Lehman Brothers were one of the largest financial institutions in the United States. The company began experiencing problems when it started offering mortgage loans to clients. Before the onset of the worldwide economic crisis, banks made significant profits from mortgages (Cochrane, 2009). Therefore, Lehman Brothers developed mortgage-backed securities (MBS) and sold them to investors globally. These MBS comprised debts. As long as people paid mortgages, investors made profits. The Lehman Brothers took many risks to the extent that the investment bank became insolvent. The Lehman Brothers did not uphold their fiduciary responsibility.
The trust of the general public and investors globally was lost due to the bank’s unethical practices. It was not honest in revealing information about its practices related to finances. The Lehman Brothers kept assuring people that the bank was doing well financially when it was already collapsing. The company had gone to the extent of proposing increased financial leverage to grow profits (Wiggins et al., 2014). This was further complicated by the bonuses, which made employees unethical and dishonest in disclosing the firm's solvency. Besides, the management failed to implement action to stop the corrupt practices.
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According to fiduciary duty ethics, an entity or party has a legal duty to act in the best interests of the other party(s) (Fieser, 2015). The term fiduciary refers to trust. Therefore an individual with fiduciary responsibility is mandated to retain trust. In the Lehman Brothers case, the firm did not conduct itself in the best interests of the investors, the public, and other stakeholders. The firm and its employees were after fulfilling their interests, and that is why they were dishonest. They did not act in good faith, as seen in their action to conceal that the company was insolvent. The utilitarian theory also supports this perspective. According to utilitarianism, the individuals or entities should engage in actions that enhance happiness for the majority. Unfortunately, the actions of Lehman Brothers caused harm to the majority.
References
Cochrane, J. H. (2009). Lessons from the financial crisis. Regulations. 32(4), 34-37. Retrieved from http://object.cato.org/sites/cato.org/files/serials/files/regulation/2009/11/v32n46.pdf
Fieser, J. (2015). Introduction to business ethics [Electronic version]. Retrieved from https://content.uagc.edu/
Wiggins, R. Z., Piontek, T., & Metrick, A. (2014). The Lehman Brothers bankruptcy: Overview. Yale School of Management YPFS Cases. Retrieved from http://som.yale.edu/sites/default/files/files/001-2014-3A-V1-LehmanBrothers-A REVA.pdf
