1. The directors of the Tesco Company conducted a fraud in the financial statements to lie to the investors and the public. While under pressure to meet strict financial demands and the decreasing number of customers, the directors inflated the profits in the financial statements to give a false view that the firm was making profits. As a result of this fraud, the business went through financial crisis making the investors lose their investments.
2. The main ethical issue breached is honesty and trust. The directors of Tesco Company realized they wouldn’t meet their expected earnings. They started to overstate profits and deceive the public about the company’s earnings. This unethical behavior and scandal went on until it came to the public.
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In the Lehman Brothers, the unethical scandals led the business into bankruptcy. The management employed balance sheet trickery to avoid disclosing the financial problems they experienced. The company was undergoing financial difficulty, but the directors never revealed it to the public. It was unethical to do trickery on the balance sheet to dupe the public that all was well when the business was undergoing financial difficulty. They reached the ethical obligation of honesty of an employee.
3. In both the scandals, the main issue is lying to the public and shareholders about the performance of the business through misstatements in the financial statements. The directors at Tesco overstated the profits in its books of account to lie to the public that they were making profits. Similarly, the directors of the Lehman brothers lied to the public about the financial position of the firm by introducing trickery on its balance sheet to show the public that all was well when there were financial difficulties. The firm finally went bankrupt, and everything became public.
4. The directors at Lehman brothers engaged in irresponsible lending practices and over-reliance on credit ratings by the investors leading to reduced liquidity and consequently financial problems to the firm. Upon discovery of the mess when the company started facing financial difficulties and low liquidity, the directors introduced fraud at financial statements to give a false representation of the financial position of the business. The financial difficulties at the Lehman were majorly caused by poor lending practices and over-reliance on credit to do business. Tesco, on the other hand, experienced its problems due to pressure to meet certain financial targets by the owners. When they started losing customers, they resorted to treating suppliers as a source of profits. When unable to meet their economic demands, the directors overstated the profits to show that the business is doing well. As opposed to Lehman whose problems started as a result of hard financial conditions, Tesco case began by the need to meet strict financial targets which could not be realized.
5. The shareholders of Tesco could have hired an independent external auditor to carry out verification of the financial statements of the firm and discover any fraud before it went too far. The auditor can detect any scam and misstatements done to the financial statements to dupe the shareholders.
6. The primary ethical responsibility of Tesco employees is honesty. Employees must act with honesty and truthfulness. The employee needs to be frank with the owners and always report the correct thing. The managers of Tesco lacked honesty. In an attempt to try and meet strict financial targets, they conduct a fraud in the financial statements to lie to the public and shareholders that the business was making profits. As a result of failing to adhere to their ethical obligation of being honest, they cause a loss to shareholders.
7. Trusting employees is vital to them in their development. When the employer puts trust on the employees, they are developed in their job area, and a spirit of loyalty is built between the employer and the employee. Employee trust can also increase the confidence of the employees and make them work towards achieving the goals of the organization. By trust, trust is created in the work environment. A strong bond of trust between the employer and the employee is used in executing a change in the organization. To complete a change properly in the organization, the employees need confidence from the employees.
However, the case of Tesco brings a negative impact of having trust in the employees. The managers Tesco were trusted by the investors to be able to manage their businesses and assets with at most good faith and give positive results. The managers, in turn, disappoint the investors by engaging in the unethical behaviors of manipulation to dupe their employers. They do a fraud in the financial statements by overstating the profits and lie to the same investors who have vested all their trust in them. As a result, the investors end up losing their investments.
8. A company’s reputation is essential in building customers’ trust and building its strong base in the market. Customers prefer buying products from reputable firms whom they can trust. A good reputation is also important in attracting more investors into the company to buy shares and promote the expansion of the firm. As a result of the scandal in Tesco where the accounts were inflated by over 260 million Euros and reducing of its market value, it severely damaged its name leading to erosion of customer trust and lost shareholders’ confidence. The scandal also placed the organization under investigations and possibilities of lawsuits for the individual directors who participated in the fraud.
