 622 Words
    • 2 Pages
    Satisfactory Essays

Related Topics