Enron is not even at the top of the list. More and more corporate scandals are happening in America. Why have these scandals just shown up in recent years? What causes these corporations to lie and be deceitful towards investors? Though once seen as legitimate, fair, honest, and respectable, corporations have arrived at a stage of greed and deception. This can be explained by a number of factors such as the how the stock market works, the stock market boom, the stock market flourishing, changing company practices, new CEO benefits, and specific company examples.
Public companies are any company that has stock available to the public to buy. A company that wishes to set up a new business or expand its existing business can raise the capital it requires either by borrowing money or by issuing shares to investors. The investors become shareholders in the company, meaning they are part owners of the company and share in its profits and growth. These stocks represent how well the company is doing. When the accounting books are tampered with to show the company is thriving when debt is actually accumulating is when investors lose all their shares because they fall all of a sudden and lose all worth; without any warning. Companies wishing to have their shares traded must first be listed. To become listed, a company must be large enough for there to be a market in its shares and it must agree to abide by the listing rules which, with other things, require it to keep the market informed of its activities and to regularly report profits and other financial information (Flint). Auditing firms have been overlooking figures and hiding debt from the public for their high paying companies. This is where our corporations have gone astray and started to cheat their investors by deception because of conflicts of interest of the leaders of these corporations. Within these companies, employees can receive stock options with their salaries. The Chief Executive Officer is the senior manager who is responsible for overseeing the activities of an entire company. The CEO usually also holds a position on the board of directors, or also holds the title of president. All CEO's of publicly traded companies have a base salary of at least one million dollars. Plus they receive bonuses for their performance each year. A CEO flourishes when the company is doing well and should take a hit when the company is going down hill. These CEO's hold a large portion of the stock and that is why we have started seeing corporate scandals come about after the market has gone down. Employees of these companies receive stock options that are either put toward their retirement plan or taken from their salary (Swedberg). Corporate scandals have started to occur because of public companies and their greed for more capital by deceit and conflicts of interest.
In the early 1990's, the stock market started to pick up and increase at unseen rates. Everyone and their brother saw this and wanted a piece of the easy money. People were investing and in the mid 90's, the New York Stock Exchange was growing at an unseen pace. Publicly traded companies were increasing their capital by almost one fourth of their whole income per year. Public companies and of course their CEO's were receiving more free money than they knew what to do with. This boom was to set up one of the worst bust's of the stock market in our generation, though at the time, nothing could be better for investors, CEO's and company employees.
For the next few years the market stayed high and people continued to invest. Companies were turning over more revenue than ever before. CEO's salaries were skyrocketing for their "performance." Normal people as investors were profiting as well. Many made a new fortune off trading and selling their stocks. The stock market was everyone's friend. Around the year 2000 people started to become worried of their ever...