Essay on Business Judgment Rule

Large profitable corporations are not only the movers of global technological advancements and world’s most attractive employers but also the sources of huge business and political scandals. Taking into consideration the scale of operations within such companies, certain negative interactions in various economical and social spheres usually become crucial for the managers of the companies and make them liable for the company’s actions in the court as a result.

In 2008, Henry T. Nicholas III, the co-founder and the CEO of the chip-maker corporation Broadcom, was accused in “fraud, conspiracy and narcotic charges”, reports Deffree (2008). According to FBI, Nicholas and his colleagues have been backdating stock options of the personnel in the company, kept the drug distribution in several houses throughout the US, and encouraged prostitution.

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The indictment contained the falsification in terms of financial resources of Broadcom, and could result in 340 years of imprisonment for all the illegal operations. Neglecting of the backdating stock options within a company meant that Broadcom has been failing to show the real income for a long period of time. The amount that was written down was equal to $2.2 billion for the six years (Deffree, 2008). 18 pages of the indictment were also dedicated to the drug-addiction of Nicholas based on several lawsuits from his employees and subcontractors. They resulted in that Nicholas was sentenced to 20 years of imprisonment. In whole, the federal government made 21 accusations for Nicholas within a one week period (Flaccus, 2008).

Finally, Nicholas agreed with the terms of release which resulted in a $3.3 million bail. According to Flaccus (2008), at the hearing that lasted for three hours, the former CEO of Broadcom was modestly dressed and did not try to resist the conditions offered by the court.

The first private Russian oil company Yukos, also referred as “a symbol of modern Russia” (Klinger, 2005), was reported to evade from taxes and commit fraud against the Russian government. The owner of the company, Mikhail Khodorkovsky, was sentenced to nine years of imprisonment after more than a year of hearings in the court. This period is characterized by the violations in various types of rights against Mr. Khodorkovsky (Khodorkovsky & Lebedev Communications Center, 2010) and is known for bringing instability in the business climate of the country (Klinger, 2005). Reporting the revenue of $46.1 billion throughout 2000-2003, Yukos was accused in different types of fraud operations and non-payment of taxes for the given years. In 2004, the main production unit of Yukos was “seized and auctioned off by the Russian government to pay for alleged tax arrears” (Khodorkovsky & Lebedev Communications Center, 2010). That year the first indictments against the owner of the company were announced while the new series of accusations were still coming up until 2008 which made the release on parole after half of the imprisonment term impossible.
Pursuing the cooperation with the US (Klinger, 2005), the actions of Khodorkovsky in managing the business appeared to be somewhat contradicting to the government regulations in the modern Russia. According to Klinger (2005), the company was renationalized after the imprisonment of its main shareholder.

In 2006, Chung Mong-koo, the chairman of one of the world’s largest automobile manufacturers Hyundai Motor, got arrested after a series of investigations in misappropriation of financial funds of the company and bribery (Taylor III, 2006). According to Associated Press (“Hyundai Motor Chairmen Arrested”, 2006), the total sum of company’s revenues affected by fraud and embezzlement was equal almost to half a billion US dollars. After issuing an arrest warrant, Mr. Mong-koo was brought to the Seoul Detention Center, where he rejected most of the accusations and insisted on preserving of evidence. Later was discovered that two lobbyists helped the chairman to gain influence within the South Korean government, namely in maintaining permits and approvals for Hyundai’s intentions in construction. They were also arrested for taking bribes from the CEO of Hyundai, reports Associated Press (2006).

Not a single operation within the business units of Hyundai was then affected by the decision of the court concerning the chairman of the company, so that manufacturing, sales, R&D and other activities proceeded in a regular pace. However, the stock price of Hyundai has fallen drastically and the changes in the corporate structure took place. The globalization plans were under the risk of postponement and the US representative experienced problems in the managerial stability (Taylor III, 2006).

Bernard L. Madoff, a stock broker and a member of different Wall Street committees, is considered to be the person who managed to implement the famous Ponzi scheme principles in the most efficient way ever (Tobin, 2009). The scam he has been maintaining for around 20 years suggested paying out 10% of annual interest as the returns to early investors from the money of new clients (“Watchdog Queried”, 2008).

According to Tobin (2009), some of the companies who became the victims of Madoff’s business, later reported lower losses due to the fact that the large part of the losses accounted for fictitious profits promised by Madoff. The impact on smaller businesses was more drastic and sometimes resulted in bankruptcy and shutting down.

Being accused in fraud against a list of for-profit and charity organizations, Madoff was released on $10 million bail. As obtained from the US Attorney’s criminal complaint filed in the court (“Watchdog Queried”, 2008), Madoff himself confessed about the sort of business he has been managing and the operations he has been in charge of. Within the worst scenario, he could be imprisoned for 20 years and obliged to pay a fine of around $5 million. Anyway, Madoff’s scam has affected the rules and norms in the common charity practice in the US, changing their well-established character throughout the country after several decades.

As a conclusion, I would like to specify that the responsibilities and liabilities of the managers are usually proportionate to the scale of companies’ operations conducted and global presence maintained. And this seems to be the basis for the international code of business ethics and a reflection of the corporate image for the companies involved.

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