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
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