Case application 1: lessons from lehman brothers: will we ever learn?

 

Answered: Questions 2, 3, & 5 Only!


“Greed” and “Crooks” are a sampling of comments recorded on a rendering of Lehman’s chief executive Richard Fuld by artist Geoffrey Raymond, who placed his painting outside of Lehman’s New York City offices and handed out markers to employees and pedestrians so they could write a message regarding the firm’s announcement that it was filing for bankruptcy. Seth Wenig/AP Wide World Photos-Royalty Free On September 15, 2008, financial services firm Lehman Brothers filed for bankruptcy with the U.S.

Bankruptcy Court in the Southern District of New York.95 That action—the largest Chapter 11 filing in financial history—unleashed a “crisis of confidence that threw financial markets worldwide into turmoil, sparking the worst crisis since the Great Depression.” The fall of this Wall Street icon is, unfortunately, not a new one, as we’ve seen in the stories of Enron, WorldCom, and others. In a report released by bankruptcy court-appointed examiner Anton Valukas, Lehman executives and the firm’s auditor, Ernst & Young, were lambasted for actions that led to the firm’s collapse.

He said, “Lehman repeatedly exceeded its own internal risk limits and controls, and a wide range of bad calls by its management led to the bank’s failure.” Let’s look behind the scenes at some of the issues. One of the major problems at Lehman was its culture and reward structure. Excessive risk taking by employees was openly lauded and rewarded handsomely. Individuals making questionable deals were hailed and treated as “conquering heroes.” On the other hand, anyone who questioned decisions was often ignored or overruled.

For instance, Oliver Budde, who served as an associate general counsel at Lehman for nine years, was responsible for preparing the firm’s public filings on executive compensation. Infuriated by what he felt was the firm’s “intentional under-representation of how much top executives were paid,” Budde argued with his bosses for years about that matter, to no avail. Then, one time he objected to a tax deal that an outside accounting firm had proposed to lower medical insurance costs saying, “My gut feeling was that this was just reshuffling some papers to get an expense off the balance sheet. It was not the right thing, and I told them.”
However, Budde’s bosses disagreed and okayed the deal. Another problem at Lehman was the firm’s top leadership. Valukas’s report was highly critical of Lehman’s executives who “should have done more, done better.” He pointed out that the executives made the company’s problems worse by their conduct, which ranged from “serious but nonculpable errors of business judgment to actionable balance sheet manipulation.” Valukas went on to say that “former chief executive Richard Fuld was at least grossly negligent in causing Lehman to file misleading periodic reports.”

These reports were part of an accounting device called “Repo 105.” Lehman used this device to get some $50 billion of undesirable assets off its balance sheet at the end of the first and second quarters of 2008, instead of selling those assets at a loss. The examiner’s report “included e-mails from Lehman’s global financial controller confirming that the only purpose or motive for Repo 105 transactions was reduction in the balance sheet, adding that there was no substance to the transactions.” Lehman’s auditor was aware of the use of Repo 105 but did not challenge or question it.

Sufficient evidence indicated that Fuld knew about the use of it as well; however, he signed off on quarterly reports that made no mention of it. Fuld’s attorney said, “Mr. Fuld did not know what these transactions were—he didn’t structure or negotiate them, nor was he aware of their accounting treatment.” A spokesperson from Ernst & Young (the auditor) said that, “Lehman’s bankruptcy was the result of a series of unprecedented adverse events in the financial markets.”

QUESTIONS:

1. Describe the situation at Lehman Brothers from an ethics perspective. What’s your opinion of what happened here?

2. What was the culture at Lehman Brothers like? How did this culture contribute to the company’s downfall?

3. What role did Lehman’s executives play in the company’s collapse? Were they being responsible and ethical? Discuss.

4. Could anything have been done differently at Lehman Brothers to prevent what happened? Explain.

5. After all the public uproar over Enron and then the passage of the Sarbanes-Oxley Act to protect shareholders, why do you think we still continue to see these types of situations? Is it unreasonable to expect that businesses can and should act ethically? 

336 Words

3 Sources

APA Format

 

 

Order a unique copy of this paper
(550 words)

Approximate price: $22

Basic features
  • Free title page and bibliography
  • Unlimited revisions
  • Plagiarism-free guarantee
  • Money-back guarantee
  • 24/7 support
On-demand options
  • Writer’s samples
  • Part-by-part delivery
  • Overnight delivery
  • Copies of used sources
  • Expert Proofreading
Paper format
  • 275 words per page
  • 12 pt Arial/Times New Roman
  • Double line spacing
  • Any citation style (APA, MLA, Chicago/Turabian, Harvard)

Our guarantees

Delivering a high-quality product at a reasonable price is not enough anymore.
That’s why we have developed 5 beneficial guarantees that will make your experience with our service enjoyable, easy, and safe.

Money-back guarantee

You have to be 100% sure of the quality of your product to give a money-back guarantee. This describes us perfectly. Make sure that this guarantee is totally transparent.

Read more

Zero-plagiarism guarantee

Each paper is composed from scratch, according to your instructions. It is then checked by our plagiarism-detection software. There is no gap where plagiarism could squeeze in.

Read more

Free-revision policy

Thanks to our free revisions, there is no way for you to be unsatisfied. We will work on your paper until you are completely happy with the result.

Read more

Privacy policy

Your email is safe, as we store it according to international data protection rules. Your bank details are secure, as we use only reliable payment systems.

Read more

Fair-cooperation guarantee

By sending us your money, you buy the service we provide. Check out our terms and conditions if you prefer business talks to be laid out in official language.

Read more

Calculate the price of your order

550 words
We'll send you the first draft for approval by September 11, 2018 at 10:52 AM
Total price:
$26
The price is based on these factors:
Academic level
Number of pages
Urgency