...fourth largest company according to “Global Forbes” in 2000. The company’s leading position in the global financial services market gives it significant bargaining power. However, exposure to the U.S sub prime crisis was the reason for its collapse. The AIG Financial Products unit, unfortunately, was operating as a company within the larger company in that the 500 employees of the unit who specialized in derivatives and complex financial contracts that were tied to subprime mortgages, sold credit default swaps (CDS) to financial institutions who in turn sold mortgage-based securities to the public. This of course contributed to the financial crisis of 2008 in that banks sold mortgages to people who were not credit worthy, because they received credit protection as a result. AIG made these collateralized debt obligations deals with a very small fraction of actual money on hand. Because most of the CDOs were attached to home mortgages, and AIG’s counterparties involved themselves in bad mortgage lending and did not have sufficient capital to cover loans, AIG was facing bankruptcy due to the fact that now it had to honor its contractual obligations towards these financial institutions all at once during the 2008 crisis. Even AIG could not predict the direction of the mortgage market despite having financial experts using...
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...Group (AIG) and American International Group Financial Products (AIGFP) were directly in the center of the collapse. Within AIG and AIGFP, a few managers stood out when it came to involvement in the financial scandal. Maurice “Hank” Greenberg is one manager that undeniably stands out. He was the founder and Chief Executive Officer of AIG until 2005. He micromanaged his workers and gave them little freedom (Bandler, Boyd, and Burke). Obviously, his managing tactics influenced the demographics of AIG tremendously. Joe Cassano, another core manager, was the CEO of AIGFP. He implemented credit-default swaps (CDSs) and oversold them, resulting in AIG having to file for bankruptcy because it couldn’t pay the buyers of these CDSs back (Serwer and Sloan). While these two men were heavily involved in the cause of the collapse, they raised many questions regarding the fact that AIG’s questionable decisions passed regulations and audits. Many people have looked into how AIG and AIGFP didn’t cause fuss while they were getting audited. How did they pass all of these regulations without any problems? It has been noted that Greenberg had previous relations with a lot of so-called “big-shots” in the business world that could have had an impact on the results of these audits and regulation checks (Cass Business School). This may or may not have influenced the result of AIG during 2007 and could have potentially prevented the financial crisis if regulators did end up lying about AIG. Many...
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...AIG: From Bailout to Bonuses (2008) Based on a paper by: Paige Vandermyn & Holden Canty Summary by: Andrew F. Roberts During 2008's "too big to fail" bailouts exercised by the federal reserve, many struggling multi-national companies were awarded cash in hopes of avoiding bankruptcy. One company deemed simply too big to fail was the American International Group, Inc. (AIG for short), which provides insurance for individuals and businesses. The company, which would have almost certainly been forced into bankruptcy if not for the bailout, received hundreds of millions of dollars to keep from drowning. However, in an utterly shocking series of events, the company paid $218 million to top executives in bonus money. In a completely unethical fashion, the company used taxpayer bailout money to fund vacations and private jet flights to the executives who many blamed for causing AIG's financial troubles in the first place. Additionally, many senior employees were flown to California for a "retreat" including spa treatments and golf outings. This retreat cost over $400,000 dollars. By the end of 2008, AIG had received over $100 billion in bailout money. Unfortunately, the general public was not sure if the money was going toward improving business of simply paying for luxuries of the organization. These actions by AIG completely ignored each and every theory related to the study of ethics. In regards to the individualistic theory of ethics, AIG seemingly followed...
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...by Tom Savage. In 1998, AIGFP had revenue of $500 million and had yet to divulge in credit-default swaps. However, later that year, with the backing of Joe Cassano, who was at the time COO, Savage signed off on the backing of JP Morgan’s complex debt. This is where credit-default swaps were first acted on. These credit-default swaps were a series of payments made to a buyer in which the seller would compensate the buyer if the buyer defaulted on the loan. In 2000, Cassano took over as CEO. According to the numbers, the company had brought in over $1 billion that year. In 2002, it came out that AIGFP had helped conceal the bad assets of PNC Financial services by setting up a “special purpose entity” to undertake the assets. By 2004, AIG had paid an $80 million fine for helping conceal these bad assets. Later in 2005, rumors about bad accounting practices were going around and Hank Greenberg stepped down as his role of CEO. When he did this, credit-rating agencies dropped AIG’s credit rating from AAA to AA. This required AIGFP to have over $1 billion in collateral for their credit default swaps. After taking a second look at the portfolio, it became alarming that many of the credit-default swaps had to deal with subprime mortgages, meaning that the default risk was large if the housing market went under. By the end of 2005, Cassano had wisely chosen to stop dealing in credit-default swaps, but he could not undue the $80 billion of collateralized debt. However, Cassano...
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...Why are ethical issues a major concern in organization? When it comes to ethics I believe that it starts with ones morals, although morals are based on one beliefs and ethics is based on a code of conduct I believe you don’t have one without the other. So within any organization I believe that their goals is to insure that things are some right by ensure that the companies code of conduct is being consider when needed and applied. In our text on page 23 the authors does a great job of explaining ethics. They “say that ethics involves the study of moral issues and choices. It is concerned with right verse wrong, good verse bad and the many shades of gray in supposedly black and white issues.” Moral and ethical issues are in every one life on a daily bases, whether they are on the job or in their personal life. ((KInicki & Kreitner, 2009) I feel that it’s very important that a manager makes the right decision within an organization. If unethical behavior or code of conduct is present within an organization employees may feel that behavior is welcome and awarded. Subordinated would than lose respect for upper management within the organization. What individual influences impact ethical behavior? In our text the author teaches about the model of individual ethical behaviors and how a person has a unique set of personality characteristics, values, moral principles, history of reinforcement, and gender; meaning that people whom feel that they have higher morals tend to...
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...highlights the seriousness of this epidemic when it speaks of General Electric, the world’s largest company, and its concerns about the credit freeze. This report will highlight numerous points in the financial crisis of 2008. This author will attempt to educate the reader with a firm and academic understanding of business ethics. It will attempt to highlight the turning points in the economic crisis and bifurcate back to the ethicality issue. A brief history of the stock market and Securities and Exchange Commission will be offered. This author will then identify the various ways the crisis could affect a business in the private enterprise. Lessons of the crisis will be presented along with managerial recommendations. Business Ethics Enron, Arthur Andersen, WorldCom, Adelphia, Martha Stewart…these are all just recent examples of businesses that participated in acts not only considered unethical but also illegal. In order to qualify an act conducted by a business as ethical or unethical, it is important that a solid foundation is set that surrounds what ethical and unethical behavior actually means. According to Bateman and Snell (2004), business ethics is defined as the moral principles...
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...The Merriam-Webster definition of ethics is: rules of behavior based on ideas about what is morally good and bad. However, different people have different views of what is right and what is wrong, Although we do agree with most of the more serious wrong doing to be wrong (such as stealing and murder for example). However there are some people in the business world who are constantly committing unethical behavior and while knowing that is unethical they celebrate their actions because at the end it is making them money. Throughout history there has been many examples of this Enron, AIG, and Merrill Lynch. Unethical practices are nothing new in our country. Forbes has a very interesting article named “ Executive Beware: The SEC Now wants to Police Unethical Corporate Conduct where it talks about how unethical behavior among companies has been increasing in the last few decades and how new laws have had to been drawn up in order to try and control the irresponsible actions of many companies: “ The focus on ethics in corporate operating procedures is a trend that has grown over the last few decades. This growth has largely been driven by the passage of and amendments to three major pieces of legislation: the Foreign Corrupt Practices Act (FCPA), the Federal Sentencing Guidelines (FSG), and the Sarbanes-Oxley Act of 2002 (SOX Act). The FCPA, passed by Congress in 1977, marked the beginning of prosecuting unethical corporate conduct. It was passed in response to Congress’s realization...
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...Accounting Ethics More than Establish Minimum Acceptable Standards Professionals often face grey areas in life that have no clearly defined right or wrong answer, where there is no obvious choice. The manner is deciding what choice one should make in such a circumstance is frequently guided by ethics, which help to decide what the correct moral path should be. Although doing the right thing is desirable, figuring out exactly what that should be has been a philosophical question that has perplexed some of the world’s foremost thinkers. In the field of accounting, a shift from an emphasis on rules to one based on the principles is a noble step in improving the profession. A reading of It’s Time for Principals-Based Accounting Ethics by Spalding raises several questions that should be answered before implementing this new conceptualization. I believe principles based accounting ethics is overdue and I agree with the authors. One of the reasons I believe principles based accounting ethics is overdue is fairly straightforward, any organization, group, society or profession is only as good as the people in it. One of the foremost barometers of a group’s success is the level of integrity, ethics and ability to perpetuate correct behavior at all times. An institution that is corrupt, as exemplified by a multitude of businesses over the last century will eventually fail as people lose faith in the lack of a moral compass being practiced. As such having a minimal level of ethics is not enough...
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...Ethics in Accounting Linh Pham University of Mount Olive Author Note This research paper was prepared for ACC483, taught by Professor Henry Singletary. Ethics in Accounting Ethics in Accounting has recently attracted a lot of attention in the field of business. Based on my knowledge, ethics in accounting are the behavior or actions that doesn’t allow for intentionally inaccurate and false in accounting practices. This is quite complex because we not only have to follow the accounting rules, but also need to make decisions based on the moral or ethics principles. However, ethics varies by cultures, individual perceptions, religion. For example, what seems about right in one country could be totally wrong in another country. Or what you think is right may actually be wrong. Therefore, it’s really difficult for us to follow the same ethics principle and apply those principles to ethics in accounting practices. In this paper, I will bring a thorough discussion of how to make accounting behaviors become more ethical. Ethics in Accounting is what we really need to take into our consideration in this era, especially after the financial and accounting failures of many big firms such as Enron, WorldCom, AOL, Global Crossing, Tyco, Lehman and AIG. As a matter of fact, experts and analysts are trying to find out the root causes of these failures. It is also significant to realize that more and more fraud cases are detected in this era. Therefore, there is a big question that...
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...Desperate Air Managers are constantly faced with ethical dilemmas. The book, Managing Business Ethics: Straight talk how to do it right, defines an ethical dilemma as a situation when two or more “right” values are in conflict (Trevino & Nelson, 2010). A decision can sometimes be legally correct, but it does mean it is always ethically correct. A decision may not always maximize the benefits to society or stakeholders. In the following essay, I will review Dash decision and how the RDCAR approach helps me make a better decision. The case of Desperate Air Corporation (DAC) is a company going through financial difficulties. In hopes to turn the company around the CEO, Benton Williams, wants to sell a large underdeveloped ocean front property on the east coast of Florida (McGraw-Hill). He requests DAC’s Vice President of Real Estate, George Nash, to find a buyer. Nash is able to find a buyer. A developer, Fledgling Industries, wants to turn the land into condominiums, walking trails and recreational facilities (McGraw-Hill). DAC had conducted a full environmental review of the land and found no problems. The buyer and the seller proceeded to negotiate with the sale. During the early stages of negotiations, Dash finds out that the land had toxic waste. Dash confirmed the news by walking over to the site and sees signs of radioactive medical waste. Dash reported his findings to Williams and Williams made it clear to Dash that this sale needs to happen. The state of Florida does...
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...The purpose of this analysis is to obtain an improved understanding of “The Great Moderation”, its causes and effects as well as the end of an economic cycle. Additionally, the information gathered can be used to better understand how and why “The Great Moderation” is no longer a valid method of the business cycle. The global economy as well as international markets stand to surge or fall according to the ebb and flow in the market or the business or economic cycles. According to Diego Comin, (2012), the Great Moderation can be defined as “a decline in aggregate volatility”. If a business cycle or quickly engineered spending policies are implemented revolving around political motives we can realize an increase in the margin of error (Hammond, J.D., 2011). The volatility of today’s global markets is growing at an alarming rate, even more so than during the great depression suffered by America in the later 1920’s and early 1930s. Beginning in 2007 the United States began seeing the effects of the end of a business cycle or “The Great Moderation coming to a close. For years, Americans have seen prominent growth cycles with limited down turns or troughs which culminated into a very strong world market. Todd Clark, (2011) explains that, “most recently, the severity of the recession that started in late 2007 has led some observers to conclude the Great Moderation is over.” There were many contributing factors revolving around the 2007 recession in America. For example, the...
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...The Great Moderation—Dead or Alive? Yolanda Rivera MBA6008 Global Economic Environment Abstract The purpose of this paper is to analyze and critique the Harvard Business Review article, “The Great Moderation” written by Diego Comin. I will discuss its causes and effects as well as the end of an economic cycle. Additionally, the information gathered can be used to better understand how and why “The Great Moderation” is no longer a valid method of the business cycle. According to Diego Comin, (2012), the Great Moderation can be defined as “a decline in aggregate volatility”. If a business cycle or quickly engineered spending policies are implemented revolving around political motives we can realize an increase in the margin of error (Hammond, J.D., 2011). The volatility of today’s global markets is growing at an alarming rate, even more so than during the great depression suffered by America in early 1930s. Beginning in 2007, the United States began seeing the effects of the end of a business cycle or “The Great Moderation coming to a close. For years, we have seen prominent growth cycles with limited down turns which reached a climax into a very strong world market. Todd Clark, (2011) explains that, “most recently, the severity of the recession that started in late 2007 has led some observers to conclude the Great Moderation is over.” There were many contributing factors revolving around the 2007 recession in America. For example, the growth of the housing bubble; the...
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...Running Head: BEHAVIOURAL BUSINESS ETHICS Understanding Ethical Behavior and Decision Making in Management: A Behavioural Business Ethics Approach David De Cremer Rotterdam School of Management, Erasmus University London Business School Rolf van Dick Goethe University Frankfurt, Germany Ann Tenbrunsel Notre Dame University, Mendoza College of Business, USA Madan Pillutla London Business School J. Keith Murnighan Northwestern University, Kellogg School of Management, USA Abstract Management and businesses in general are constantly facing important ethical challenges. In the current special issue, we identify the widespread emergence of unethical decision making and behavior in management as an important topic for a future research agenda. Specifically, we promote the use of a behavioral business ethics approach to better understand when management, leaders and businesses are inclined to act unethically and why this is the case. A behavioral business ethics approach which relies on important insights from psychology should be a necessary addition and complementary to the traditional normative approaches used in business ethics. Understanding Ethical Behavior and Decision Making in Management: A Behavioural Business Ethics Approach The numerous scandals in business such as those at AIG, Tyco, WorldCom, and Enron have raised many concerns about the emergence of unethical and irresponsible behavior in organizations. The seemingly unending...
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... Lecturer’s Name: Ms. P. Bonas Course Code: LBS 380 Introduction The numerous scandals in business such as those at AIG, Tyco, WorldCom and Enron have made all of us concerned about the emergence of unethical and irresponsible behaviour in organizations. Our uneasiness about these high – profile scandals has enlarged as individuals like Bernie Madoff and Rod Blagojevich has become household names. Widespread corruption in business, politics and religious institutions have promoted interest in the field of business ethics. Business ethics generally deals with evaluating whether practices exercised by employees, leaders and organizations as a whole can be considered morally acceptable (Ferrell, Fraedrich, & Ferrell, 2008). What are Ethics? According to Anne M. Francesco and Barry A. Gold in their book ‘International Organisational Behavior’ postulated that ‘Ethics’ are moral standards not governed by law, that focus on the human consequences of actions. Ethics often require behavior that meets higher standards than that established by law, including selfless behavior rather than calculated action intended to produce a tangible benefit. Ethics are a product of a society’s culture, which includes its traditions, customs, values, and norms. Within a society, ethical behavior is usually taken for granted. Members implicitly understand how...
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...Artena Thompson | MNGT-5990 | Artena Thompson | MNGT-5990 | Over 3,000 workers polled in 2009 National Business Ethic Survey in the findings there was 49% observed ethical misconduct. The issues ranged from company resources abuse to bribes and illegal political contributions. The ethical misconducts/issues can fall within Employee Mistreatment, Customer Mistreatment, Unethical Employee Behavior, Corporate Intelligence Issues, and Accounting Practices. Employee Mistreatment can also be workplace abuse which is a behavior that causes workers emotional or physical harm. Harassment, discrimination, bullying and violence are forms of workplace abuse. These behaviors aren’t always distinguishable from one another because they frequently overlap. Harassment can be discriminatory, bullying can be a form of harassment, and any of these behaviors can lead to workplace violence. Employee Mistreatment can come from coworkers mistreating each other, managers mistreating employees, sexual mistreatment, assaults, discriminations against woman with lower wages, discriminations against minorities, and corporate bulling. In my research I found that corporate bulling happens more than one thinks and it’s a complex issue. While there are a variety of reasons why bullies choose to target other people, usually their behavior is driven by the bully’s need to control the targeted individual. These employees want to call all the shots. So they often insist on having things their way and...
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