FIGURE 2.1Ethics & Governance: A Timeline of Important EventsStock Market Crash, The Great Depression U.S. Securities & Exchange Commission established & Glass-Steagall Act Fannie Mae founded Investment Advisers Act Environmental Awakening Securitization of mortgages begins Freddie Mac created, Ford Pinto introduced U.S. Foreign Corrupt Practices Act Activists (consumerists, environmentalists, socially responsible investors) emerge U.S. Federal Sentencing GuidelinesStakeholder concepts emerge Glass-Steagall Act repealed by Gramm-Leach-Bliley Act Enron, Arthur Andersen, WorldCom Fiascos lead to SOX Many scandals: corporate & professional (aggressive tax shelters)U.S. Housing Bubble bursts, economies collapse, TARP bailouts Madoff Ponzi scheme exposed, Lehman Brothers bankrupt BP Gulf oil spill Dodd-Frank Wall Street Reform & Consumer Protection Act1929 1934 1938 1940 1968 1970 1977 1991 1999 2002 2008 2010Unfettered Regulation starts and slowly tightens SOX era begins active enforcementGovernance Stakeholder pressures become significant Era Bailout rules affect corporate performance Wall Street reform

Sanctions very minor Sentences become meaningfulNature of Governance & EnforcementScandal, Ethical Issue or Development

Pre 1929 EventsThe Teapot Dome scandal was a bribery incident that took place in the United States in 192223. During the administration of President Warren G. Harding , the Secretary of the Interior leased petroleum reserves earmarked for the U.S Navy and held at Teapot Dome and two other locations to private oil companies at low rates without competitive bidding. In 1922 and 1923, the leases became the subject of a sensational investigation by and the Secretary of the Interior was later convicted of accepting bribes from the oil companies. Before the Watergate scandal, the Teapot Dome scandal was regarded as the greatest and most sensational scandal in the history of American politicshttp://en.wikipedia.org/wiki/Teapot_Dome_scandal

First Florida real Estate bust in 1920: In 1920, Florida became the popular U.S. destination/residence for people who don't like the cold. Land that could be bought for $800,000 could, within a year, be resold for $4 million before crashing back down to pre-boom levels. The prices were so inflated that to buy a condo-style property in 1926, you would've had to pay the same as you would now have to pay for a luxury home in the guard-gated communities in Miami ($4,500,000) - without adjusting for inflation!http://www.investopedia.com/features/crashes/crashes4.asp#ixzz1l9TEMvQm

The Panic of 1873 triggered a severe international economic depression in both Europe and the U.S. that lasted until 1879, and even longer in some countries. The depression was known as the Great Depression until the 1930s.http://en.wikipedia.org/wiki/Panic_of_1873

Pre 1929 EventsThe Panic of 1857 was a financial panic in the United States caused by the declining international economy and over-expansion of the domestic economy. Indeed, because of the interconnectedness of the world economy by the time of the 1850s, the financial crisis which began in the autumn of 1857 was the world's first world-wide economic crisis.http://en.wikipedia.org/wiki/Panic_of_1857

The Depression of the 1840s, experienced Australia-wide, was a major halt to rapid economic growth in Van Diemen's Land. The continued low price of wool in the London market after 1837, the 1839 English recession, the collapse of the mainland markets for grain and livestock, and the downturn of Tasmanian capital invested in Port Phillip speculations led to the Depression.http://www.utas.edu.au/library/companion_to_tasmanian_history/D/Depression%20of%20the%201840s.htm

1720s South Sea Bubble: Speculation mania that caused financial ruin for many British investors. Parliament's acceptance of a proposal by the South Sea Co. to take over the British national debt resulted in an immediate rise in its stock. After soaring from 128 1/2 to over 1,000 in nine months, the bubble of overvalued stock burst and the price per share dropped to 124, dragging other stocks down and leaving many investors ruined. An inquiry by the House of Commons found collusion by several government ministers.http://www.answers.com/topic/the-south-sea-company#ixzz1l9S7YNgL

Pre 1929 EventsThe Mississippi Bubble : (1719 1720) which derives its name from the French Mississippi Company -- grew out of France's dire economic situation in the early 18th century. By the time of Louis XIV's death in 1715, the treasury was in shambles, with the value of metallic currency fluctuating wildly. The following year, the French regent turned to a Scotsman named John Law for help. Law, a gambler who had been forced into exile in France as the result of a duel, suggested the Banque Royale take deposits and issue banknotes payable in the value of the metallic currency at the time the banknotes were issued. Law's strategy helped the French convert from metallic to paper currency, and resulted in a period of financial stability, as well as his own increased fame and power.http://www.pbs.org/wgbh/pages/frontline/shows/dotcon/historical/bubbles.html#ixzz1l9uevWZc

Tulip Bubble: In 1720, following John Law's example in France, the company proposed to take over the entire British national debt. As soon as the plan was announced to Parliament, the company's share prices began to rise as speculators gambled on the conversion plan. The House of Lords approved the plan on April 7, 1720, after government officials had been bribed with secret allocations of shares. In order to make the deal more attractive, the company inflated the value of its stock. On April 14, 2 million of South Sea Company stock was offered to the public at 300 per share and the subscription sold out within an hour. The price of South Sea stock peaked at 1050 in late June of 1720, before the scheme began to fall apart. The first large drop in the market occurred in August, as foreigners and other investors began to withdraw from the market. British domestic credit was stretched to its limit and the scheme finally collapsed at the beginning of September, with the stock having fallen by 75 percent in four weeks. Parliament conducted an investigation, corrupt politicians and businessmen were imprisoned, and over 2 million was confiscated from South Sea Company directors.http://www.pbs.org/wgbh/pages/frontline/shows/dotcon/historical/bubbles.html#ixzz1l9v6QgmWThe Dutch tulip mania of 1636-1637 is widely seen as the first recorded instance of a financial bubble.http://www.maurits.net/Research/TulipMania.pdf

FIGURE 2.2Notable Business Failures & Fiascos Since 20002001 2002 2003 2005 2007 2008 2009 2010Aurora Foods, Inc. accounting fraudEnron Corporation bankruptcy *Sunbeam Corporation accounting fraud *Waste Management, Inc. accounting fraud *Adelphia Corporation accounting fraud*Arthur Andersen collapse * Global Crossing bankruptcy HIH Insurance bankruptcy WorldCom bankruptcy *Xerox Corporation accounting fraudErnst & Young tax shelters * KPMG tax shelters *Hollinger Inc. bankruptcy *Bear Stearns sub-prime mortgage AIG sub-prime mortgages *Banking crisis bailouts by various governments Fanny Mae sub-prime mortgages Freddie Mac sub-prime mortgages Merrill Lynch sub-prime mortgage *Lehman Brothers bankruptcy *Socit Gnral rogue trader *Bernie Madoff Ponzi scheme *Ernst & Yong tax shelters *Galleon Group insider trading *Nortel Networks bankruptcy *Satyam Computer Services bankruptcy *BP oil spill *DaimlerChrysler bribery *Sarbanes-Oxley ActDodd-Frank Wall Street Reform and Consumer Protection ActIRS Circular 230:Tax SheltersLegend: * indicates case in book

TABLE 2.1Ethics & Governance: A Timetable of Important Events, 1929-1990Prior to 1929Unfettered and individualistic governance, according to the Text.1929Stock market crash the bubble and crash on Black Tuesday, October 29th, leads to the Great Depression which lasted 12 years, until World War II1933, 1934 US Securities & Exchange Commission is established to set and enforce corporate governance and accountability regulations1933 Glass-Steagall Act to control bank speculation and protect investor deposits 1938Federal National Mortgage Association known as Fannie Mae founded to provide support for the U.S. housing and mortgage markets1940 Investment Advisers Act regulation of investment advisers1957Discovery of carbon dioxide build-up in the atmosphere1962 Silent Spring by Rachel Carson catalyzes environmentalism1965Unsafe at any Speed by Ralph Nader catalyzes car safety and Consumerism1968Fannie Mae expands the U.S. mortgage securities market by securitizing mortgage-backed securities so they could be sold, thus allowing lenders to reinvest their capital1970Federal Home Loan Mortgage Corporation known as Freddie Mac created to buy mortgages, pool them into mortgage-backed securities and re-sell them to investors.1970Ford Pinto introduced 1974Ozone depletion hole discovered1977Foreign Corrupt Practices Act (FCPA) enacts penalties for U.S. companies and subsidiaries caught bribing foreign officials1977Activist investors launch socially responsible investing1984Strategic Management: A Stakeholder Approach by R.E. Freedman articulates a stakeholder theory of corporate governance responsive to the interests of those stakeholders who have an interest in the outcomes or can influence the achievement of the companys strategic objectives.1988Nestl boycott powered baby food used with tainted water1989Exxon Valdez runs aground on Bligh Reef off Alaska

TABLE 2.2Ethics & Governance: A Timetable of Important Events, 1991-20111991U.S. Federal Sentencing Guidelines created common sentences for the same crime, thus avoiding incredibly low penalties for such as environmental harm in some states.1997Nike boycott sweatshop labor and low wages1999Glass-Steagall Act repealed by the Gramm-Leach-Bliley Act.2001 Enron bankruptcy2002 Arthur Andersen suspended by SEC and implodes2002WorldCom bankruptcy2002Crisis of Confidence2002Sarbanes-Oxley Act reforms U.S. governance framework and the accounting profession 2002 New York Stock Exchange Governance Guidelines updatedOther scandals see Figure 2.22005KPMG fined $456 million for role in aggressive tax schemes2007 Four E&Y tax partners are fined for marketing aggressive tax schemes2007 U.S. Tax Circular 230 issues to control aggressive tax practices issued previously2008 Bear Stearns investment bank and brokerage firm collapses and is sold to J.P. Morgan Chase2008 Subprime lending crisis begins2008 Lehman Brothers bankruptcy2008Troubled Asset Relief Program (TARP) U.S. Government bail-out begins2008Bernie Madoff arrested for $50 billion Ponzi scheme2010 BP oil well disaster in Gulf of Mexico2010 International banking regulations created2010Dodd-Frank Wall Street Reform and Consumer Protection Act enacted to respond to subprime lending problems