Ethical Issues Behind the Collapse of Lehman Brothers

Running head: ACCOUNTING IN SOCIETY
Accounting in Society
Name of the Student
Name of the University
Author’s Note

1ACCOUNTING IN SOCIETY
Introduction
Business ethics can be considered as an outward appearance of applied ethics or
professional ethics that involves in the examination of ethical principles and ethical situations in
the business organizations. All the businesses have the obligation to adhere to the principles and
standards of business ethics as non-adherence can lead to the collapse of the companies (Crane
and Matten 2016). There are many cases all over the world of corporate collapses due to
unethical behavior and this essay sheds light on the ethical issues behind the collapse of Lehman
Brothers.
Discussion
Lehman Brothers used to be an international firm involved in providing various financial
services. It was the fourth largest investment bank in United States (US) before the incident of
bankruptcy. Lehman Brothers was involved in various types of business operations like business
in investment banking, sales of equity along with fixed-income, trading of equities, equity and
financial research, management of investments, trading of private equity and private banking.
The firm was established in 1850 and it was operational for 158 years from their establishment
that is from 1950 to 2008.
There were certain ethical issues in the case of Lehman Brothers that contributed towards
the collapse of the firm; they were the lies of the CEO of Lehman Brothers, Richard Fuld;
concealment sanctioned by CFO, Erin Callan and the carelessness of the audit partner, Ernst &
Young (EY) (theguardian.com 2019). These are discussed below.
In 2007, when the housing market commenced faltering, Richard Fuld was involved in
applying extremely aggressive as well as leveraged business model in Lehman Brothers. When
other competitors of the firm started identifying the upcoming crisis and evaluated their
consequences, Richard Flud did not considering rethinking their strategy and did comminute
increasing the company’s asset portfolio that was of high risk at that time. This action was highly
unethical at that time (smh.com.au 2019). After that, another major unethical action responsible
for the collapse of Lehman Brothers was the CFO’s authorization towards siphoning away the
assets from the accounts of Lehman Brothers to Hudson Castle, a phantom subsidiary company