No two economic crises are identical. But the same questions recur. Even though some people may think that the issue on Lehman Brothers shaped like the shadow of Enron. Lehman's used offshore accounting gimmicks to mislead the world about its financial problems. The bankruptcy examiner's report showed on the 2008 demise of Lehman Brothers discusses some accounting gimmicks that are eerily reminiscent of how Enron tried to prop up its balance sheet back in 2001 before it collapsed. Both companies appeared to have played right along the edge of properly accounting for transactions designed to make them appear much stronger than they turned out to be, becoming steadily more aggressive as they teetered on the brink of ruin.
"In companies around the world, CFOs aspire to move their finance teams from being compliance cops to business partners, from counters of the beans to sprouters of the beans, and from heavy transaction support to heavy decision support. Yet these same CFOs just as clearly indicate that a huge talent gap is preventing them from advancing their accounting and finance staff toward more strategic roles." (Thomson, 2009)
Enron Corporation was an American energy company based in the Enron Complex in Downtown Houston, Texas. Enron filed for bankruptcy protection in the Southern District of New York in late 2001. Before its bankruptcy in late 2001, Enron was one of the world's leading electricity, natural gas, communications and pulp and paper companies, with claimed revenues of nearly $101 billion in 2000. Fortune named Enron "America's Most Innovative Company" for six consecutive years. At the end of 2001 it was revealed that its reported financial condition was sustained substantially by institutionalized, systematic, and creatively planned accounting fraud, known as the "Enron scandal". Enron has since become a popular symbol of willful corporate fraud and corruption. The scandal also brought into question the accounting practices of many corporations throughout the United States and was a factor in the creation of the Sarbanes-Oxley Act of 2002. The scandal also affected the wider business world. (wiki)
Enron bankruptcy is one of the largest U.S. bankruptcy case in history, resulting in workers unemployed, workers received no pension, also caused investors to lose everything, and many other issues. After business failures, the top executives still thought they are doing is to protect shareholder rights, did not think they have done anything wrong, and even declared that "do not know what can not be responsible." If the executives do not have to be responsible, then I really do not know that where they paid duties? Not that the most basic ethical rules to comply with it?
In the bankruptcy case came to light during his lifetime, all the Enron stock analysts and investors had strong buying support, so that the public believe that Enron is a good physical performance of high growth company. Pride, arrogance, greed are the main reasons causing the Enron bankruptcy. Executives are good in using of ethical packaging enterprises, so that high-end corporate image can be maintained, investors firmly believe that Enron is a stable growth business. Enron corporate executives had through insider trading, hollowing out corporate assets into personal accounts. Secondly, the use of accounting principles beautify the company's financial statements to conceal the scale of loss of truth and deception of the audited financial success of accounting firms, leading to the accounting firm by the U.S. Securities and will have their licenses revoked.
Lehman Brothers Holdings Inc. was a global financial services firm, which participated in business in investment banking, equity and fixed-income sales, research and trading, investment management, private equity, and private banking. On September 15, 2008, the firm filed for Chapter 11 bankruptcy protection following the massive exodus of most of its clients, drastic losses in its stock, and devaluation of its assets by credit rating agencies. The filing marked the largest bankruptcy in U.S. history. A report by the court-appointed examiner indicated that Lehman executives regularly used cosmetic accounting gimmicks at the end of each quarter to make its finances appear less shaky than they really were. This practice was a type of repurchase agreement that temporarily removed securities from the company's balance sheet. (wiki)
In the Lehman Brothers Holdings Inc, some executives were very concerned about the firm's Enron-like accounting practices as the company headed to the brink in September 2008. In May 2008, Matthew Lee, a former Lehman senior vice president wrote a letter to senior management warning that the company may have been masking the true risks on its balance sheet. His warnings, revealed in the bankruptcy report, show that Lehman's auditors knew of potential accounting irregularities and allegedly failed to raise the issue with Lehman's board.
Lehman Brothers was required to stress-test its trading positions and investments. Despite the risks posed by Lehman's dramatic ramping up of its illiquid investment portfolio, the firm's own stress tests excluded illiquid assets. Specifically, the firm excluded its principal investments in real estate, its private equity investments and its leveraged loans backing buyout deals.
"China has hitherto followed the US model of corporate governance, but recent crises suggest that that might not be the model to follow. Corporate governance is an alien concept for China." (Yuan, 2009)
There are similar between the case of Enron and the management in China. Enron inflated book value, through financial means, the establishment of short companies hide bad debt; while China's economic performance is overstated, and the financial system and state-owned enterprises hide the bad debt problem. These are trying to create a false impression. In order to obtain profits, in 2001 Enron manipulated the California energy policy, opening price, artificially create the blackout in California, making California into a panic, all walks of life lost due to power outages caused incalculable, and the Enron Corporation acquired from billions of U.S. dollars. This unscrupulous way is to pay a high social cost and expense. In order to make profits in China, ecology has been destroyed. Economic rise of the accompanying environmental damage is irreparable. The victims of the problem are not that profitable businessman, but investors, employees and the poor people.
"It is inevitable that many people will try to explain what is happening in moral terms. Because people are terrified and angry about the impact of something most of us don't fully understand, the natural tendency is to search for someone to blame." (Sargent, 2008)
Whether Hong Kong or the world, businesses have the moral conscience is certainly sounded the alarm, in addition to money values, led by evil, there are also people have their own lives. When the financial tsunami, some world-known rich and powerful people were attacked which is evaporated the wealth commit suicide, also attributed to the value of money put in the first of the sake of life, the result is even lose lives.
In the case of Ford Pinto, Ford Pinto was launched vehicles by Ford Motor Company took place in the 70's, after these vehicle models onto the market, they discovered that as long as the end collision at low speed, can also lead to fuel tank rupture and cause an explosion. But Ford executives thought that the car are actually the cost of recovering any death accident insurance compensation was lower, and thus allow a vehicle shall continue to be used.
Economics focuses on the concept of the past business interests. Economist Milton Friedman believes the enterprises have to pay tax, so no need to pay additional social responsibility, business can make money just to comply with the law. Such ideas have now started to come under criticism, people began to focus on corporate social responsibility, which is from "profit maximization" to "horizontal profit optimization", that is to make money to but also to improve the overall profitability of society, and to ensure that all harmony is the social well-being. In addition, "social justice" is also of concern and attention.
Overnight evaporation of wealth for investors as well as socio-economic development is undoubtedly a huge shock, but this is only the modern living in a capitalist society one of the risks faced. Since ancient times, people will face different forms of existence (from natural or man-made) threats and crises. Fine division of labor in modern society relies on technology and expertise to maintain the daily operation of the particular trust of experts and sophisticated systems to manage risk, for the basic needs of ordinary citizens and security checks. However, any good risk management system can avoid crisis, or when the system suddenly fails, there could be a crisis of confidence, not only on the current lack of public security, will wonder if all experts and the system that they are not reliable.
"Every day the headlines are full of news of giant corporations that have fallen into bankruptcy or stand on the brink of the abyss. Modern bankruptcy scenarios provide a wonderful teaching opportunity across a broad swath of disciplines and provide educators with the ability to explain and examine the vital interaction between finance, accounting and management, to name a few." (Sabino, 2009)
Globalization deepen the popularity of the risk of the crisis as people, goods, capital, information flow and the rapid spread of a ripple effect, a company or a regional problem can be spread out all over the world. This means that while the risk is more difficult to predict, and even risk not specific. The risk of cognitive ability by people judge is reducing, the risk of emergence and awareness of risk the greater the time difference, the more prone to a vicious cycle of panic. Individuals are forced to bear their own can not understand, can not detect, can not be anti-avoidance, not mitigation of risk; and from a personal point of view, these risks by the system manufacturer and communication, unreasonable and spared assigned to cross-regional and cross-class people. Sources of risk can be so far away, but the harm is so close, uneasy anxiety may become angry grievances.
In the process of scientific management, we found that the scientific management has become increasingly shaky. The reason is that just yesterday the establishment of the principle of a failure today; yesterday proved successful enterprise, today drained. In the case of Enron, many management gurus to Enron as one of America's most successful enterprises before the outbreak. Enron case broke out, just to the masters on the ironic lesson.
"Recent scandals have tarnished the integrity of the accounting profession, marking it with a modern version of the scarlet letter A, which represented disgrace in Nathaniel Hawthorne's The Scarlet Letter." (Mimi al., 2004)
In modern society, especially in the commercial, most of the companies look success though benefits, but survival is the key enterprise of social recognition and customer satisfaction. The modern enterprise management system is developed under this principle, requiring the enterprises can not be self-centered, but for the sake of customers. This objective under the constraints of law, in fact, people of high moral standards is not difficult to assume management responsibility for the management of large enterprises. There may be exceptional circumstances, some prominent people to do the position should not be done, but it also makes it difficult for him in a higher position to continue to stay. Such as Enron, Lehman Brothers, and other accounting scandals.
"Most stockholders have interests that would limit the pursuit of maximum profit has significant implications both for business ethics and for the management of for-profit corporations. Corporate managers, to the extent that they are to be agents of their stockholders, must not simply pursue profit maximization. They must ascertain the interests and values of their investors that limit the single-minded pursuit of profit." (Hardwig, 2010)
"Corporate social responsibility" concept was first proposed by the western developed countries, to deny the classical economics held by the party nature of the business enterprise the only economic view, that should assume broader corporate social responsibility, and not to the pursuit of profit growth as the only target. There are number of U.S. companies affected by a series of scandals and distress in recent years, these are reflecting the importance of corporate social outlook.
Corporate social responsibility is an enterprise to its stakeholders should be worried to take up some of the provisions of the law of responsibility. That is profits of enterprises to create and safeguard shareholder interests, but also take on employees, consumers, communities and the natural environment and other key stakeholders in the business of social responsibility. For example, consumer liability practice show business management services provided to its customers, including comprehensive information, timely handling of customer complaints and product improvement and enhancement of service to increase customer satisfaction.
Commitments to corporate social responsibility are two aspects to understand the motivation. The first is the social responsibility of business strategy as a tool of view, to obtain commercial interests. The second is the value of social responsibility as a business-oriented view of business ethics, stakeholders of the enterprise has a moral obligation to seek the well-being. Whether the starting point is the concept of corporate strategy or moral, corporate social responsibility can also bring positive contributions for the company, including gain in earnings performance, to improve corporate social prestige, to enhance the corporate identity for the employees, to raise consumer awareness on enterprise products loyalty, and improve the relationship between business and government. Overall, corporate social responsibility is valuable in commercial, the way they can improve the competitiveness of enterprises, enterprises can also create a positive image of the rich sense of morality.
Hong Kong companies on corporate social responsibility in this regard than in Western countries has been lagging behind. The reason for this can be attributed to the past too much emphasis on market economy, supremacy of the narrow thinking and short-sighted profit. Hong Kong business community should reflect on the corporate social responsibility and to actively promote corporate social responsibility, on the one hand and the mainstream thinking of the foreign enterprise management integration, on the other hand to improve the company's international image and improve the competitiveness of enterprises. In this topic, the Government also can not shirk its responsibility and should learn from the advanced western countries, to have a plan on promoting corporate social responsibility in the policy and the setting up of the policy's enforcement authority, to support Hong Kong in the international business competition.
The ethical management of business is not only immensely important to Hong Kong in its role as global trade intermediary and integrator. It is important to every one of us in the room today, in our business dealings with each other, with each other 's countries and regimes, with the increasing number of our trade partners and business clients.
