Tuesday, March 16, 2010

Lehman Brothers: The Pinnacle of Greed

A lenghty report released only a few days ago concluded that Lehman Brothers was engaged in fraudulant accounting practices where they sold 'garbage' assets immediately prior to quarterly reporting time for $50B. This, of course, was to mislead investors into thinking that they were financially legit. Immediately after reporting time, Lehman would repurchase those 'garbage' assets to once again reflect the reality of their financial situation.

Now it's one thing to consider this unethical act as an isolated incident but the implications for the world economy were huge because the market wasn't receiving true depictions of what these investment banks had as assets, which prolonged and exacerbated the ensuing financial crisis.

As a prof instructing future managers and executives, hearing about these types of stories is disheartening. A study in 2006 found that more than half of MBA students admitted to cheating regularly during their programs mainly because they presumed that the rest of the students were doing so. Interestingly, when I ask my students what turns them off about business, the most common answer I receive is greed and corrupt/unethical behaviour. What's going on here? Do business programs elicit this beheaviour or does the competitiveness of business bring out this behaviour to the point where it becomes unintentional. Like the frog unable to leave the pot of water reaching its boiling point, do managers start with small seemingly insignificant unethical decisions only to pursue small incremental increases in the degree of corruption until they unknowingly reach the boiling point?

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