Business Ethics Homework 6 20 March 2013 GlaxoSmithKline Case 1. Since 2005, GSK was hit with several severe lawsuits regarding product liability. When Andrew Witty was assigned the chief executive role of the company, post-merger, the ice of shares declined 50 percent, which harmed the company’s earnings, sales and reputation. The first ethical lapse came about when GSK was criticized for selling drugs to the public without informing its buyers of the detrimental side effects. The detrimental product was Paxil, designed to relieve depression, generated disastrous side effects such as addictive behavior and birth defects.
Case Introduction The case discusses the accounting frauds committed by the leading US telecommunications giant, WorldCom during the 1990s that led to its eventual bankruptcy. The case provides a detailed description of the growth of WorldCom over the years through its policy of mergers and acquisitions. The case explains the nature of the US telecommunications market, highlighting the circumstances that put immense pressure on companies to project a healthy financial position at all times. The case provides an insight into the ways by which WorldCom manipulated its financial statements. The case also describes the events that led the company to file for reorganization under Chapter 11 of the U.S. Bankruptcy Court in 2002.
Raju's Ramaling the Former chairman of the company, was sentenced to seven years of imprisonment. The event which also call Enron of India, belongs by the time of 2009, Raju wrote the letter to securities and Exchange Council of India (SEBI) and shareholders of the company, having recognized that it operated profit of the company, and deceive investors. Nearly $1 billion, or 94% of the cash-book was fictitious. In the direct response to recognition investors lost just as RS of 14,000 crores ($2.2 billion) as actions in Satyam collapsed. Raju explained the reasons in the letter to make inflation as follows:" As patrons held small percent of the capital, caring that unsatisfactory work will lead to absorption, thus exposing an interval "."
Executives and insiders knew about these offshore accounts that were mainly used to hide losses with the investors completely left in the dark. As a result their stock price was driven up. In their fallout, company executives began to liquidate their assets, trading millions of dollars worth of Enron stock. As the scandal unraveled, shares in Enron dropped from $90.00 to merely just pennies. The liquidity of most of Enron’s assets was apparent when the company reported its third-quarter results on October 17, 2001 as negative due to one-time charges of over $1 billion.
Enron reported that their financial condition was sustained by institutionalized, systematic, and planned accounting fraud. There were reports of involving irregular accounting procedures bordering on fraud, perpetrated throughout the 1990s, involving Enron and its accounting firm Arthur Andersen; it stood at the verge of the latest bankruptcy in history by mid November 2001. Enron’s shares dropped from over $90 to $0.30 per share. Enron had been considered a blue chip stock, which was an
(MCI, n.d.) These companies used fraudulent accounting methods to mask its declining earnings by painting a false picture of financial growth and profitability to prop up the price of its stock, eventually sending them both into bankruptcy. ANALYZE THE NEW OR ENHANCED STANDARDS FOR ALL US PUBLIC CONTROL BOARDS, MANAGEMENT, AND PUBLIC ACCOUNTING FIRMS THAT THE SOX REQUIRED: The fraudulent accounting practices of these companies spurred Congress to get involved and improve the accuracy and reliability of corporate disclosures. Two representatives of Congress, Senator Paul Sarbanes and Representative Michael Oxley, drafted the Sarbanes-Oxley Act of 2002. This act was put in place “to protect the investors by improving the accuracy
The stock continued to tumble down to 33% and soon enough the banks started asking for their money back. (Organizational) In 2002 Ebbers was asked to resign and owes 408 million dollars to WorldCom. Soon enough it had been discovered that all the expenses were capitalized. WorldCom appeared healthier than it really was. On June 26th of 2002 the truth behind Ebbers and WorldCom went public.
In 2001, Enron’s stock fell from a high of $90.00 a share to a low of $0.09. (Benston 2003) This drastic downfall of a once great corporation occurred after it was revealed that many of Enron’s profits and revenue were the result of deals with special purpose entities. Arthur Andersen, Enron’s accounting firm, turned their heads while Enron’s management created these special purpose entities that kept hundreds of millions of dollars of losses and debt off of the balance sheet. This then misled investors who were making investment decisions based on false information. This system of using special purpose entities led to an overstatement of profits of almost $600 million dollars and an understatement of debt of $630 million dollars between 1997 and 2000.
This movie brings all of these situations to our attention. In the 1990s, derivatives became popular in the industry and added instability. Efforts to regulate derivatives were thwarted by the Modernization Act of 2000, backed by several key officials. In the 2000s, the industry was dominated by five investment banks, Goldman Sachs, Morgan Stanley, Lehman Brothers, Merrill Lynch, and Bear Stearns. Two financial conglomerates Citigroup, JPMorgan Chase.
There can be a lot of factors as to why companies file for bankruptcy and closure. In the case of Enron, the first set of problems in the company manifested when traders reluctantly gambled with company assets in the oil market. They lost $90 million in a period of five days. Since then company reserves disappeared and auditors saved the company by reporting fake net worth and imprecise trading revenues resulting to accounting scandals in the company. Due to the company’s compound business model and unethical practices, they required that the balance sheet is to be modified accordingly to illustrate satisfactory