...Journal of Business Ethics (2009) 85:147–156 DOI 10.1007/s10551-008-9934-6 Ó Springer 2008 What’s Wrong with Executive Compensation? Jared D. Harris ABSTRACT. I broadly explore the question by examining several common criticisms of CEO pay through both philosophical and empirical lenses. While some criticisms appear to be unfounded, the analysis shows not only that current compensation practices are problematic both from the standpoint of distributive justice and fairness, but also that incentive pay ultimately exacerbates the very agency problem it is purported to solve. KEY WORDS: executive compensation, distributive justice, pay disparity, incentive alignment Introduction Few academic theories have been adopted as widely as the application of agency theory (Jensen and Meckling, 1976) to the structure of executive pay in modern corporations. After prominent suggestions that the inherent conflict of interest that exists between stockholders and corporate managers – or ‘agency problem’ – could be mitigated through the structure of managerial incentives (e.g., Jensen and Murphy, 1990a), the prevalence and size of stock option grants to senior executives have expanded increasingly and substantially (Hall and Murphy, Jared D. Harris, Assistant Professor teaches both Ethics and Strategy courses in Darden’s MBA program, and a doctoral seminar on corporate governance and ethics. His research centers on the interplay between ethics and strategy, with a particular focus...
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...MGT320 Portfolio Project Post-Enron Era Ethics The time for change is now! CEO’s must continue to be held accountable for the accuracy of their financial statements, and the performance of their company. To assure the accuracy of a publicly traded company’s financial status reporting, an additional requirement of an outside industry experienced auditing firm is needed, as well as performance based pay contracts for publically traded companies’ officers. The goal is simple, change the mindset of CEO’s, boards of directors (BOD’s), and shareholders by teaching them the fundamentals of business ethics. To obtain our goal, we must first have a basic understanding of existing legislation and the willingness to create new legislation for the betterment of America. To begin, a discussion in regards to the Sarbanes-Oxley Act is important for the purposes of an overview of existing legislation. In the past the US government has relied on the states to monitor and enforce the rules of auditors. Typically public accountants were licensed by the states to audit corporate financials; however the states had very little, if any, money to provide the necessary funds for enforcement. “Public accountants were licensed by the states, but states devote few resources to supervising auditors; federal regulation of auditing was light; and no federal agency supervised auditors. A Public Oversight Board for auditors was created in 1978, but it was dominated by accountants, funded by the audit...
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...Business Ethics Reform Heidi Hamilton MGT320-3 – The Legal Environment of Business Colorado State University-Global Campus Dr. Jason Lum April 26, 2013 Business Ethics Reform There have been many, increasingly significant business scandals and failures over the past forty years. There were the bribery scandals of the 1970s, the defense industry scandals of the 1980s, and the Savings & Loan scandals of the 1908s and 1990s. After that came the dot-com collapse, the accounting scandals involving Enron and WorldCom, and most recently the financial scandals and crisis of 2006-2009, whose effects have been the most damaging, and significant worldwide (Brekert, 2010). History gives us an early warning about ethical pitfalls of business and the tragedies that result from those ethical failures in business. People have been aware of these problems for quite some time. The ancient Greek historian Plybius said that Carthage fell because "nothing that leads to profit is considered disgraceful" (Cuilla, 2011). This goes to show that the basic problems of business ethics are not new. The only thing that changes is the cultural and technological aspects of the problem. Even Ptah-hotep in his book written between 2550-2300 BCE wrote about a person's responsibilities at work. These responsibilities include adherence to duty, self-control, and transparency or vigilance against those who want to bribe or make secret deals (Cuilla, 2011). If history has taught us that...
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...willing to accept death to keep the banana operation running. Anyone involved in this decision should be prosecuted to the fullest extent of the law. My first thoughts about this situation and putting myself in the position of Chiquita CEO, I would utilize the Weber model of organizational ethics and/or the Army-Baylor 7 step method for decision making. The first question or principle in the Weber method is the organizational interests take precedence over individual self-interest. I would say the CEO rationalized his decision and thought he was doing this. And given the situation, I do not necessarily think the CEO was making a decision to pay the AUC in a motivation of self-interest. The second principle is individual rights take precedence over organizational interests. This can get a little sticky given Chiquita decided to pay para-military troops millions of dollars. If individual rights were of great concern to the CEO, he probably should have made sure his workers and the working conditions were safe, secure, and healthy. Instead, farming bananas in Columbia is one of the most profitable means because of low income earning. The third principle is community good takes precedence over organizational interests. If the CEO was truly concerned about the community and the people who worked for him in the fields of Columbia, he probably should have considered hiring a third-party or government agency to ensure his workers and people were safe and cared for. Paying...
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...This essay will outline events that lead to the fall of Nortel network, a very successful Canadian maker of telecoms equipment in the late 1990’s. Nortel was huge and ranked as one of the largest firms of the world. This success did not last long as acquisitions of fraud, misalignment of funds among other unethical behavior were occurring. Small investors and stakeholders incurred the biggest loss. Nortel Network, a Canadian technology company was considered a fast-moving giant. The company was quick to integrate acquisitions and developed and built innovative telecom products. It seems as if nothing could stop the growth and uprising price of shares. The downfall of Nortel began when the top executives were accused of falsifying reported earnings. Top-notch executives were buying and selling stock within their retirement plans and massive accounting discrepancies were discovered. These suspicious outcomes let the United States Securities and Exchange Commission (SEC) to launch an investigation in April 2004. The company continued to plunge and deteriorate. In January 2009, Nortel filed Chapter 11 bankruptcy protection in the United States, and Companies' Creditors Arrangement Act (CCAA) in Canada. The rise of Nortel was due to innovation and timing. In July 2000, at the height of its success, with a market capitalization in excess of $350 billion Canadian dollars, Nortel accounted for 37 percent of the Toronto Stock Exchange Composite Index Value (Collins, 2012). This fast...
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...Business Ethics After reading the case study involving Ms. Alexander and her opportunity with Next Step, I would advise Ramona to pray, even fast, about accepting the position. Hopefully she was already prayed up before she went to the ‘Meet and Great’ at Next Steps Headquarters (HQ). As Christians, we must ‘…be wise as serpents, but gentle as dove’s…' (Matthew 10:16, ESV), and one way we get wisdom is to be in constant communication with our one heavenly Father, whom is all knowing. Before leaving, she read up on Next Step. When Ms. Alexander arrived at Next Step’s HQ, she was showered with all sorts of gifts and treated to lunch by the Corporate Recruiter who told her of the circumstances that makes it possible for advancement and the money she could be earning with those advancements. Within Ms. Alexander’s research of the company, she found a mix of different opinions, regarding Next Step. One article, and interview with the CEO, has the CEO talking about how he wants to create a healthier America, making it seem that he truly loves and cares for the people. But, when Ms. Alexander was present at the companies pep rally at Next Step’s HQ, he seemed to be disrespectful and scornfully abusive to his clientele, calling them ‘fat, lazy, lethargic Americans’ who needs to be saved. Turning the spectacle into a religious one. The CEO also talked about being an industry leader in the ethics code in his interview. Ms. Alexander mention that to the corporate recruiter...
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...Running head: Ethics in accounting Ethics as an Accountant The main objective of this proposal is to gain insight into the unethical accounting practices of major corporations (with a majority of the focus on Enron, WorldCom, Tyco, and Adelphia) and ultimately exposing the true perpetrators behind these scandals (the CEO's) in an effort to restore credibility in the once revered accounting profession. Many of the people responsible of these crimes are enjoying retirement in lavish homes while receiving ludicrous pension plans and company benefits at the expense of investors. If they are not brought to justice, they will realize they can get away with this sort of behavior, and the prevalence of unethical behavior will continue to rise. Research Question Are the accountants truly responsible for the fraudulent claims companies are making these days, or are they simply pressured by their bosses to fabricate figures that enhance the image of the company's profitability and fill the CEO's greedy pockets? Literature Review In the past 5 years, a plethora of articles and books have been released, dealing with ethical business practices. Balancing the books: The crooked E, is an article by Anita Peltonen, which examines Enron's practice of kiting (Illegally benefiting from altering the amount of money or time represented by checks that are in transit between deposit and payment, or credit card purchases that are between the purchase and the payment. For example...
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...Ethics in Business Institutions Name Students Name Ethics characterizes the standards of behavior perceived in appreciation to a particular class of human activities or a specific gathering, society. Ethics describes the rules or propensities concerning right or wrong deed. It characterizes how things ought to function as indicated by people's beliefs and standards. I trust that Feuerstein was guided all the more morally, additionally guided by his particular ethics. As suggested by the video, the questioner had gotten some information about how his religion (Judaism) influences his values and Feuerstein reacts that he utilizes the Torah for direction. That being the situation, Feuerstein is more guided by morals because an external benchmarks, for example, religion. Be that as it may, he genuinely trusts that he made the best decision by paying his laborers an aggregate of 25 million dollars while the manufacturing plant was under repair. Ethics may likewise be affected by society or culture. However, they are close to home standards made and maintained by the people (Seeger & Ulmer, 2001). On the off chance that Malden was a public limited company, I trust Feuerstein would have settled on the same choice at last, yet with the irate stockholders on his back. In public listed companies, CEOs has a duty of maximizing shareholders wealth however most directors realize that amplifying shareholder esteem does not imply that they are allowed to disregard the bigger interests...
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...he embezzled over $400 million dollars between private stock sales, unauthorized loans, unapproved bonuses and frivolous spending during his hierarchy (Kaplan 2009). Kozlowski was employed with Tyco for over 27 years and was an intricate force of their development of becoming one of the most successful U.S companies with a worth of over $100 billion. Kozlowski was becoming a leader to watch due to his success at leading Tyco. Kozlowski was also second highest paid CEO in the U.S at 170 million annually (Kaplan 2009). Kozlowski quoted about his leadership style “I really believe in finding the best people in the world to run our businesses. We are very decentralized and leave them alone…But we really believe in putting out trust in the people we’re hiring and helping them through the difficult times and rewarding them in good times.” (Forbes 2001) I find this rather hypocritical due to that he handpicked his Chief Financial Officer, Legal Council and the majority of his Board members. They all receiving pay off’s and kick backs and were stealing from the...
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...RightsUtilitarianism FlagPost a comment Ethics is an enormous field of philosophic study, but basically it all boils down to three general principles that can then branch off into various sub-groupings and variations on the basic theme. Ethical conduct in society, therefore, essentially comes down to three distinct values that take into consideration the rights of the individual, the rights of the masses, and the concept of distributive justice. Individual Rights. This principle of ethics relies upon the foundation that everybody in a society is entitled to certain guaranteed rights. The intrusion into this mode of ethics is based upon contradiction and conflict: my right to express my fact-based contention that George W. Bush is a criminal and should be forcefully removed by the people from his elevated position atop the hierarchy conflict with his right (often imagined) to be protected from any scrutiny. Or, to put it another way, everyone has the right to freedom of speech, but try crying fire right at the point that the Batman is riding toward the Joker on his cycle and let's see who gets kicked out of the building. Individual rights are often at conflict between the world of legality and the world of morality. For instance, it should be assumed that everyone has the right to have their health taken care of by a government that taxes them to pay for unnecessary military weapons that don't even work when the order is put through, but if someone can't pay for medicine buys them illegally...
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...ABOVE THE BOARD ------------------------------------------------- How Ethical CEOs Create Honest Corporations A book report We have seen in recent corporate history a litany of corporate scandals that rocked the foundations of the business world. Huge corporations whose economic outputs are larger than most of the developing countries have suddenly imploded under the weight of stock manipulation, unscrupulous accounting procedures and deliberate enculturation of business competitiveness anchored on ‘doing whatever it takes to win’. Small ethical cracks in the business foundation had gone too many and had been widely ignored by all of their stakeholders – employees, board of directors, stockholders, regulators, auditors and analysts. In the aftermath, we are faced with a realization of how fragile our economic system is and how much of it depends on values that are both difficult to measure and, in the current world, even more difficult to acquire. These are not mere economic values of profitability; but values of integrity, of truth, and of plain and simple honesty. It is in this context that the three authors - Patrizia Porrini, Ph.D., Lorrin Hiris, D.P.S., and Gina Poncini, Ph.D. - wrote this book. They do not seek to expound on the voluminous literature available discussing why and how these corporate scandals happened. They seek to provide answers to how effective CEOs build an ethical culture within an organization by providing actual cases of ethical...
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...Citigroup: Restoring Ethics and Image Before Growth Charles Prince, CEO of Citigroup, is facing a daunting challenge as the head of the largest financial services organization in world. He has joined a company that has experienced significant regulatory scrutiny and that has been linked to the biggest scandals in corporate history. Unfortunately for Prince, the problems are pervasive throughout most of Citigroup’s diverse service offerings. In March 2005, Prince announced his strategy to transform the financial giant and to provide a new direction for the future. He called it the “Five Point Ethics Plan” to: improve training, enhance focus on talent and development, balance performance appraisals and compensation, improve communications, and strengthen controls. Due to the size and complexity of the organization, there were significant unresolved questions. How could the plan be effectively revealed? Would the plan be strong enough to change the culture of the entire organization? How should the corporate communications department handle both the initial and long-term communication of this plan to major stakeholders? About Citigroup Incorporated in 1998, Citigroup Inc. is a diversified global financial services holding company providing services to consumer and corporate customers. The company has approximately 141,000 full-time and 7,000 part-time employees in the United States and 146,000 full-time employees in more than 100 countries outside the United States. All of Citigroup’s...
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...February 21, 2016 Law, Ethics, and Corp. Governance PharmaCARE (We CARE about YOUR health®) is one of the world’s most successful pharmaceutical companies, enjoying a reputation as a caring, ethical and well-run company that produces high-quality products that save millions of lives and enhance the quality of life for millions of others The company offers free and discounted drugs to low-income consumers, has a foundation that sponsors healthcare educational programs and scholarships, and its CEO serves on the PhRMA board. PharmaCARE recently launched a new initiative, We CARE about YOUR world®, pledging its commitment to the environment through recycling, packaging changes and other green initiatives, despite the fact that the company’s lobbying efforts and PAC have successfully defeated environmental laws and regulations, including extension of the Superfund tax, which was created by Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA). Based in New Jersey, PharmaCARE maintains a large manufacturing facility in the African nation of Colberia, where the company has found several “healers” eager to freely share information about indigenous cures and an abundance of Colberians willing to work for $1.00 a day, harvesting plants by walking five (5) miles into and out of the jungle carrying baskets that, when full, weigh up to fifty (50) pounds. Due to the low standard of living in Colberia, much of the population lives in primitive huts with no electricity...
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...Daniels Fund Ethics Initiative University of New Mexico http://danielsethics.mgt.unm.edu Tyco International: Leadership Crisis INTRODUCTION On September 12, 2002, national television showcased Tyco International’s former chief executive officer (CEO) L. Dennis Kozlowski and former chief financial officer (CFO) Mark H. Swartz in handcuffs after being arrested and charged with misappropriating more than $170 million from the company. They were also accused of stealing more than $430 million through fraudulent sales of Tyco stock and concealing the information from shareholders. The two executives were charged with more than thirty counts of misconduct, including grand larceny, enterprise corruption, and falsifying business records. Another executive, former general counsel Mark A. Belnick, was charged with concealing $14 million in personal loans. Months after the initial arrests, charges and lawsuits were still being filed—making the Tyco scandal one of the most notorious of the early 2000s. This case begins with a brief history of Tyco, followed by an explanation of Tyco CEO L. Dennis Kozlowki’s rise to power. As Kozlowki rose to become the second-highest-paid CEO, some red flags pointed toward the impending disaster. Most notably, Kozlowski’s aggressive approach to business, his lavish lifestyle, his clashes with the former, more conservative CEO, and his ousting of those who criticized Tyco’s activities all acted as indicators of Kozlowki’s unethical behavior. This analysis...
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...Improving and Sustaining Business Ethics and Corporate Responsibility ! Business Ethics is emerging as one of the greatest recognized needs in business today. No other element in business life can profit so greatly for such a small investment. Ethics and corporate responsibility not only describes what a company does internally, but also shows what they did externally. If a company lack this, it can cost business dearly. In order to start looking at how to improve and sustain business ethics, we must first ask what ethics itself is. In a simple definition, ethics involves learning what is right from wrong. Then taking that knowledge and acting on what is right. However, that’s not as straightforward as conveyed in a great deal of business ethics literature. Philosophers have been discussing ethics for at least 2500 years, since the time of Socrates and Aristotle. Many consider ethical beliefs to be legal matters. For example, what becomes an ethical guideline today is often translated to a law, regulation or rule tomorrow. Many companies use public relations as a diving board into the world of ethics." " " Public relations are a huge way that companies can effectively show ethics and corporate responsibility. Business ethics and corporate responsibility are a huge part of businesses and companies around the world. In the public’s eye, ethics are a reason why people do business with a specific company or not. A good way for companies to Page 2 of 7 show that they are...
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