BE2601 - Ethical Reasoning Case Study
In my opinion, the situation at Lehman was the result of a negative ethical climate in the company and the irresponsible ethical behaviour of Lehman executives and the firm's auditor. Employees who took excessive risk were well rewarded. Coupled with the fact that there was a lack of controls such as compliance-based ethics programs to keep checks and balance, this fuelled excessive risk taking in Lehman's culture. There was also a lack of rights of employees to be informed truthfully about decisions made, as they were often ignored when raising questions. From the case, there was a lack of distributive justice as the salaries of top executives were intentionally under-represented.
The irresponsible ethical conduct of Lehman executives plays a large role in shaping Lehman's poor ethical climate. Due to egoism, Lehman executives made use of loopholes in accounting standards and used "Repo 105" to conceal their losses at the end of the first two quarters of 2008.
"Repo 105" created favourable net leverage and liquidity measures on the balance sheet, thus painting Lehman Brothers as an underdog success in times of financial distress. This displayed the lack of integrity in Lehman executives, fooling the entire investment community, leading to serious repercussions on stockholders and stakeholders.
Ernst & Young's failure to reveal Lehman's mistake made the situation worse. Their inaction is equivalent to direct involvement in the scheme itself. One question to ponder is why would a highly reputable firm such as Ernst & Young put its reputation at risk and decided to disregard such unethical actions? Most probably, it was due to the influence of Lehman Brothers, being a sizeable and lucrative client.
From hindsight, there are many aspects which could be improved on. Ultimately, the bottom line is...