Clifford W. Smith and Jerold Zimmerman James Brickley - Managerial Economics & Organizational Architecture 7th Edition (International Edition)

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MANAGERIAL ECONOMICS AND ORGANIZATIONAL ARCHITECTURE

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The past few decades have witnessed spectacular business failures and scandals. In 2019, German prosecutors criminally charged top executives at Volkswagen for allegedly misleading shareholders in the months before the so-called Diesel-Gate Scandal became public. Wells Fargo has continued to struggle to regain the confidence of consumers, regulators, and the general public following its 2016 retail banking scandal. In 2007 and 2008, prominent financial institutions around the world shocked financial markets by reporting staggering losses from subprime mortgages. Socit Gnrale, the large French bank, reported over $7 billion in losses due to potentially fraudulent securities trading by one of its traders. JPMorgan Chase bailed out Bear Stearns, a top-tier investment bank, following its massive subprime losses. Washington Mutual and Lehman Brothers were added to the list of top business failures of all time. In 2001 and 2002, Enron, WorldCom, and Arthur Andersen, as well as other prominent companies, imploded in dramatic fashion. Around the same time internationally, scandals emerged at companies such as Parmalat, Royal Dutch Shell, Samsung, and Royal Ahold. Due to these cases and many others, executives now face a more skeptical investment community, additional government regulations, and stiffer penalties for misleading public disclosures.

A common perception is that bad people caused many of these problems. Others argue that the sheer complexity of todays world has made it virtually impossible to be a good manager. These views have raised the cry for increased government regulation, which is argued to be a necessary step in averting future business problems.