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Cooking the Books: Bad for Business

By KRISTEN STERNBERG
NIE EDUCATIONAL CONSULTANT

In recent months, some major, financial scandals have come to the attention of the American public. Executives of several large corporations are implicated in plots to make their companies look like they were making huge profits. Because they lied about their company's actual earnings, their companies appeared to be making more money than they really were. In the event that a company falsely reports financial earnings to make others believe they're better off than they really are, the process is sometimes referred to as "cooking the books."

When the nation's leading businesses seem to be solid and profitable, the economy looks strong so public confidence rises. A strong stock market is also an indicator of a healthy economy, and in a healthy economy people are more likely to spend money and feel good about doing it. If it is found that a company's "strength" is based on lies, public confidence quickly drops.

Executives implicated in the recent corporate scandals are accused of buying and selling stocks based upon information that wasn't available to the general public. They may be found guilty of what's known as "insider trading." People who engage in insider trading take advantage of their positions of power as they manipulate the stock market. Insider trading is very unethical behavior, in part because such actions have far-reaching implications. Buying and selling (trading) stocks is a large part of what the American economy is based on, and when a few people abuse the system for their own gain, many, many others lose.

Federal, state and local lawmakers are scrambling to introduce new legislation in order to better control the actions of large corporations, their leaders and even the accounting firms that keep the financial records of those corporations. Some citizens and lawmakers would like to see stiffer penalties for those who behave in an unethical manner. Current laws, they say, are too lenient. If legislators can help to change penalties, they might be able to deter others from behaving unethically. In a free market economy, it's essential that consumers are able to trust people in positions of power. In other words, ethical behavior is good for business.

The media (newspapers, radio and TV) play an important role in public opinion. As a response to the recent financial scandals, The Daytona Beach News-Journal published the editorial cartoons found on this page. What do you think the cartoonist was trying to say about the situation involving corporate executives? How might reading these editorial cartoons influence the thoughts of the general public? Did reading them influence your own opinion?

Try these interesting activities using The Daytona Beach News-Journal

1. Effects of the recent financial scandals are far-reaching and complex, and many feel there is more foul play yet to be discovered. Keep your eye on The News-Journal for articles related to big business, finance, ethics and the stock market. If possible ask a business owner how he/she feels about this issue. Be sure to express how you feel, also.
   Sunshine State Standards SS.D.2.2.1, SS.D.2.2.2, SS.D.2.2.3, SS.D.2.2.4




"Can you think of anything good about the Enron debacle?" "Yeah... we cashed their campaign contribution checks before the wheels came off." (Editorial Cartoon: News-Journal/Bruce Beattie)

2. On a plain sheet of paper, record the closing price of the Dow Jones Average (DJA) as reported in today's newspaper. (On a simplified level, the DJA is an indicator of the health of the nation's economy, so a rise in its average from day-to-day may suggest that the economy is getting stronger.) Then, write the closing price of the DJA as often as possible over a period of several weeks. Create a chart of your findings and use it to predict whether the DJA will rise or fall in the near future. If you had invested $1000 at the beginning in a stock that followed the DJA, how much money would you have made or lost? (Sunshine State Standards SS.D.1.2.1, SS.D.2.2.2)



3. The recent activities of some corporate executives have affected public opinion about the health of the economy. Take a look at a current copy of The News-Journal. In it, identify and read an article about a person who has behaved unethically. Ask a friend to help you brainstorm all the people who might eventually be affected by the guilty party's behavior. Design a visual based upon your discovery and use it to educate others. (Sunshine State Standards SS.C.2.2.2)



4. Take another look at the editorial cartoons included with this week's issue. Try to identify how the cartoonist makes his point of view known. Then, study The News-Journal for other topics about which you have a strong opinion. Create your own cartoon in response to an article you read. Submit your cartoon to the editor of your local newspaper for possible publication. (Sunshine State Standards LA.D.2.2.1, LA.D.2.2.3, LA.D.2.2.5)



5. In response to the recent unethical actions of some corporate executives, some legislators are busily trying to get new laws passed that may prevent other major financial scandals from occurring. Legislators author bills that they will work to get passed on the ballot and have passed into legislation. The News-Journal routinely reports on local, state and national bills that have been proposed. Select one bill and try to follow its progress. (Sunshine State Standards SS.C.1.2.2, SS.C.1.2.4, SS.C.2.2.3)

Check out these links to learn more

The United States is a free market economy that relies heavily on the stock market. How much do you know about how the stock market works? Here's some background information you'll probably find interesting. www.nysscpa.org/sound_advice/money_8.5.02.htm

Next, try your hand at a stock market simulation. Pick one or more stocks and "play the market" at this site. You can also link to a stock market quiz, investing tips and more. library.thinkquest.org/3096/index.htm

An organization called the Institute of Business Ethics (IBE) publishes a code of ethics that business institutions are expected to abide by. Take a look at some important areas covered by the IBE's code. www.ibe.org.uk/code.htm

A corporation called Enron was recently implicated in unethical business practices. Follow the story of Enron and its effect on the nation by checking frequently for articles about this topic. www.cnn.com

The Newspaper Association of America's web site contains links to many newspapers in the U.S. and around the world, which may contain additional news stories about business ethics. To access the newspapers at the site, select a state. Click on the "Internationals" button to view choices from other countries.

The Daytona Beach News-Journal NIE Program, published August 9, 2002

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