Does Corporate Law Protect the Interests of Shareholders and Other Stakeholders Finance Sample Paper

Finance

Question 1

Ethics refers to the average conduct, which differentiates between an acceptable and unacceptable behavior. Ethical behaviors are learnt from different social settings. Business ethics are the guidelines and principles that govern a given business environments and profession. Business ethics have evolved over time with regard to historic periods. As the time goes by, the ethical norms also change with regard to a given environment. Businesses have evolved over time from eras of slavery, colonization, cold war time to present (Robotham 50).

Question 2

Insider trading refers to the in-house trading of an organizations stock, bonds, securities and stock options by individuals who have direct information about the company. This is trading practice in which an insider party undertakes based on the non-public information, which he/she gets in the process of undertaking normal duties within the organization. This information is confidential.

In my own opinion, I would say insider trading is unethical. This is due to the fact that it undermines the harmonious relationships, which are vital for the existence of businesses. In a situation where insider business is allowed, there would be a rise in the interests among the inside staff within an organization. The end result would be conflicts. More often, the interests of the insider staff will not reflect their shareholders needs but their own benefits. The essence of serving and making sure the shareholders are well served will be lost since the inside staff will have divergent interests. With these different alignments of interest between the shareholders and corporate insiders, the public will be less interested in the given organization shares, thus creating a negative impact for the firm, shareholders and society at large.

Insider trading could be either legal or illegal. It becomes illegal when in a situation where trading occurs by an insider member while the information is not accessed by the public, knowing very well that it is unfair to other parties and shareholders. This could be done by not only the direct employees of the company but also individuals like brokers and family members who get a tip of the information that has not yet gone public.

Insider trading is legal at any point when the information lies with the public. In this case, there is no added advantage among all the shareholders with regard to information. The insiders will however have to report all their undertakings just in case there was any form of illegality conducted.

Question 3

Causes of Enron’s Collapse

Accounting Problems: There were severe accounting issues that brought the organization down. The accounting issues were not directly related to its expansion but were due to decentralization to many secondary and shell firms. The organizations losses were hidden in the subsidiary companies, which did not reflect its true financial picture. This resulted to a big audit failure in the organization too (Bratton 61)

Fallout from Fraud: The accounting problems extended to the disgrace of that led to many businesses run away from the created liability. Its true value had depreciated and stock price collapsed. Employees too were affected and executives selling their shares away from the firm.

Management Culture: Enron case was affected by its culture where it only valued to maintain appearance value and increasing stock value. This encouraged greed and fraud, especially by energy trader’s .Employees could do anything to justify their continued employment due to this culture.

Preferential Treatment: The organization also sought political connections from the Bush and Clinton Administrations for preferential treatment, which encouraged frauds. This represents the dark side of American capitalism.

Enron’s had a basic ethical conduct that was built on respect, integrity, communication, and excellence. However, keeping all these values in mind and which were even professed by Ken Lay, there is a major point out that the managers did not keep any ethical issues. If these were observed, the organization would not have collapsed and declared bankruptcy. This is a failure of the top managers who supported unethical behaviors.

The $ 100 accounting fraud at Enron led to the ethical standards of its auditor Andersen come to question. The investigations by the Powers Committee concluded the fact that he did not carry out his duties professionally and ethically as required especially in the organizations audits and financial statements. There were so many irregularities especially in its contracts and party transactions (Cornford 30) 

Question 4

The accounting mistake that world com did was to treat operating costs as a capital expenditure. This meant that the cost would depreciate over time. This was admitted when the firm had classified $3.8 billion in payments for line costs rather than current expenditures.

The firing of the employee was unethical. The employee could save the organizations from consequences, which result from non standard accounting practices. The standards are important since they assist effective functioning of the organization and enable investors to compare them with other firms thus acting as a base for future investments.

Question 5

The idea of private number is not an ethical development in an organization. The aspect of having a private call number is unethical since it lacks openness. Secondly, as stated earlier, the ethics should improve relationship among employees. The phone will act as a whistle blower tool whenever an employee goes against code of conduct. This will create a situation where instead of the employees building each other, they will police one anther creating more rifts among them hence affecting working relationships. If I find my colleague or boss going against the code, I will not make a call to report but rather engage them in order to find out what could be the issue that has made them break the law.

Question 6

In my judgement, I feel it is not ethical to give loans with a low introductory interest rate. As stated earlier, ethics is all about transparency and openness. For an organization to attract individuals to commit to a loan when in real sense it will not benefit then in long run is fraud. This is because the institutions know ell that in the long run, it is a scheme of getting money to salvage their financial downfalls. The individuals too taking the loans are unethical since they are not being true to themselves in with their financial abilities.

Works Cited

 Bratton, William W. “Does Corporate Law Protect the Interests of Shareholders and Other Stakeholders?: Enron and the Dark Side of Shareholder Value” (PDF) 2002. Tulane Law Review (New Orleans: Tulane University Law School) (1275): 61. Retrieved 2010-10-12.

Cornford, Andrew. Internationally Agreed Principles For Corporate Governance And The Enron Case, United Nations Conference on Trade and Development, G-24 Discussion Paper Series No. 30, New York, June 2004, p.30, unctad.org

Robotham, D. Political Economy. A Handbook of Economic Anthropology. J. G. Carrier. Northampton, MA, Edward Elgar  pp. 41–58, 2005.