Scribd
Upload
4 views

Case Study - Professional Behaviour (1)

The document outlines five high-profile ethics violations by CEOs, including Kenneth Lay of Enron, Bernard Ebbers of Worldcom, Conrad Black of Hollinger International, Dennis Kozlowski of Tyco, and Scott Thompson of Yahoo!. Each case involved significant fraudulent activities leading to criminal charges, convictions, and substantial penalties, highlighting the importance of corporate accountability. The text emphasizes the role of legislation like Sarbanes-Oxley in improving oversight and protecting shareholder rights.

Uploaded by

love songs
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
4 views

Case Study - Professional Behaviour (1)

The document outlines five high-profile ethics violations by CEOs, including Kenneth Lay of Enron, Bernard Ebbers of Worldcom, Conrad Black of Hollinger International, Dennis Kozlowski of Tyco, and Scott Thompson of Yahoo!. Each case involved significant fraudulent activities leading to criminal charges, convictions, and substantial penalties, highlighting the importance of corporate accountability. The text emphasizes the role of legislation like Sarbanes-Oxley in improving oversight and protecting shareholder rights.

Uploaded by

love songs
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 3

Case Study - Professional Behaviour

Five Most Publicised Ethics Violation By CEOs

High-profile downfalls of corporate CEOs are not a new phenomenon. But legislation such as Sarbanes-
Oxley makes corporate oversight and protection of shareholder rights by the board of directors a priority. It
also uncovers an increasingly alarming set of CEO ethics violations, many of which land the corporate head in
jail. Here are five of the most public and egregious CEO ethics failures.

Kenneth Lay - Enron


Enron's downfall, and the imprisonment of several of its leadership group, was one of the most shocking and
widely reported ethics violations of all time. It not only bankrupted the company but also destroyed
Arthur Andersen, one of the largest audit firms in the world.

The Securities and Exchange Commission (SEC) announced in 2001 that it was investigating the accounting
practices of Enron after several years of questions raised by analysts and shareholders. The resulting
disclosures and write-downs by the company reduced investor confidence and the company's credit rating,
leading to the bankruptcy in December 2001. The SEC announced that it would pursue charges against Lay,
former CEO Jeffrey Skilling, CFO Andrew Fastow and other high-ranking employees.

The charges related to knowingly manipulating accounting rules and masking the enormous losses and
liabilities of the company. Lay and Skilling were tried together on 46 counts, including money laundering,
bank fraud, insider trading and conspiracy. Skilling was convicted on 19 counts and sentenced to over 24
years in prison.

Lay was convicted on six counts of fraud and faced up to 45 years in jail. Lay died in 2006, three months
prior to his sentencing hearing. The resulting investigation of the Enron scandal resulted in Congress passing
the Sarbanes-Oxley Act to improve corporate accountability.

Bernard Ebbers - Worldcom


As the SEC was conducting its investigation of Enron, an even larger CEO ethics violation was brewing.
Worldcom, which at the time was the United States' second-largest long-distance telecommunications
company, entered into merger discussions with Sprint. The merger was ultimately dashed by the
Department of Justice over concerns about it creating a virtual monopoly. The situation took its toll on the
company's stock price.

CEO Bernard Ebbers owned hundreds of millions of dollars in Worldcom stock, which he margined to invest
in other business ventures. As the stock price dropped, banks began demanding that Ebbers cover more
than $400 million in margin calls. Ebbers convinced the board to lend him the money so that he would not
have to sell substantial blocks of stock. He also began an aggressive campaign to prop up the stock price by
creating outright fraudulent accounting entries. The fraud was ultimately discovered by Worldcom's internal
audit department, and the audit committee was informed. The resulting SEC investigation resulted in the
company's bankruptcy filing in 2002 and the conviction of Ebbers on fraud, conspiracy and filing false
documents charges. Ebbers began a 25-year sentence in federal prison in 2006.
Conrad Black - Hollinger International
Canadian Conrad Black created Hollinger Inc., the parent company of Hollinger International, in the mid-
1980s with the purchase of the controlling interest in the Daily Telegraph. With a number of other purchases
throughout the following 15 years, Hollinger became one of the largest media groups in the world. As CEO of
Hollinger International, Black had substantial control over the company's finances.

The board of directors confronted Black in 2003 over payments the company made to him and four other
directors in the $200 million range. The board called in the SEC to investigate the validity of the payments
and the accounting transactions created to account for them. Charges were laid against Black for fraud, tax
evasion and racketeering, among others. In 2007, Black was convicted of four of the 13 charges against him
and was sentenced to 78 months in prison, of which he served 42. He was released from prison in 2012.

Dennis Kozlowski - Tyco


Kozlowski, the CEO of Tyco, a massive security and electronics company, was also caught with his hand in the
corporate coffers. In 2002, the board of directors discovered that Kozlowski and Mark Schwartz, the
company's CFO, had taken unauthorized bonuses and loans in the amount of $600 million. The men were
brought up on charges of grand larceny and securities fraud, among others. Kozlowski had paid for lavish
parties, a Manhattan address and expensive jewellery with corporate funds. His first trial in 2004 resulted in
a mistrial, but in 2005 he was sentenced to between eight and 25 years.

Scott Thompson - Yahoo!


Compared with the other four infamous CEO bad boys on the list, Scott Thompson's transgressions may not
seem so egregious. What shocked shareholders and media alike was the brazenness of his deception and the
lack of oversight that allowed it to happen. Thompson was brought in as Yahoo's new CEO in early 2012, in
an attempt to reverse the struggling company’s fortunes. By May, a shareholder activist group alleged that
Thompson had embellished his resume by claiming he had a degree in computer science, along with an
accounting degree. He has only an accounting degree.

There are two significant ramifications of the deception, which Thompson characterized as "inadvertent."
The first is that it means the board did not fully vet him before hiring. More importantly, because the false
information appeared in SEC filings, the company and Thompson himself may face disciplinary or legal
action. Thompson voluntarily stepped down as CEO in May.

The Bottom Line


CEOs have always been expected by shareholders and investors to maintain high ethical standards. Although
it doesn't always happen, today's regulatory environment makes it easier to identify transgressions and
bring violators to justice.

Discussion Forum
Please post your answer to the question below in the forum on the Hub (maximum 100 words).

Which aspects of the CMI code were violated by these leaders?

Why are these code violations a cause for concern?


References

Forbes (n.d.) 5 Most Publicised Ethics Violations by CEOs. [online] Available at:
https://www.forbes.com/sites/investopedia/2013/02/05/5-most-publicized-ethics-violations-by-
ceos/?sh=7461366a4bbc [Date Accessed: 19 October 2022]

You might also like