- Ethics refers to a set of moral principles. These set of principles affects how people or organizations make their decisions. Specifically business ethics refers to the moral rules/principles meant to govern the way businesses operate, how employees are treated, how decisions are made.
- Insider trading is the use of non-public information to benefit financially. The non-public information is, usually obtained by virtue of engaging with the organization in various capacities e.g. as a board member, employee of the firm, manager . Insiders are regarded as people who are privy to information about accompany that is not publicly available.
- Insider trading is considered to be an unethical; however, it’s not always illegal. The practice is unethical since it brings on board an unfair advantage in the securities market.
The reason being, one person is likely to have non-public information which could be material and not available to other players in the market.
- Insider trading can be legal or illegal depending on the relationship the insider has with the company, the information that the insider had and the kind of trade. Insider trading is legal if adequate disclosures are made in accordance with the SEC rules. However, insider trading is illegal if it breaches the fiduciary duty of trust as bestowed in the agency relationship.
- Enron collapsed because the creative accounting practices and their repercussions started the spiral of losses. The company was portrayed to be bigger than it was in reality. By the top management decentralizing its operations into many subsidiaries, Enron was in a position to hide many derivative losses that were not easy to recognize.
- Management did not act in an ethical manner. The unethical management practices that contributed to the collapse of the company included; fraudulent accounting practices, equivocation of taxes, insider trading. Ken Lay, the CEO and Jeffrey Skilling, the CFO conspired report inflated profits and committed securities fraud.
- Yes, there were real ethical issues related to the provision of information technology consulting services by Arthur Andersen. Acting as both auditor and consultant at the same time posed a conflict of interest that was a real ethical issue. Arthur Andersen earned $27 million as consulting fee and $25 million as audit fees, both of which accounted to around 27% of the fees from auditing services of public clients. Due to the substantial revenue received from this one client it was easy for the independence of Arthur Andersen to be compromised.
- The accounting principle that was not followed at WorldCom was accounting for change. The result of which was the “misclassification” of about $4 billion maintenance costs for telecoms as a capital expenditure, to be depreciated over time. The accounts of WorldCom did not conform to the GAAP.
- No, it was not ethical to fire the employee. It is the management’s responsibility to ensure that the accounting principles and standards have been followed in the preparation of the company’s books of account. Firing an employee because of raising a red flag when the accounting standards are not followed can only imply that the management is privy to the practice.
- Yes, a private number is an ethical practice on the part of the company since the objective is to protect the individual identity of whistleblowers.
- It could be ethical for me to call the number to report any unethical behavior in the company, be it from my boss or myself.
- It was unethical to provide a loan to an individual in a situation where the financial knows it was unlikely for the loan to be repaid upon increase of the rates. In such a situation, the borrower needs to be made aware of the possible future rise in interest rates for him or her to make an informed decision. If adequate disclosure is made then it is an ethical action.
- If an individual knows they were unable to repay the loan upon the rise of interest rates, it could be unethical for such a person to take a loan since, such an action could lead to him/her defaulting on the loan, which has a negative credit rating and could not have future access credit.
Works Cited
Carroll, A., & Buchholtz, A. (2008). Business and Society: Ethics and Stakeholder Management. Cengage Learning Inc.
Fabozzi, F. J., & Peterson, P. P. (2003). Financial Management and Analysis. Hoboken, New Jersey: John Wiley & Sons, Inc.
The Economist. (2002, June 27). WorldCom; Accounting for Change. Retrieved Oct 1, 2014, from The Economist: http://www.economist.com/node/1200748
The Markkula Center for Applied Ethics. (2014, Jan 3). The Markkula Center for Applied Ethics. Retrieved 10 1, 2014, from Santa Clara University: http://www.scu.edu/ethics/practicing/focusareas/business/insider-trading.html
