According to Roger Leeds in an article titled "Breach of trust: Leadership in a market economy" in Harvard International Review, he states: Regardless of the country or culture, a prerequisite for market efficiency is public trust- trust in a system where investor decisions are based on reasonably accurate and complete corporate disclosure, where all participants have equal access to information, and where the laws and regulations governing market behavior are effective and enforced….
In a market economy, trust is embodied most prominently in an interconnected network of public and private institutions that conveniently fall into three categories: the main government agencies that set the rules of the game for corporate and financial market behavior and monitor their performance, such as the regulators of securities markets and banks; the private sector self-regulating bodies that set standards for acceptable conduct within specific professions, such as accounting, law and banking; and perhaps most importantly, the companies themselves, along with their independent directors, outside legal counsel and financial advisors.
(2) In corporate America, loosely stated, the auditing of corporate books is supposed to lead to disclosure in reporting financials using standard accounting practices. Furthermore, financial analysts then use this information-as well as industry information-to make their recommendations on the value of a specific company. This gives investors the necessary tools to evaluate potential and current investments objectively, which should lead to companies who are performing poorly to decrease in value.
When this happens, it is a signal that changes in composition of the board and/or executives should be made in order to have new strategies brought to the company that will increase the value thereby attracting the investors back. What happened in this latest round of corporate downfalls is that all of these systems failed at the same time. The question then becomes why? The answer is at the executive corporate level there was too much power over the boards and the auditors. This power was used to control both because of greed on all parties.
In the case of the auditors, most of them were also doing consulting work for the very corporations they were auditing. In Organizational Behavior Judith R. Gordon states, "Power goes beyond merely counteracting dependence…. [executives] can exert power when they exchange services others need for compliance with their request" (289). Since the auditing firms were greedy and needed the business of the corporations, they allowed executives to exert power over them. In the case of the boards, most of the board members were executives of other corporations; these executives sat on each others boards.
This led to what could be termed the "good old boy network". Further on in her book Gordon writes, "Sometimes individuals or groups develop a social exchange network to help them negotiate the allocation of valued resources" (289). In this case, in order to get their agendas and strategies pushed through at the companies they are executives at, board members simply go along with what ever the executive at the company whose board they are on wants. By doing this, when they want their own agendas pushed forward at their board meetings, they can count on reciprocal compliance.
We can see that by the lack of separation and counter-dependence on each other, there was a breakdown in some of the fundamental checks and balances that control the capitalist business environment in the United States. Ethical and Legal Behavior by Executives In this section of the paper, it is important to look at the reasons why some executives (as well as others involved in the checks and balances area) begin to do unethical and illegal things. To become a CEO for a major company one has to go through many sacrifices along the way.
Some one once told me "You can have anything you want in life, but you can't have everything". This certainly is the case. In any endeavor there are tradeoffs that have to be decided on. In the cases of those rising to the top of corporate America, they have had to sacrifice many things along the way because to make this transition to the top requires a focused dedication to reaching the top. Many other aspects of their lives are cast aside in order for them to reach that position. More often than not it requires that these individuals take the rules of the game to the limit (and sometimes beyond) to get to the top.
Furthermore, those who make it to the top have had to take risk in their journey. As stated by Roderick Kramer in a Harvard Business Review article, "Big-time success usually comes only after enormous sacrifice, and leaders who've made Faustian bargains on the way up are acutely aware of just how much they've invested to reach their goal…. But making those sacrifices renders the leader extremely vulnerable to the heady effects of power's rewards" (5). Once these individuals make it to the top they want to reap the spoils of victory.
Perhaps they feel they deserve more than they actually do because of all of the sacrifices they have had to make in order to get there. This can lead to irrational behavior on their part. Keep in mind that these individuals are used to pushing the envelope in order to get to the next level. Since these individuals have made it to that level, in their mind pushing to the edge-and sometimes over-leads to success. So it is not a far reach that they will continue to push the ethical and legal limits beyond what is accepted in an attempt to become more successful.
Further on in The Harder They Fall, Kramer contends: The sacrifices an individual makes on the way to the top not only make it harder to cope with the rewards when they do come, they also make the person greedier for more of the same. Indeed, getting more becomes "just deserts" for having paid such a high price for success…. However easy it may be for leaders to rationalize such an exaggerated sense of entitlement, they create trouble for themselves when their indulgences become too out of sync with what other people believe is right or fair.
(6) In an effort to reach the pinnacle of their profession, executives have had to be willing to take risks, sacrifice many things along the way and push the limits of what is acceptable. Since all of these behaviors have been rewarded, they sometimes go beyond what they should in order to attain more successes. This leads to their ultimate demise-and that of the companies they run-at the expense of the company's stakeholders.