1. The management had deceived potential investors of the truth for own benefit. By under-representing how much top executives were paid and file misleading reports, expenses are understated which will help drive profits up. This would seem like the company is doing well. The main motive is to boost investor’s confidence and increase investments to the company. The top executives were negligent in their actions. The use of Repo 105 in the transactions were not challenged nor questioned. Although the Sarbanes-Oxley Act states that senior managers are accountable for the financial reports, Fuld, the former chief executive, signed off without understanding the accounting treatments. It is irresponsible for the top leaders to be apathetic with the validity of the financial reports. I believe that the management understood that their actions will lead to ethical issues. However, they made poor moral judgment by prioritizing personal benefits over what is morally right. This may due to the strong reputation of the Lehman Brothers. The management is pressurized to maintain the status and have to stay competitive with its rivals in the market. Another reason is due to the poor organization culture that emphasized a lot on excessive risk taking. The top executives encourage short term revenues over long term considerations which sets the tone to unethical behavior. There was no ethics code and no proper channels for employees to report unethical acts. This led to questioned decision being ignored. As a result, the internal auditors failed to challenge the use of Repo 105 transactions. Moral character of employees was weak because there was no incentive and it may jeopardize their job security. Hence, they did not have the courage to stand up for their ethical decision.
2. As leaders of the company, it is the senior management’s responsibility to build up the company’s culture. However, in this case, the senior executives are the ones taking the unethical approach....
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