Corporate Governance and Ethical Responsibilities

Fiduciary duty

Obligation to act in the best interest of the company and its shareholders.

Duty of loyalty

Requires leaders to avoid conflicts of interest and not use their position for personal gain.

Duty of care

Leaders must make informed and prudent decisions with diligence and good faith.

Responsibilities of corporate board of directors

Oversee management and major decisions; ensure ethical standards and compliance; protect shareholder interests and long-term company viability.

Responsibilities of officers of a corporation

Day-to-day operations; implement board policies; maintain legal and ethical standards.

Sarbanes Oxley Act of 2002

Created to improve corporate accountability and prevent fraud; imposes strict financial disclosure and internal control requirements.

Whistleblower protections

Protect employees who report misconduct from retaliation; encourages reporting of unethical or illegal activities.

Corporate governance changes imposed due to Enron fraud

Enhanced transparency and accountability; mandatory independent audit committees; CEO/CFO certification of financial statements.

Board Level Audit Committees

Responsible for overseeing financial reporting and disclosures; must consist of independent directors.

Corporate Executive Compensation Committees

Determine executive pay; must be independent and align pay with long-term performance.

Inside director

A board member who is also an employee or has a relationship with the company.

Outside director

A board member with no material relationship to the company.

Independence of board member

Must not have financial or close personal ties to management.

Majority outside directors on board

Promotes unbiased oversight.

Conflict of Interest

Situation where personal interest may interfere with professional duties.

Negative results due to conflict of interest

Poor decision-making, reputational damage, legal issues.

Time management issues for executives

Divided attention can impair performance and oversight.

Duty of loyalty violations

Acting in self-interest rather than the company's.

Financially unfair related party transactions

Deals favoring insiders at the expense of shareholders.

Positive results from conflict of interest

Synergies, innovation, and efficiency when managed ethically.

Business synergies / Duty of care

Fulfilling fiduciary duties through collaboration and informed decisions.

Efficient related party transactions

Can result in market efficiencies, cost savings, and innovation.

Influence of advertising on poverty

Promotes materialism and unrealistic expectations.

High consumerism

Encourages spending over saving; impedes poverty resolution.

Poverty and mental health

Increases anxiety, depression, and stress.

Self-actualization pyramid

Poverty prevents fulfillment of higher psychological needs.

Effectiveness of poverty assistance

Often hindered by misunderstanding and scope.

Lack of understanding how to help

Misguided efforts can be inefficient or harmful.

Magnitude of economic suffering

Poverty affects millions and requires systemic solutions.

Non-payment of small debts

Causes a cycle of legal trouble and transportation barriers.

Peter Singer's theory

Moral obligation to donate all income above survival needs.

Charity as moral obligation

Giving is a duty, not a choice.

Singer's theory limits free will

Some argue it removes autonomy over finances.

Inclusive growth

Economic growth that benefits all levels of society.

Affordable products

Non-luxury goods for low-income consumers.

Public-private partnerships

Collaborations to tackle systemic poverty.

Training availability

Provides skills needed for employment and independence.

Potential poverty solutions

Affordable housing, vouchers, education, wage increases.

Education

Essential for upward mobility and long-term success.

Using business to address poverty

Apply skills to scalable, innovative solutions.

Wealth growth through demand

Economic expansion increases opportunity.

Economic disruption from poverty

Weakens entire markets and social systems.

Boom to bust cycles

Causes unexpected poverty and instability.

Impact on society

Poverty strains services and prevents societal advancement.

Lack of full actualization

Society misses out on potential talent and ideas.

Moral hazard and disengagement

Leads to apathy and dependency.

Public safety and homelessness

Poverty increases trespassing and unsafe living conditions.

Environmental harm from camping

Improper use of land damages ecosystems.

Boeing whistleblowers

Raised safety concerns and faced retaliation.

Whistleblower deaths at Boeing

Highlight risks of speaking out.

Boeing's safety failures

Traced to decades of de-emphasizing safety.

Boeing's culture

Prioritized profit over safety.

Whistleblower reliance

Indicates lack of proper executive compliance.

Inside Job film

Critiques systemic ethical failures in finance.

Ethical crisis causes

Moral hazard, deregulation, excessive risk.

Black Swan events

Unexpected crises that deepen poverty.

Foreclosures

Burden individuals, neighborhoods, and support systems.

No accountability in sub-prime crisis

Wrongdoers faced no consequences.

No clawbacks

Bonuses not reclaimed despite failures.

No prosecutions

Lack of criminal charges for misconduct.

Moral hazard accepted

Encourages future recklessness.

No independent risk oversight

Biased or missing evaluations.

Ineffective regulators

Failed to stop the crisis.

Groupthink by regulators

Suppressed critical voices.

Lack of foresight

Officials ignored signs of collapse.

False credit ratings

Misled investors and markets.

Credit rating agency bias

Profit motive creates conflict of interest.

Delayed government action

Worsened crisis severity.

Glass Steagall Act

Separated commercial and investment banking.

Deregulation in 1980s

Removed protections and raised systemic risk.

Global interconnectedness

Crisis in one nation can spread globally.

Regulator incompetence

Failed to uphold fiduciary duty.

Workplace bullying

Creates toxic environments and silences dissent.

Lobbying

Shapes favorable laws for powerful firms.

Compensation structures

Rewarded risk rather than responsibility.

Bonuses for risky products

Incentivized unethical sales practices.

Severance packages

Rewarded failure with large payouts.

Executive compensation

Often not tied to long-term success.

Improper product sales bonuses

Encouraged selling harmful financial instruments.

Sub-prime mortgage bonuses

Higher pay for selling riskier loans.

Short-term mortgage incentives

Undermined long-term financial stability.

Debt and over-leverage

Increased vulnerability to collapse.

Government-private sector crossover

Blurs regulatory objectivity.

Leadership recycling

Same individuals rotate through powerful roles.

Lack of leadership diversity

Limits new ideas and ethical reform.

Goldman Sachs self-dealing

Profited from and against sub-prime mortgages.

Greed and self-interest

Cognitive Moral Development Level 2.

Abuse of legal structures

Exploiting laws for unethical gain.

Texas S&L crisis

Example of deregulation gone wrong.

Icelandic bank failures

Rapid growth, poor oversight, sudden collapse.

Key players in Inside Job

Exposed roles in the financial crisis.

Human leaders with flaws

Ex: Summers, Geithner showed both strengths and faults.

Self-reflection in ethics

Used by Brooksley Born.

Utilitarian decision-making

Timothy Geithner in crisis response.

Larry Summers

Promoted deregulation; powerful economist.

Eliot Spitzer

Attorney General focused on corporate crime.

Brooksley Born

Warned about derivatives risk; ignored.

Virtue ethics

Reflects high cognitive moral development.

Timothy Geithner

Used utilitarian ethics to stabilize economy.

Cognitive moral development level

Level 4-5: Societal focus and ethical reasoning.