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    The Lehman Brothers Scandal

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    I am not sure if you are familiar with the case, Lehman brothers' scandal if so can you please help with notes, ideas, and scholarly resources?

    Consider Reading 4.26 on pp. 289-290, Getting Information from Employees Who Know to Those Who Can and Will Respond. Develop a research paper that addresses the following:
    - Provide a brief synopsis of Mr. Lee's concerns regarding Lehman Brothers.
    - What are sensing mechanisms and why are they important?
    - What is the humble firm and how does it encourage ethical behavior?
    - Describe what leads to the types of behaviors at Lehman and other companies that eventually collapse.
    - Why are managers unable to simply rely on their ethics hotlines
    Jennings, M. (2012) Business ethics: Case studies and selected readings. Read Unit 4, Sections D-E.

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    The Lehman Brothers Scandal

    I am not sure if you are familiar with the case, Lehman brothers' scandal if so can you please help with notes, ideas, and

    scholarly resources?

    Consider Reading 4.26 on pp. 289-290, Getting Information from Employees Who Know to Those Who Can and Will Respond.

    Develop a research paper that addresses the following:
    - Provide a brief synopsis of Mr. Lee's concerns regarding Lehman Brothers.
    Matthew Lee was an executive in Lehman Brothers, a senior vice president,in 2008, and both verbally, and in a formal

    letter to the then CFO and Chief Risk Officer he reported that he believed that members of the senior management have

    violated LB's internal code of ethics by "misleading investors and regulators about the true value of the firm's assets."

    (Corkery, 2010)

    - What are sensing mechanisms and why are they important?
    Jennings advises that executives get out of their office, that is, out of official meetings, and regularly speak

    informally with employees. Sponenaity and approachability often leads to new insights about the condition of the company

    and its employees. Jennings referred to a television program called Undercover Boss, in which executives of a company

    spend time under another alias and worked with their regular workers, speaking to them and listening to them without the

    trappings of hierarchy and fear of losing their jobs. Usually the executives learn new things, good and bad, about the

    conditions and thinking of their employees.

    - What is the humble firm and how does it encourage ethical behavior?
    In a humble firm, according to Jennings, "the arrogance of results and top performance is kept at bay. This permits an

    more open environment to take hold." (Jennings, 2014,pg 271) This type of environment allows for people of all levels of a

    company to speak freely and even correct ethical behaviors. This type of humility will allow for any ethical issues to be

    discussed on their own merits, rather than who is engaging in them.

    Marianne Jennings, Business Ethics: Case Studies and Selected Readings. Cengage Learning, pg 270-271
    http://books.google.com/books?id=K4TaAgAAQBAJ&pg=PA271&lpg=PA271&dq=ethics++sensing

    +mechanisms&source=bl&ots=Ah2zD3TiXu&sig=U4IFgSYAvjkIehxKWkUxRi0WqLg&hl=en&sa=X&ei=omysU8KWCva-

    sQTKtoH4BQ&ved=0CDQQ6AEwAg#v=onepage&q=ethics%20%20sensing%20mechanisms&f=false

    - Describe what leads to the types of behaviors at Lehman and other companies that eventually collapse.
    Sometimes leaders of companies feel that compromising their ethics in order to make the company prosper is sufficiently

    justified. The causistry theory of leadership implies that making the decisions that are made on behalf of the company is

    part of the duties of a leader, even if the decisions are against the law or the ethical guidelines of the company.

    However, when they are found out, the majority of the public will not agree that leaders have the right to break the law.

    The implication, however, is that some people feel that if it is not known, it can be accepted. This concept, causistry,

    states that ""rulers" must, therefore, in conscience and ethics, subordinate their interests,including their individual

    morality, to their social responsibility." (Drucker,1981, pg 24-25)
    The statement made by former President Nixon, who resigned amid the Watergate scandal of the early 1970's ilustrates this

    attitude "When the President does it, it is not illegal."

    Drucker, P. (1981). What is business ethics?
    http://www.nationalaffairs.com/doclib/20080708_1981632whatisbusinessethicspeterfdrucker.pdf

    - Why are managers unable to simply rely on their ethics hotlines
    In her book Business: Its Legal, Ethical and Social Environment, Jennings stated "Despite a strong values system, an

    individual facing the complexities of business needs help in recognizing ethical dilemmas." Jennings went on to outline

    sayings and categories that indicate ethical dissonnance or conflicts. The sayings are

    Everybody else does it
    If we don't do it, they'll get someone else to do it
    That's the way it's always been done
    We'll wait until the lawyers tell us it's wrong
    It doesn't really hurt anyone
    The system is unfair
    I was just following orders

    Among the categories are these which she then cited, which are:

    Taking things that don't belong to you
    Saying things you know are not true
    Giving or allowing false impression
    Buying influence or engaging in conflict of interest
    Hiding or divulging information
    Taking unfair advantage
    Committing acts of personal decadence
    Perpetuating interpersonal abuse
    Permitting organizational abuse
    Violating Rules
    Condoning unethical actions
    Balancing ethical dilemmas

    Often ethical dilemmas must be weighed one against others, and it just isn't easy. Business leaders can look to their own

    personal ethical makeup, from their upbringing or culture, and they can also consult organizations that have helped many

    businesses to work out a sound legal ethical balance.(Jennings, 2000, 48-54)

    Scholarly articles in the Journal of International Business Ethics examine various methods for providing effective means

    to prevent ethical breaches in business. A significant issue in business is trustworthiness on the part of the company.

    Krzysztof Grabowski. CORPORATE HARMONY AND CONFIDENCE BUILDING SPHERES ON THE FINANCIAL MARKET (2013) Journal of

    International Business Ethics Vol.6 No.1-2
    http://www.cibe.org.cn/uploadfile/otherfile/j52.pdf

    This paper refers to three different theories, all related to leadership or corporate governance: the agency theory, the

    stakeholder theory and the stewardship theory. There is also an integrated figure that illustrates hard rules and soft

    rules, which are dependent on outside requirements and ethical drives. This method helps to weigh degrees of ethical

    soundness.
    Grabowski also stated that there should really be a "new definition of corporate governance understood very broadly as a

    whole set of relations between the company and its stakeholders built on mutual trust and confidence. It takes into

    account not only the company itself, but also all the external spheres, both legal regulations and self-regulations

    together with local corporate culture and tradition."
    (Grabowski, 2013, pg 8)

    Jennings, M. (2012) Business ethics: Case studies and selected readings. Read Unit 4, Sections D-E.

    Other references:

    ----
    http://sevenpillarsinstitute.org/case-studies/the-dearth-of-ethics-and-the-death-of-lehman-brothers
    The Dearth of Ethics and the Death of Lehman Brothers

    In an unprecedented move that rocked the financial industry to its core, on Sept. 15, 2008, Lehman Brothers filed for

    Chapter 11 bankruptcy protection. Not only was it the largest bankruptcy case in United States history, but it also came

    after repeated assurances from the company's chief executives that finances were healthy, liquidity levels were high, and

    leverage was manageable. The implosion of this Wall Street institution shattered consumer confidence during a time of

    fragility, and in the aftermath of its collapse, a number of questionable decisions came to light. This analysis will

    proceed in two parts: First, a recap of the series of events leading to Lehman Brothers' failure, followed by the

    identification of several dubious choices made by its executive management team and how the consequences led to the bank's

    ultimate demise.
    History and Facts

    Many believe the beginning of the end for Lehman Brothers was when Washington repealed the Glass-Steagall Act. This

    landmark legislation from the Great Depression separated the interests of commercial and investment banks, preventing them

    from competing against each other (2) and protecting their balance sheets by allowing each sector to focus on the business

    and transactions that it did best. For investment banks, that typically meant highly liquid, asset-light portfolios,

    leaving commercial banks to handle capital-intensive portfolios, including real estate or corporate investments.

    Additionally, the act insulated the economy from mass collapse in the event of one sector's failure by preventing the

    other from being dragged down in tow. But in 1999, President Clinton signed the Gramm-Leach-Bliley Act into law, allowing

    commercial and investment banks to compete head-to-head for the first time in 60 years (2). The arms race that ensued

    would prove disastrous for Lehman Brothers, the financial community, and the global economy at large.

    With the repeal of Glass-Steagall, Lehman Brothers became a key player in the United States housing boom. From 2004 to

    2006, Lehman Brothers experienced a 56 percent surge in revenues from real estate businesses alone (1). The firm

    recognized profits from 2005 to 2006, and in 2007 it reported a record net income of $4.2 billion on revenues of $19.3

    billion. In the same year, Lehman Brothers' stock reached an all-time high of $86.18 per share, giving it a market

    capitalization close to $60 billion (1). This proved exceptional to the surrounding climate, however, and the housing

    market began to show signs of a pending bubble burst.

    In March 2007, the stock market experienced its biggest single-day plunge in five years, while the number of mortgage

    defaults simultaneously rose to the highest percentage in almost a decade. Bear Stearns, Lehman Brothers' most comparable

    Wall Street rival, experienced the total failure of two hedge funds in August. Despite rapidly deteriorating marketing

    conditions, Lehman Brothers continued writing mortgage-backed securities and touting its financial strength to the press

    and shareholders while decrying the notion that domestic and global economies were in danger. Meanwhile, its operations

    were reckless, as illustrated by its $11.9 billion in tangible equity and $308.5 billion in tangible assets on balance

    sheets in 2003 that yielded a leverage ratio of 26 to 1. Four years later, ...

    Solution Summary

    This is a discussion of the Lehman Brothers scandal and the issues surrounding the ethical dilemmas that business executives have to deal with when illegalities are found within the company. Over 6000 words, with references.

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