Transcript Slide 1

Corporate Ethics and Leadership
Presented at
National Chung Cheng University
January 9, 2006
Jason Lin, Ph.D.
Professor of Business Administration
Truman State University
Outline
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What is OK behavior
Defining Ethics
Types of Unethical Behavior
Big Financial Scandals
Payoffs of Integrity
Overview of Sarbanes-Oxley Act of 2002
Sarbanes-Oxley and Corporate Governance
Suggestions to Improve Corporate Governance
Quality of Leadership
Ethical Responsibility
Questions
Jason Lin, Ph.D.
Professor of Business Administration
Truman State University
Is it OK ?
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To overlook a classmate cheating as long as he or
she is your friend?
To use a project idea from a fellow student?
To use a source of information and pass the work off
as your own?
To steal a business idea from a co-worker?
To be a free rider of a group project for class?
To take home small office supplies for personal use?
For a manager to overlook undesirable behavior of
people in the organization who are well-liked?
Jason Lin, Ph.D.
Professor of Business Administration
Truman State University
What is Ethics?
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A system or set of moral principles. The rules
of conduct governing a particular class of
human actions or a particular group, culture.
- Webster College Dictionary
Standards of conduct which indicate how one
should behave based on moral duties and
virtues rising from principles of right and
wrong.
Why important?
Jason Lin, Ph.D.
Professor of Business Administration
Truman State University
Who acts unethically?*
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All levels of American Workforce
Nearly half of U.S workers act unethically
- cheating on expense account
- Discriminating against co-workers
- paying or accepting kickbacks
Attributed to “pressure” due to long hours, sales
quotas, job insecurity, balancing work and family,
personal debt.
* “Doing the Wrong Thing” Published in the USA Today
Jason Lin, Ph.D.
Professor of Business Administration
Truman State University
Top 5 Types of Unethical Behavior*
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Cut corners on quality control
Covered up incidents
Abused or lied about sick days
Lied to or deceived customers
Put inappropriate pressure on others
* “Doing the Wrong Thing” Published in the USA Today
Jason Lin, Ph.D.
Professor of Business Administration
Truman State University
Big Financial Scandals
Enron’s Financial Scandal
 The seventh largest energy company in the US
 Past earnings were overstated by $500 million
 Liabilities were understated by billions of dollars
 The largest bankruptcy filing in the US history
 Over $ 80 billion of stock market value evaporated
Jason Lin, Ph.D.
Professor of Business Administration
Truman State University
Enron’s Scandal
Auditors – Arthur Anderson and Enron Top executives
knew in Feb 2001
 Found guilty of obstruction of Justice in the case
Consequences
 Top executives in trials (Jan. 17, 2006)
 Arthur Anderson in court
 Investors lost billions
 Enron Employees
Jason Lin, Ph.D.
Professor of Business Administration
Truman State University
MCI WorldCom’s Financial Bomb
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The second largest long-distance telephone
provider in the US
Improperly booked $ 3.8 billion over the past
5 quarters ($11 Billion)
Over $ 125 billion dollars of stock market
value evaporated
Auditors – Arthur Anderson
Bernard Ebbers was sentenced 25 Years
Jason Lin, Ph.D.
Professor of Business Administration
Truman State University
Tyco International’s Scandal
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CEO/CFO/General Counsel indicted for fraud
and theft by the SEC in Sep 2002
CEO/CFO issued bonuses to themselves
without board’s approval
CEO/CFO/GC accused of looting $ 600
million from Tyco
CEO/CFO assets frozen by court order
Dennis Kozlowski was sentenced 25 Years
Jason Lin, Ph.D.
Professor of Business Administration
Truman State University
Payoff of Integrity
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More effective leadership
More trusting personal relationship
More effective organizations
Stronger communities
Better feelings about ourselves
Jason Lin, Ph.D.
Professor of Business Administration
Truman State University
Reasons for Sarbanes-Oxley (SOX) Act
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Corporate Boards are not independent
Huge stock options are used as
compensation
Stock options are not expensed
CEO’s of large companies have lost public
trust
No incentive to report misconduct
Jason Lin, Ph.D.
Professor of Business Administration
Truman State University
The Sarbanes-Oxley (SOX) Act of 2002
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Established the Public Company Accounting
Oversight Board
Increased communication
Provide Audit Committee with funding for
outside advisors
Prohibits future loan’s to officers and
directors
Jason Lin, Ph.D.
Professor of Business Administration
Truman State University
The Sarbanes-Oxley Act of 2002
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CEO/CFO certify financial statements
Top management monitors and reports on
internal controls
External auditors must evaluate
management’s approval of internal controls
Jason Lin, Ph.D.
Professor of Business Administration
Truman State University
The Sarbanes-Oxley Act of 2002
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Illegal for director/officer to fraudulently
influence independent auditors
Accelerated reporting of trades by insiders
Companies will disclose whether it has code
of ethics for its senior financial officers
Unlawful to punish or retaliate against those
reporting unethical behavior
Jason Lin, Ph.D.
Professor of Business Administration
Truman State University
The Sarbanes-Oxley Act of 2002
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Public accounting firms register with Public Company
Accounting Oversight Board
Attorneys will report evidence to material violations of securities
laws
Increased criminal penalties for CEO/CFO certifying and filing
in bad faith
Criminal penalties for altering, destroying, mutilating, or
concealing documents
Securities analysts must adopt conflict of interest rules
Large corporations have to be in compliance by June 15, 2004
Smaller companies have to comply by April 15, 2005
Jason Lin, Ph.D.
Professor of Business Administration
Truman State University
Sarbanes-Oxley and Corporate
Governance
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Executive Compensation
(Larry Ellison, Dick Grasso)
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Independent Board of Directors
(Imbalance of Power)
Jason Lin, Ph.D.
Professor of Business Administration
Truman State University
Balance of Power in Corporate
Governance
CEO & Mgmt
Transparent
financial
reports
Updates & strategic
direction
capital
Company
& CEO
oversight
weak controls, little influence
Shareholders
Board
Minimal information flow, no individual
accountability
Jason Lin, Ph.D.
Professor of Business Administration
Truman State University
Suggestions to Improve the Imbalance
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Make directors accountable to shareholders
Separate positions of chairman and CEO
Reinvigorate shareholders
Give Board sufficient funding
Jason Lin, Ph.D.
Professor of Business Administration
Truman State University
QUALITIES OF LEADERSHIP
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Accept challenges and take risks
Master both listening and speaking
Live by the values they profess
Freely give away their authority
Recognize the best in others
Have a vision and convince others to share it
TRUE LEADERS?
THE GOOD LEADER: Sun, Yat-Shan, Winston
Churchill, Sam Walton, Jack Welch, Warren
Buffet
THE BAD LEADER: Larry Ellison, Michael
Eisner, Dick Grasso
THE UGLY LEADER: Bernard Ebbers, Ken
Lay, Dennis Kozlowski, J.N. Chen, S.F. Yeh
Layers of Responsibility for Ethics
Individual
Action
Company
Regulations
Government and Systems
Regulations
Jason Lin, Ph.D.
Professor of Business Administration
Truman State University
Ethical Evolution
Ethical
Courage
Ethical
Leadership
Ethical Knowledge
Jason Lin, Ph.D.
Professor of Business Administration
Truman State University
?
Thank You for Your
Attention
Jason Lin, Ph.D.
Professor of Business Administration
Truman State University