Business Ethics - Research Paper Example

     Business Ethics In an unpredictable shift that occurred in the business area, in the year 2008, on September 15th, Lehman Brothers Holdings Incorporation filed for bankruptcy. This was not only the biggest bankruptcy case in America’s history, but also occurred after the Lehman Brothers Holdings Incorporation’s chief executives had made assurances that investments were safe, leverage was contained, and liquidity levels were elevated. The collapse of Lehman Brothers Holdings Incorporation, a Wall Street institution, depleted client confidence in a period of vulnerability, and after the collapse of Lehman Brothers Holdings Incorporation, numerous dubious decisions were revealed (Lubben 1). This paper will look into relevant facts about the case, ethical analysis of the case from a consequentialist, nonconsequentialist, and virtue ethics point of view, and solutions for the case. Facts that surrounded the Lehman Brothers Holdings Incorporation’s case comprise the following: first, Lehman Brothers Holdings Incorporation frequently utilized contracts as a way of financing their activities. Second, the repurchase contracts employed by the corporation are perceived as liability and enhance the corporations leverage percentage. Third, ambiguity in the standards of financial accounting permitted the contracts to be shifted off-balance sheet in case need is met. Fourth, Lehman Brothers Holdings Incorporation would push repurchase contract liabilities off of the financial statement all through reporting phases so as to mislead stakeholders by reducing control. In addition, stakeholders were not aware of Lehman Brothers Holdings Incorporation’s repurchase contract defense activities. May be if the stakeholders were aware, it may have had a negative impact on the Lehman Brothers Holdings Incorporation stock prices. Fifth, at that time, little or no financial corporations were using these deceiving tactics (Lubben 1). The fall of Lehman Brothers Holdings Incorporation was not as a result of a sole tumble in ethical decision performed by a single imprudent worker. It would have been almost out of the question for a single incident to make Lehman Brothers Holdings Incorporation collapse, particularly after the corporation had overcome numerous difficulties in the past. Instead, Lehman Brothers Holdings Incorporation’s failure was the growing impact of several mishaps caused by a number of parties and individuals (Madsen and Shafritz 23). The unethical practices can be classified into three actions: deceit declared by the corporation’s Chief Executive Officer, Richard Fuld; cover up sanctioned by Chief Financial Officer, Erin Callan; and neglect in place of Ernst & Young. In 2007, the housing marketing was starting to falter, the corporation’s Chief Executive Officer, Richard Fuld was embedded in a highly leveraged and aggressive business mode. This was similar to other Wall Street actors at the period. Whereas Lehman Brothers Holdings Incorporation’s rivals had the ability to forecast the impending fall and assess probable results of mortgage shirk, the corporation’s Chief Executive Officer did not change the strategy. Instead, He advanced into mortgage- supported safety investments, incessantly escalating Lehman Brothers Holdings Incorporation’s asset range to one of unduly elevated risk given the market situation (Lubben 1). This implies Richard Fuld was adamant, but when it was an occasion to accept the issue, he did admit his failure or take responsibility. In 2007, the Chief Executive Officer had a chance to air concerns on the corporation’s short-term financial condition and its tremendous participation in risky loans. In contrast, he disregarded it in support of communicating to Wall Street and stakeholders that there was no existence of foreseeable issues (Lubben 1). Had Richard Fuld been honest, appropriate solutions would have been developed. This would have assisted to minimize or prevent the financial problems that occurred. For example, banks that were advised for a quick acquisition choice would have sufficient time to assess whether this would match their long-term objectives and plans. It may have also helped to revive the corporation earlier than they tried later. A consequentialist view holds that an upright action is one that will generate a dignified consequence or outcome (Darwall 4). From this standpoint, The Chief Executive Officer’s action was not morally right. This is because his decision to hide the concerns on the corporation’s short-term financial condition and its tremendous participation in risky loans, and insisting there was no existence of foreseeable issues, led to the collapse of the corporation. Noncosequentialism asserts that certain acts are wrong and not wrong because of the negative result. From this point of view, Richard Fuld’s action to conceal the truth on the company’s financial situation, its involvement in risky loans, and insisting there was not anything wrong, is unethical in itself. Virtue ethics evaluates the nature of a moral agent as a cause for ethical actions, instead of rules. Therefore, Richard Fuld’s nature inspires his decision, rather than, the rules that govern financial institutions. The second unethical practice, which was fundamentally wrong and possibly the most deliberate, was Erin Callan’s, the Chief Financial Officer’s authorization of drawing off assets from Lehman Brothers Holdings Incorporation’s accounts to Hudson Castle. Hudson Castle was the ghost firm established for the advantage of Brothers Holdings Incorporation’s balance sheet. This deliberate distortion of the financial situation was an endeavor to influence the corporation’s numerous stakeholders and also clearly analytical of a much larger concern (Madsen and Shafritz 36). A number of studies investigating the fall of Lehman Brothers Holdings Incorporation, including investigative reports and congressional testimonies, verify that Repo 105 was used to move assets from the balance sheet and create the view of a corporation that was stable and secure. If the corporation’s executive unit was able to manage the issue, the ploy would have been brief stays till reorganizational procedures were adopted and correct statement releases could be restarted. Instead, for six successive months, the corporation’s influence was exceptionally high that it had no alternative but to deceive the stakeholders if it wished to preserve any impression of confidence in its undertaking. Similar to Fuld’s choice to lie about the Lehman Brothers Holdings Incorporation’s position, the corporation would have been well served by accurately and fully revealing the particulars of its investments (Schick 63). With the advantage of time to plan and credibility, the probability of getting much required help would have been much significant. From a consequentialist point of view, Erin Callan’s, the Chief Financial Officer’s action to authorize drawing off assets from Lehman Brothers Holdings Incorporation’s accounts to Hudson Castle and vilely influence the corporation’s numerous stakeholders were not ethical. This is because his decision contributed to the fall of Lehman Brothers Holdings Incorporation (Portmore 37). From a noncosequentialist standpoint, Erin Callan’s decision to permit drawing off assets and manipulating the shareholders is immoral or unethical act, not because of his act, but because it is wrong. Moreover, from the virtue ethics view point, the Chief Financial Officer’s unethical decision was inspired or facilitated by his nature rather than the business rules that advocate professionalism and truth. The third and final unethical practice involved Ernst & Young, the sole third party agent to the activities at Lehman Brothers Holdings Incorporation. Ernst & Young were unsuccessful in revealing the wide steps adopted to hide financial concerns. Ernst & Young may be charged with lack of corporate responsibility and gross negligence (Lubben 1). This is because it is a company of certified public accountants and is supposed to uphold and honor the code of ethics. Ernst & Young risked its standing and were involved in unethical practices because Lehman Brothers Holdings Incorporation was a large customer to the company. As an accounting company, Ernst & Young was charged with the responsibility of certifying that corporations provide reliable and accurate information to stakeholders. In this view, Ernst & Young utterly failed, because the management was alert of behind-the-scenes accounting and the degree to which it was happening (Madsen and Shafritz 57). From a consequentialist point of view, Ernst & Young’s deception for the purpose of being paid was immoral. Also, it contributed to the collapse of Lehman Brothers Holdings Incorporation. From a noncosequentialist view, this decision is purely wrong. This is because Ernst & Young’s decision of deception so as to get a paycheck was immoral. From the virtue ethics standpoint, Ernst & Young’s unethical decision was influenced by the firm’s desire and nature of getting money without care for their clients. In this case, I think Lehman Brothers Holdings Incorporation’s executives should take into consideration the moral society so as to establish what measures a moral individual would adopt. Lehman’s moral society is most likely to comprise regulatory organizations, other financial corporations, and the larger investing population. Every community member will consequently provide the corporation with a complete upright decision making technique. For instance, the investing population would possibly consider an institution or individual of reliability as one who gives transparent and full revelations. In addition, regulatory organizations should ensure the corporation to abide by the spirit of the law and letter of the law. Executive employees of the corporation should take and accept complete responsibility for their activities and decisions on behalf of the corporation. Also, the management should support actions and choices applying procedures and standards of the corporation in genuine faith, even if the result is a failure or mistake. The ethical dilemma should also be dealt with by people within the corporation, for example, an ethics team composed of board members (Schick 86). Works Cited Darwall, S. Consequentialism. New York: Blackwell, 2002. Print. Lubben, S. “Lehman Brothers Holdings, Incorporation.” New York Times 26 Aug. 2011. Print. Madsen, P., and Shafritz, J. M. Essentials of Business Ethics. New York: Penguin Books, 1990. Print. Portmore, D. W. Commonsense Consequentialism: Wherein Morality Meets Rationality. New York: Oxford University Press, 2011. Print. Schick, F. Understanding Action: An Essay on Reasons. New York: Cambridge University Press, 1991. Print. Read More