Notes from Text on Financial Management Goals

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Large companies are sometimes guilty of unethical behavior. Often this unethical behavior takes the form of false or misleading financial statements. In one of the largest corporate fraud cases in history, energy giant Enron Corporation was forced to file for bankruptcy in December 2001 amid allegations that the company's financial statements were deliberately misleading and false. Enron's bankruptcy not only destroyed that company, but its auditor Arthur Andersen as well. More recently, in late 2006, without admitting wrongdoing, Hewlett-Packard agreed to pay $14.5 million to California to settle the company's “pretexting” scandal. The scandal began when a board member complained that confidential information was being leaked to the public. In an effort to find the individuals responsible, HP used several methods including pretexting to obtain confidential phone records. Pretexting, which is obtaining records under false pretenses, has become an unfortunately common method of obtaining personal information. The scandal involved several high-ranking officials at HP, including Chairwoman Patricia Dunn and Chief Ethics Officer Kevin Hunsaker, both of whom resigned and subsequently faced criminal charges. The difference between ethical and unethical behavior can sometimes be murky. For example, many U.S. companies have relocated to Bermuda for reasons beyond the beautiful pink beaches; namely, Bermuda has no corporate income taxes. With a population of less than 65,000, the island is home to more than 13,000 international companies. Stanley Works, the well-known maker of Stanley tools, was among the U.S. corporations that chose to move to the island paradise. By doing so, Stanley estimated that it would save $30 million per year in taxes. Since the goal of the corporation is to maximize shareholder wealth, this would seem like a good move, and the practice is entirely legal. But is it ethical? What are the issues? Another corporate activity that...
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