THE ROLE OF STAKEHOLDER TRUST

AIG & ERON (BAD MANEGMENT)

By: Tunisia I.E. Al-Salahuddin

Instructor: Jamie Smith

CSU Global Campus

Business Ethics and Sustainability: WINTER14-D-8-ORG530-1

INTRODUCTION

Stake holder trust is extremely important within the corporate world. Many investors are counting on major corporations and

organizations to deliver the needed numbers and quality of product that they bought into. When organization put out false

deceptive advertisement or use deceptive lures to coach a stakeholder to buy into a company that does not produce within ‘Wall

Street’ or their CPI does not deliver world wide this can and will cause the company to fail. Often this is done by poor judgment,

poor management, and possibly pyramid schemes. Eron and AIG are two companies that reflect this. Where as AIG had bad

management and ERON provided investors and stakeholders with bad management and scams.

ABSTRACT

It is up to the corporation and organization to produce a good reputation with little or no risk.

“Reputation risk and opportunity are events that can hurt or enhance an entity, person, product or

service, from the largest entities in the world – the biggest governments, for example – to the tiniest of

entities: small businesses and, of course, people and specific products” (Blanc, 2014). For a company to

be vital and sustainable for the future they must produce schemas investment opportunities to potential

stakeholders by opportunist management whom truly have no inkling on the proper way to conduct

themselves in a ethical business manner. This behavior leads to company loss with minimal gain and

possible bankruptcy.

ERON AND AIG ISSUES

AIG

The sale of defaulting CD’s by AIG that where basically a swaps based on credit with hopes they would deliver, but they did not.

“A subsidiary of AIG wrote insurance in the form of credit default swaps, meaning it offered buyers insurance protection against losses on debts and loans of borrowers, to the tune of $447 billion. But the mix was toxic” (Gilani, 2008). Companies often do swaps with numbers that prove that they will deliver the financial gain, but AIG did not.

ERON

Eron was a power house that was able to rise to the pinnacle of success, but due to corporate debt that did not deliver to stakeholders the company folded.

“From the beginning, Lay had a vision for Enron that went far beyond that of a traditional energy company. When Lay formed Enron from the merger of two pipeline companies in 1985, he understood that deregulation of the business would offer vast new opportunities. To exploit them, he turned to Skilling, then a McKinsey & Co. consultant” (Bloomberg Business, 2001)

EVALUATION OF ENRON AND AIGThe Influence of Stakeholder Trust

• Enron: The influence of stakeholder can be very tempting for companies that want to venture out and obtain more investors & stakeholders to become number one within dominating markets. “Enron forces us to confront a discomfiting fact: Even as academics have proclaimed rising governance standards, some standards have declined, particularly those addressed to the numerology of shareholder value” (Bratton, 2002). When companies venture out to obtain these investors and stakeholders they must remember their policies, procedures, and business ethics, but from the pivotal business moves of ERON they did the complete opposite.

• AIG: The Stakeholders of AIG whom bought the debt did not obtain the payout of the debt meaning they did not remunerate from the investment, so the debt collapsed causing a snowball affect. “also sold insurance on esoteric asset-backed security pools – securities like collateralized debt obligations (CDOs), pools of subprime mortgages, pools of Alt-A mortgages, prime mortgage pools and collateralized loan obligations” (Gilani, 2008).

ASSESS THE IMPORTANCE OF REPUTATION

The Importance of Reputation to the Long-Term Viability

Business have excelled when they have presented top of the line policies and procedures along with supreme moral

standards. According to Eccles, Newquist, and Schaltz Risk Management writers for the Harvard Business Review stated,

“Firms with strong positive reputations attract better people. They are perceived as providing more value, which often

allows them to charge a premium. Their customers are more loyal and buy broader ranges of products and services” (

2007). It is always in the best interest for companies to exhibit well business practices backed by evidence of what they

state for this is the norm for viable longevity within business.

RECOMMENDFive Steps for a Business to Keep a Excellent Reputation

• Ethics: When building a business and brand remembering the written ethics that are within your policy and procedure manuals. By doing this companies will not be tempted to by quick investments or opportunities that will make them possibly loose their creditable reputation.

• Company Integrity: Integrity is the highest standards a company can keep even through tough times. When a company keeps their integrity this means they refused to cut corners on their standards, values, and business morals.

• Compliance Standards: When you implement compliance standards within your organization from the top to the bottom then this means that the entire organization must comply with what has been put into place.

• A CEO with Moral Business Standards: Companies must hire a CEO with moral business standards that will not stray from these business standards even when offered kickbacks. There is always more than just the CEO at stake, but the company reputation, stakeholders, investors, and the customers.

• Excellent Customer Services: Companies that give excellent customer service will have networking done for them. When your customers are satisfied then the company will be as well. Never allow customers to be unhappy by bad business practices. Word of mouth goes far.

It takes many good deeds to build a good reputation and only one bad one to lose it.

– Benjamin Franklin

CONCLUSION

In corporate today there must be a good understanding that your customers are your

number one stakeholders and their networking alone can make your company flourish or

destroy your company. Keeping a upright reputation within the business world along with

excellent moral standards makes your company more desirable to do business with.

Companies obtain business longevity by excellent collaboration along with superb business

practices. Stakeholders that are looking for a company to invest in generally look for this, but

they also look for companies that are not fly by nights disasters.

REFERENCEDavidson, A. (2008, September 18). How AIG fell apart. Retrieved February 19, 2015, from

http://www.reuters.com/article/2008/09/18/us-how-aig-fell-apart-idUSMAR85972720080918

Deloitte Touche Tohmatsu Limited. (n.d.). Retrieved February 19, 2015, from http://www2.deloitte.com/content/dam/Deloitte/pl/Documents/Reports/pl_Reputation_Risk_survey_EN.pdf

Eccles, R., Newquist, S., & Schatz, R. (2007, February 1). Reputation and Its Risks. RetrievedFebruary 20, 2015, from https://hbr.org/2007/02/reputation-and-its-risks

Stakeholder Engagement. (2014). Retrieved February 19, 2015, from http://www.ethicalcorp.com/stakeholder-engagement/globalethicist-risk-and-opportunity-role-stakeholder-trust

The Fall of Enron. (2001). Retrieved February 19, 2015, from http://www.bloomberg.com/bw/stories/2001-12-16/the-fall-of-enron

The Inside Story of the Collapse of AIG. (2008, September 22). Retrieved February 19, 2015, from http://moneymorning.com/2008/09/23/credit-default- swaps-3/

William W. Bratton. (2002, May 1). Retrieved February 19, 2015, from file:///C:/Users/student/Downloads/SSRN-id301475.pdf

REFERENCEStakeholder Engagement. (2014). Retrieved February 19, 2015, from

http://www.ethicalcorp.com/stakeholder-engagement/globalethicist-risk-and-opportunity-role-stakeholder-trust

The Fall of Enron. (2001). Retrieved February 19, 2015, from http://www.bloomberg.com/bw/stories/2001-12-16/the-fall-of-enron

The Inside Story of the Collapse of AIG. (2008, September 22). Retrieved February 19, 2015, from http://moneymorning.com/2008/09/23/credit-default-swaps-3/

William W. Bratton. (2002, May 1). Retrieved February 19, 2015, from file:///C:/Users/student/Downloads/SSRN-id301475.pdf