Assume You Recently Graduated And Have Just Reported To ✓ Solved

Assume that you recently graduated and have just reported to

Assume that you recently graduated and have just reported to work as an investment advisor at the brokerage firm of Balik and Kiefer Inc. One of the firm’s clients is Michelle DellaTorre, a professional tennis player who has just come to the United States from Chile. DellaTorre is a highly ranked tennis player who would like to start a company to produce and market apparel she designs. She also expects to invest substantial amounts of money through Balik and Kiefer. DellaTorre is very bright, and she would like to understand in general terms what will happen to her money. Your boss has developed the following set of questions you must answer to explain the U.S. financial system to DellaTorre.

1. Why is corporate finance important to all managers?

2. Describe the organizational forms a company might have as it evolves from a startup to a major corporation. List the advantages and disadvantages of each form.

3. How do corporations go public and continue to grow? What are agency problems? What is corporate governance?

4. What should be the primary objective of managers? (1) Do firms have any responsibilities to society at large? (2) Is stock price maximization good or bad for society? (3) Should firms behave ethically?

5. What three aspects of cash flows affect the value of any investment?

6. What are free cash flows?

7. What is the weighted average cost of capital?

8. How do free cash flows and the weighted average cost of capital interact to determine a firm’s value?

9. Who are the providers (savers) and users (borrowers) of capital? How is capital transferred between savers and borrowers?

10. What do we call the cost that a borrower must pay to use debt capital? What two components make up the cost of using equity capital? What are the four most fundamental factors that affect the cost of money, or the general level of interest rates, in the economy?

11. What are some economic conditions that affect the cost of money?

You do not need to answer the questions, you only need to write this 5-page paper. Find an article from a reputable source about a company that did not use ethics, apply what you have learned in this course, and provide an analysis. Dissect the situation described in the article and explain how their decisions in reporting affect others and what your take on it is. Would you have done the same thing if you were in the same position of the managers? Why or why not? What would the consequences be of either decision you made? If it’s your company on the line vs. ethics, which would you choose? Why? For the project paper, students will write a minimum of five pages on social and ethical responsibility in financial reporting. Note: each page reduction in length will result in one full letter grade deduction.

Paper For Above Instructions

The role of ethical standards in the financial reporting of firms cannot be overstated. Corporate finance and ethical conduct serve as dual pillars upon which businesses must balance their growth and social responsibilities. This paper explores an instance of unethical behavior in financial reporting, delving into the consequences of such actions on various stakeholders, and assessing the ethical dilemmas managers face when navigating corporate governance and decision-making.

One of the most infamous cases in recent history is that of Enron Corporation, which collapsed in 2001 due to fraudulent accounting practices. According to a report by CNN (2021), Enron misled investors by providing false financial statements that inflated its perceived profitability. As the scandal unfolded, it became clear how far Enron executives took unethical financial reporting practices, using complex financial structures and special purpose entities to hide enormous debts while portraying a strong financial position to the public.

The fallout from Enron's unethical decision-making extended far beyond the company's demise. Thousands of employees lost their jobs and retirement savings, investors lost billions, and public trust in corporate governance was severely damaged (Healy & Palepu, 2003). This situation exemplifies how the decisions of a few can impact a vast network of individuals and the broader economy. The company’s executives prioritized personal gains over ethical standards, demonstrating a blatant disregard for the implications of their choices on employees, investors, and the market at large.

The choices made by the Enron executives raise crucial questions about corporate governance and the larger moral responsibilities of firms. In the U.S. financial system, the primary objective of managers has often been interpreted as maximizing shareholder value. However, as suggested by corporate social responsibility theories, firms do indeed have broader responsibilities to society beyond mere profit maximization (Freeman, 1984). Each decision made by corporate leaders must consider the ethical implications for all stakeholders, including employees, customers, and the community.

Furthermore, the concept of agency problems arises in situations like Enron’s, where managers may prioritize their interests over those of the shareholders. Corporate governance structures are intended to mitigate these agency problems by establishing accountability mechanisms that ensure management acts in the best interest of the firm and its stakeholders (Jensen & Meckling, 1976). Unfortunately, in Enron’s case, those structures failed, allowing unethical practices to persist unchallenged.

If I were to find myself in a similar position as the misguided managers of Enron, I believe my ethical compass would guide my decisions differently. I would choose transparency and integrity over profitability, as the long-term consequences of unethical behavior not only damage a company's reputation but can also lead to legal repercussions and financial loss (Schwartz, 2013). For a company, maintaining a solid ethical foundation is paramount in fostering trust with stakeholders, leading to sustainable growth and resilience in challenging times.

The consequences of choosing ethics over short-term profit are numerous. First, a commitment to ethical practices would help foster a loyal customer base, resulting in sustainable revenue streams. Additionally, ethical companies often attract investors who appreciate long-term value creation over short-term gains, further stabilizing the business. Conversely, neglecting ethical responsibilities can lead to scandal and ruin, as shown by the collapses of Enron and other companies embroiled in unethical behavior, such as Lehman Brothers during the 2008 financial crisis (Sullivan, 2010).

In today’s world, where corporate ethics are under increasing scrutiny, the question of whether to prioritize profitability over ethical standards is critical for any leader. The public is more informed than ever, with access to social media and news outlets that highlight corporate misdeeds. Therefore, the age of transparency demands that organizations operate based on a robust ethical framework. Stakeholders are more likely to support companies that demonstrate a commitment to ethical conduct, leading to an enhanced corporate reputation and long-term success.

Ultimately, if I were faced with a choice between my company's financial health and maintaining ethical standards, I would choose the latter. A firm built on ethical principles is a firm designed for longevity; it withstands the pressures of competition and remains resilient in the face of economic challenges. By adhering to ethical practices, companies not only protect their interests but also contribute positively to society, fostering an environment of accountability and trust.

The case of Enron serves as a powerful reminder of the consequences that stem from unethical financial reporting practices. Through this analysis, we have seen how such decisions affect a company's stakeholders and the overall health of society. Today's business leaders must prioritize ethical conduct and transparency to build robust and responsible organizations that contribute positively to our economy.

References

• CNN. (2021). The impact of Enron’s collapse on the business world. Retrieved from [URL]
• Freeman, R.E. (1984). Strategic management: A stakeholder approach. Boston: Pitman.
• Healy, P.M., & Palepu, K.G. (2003). The fall of Enron. Journal of Economic Perspectives, 17(2), 3-26.
• Jensen, M.C., & Meckling, W.H. (1976). Theory of the firm: Managerial behavior, agency costs, and ownership structure. Journal of Financial Economics, 3(4), 305-360.
• Schwartz, M.S. (2013). Corporate social responsibility: An ethical approach. New York: Routledge.
• Sullivan, H. (2010). Lehman Brothers: The collapse and reflections. Harvard Business Review. Retrieved from [URL]
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