Companies like Enron, WorldCom, and Tyco International, Ltd. have been caught in the midst of ethical lapses that led to fines, firings, and criminal and/or civil prosecution. List and briefly describe three factors that are responsible for what went wrong in these companies
The three factors are: (1 ) individual character, (2 ) firm culture, and (3 ) laws and enforcement. Individual character of honesty, integrity, and fairness in the face of pressure to hide the truth is an important factor possessed by an ethical businessperson. By their behavior and attitude, senior managers of a company set the firm culture. In firms like Enron, the senior managers created a culture of greed and indifference to the truth that flowed down to lower-level managers, who took shortcuts and lied to cover their financial frauds. The lack of laws and enforcement has been blamed as a contributing factor to financial reporting abuses. As a result, new laws such as the Sabanes-Oxley Act of 2002 (SOX) established a new oversight body for the accounting profession, known as the Public Company Accounting Oversight Board (PCAOB), which enhanced corporate accountability, financial disclosures, and independence.
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