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Ethics Article Review

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Ethics Article Review

Post  Pete2002 on Mon Jan 25, 2010 3:16 am

Ethics in business is something that every one wants but few expect. In the past companies such as Enron, WorldCom, and Tyco have all been in the public eye because of unethical practices in accounting. Even with all these and other high profile cases unethical practices are still happening. In a recent article on the MSN Money Website (bizjournals.com, 2006) yet another case has hit the press.

The basis of this article deals with United Health Group Inc. CEO William McGuire. Mr. McGuire resigned his position as CEO and chairman of the board after an independent report found that the company had been backdating stock options as part of executive compensation packages. The independent study that was released indicated the millions of dollars of stock options had likely been backdated. Back dating of stock options has in the past been done to set the date of the stock when the stocks are at their lowest. This provides higher gains to the executives that receive the stocks as part of their executive compensation. This can result in millions of extra dollars of income to the executives. “The report found that the company had failed to ensure such practices were avoided.” (bizjournals.com, 2006)

Mr. McGuire was not the only executive put in the spot light over this issue. In addition to the resignation of McGuire, William Spears, a member of the boards compensation committee also resigned and the general counsel and secretary David Lubben will retire.

From the excerpts of the article that have been provided it is clear that this violation in ethics did not rest solely in the hands of Mr. McGuire. For a general counsel and a member of the compensation committee to be involved this violation ends at the top of the heap. The SEC has received a copy of the report, so I doubt that this is the end of the news last of this latest violation. The Sarbanes-Oxley act of 2002 was enacted to protect investors by improving the accuracy and reliabilities of corporate disclosures made pursuant to the securities laws, and for other purposes. (findlaw.com, 2002) The major parts of the act were to establish guidelines for the reporting of publicly traded companies.

Ethics in business is imperative. Shareholders expect the people running the businesses that they are shareholders in to run the business with honesty, integrity and efficiently so the shareholders receive a good rate of return on the money they have invested. When CEO’s and Boards of Directors break the trust and confidence bestowed upon them not only does the company lose creditability but the company can also lose market shares, which further hurts the shareholders. The board of directors and the CEO of United Health Group broke the trust of shareholders. In the days following the announcement by United Health Group about the back dating of stock options, the stock prices dropped by almost 5 points (yahoo finance, 2006). While the price quickly rebounded, the SEC is still reviewing the report provided to them following the independent review. We can expect another drop in the stock value once the SEC make a ruling.

This article is an example of poor ethical standards within a company’s management. While no amount of regulation can force managers in a company to always act with the highest ethical standard, legislation like the Sarbanes-Oxley act can help to hold those guilty of unethical practices accountable for their actions.



References
1. bizjournals.com (2006, October 16, 2006). McGuire to leave UnitedHealth. Retrieved November 19, 2006, from http://news.moneycentral.msn.com/provider/providerarticle.aspx?feed=ACBJ&date=20061016&id=6107106
2. findlaw.com (2002, July 23). H.R. 3763. Retrieved November 20, 2006, from http://fl1.findlaw.com/news.findlaw.com/hdocs/docs/gwbush/sarbanesoxley072302.pdf
3. Yahoo finance (2006, November 20). Unitedhealth Group, Inc. (UNH). Retrieved November 20, 2006, from http://finance.yahoo.com/q/bc?s=UNH&t=3m&l=on&z=m&q=l&c=

Pete2002

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