Step to the public, and those who are still

Step 1: Identify the

manipulated their financial position, and fooled the public into believing that
they were in a strong, healthy financial situation.  The company reported false numbers that
included their EBITDA and Operating Free Cash Flow.  They failed to disclose several commitments
and contingencies, while also failing to disclose the investment in shares of
Telco.  The CEO and CFO were involved in
these transactions to increase earnings and manipulate financial statements.  The stakeholders impacted by these unethical
decisions are the shareholders who invested in the company based on the false
information that they released to the public, and those who are still owed the
outstanding debt that the company has collected over the years.

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Step 2: Outline the

            The senior
management listened to the CEO and CFO and reported false numbers.  They knew that it was unethical and should
have said something the moment they were asked to make false adjustments.  Not only should the management employees have
acted in a different manner, but the auditors that were in place at the time of
fraud.  All of the individuals involved
should be held responsible, not just the CEO and CFO.  Any red flags should have been looked into
further, and reported.  The leaders of
the business, the CFO and CEO, did not represent themselves in an ethical
manner and did not hold themselves to a high standard.  They were acting in a way that would only
benefit themselves, and were not a good example for the employees below them.


Step 3: Construct
Ethical Arguments

            First and
foremost, the use of credit facilities and borrowing of money to pay dividends
should not be allowed.  There should have
been more detection in place and the auditors should have been able to catch
the fraudulent behavior in the new management could.  The CEO and CFO lacked professional judgement
and moral motivation by allowing the pressure of their earnings target to taint
them into unethical decision making.  Egoism
plays a role in this situation because the actions taken were to benefit them
and the way the company looked, not their actual position.  They put themselves before the company,
employees, and public.  Even after all
the wrongdoings came to light the CEO still claimed that he never committed
fraud.  Luckily, when new management was
in place they were quick to report it and were honest and transparent.  This could help to eventually turn the company
around because it is now clear that there is not fraud taking place.


Step 4:  Evaluate the Arguments for each Option

            Fraud might
have not been the CEO and CFO original intention, but that is where it
led.  They might have just been trying to
keep their job, and wanted to adjust the numbers a little, but in the end one
manipulation turned into several.  The
best way to handle any situation is to be honest, because one lie will always
turn into more lies and dig a deeper hole. 
If fraud truly was not the intention, then they should have spoken up
when they realized how extreme the adjustments were becoming.  All of the details given are more than enough
to assume that fraud was taking place. 
Not only should the CEO and CFO be held accountable but the senior
management and auditors.  The senior management
should have been aware of what was taking place and should have reported it.


Step 5: Make a

            Fraud is
any wrongful doing or action intended to deceive others, with potential to
result in financial or personal gain. 
This is exactly what took place in this case.  While the CEO and CFO may say that was never
the intention, that is what ended up happening in the end.  They knew that they were misrepresenting
numbers that would impact shareholders and other companies involved in their


Question 1:

the actions taken by Messier in the case from the perspective of the discussion
of ethical leadership in Chapter 8.  Be
specific about his failures of ethical leadership. 

An ethical leader should be one who is
an example for the rest of the company. Acting according to morals and values
is key.  They should strive to do the
right thing no matter how hard it is, or what kind of situation they are put
in.  Messier failed to do these
things.  He allowed the pressure of
meeting an earnings target get in the way of doing the right thing.  His focus was on benefiting himself rather
than the rest of the company and shareholders. 

An authentic leader is some who focuses on building
long-term value, not just meeting particular estimates or goals.  He had a responsibility take moral actions
and remain grounded and failed to do so. Even in the end, after resignation, he
failed to admit that he had done wrong.


Question 2:

how internal controls can facilitate ethical behavior and help prevent
financial impropriety. Be specific. What was the role of internal controls in
the Vivendi fraud? Be specific.

By employees being aware that there are
internal controls in place to detect fraud, they may be much less likely to act
in a fraudulent manner.  Employees may
also be more likely to report any suspicions if they know that the company
takes it seriously.  The duties of the
employees should be separated and rotated throughout the year so that they are
not doing the same thing year-round.  This
enables other employees to detect when the person before them has been acting
unethically and making adjustments, or misrepresenting numbers.  It seems that in the Vivendi case there was
not much prevention or fraud detection taking place because the leaders were
the ones involved in fraudulent behavior. 
They did not take action or focus on internal controls because they did
not want to get caught. 



do financial analysts look at measures such as EBITDA and operating free

flow to evaluate financial results? How do these measures differ from accrual earnings?
Do you believe auditors should be held responsible for auditing such

They look at these measures so that
they can see exactly how much the company is making from cash flow of
operations.  Just by looking at those
numbers, investors should be able to tell if they have really made a profit or
not.  It is a good representation to see how
much actual cash they are generating in a period.  By looking at these numbers and comparing
them to the liabilities, investors can gain enough information so that the
accrual earnings do not matter as much. 
Auditors should be held responsible to auditing this information because
it is important investment information for potential investors.  Failing to audit such information could lead
to investors losing money if fraud is taking place.