Corporate fraud is quite common, and the reason for this is greed. A new type of punishment should be introduced to eliminate financial frauds, such as the abolition of bonds during a prosecution. Many executives have money and power, and the inability to use these sources to avoid justice could instill more fear.
Shareholders and investors have always expected CEOs to maintain high ethical standards. However, not every CEO acts according to ethics which might lead to irrevocable consequences in the future. Enron serves as an example of a company whose corporate governance system lacked “moral character” (Dibra, 2016). In the 1990s, Enron began trading extensively in the energy derivative market. Despite massive trading losses, the company falsified accounting records, resulting in one of the largest accounting scandals in history (Dibra, 2016). As a result, shareholders and employees lost billions of dollars in investments and pension benefits.
Another example of unethical financial management is Parmalat, whose fraud also began as an attempt to cover up losses. Calisto Tanzi disguised the losses in its financial results after their South American subsidiary started to generate losses in 1990 (Dibra, 2016). As is often the case in frauds, creative accounting of Parmalat resulted in ever more unethical accounting conventions. Parmalat fell into default on a bond issue in 2003 despite reporting the equivalent of billions in cash and investments.
As seen from the work of A., financial crimes can be challenging to detect. The CEOs of WorldCom and Waste Management reported immense fake earnings through creative accounting. Despite knowing the detrimental effects of their actions, which could lead to billions in losses and thousands of people left without jobs, managers decided to concentrate on personal gain. Nevertheless, the regulators identified violators and brought them to justice, sentencing them to decades of prison.
Reference
Dibra, R. (2016). Corporate governance failure: The case of Enron and Parmalat.European Scientific Journal, 12(16), 283-289.