Ethical Lessons Learned from Corporate Scandals

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Sumant Chittiprolu

Ethical Lessons Learned from Corporate Scandals

        

Ethics is about behavior and in the face of dilemma; it is about doing the right thing.  Ideally, managerial leaders and their people will act ethically as a result of their internalized virtuous core values.  The Enron scandal is the most significant corporate collapse in the United States and it demonstrates the need for significant reforms in accounting and corporate governance in the United States.  It is also a call for a close look at the ethical quality of the culture of business generally and of business corporations (Lessons from the Enron Scandal).  The collapse of even the smallest of businesses impacts many people, and therefore even the smallest business can learn what not to do from the multibillion dollar corporation.  The failure of one’s business will greatly and negatively affect its employees, partners, as well as the families of each of those groups.  Business owners have a duty to operate in a prudent, lawful and ethical manner.  The major lessons that were illustrated by the collapse of Enron and other corporate scandals will be the morality play of the new economy.  It will teach executives and the American public the most important ethics lessons of this decade.

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        Financial cleverness is no substitute for a good corporate strategy.  Financial accounting is a backward looking, unusually complex, subject to subjective interpretation, vulnerable to several controversial accounting doctrines, and an invitation to manipulation. More important perhaps, many changes in non-financial conditions, which are never recorded on the balance sheet, may affect the value of a firm for better or for worse.  For these reasons, corporate financial accounts do not provide accurate or sufficient information to corporate managers, investors, or regulators.  This leads us to recommend that the SEC allow each stock exchange to set the accounting standards for all firms ...

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