Resisting Corporate Corruption : Lessons in

This text's objective is to teach business ethics in a manner very different from the conceptual/legal frameworks which dominate graduate schools. The book offers 25 case studies that cover a full range of business practice, controls and ethics issues. The cases are framed to instruct students in early identification of ethics issues, and how to work such problems effectively within corporate organizations. By pursuing these case studies, students should emerge with a "practical toolkit" that better enables them to follow their moral compass. The cases provide examples of how executives can embed more ethical approaches inside alternative business strategies, redirect pressure and intimidation to parties better positioned to resist, and use the firm's controls structure to counteract corrupt practices. Specific cases take up the circumstances of whistleblowers and the changing protections afforded by recent laws. Fourteen case studies examine Enron's crossing of various ethical lines from 1987-2001. Eleven new cases examine key financial crisis moments at Countrywide, Fannie Mae, Citibank, Goldman Sachs and PriceWaterhouseCoopers. Interpretive essays discuss the nature of sound financial controls systems, the lessons of Enron, and the extent to which the financial crisis shows Enron's issues to be unresolved.

Stephen V. Arbogast served from 1999–2004 as the treasurer of Exxon Mobil Chemical Company and has over thirty years of experience in finance working with Exxon Corporation and Exxon Mobil Chemical. While treasurer of chemicals, he held positions that included director of Qenos (Australia's sole manufacturer of polyethylene, a joint venture with Orica PLC), director of Dexco (a joint venture with Dow Chemical), and director of Al Jubai Petrochemical Company in Saudi Arabia. Currently serving as an Executive Professor of Finance at the C.T. Bauer College of Business, Professor Arbogast's teaching career has focused on international finance, project financing, and business ethics. In addition to authoring over fifty case studies based on his experiences at Exxon Mobil, he has previously taught at both Fordham University's Graduate School of Business in New York and Rice University's Jesse Jones Graduate School of Management in Houston.

Acknowledgementsvii

Preface ix

Note to Faculty:How to Use this Book xvii

Case Study 1 Enron Oil Trading (A): Untimely Problems from Valhalla (A) 5

Essay 1 How to do an Ethics Case Study: Key Steps in Tactical Planning 21

Case Study 2 Enron Oil Trading (B): The Future of Enron InternalAudit 37

Case Study 3 Enron Oil Trading (C): An Opening for EnronAudit? 49

Case Study 4 Enter Mark-to-Market (A): ExitAccounting Integrity? 53

Case Study 5 Enter Mark-to-Market (B): Accounting & theAggressive Client 71

Essay 2 NecessaryAmmunition— The Economic Rationale for Financial Control 81

Case Study 6 Enter Mark-to-Market (C): The Disease Spreads to Enron Clean Fuels 107

Case Study 7 Adjusting the Forward Curve in the Back Room (A) 115

Case Study 8 Enron’s SPE’s:AVehicle too Far? 127

Case Study 9 Court Date Coming in California 149

Case Study 10 Jeff Skilling and LJM (A): The “Shoot the Moon” Meeting 169

Case Study 11 New Counsel forAndy Fastow (A) 189

Case Study 12 Nowhere to Go with “The Probability of Ruin” 205

Case Study 13 Lay Back … and Say What? 227

Case Study 14 “Whistleblowing” before implodingin Accounting Scandals 249

Essay 3 Legacy and Lessons of Enron: Forerunner of the Financial Crisis? 271

Essay 4 Resisting Corporate Corruption: Tactical Lessons from the Enron Cases 279

Essay 5 Underappreciated Origins of the Financial Crisis:APersonal Memoir 289

Case Study 1 Should Countrywide Join The Subprime Mortgage “Race to the Bottom?” 311

Case Study 2 Seeking a Sustainable Business Model at Goldman Sachs 337

Case Study 3 Juggling Public Policy, Politics and Proﬁts at Fannie Mae (A) 357

Case Study 4 Sub-Prime Heading South at Bear StearnsAsset Management 383

Case Study 5 Ratings Integrity vs. Revenues at Moody’s Investors Service 409

Case Study 6 Juggling Public Policy, Politics and Proﬁts at Fannie Mae (B) 437

Case Study 7 Admission of Material Omission? Citibank’s SIVs and Sub-Prime Exposure 461

Case Study 8 Facing Reputational Risk on Goldman’sABACUS 2007-AC1 487

Case Study 9 Time to “Drop the Hammer”on AIG’s Controls? 505

Case Study 10 Write to Rubin? – Pressure on Underwriting Standards at Citigroup 533

Case Study 11 Wean Lehman Brothers off “Repo 105”? 559

Case Study 12 Time to Report Moody’s to the SEC? 575

Case Study 13 Take CitiMortgage to the Feds? 595

Essay 6 Chronic Crises, Systematic Breakdowns, Emerging Resistance and The Implications for Teaching Business Ethics 613

A Note on Sources 629

Index

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Resisting Corporate Corruption : Lessons in Practical Ethics from Enron Through the Financial Crisis

Summary

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Table of Contents

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