Agency Theory, Corporate Governance, And The Role Of Ethics ✓ Solved
Agency Theory Corporate Governance And The Role Of Ethics In Financi
Agency theory, corporate governance, and the role of ethics in financial management are included in chapter 1. Find a recent corporate incident (within the last 5 years) that demonstrates a violation(s) related to one or more of these topics. Provide narrative background on the event; connect the event to one or more of these topics (agency theory, corporate governance, ethics in finance); and discuss how the incident might have been prevented. Your post should be 3-4 paragraphs in length. Make sure to demonstrate critical thinking and analysis.
In order to support your post you must include at least one academic, peer-reviewed journal article from Welder Library eresources.
Paper For Above Instructions
In recent years, corporate governance failures have been highlighted by various scandals, one notable incident being the Wirecard AG scandal that came to light in 2020. Wirecard, once hailed as a shining example of a tech company in the payments sector, faced a catastrophic collapse after it was revealed that €1.9 billion was missing from its accounts. Wirecard’s situation illustrates critical themes in agency theory, corporate governance, and financial ethics, all of which were disregarded, leading to the eventual downfall of the company.
The scandal exemplifies agency theory, which describes the relationship between principals (shareholders) and agents (management). In this case, Wirecard’s board and executives acted in their own interest rather than pursuing the best outcomes for shareholders, resulting in significant financial losses for investors and employees. The company’s corporate governance framework failed to implement suitable checks and balances, allowing unethical behavior to flourish. Former CEO Markus Braun, along with other executives, reportedly misled stakeholders about the company's financial health, which constitutes a clear violation of ethical standards in finance. Moreover, the role of auditors was undermined, as external auditing firms failed to flag irregularities that could have alerted shareholders to the impending crisis.
One way to have potentially prevented this scandal would have been through stronger internal controls and more stringent oversight by the board of directors. Enhancing the effectiveness of the audit committee and ensuring diversity among board members could have prompted more thorough scrutiny of financial reporting and management practices. Furthermore, cultivating a culture of ethical behavior and integrity within the organization is essential for preventing future incidents. Implementing comprehensive training programs on ethical dilemmas and instilling a whistleblower policy can empower employees to report unethical practices without fear of retaliation. The Wirecard scandal serves as a sobering reminder of the need for corporate governance structures that prioritize ethical conduct and transparency.
In conclusion, the Wirecard AG scandal is a significant case that underscores the interconnectedness of agency theory, corporate governance, and financial ethics. It highlights the critical importance of robust corporate governance practices that align the interests of all stakeholders. The event was not just a failure of a particular company but a wake-up call for regulators and industry participants to revamp their approach to corporate governance and ethics in financial management. Going forward, it is imperative to foster environments that not only comply with legal requirements but also embrace ethics as a core principle in financial practices. Such measures could guard against the enormity of losses witnessed during Wirecard's collapse and restore trust in corporate governance.
References
Journal of Business Research, 123, 205-215. Journal of Business Ethics, 168(1), 63-78. Business Strategy Review, 31(4), 50-56. Corporate Governance: An International Review, 28(6), 429-432. International Journal of Management Reviews, 21(4), 542-558. Journal of Financial Crime, 26(2), 394-406. Journal of Corporate Finance, 50, 368-384. Journal of Finance, 52(2), 737-783. Journal of Finance, 46(1), 297-355. Princeton University Press.