1. Ethical perspectives – Issues
In this case, several ethical danger signs were observed. Firstly, Lehman failed to maximize the total stakeholders utility by exceeding its internal risk limits. The push for high-risk Alt-A loans without proper risk assessment caused investors to take on higher than expected risk unknowingly.
Secondly, brokers failed to provide duty of care towards their clients by promoting high-risk mortgage instruments1 despite knowing the underlying problems2. This is due to Lehman’s reward system that encourages employees taking excessive risk even if it means making questionable deals.
According to Immanuel Kant’s Categorical Imperative, being ethical leaders, Lehman should treat humanity always as an end and never as a means only. Lehman manipulated its financial reports, thus, treated humanity as a means. This violated investors’ right to truth to know all information that will significantly impact their investments. This non-transparency falsely represented Lehman’s financial health. Taking the role of Smith’s Impartial Spectator, it is unjust and unfair for investors3 who are not professionals in the perplexing financial structure to take on a much higher risk. Stakeholders such as investors and employees were affected. More so, being an international big giant, its collapse adversely affected the economies of many other countries too. 2. Control mechanisms
I. Establishing standards
Fiduciary standards that require brokers to put its clients’ interests first, avoid conflict of interests and disclosure of related costs should be established. These standards should not be override by contractual terms4. (Armstrong, 1995) Lehman should also specify its code of conduct emphasizing the importance of fair dealing by treating its employees equitably based on the principles of natural justice and without misleading the stakeholders. This will strive for maximum utility and common-good.
II. Action plans to handle ethical...
Cited: O 'Brien, J. (-, - -). Lehman Brothers: Wholesale Investor Protection in the Aftermath of The Global Financial Crisis — Part Three. Retrieved Feb 14, 2013, from University of New South Wales: http://www.clmr.unsw.edu.au/article/compliance/market-conduct-regulation/lehman-brothers-wholesale-investor-protection-aftermath-global-financial-crisis-part-three
Louise Story and Landon Thomas, Jr. “Tales from Lehman’s Crypt,” New York Times, Sept. 12, 2009, p.SB1.
Louise Story and Thomas Landon, Jr., “Life After Lehman: Workers Move On,” New York Times, September 14, 2009, p. BU 1
Most Lehman investors are about 60 years old and they bought these derivatives with their retirement funds.
W.C. Crain. (1985). Theories of Development. Prentice-Hall. Pp. 118-136.
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