Free «How the Roof Fell in Countrywide Financial» Essay Paper

Introduction

Nobody would deny the fact that business cannot succeed without positive ethical environment within the organization. In fact, it makes a considerable impact on the company’s performance. That is why, ethical perspective must not be disregarded. The majority of cases in which business perspective was not paid an appropriate attention resulted in substantial problems for the companies. One of such cases is Countrywide Roof Fall; the mortgage company faced a decline because of fraud actions of one of its representatives. Fraud activity is related to the business ethics and it is worth discussion. What is more, the case provokes a strong ethical argument since the company’s representative acted in order to avoid a liquidity loss. Therefore, there has been a little agreement on the ethical judgement of this case. However, the paper strongly criticizes such actions and proves that by brining various perspectives of business ethics.

To be more exact, the following paper focuses on the discussion of this case. The study provides evidence and various aspects of business ethics, which are particularly oriented to criticizing fraud activity. In order to make the judgement objective, the paper refers to the academic sources. The case study strictly serves academic purposes and does not intend to publically criticize or offend its main participants as well as advertise any of Countrywide’s competitors. As the thesis and the main points of the study have been outlined, it is necessary to proceed to the next section.

 

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Case Overview

The following case study is particularly focused on the discussion of the ethical issue in Countrywide. It was a well-known American mortgage company, which faced a considerable decline when its representative, Mr. Mozilo, took an excessive number of loans with a view to obtaining as more physical assets as possible. Consequently, the company had to cope with settlement of its debts, which arose from purchased assets. The liquidity of the company decreased accordingly and Mr. Mozilo made a decision to hide that information from the investors. Countrywide did not improve its state but the investors were expecting returns on their investments. In addition, hiding certain assets in its financial statements from SEC worsened the situation. The central issue of this controversy has been based on the argument that Mr. Mozilo was not acting for personal purposes but attempted to save the company from a decline.

Eventually, the company was sold to the Bank of America while Mr. Mozilo was indicted for investment manipulation and SEC filings violation. Still, there has been a little agreement on the judgement of Mr. Mozilo from the perspective of business ethics. This person is known as a brilliant salesman and many people have expressed high opinions to support him. However, the following paper analyzes the case from an angle of strong business ethics, which does not consider a subjective opinion to be a sound argument. This case involves a wide range of different perspectives; it received its notoriety because of its impact on the market of mortgaging and the controversial argument regarding actions of Mr. Mozilo and his subordinates. As the case has been given an account, it is necessary to move on the discussion.

Discussion

To start the discussion, it should be admitted that the case is related to an evident fraud activity. Strong business ethics regards such acts as the use of occupational opportunities, resources, and assets for ethically wrong purposes (Caroll, 2009). Needless to say, it was not sufficiently proved that Mr. Mozilo acted for the sake of personal enrichment, on the contrary, the evidence of dishonest actions was obvious. Anyway, that incident created an image of a notorious company that resulted in the loss of Countrywide's good reputation within the mortgage market. It is becoming increasingly apparent that false informing of investors is an ethically wrong action, which harms not only investors but the company itself. Again, any evidence of fraud or other sign of notoriety makes the most negative impact on the company’s name. One may argue that Mr. Mozilo acted this way to save the company from a decline. It is not certainly true since investment manipulation cannot result in good outcomes even in the long run. The company took an excessive amount of loans and its liquidity deceased accordingly.

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Regarding a legal perspective, it is worth admitting that giving wrong information to investors is regarded by SEC as a fraud activity and investment manipulation, which are the matters of federal indictment (Laskin, 2010). It is necessary to place the emphasis on the fact that business community does not pay much attention to internal motives of the company’s representatives. Illegal actions are always a sign of a company that cannot be trusted. In such a way, the reputation of Countrywide was harmed. What is more, that incident caused a crisis within the mortgage market . The company took an extremely high number of loans, which it could not actually pay back. As a consequence, all real estate under Countrywide’s possession was extremely depreciated. The company obtained a large market share but its loss of liquidity reflected on the mortgage crisis.

By the same token, Mr. Mozilo was indicted for loan repurchasing and false financial filings, which were one of the strongest SEC federal violations. Taken into consideration the ethical environment, it should be admitted that such actions cannot be considered as helpful to Countrywide. Technically, hiding certain loans, interest, or any other assets means deceiving the company since wrong financial statements orient the company towards false strategic objectives (Khuzami, 2009). It is an obvious fact that any fraud will be detected sooner or later. Therefore, none of illegal actions is able to serve the interests of the company. Mr. Mozilo should have negotiated with investors in order to ask for more flexible investment policies regarding Countrywide. That was a well-known firm so that every single stakeholder was particularly interested in prosperity of Countrywide.

It is also possible to claim that Mr. Mozilo attempted to meet the objective of increasing the company’s liquidity by cashing more funds in the company’s assets. Instead, the company’s loans were excessive so that all circulation of capital was limited to receiving certain interest payments, which were not substantial though. Thus, Countrywide kept losing its liquidity. It was an evident mistake of Mr. Mozilo - taking multiple loans for enlarging of company’s physical assets. Needless to say, a strategic mistake cannot be recognized as a reason for strong ethical criticism of Mr. Mozilo, however, his decision to solve the problem in such a way is an obvious violation of the basic principles of corporate ethics (Koslowski, 2011). In any case, roots of the problem lead to a wrong ethical behavior of Mr. Mozilo, who was exceedingly confident about the appropriateness of taking numerous loans.

All in all, it should be admitted that business ethics refers to the issues that are far beyond the terms of business relationships. In fact, business ethics is a set of moral values aimed at the improvement of company’s performance and social well-being in the firm (Beauchamp & Brenkert, 2010). Mr. Mozilo demonstrated his negative traits of character such, as dishonesty and egoism. One may argue that he had good intentions regarding his fraud actions. It is certainly true to some extent, but it is necessary to return to the fact that none of illegal actions can be justified by a threat of the company's decline. As a result, Countrywide was placed in a devastating condition because the initial problem was not actually solved. Mr. Mozilo managed to prolong the company’s performance, but it did not address the loan issue. Therefore, actions of Mr. Mozilo cannot be regarded as directed towards improvement of the company’s circumstances.

Instead, Mr. Mozilo should have negotiated with investors and banks in order to establish guarantees for paying long term debts and prolong returns on investments. Also, the opinion of Mozilo’s subordinates should have been taken into account. Moreover, cooperation with SEC could be helpful as well. Namely, Mr. Mozilo neglected the company by his intention to manage all problems on his own. It is an obvious violation of business ethics as any company presupposes a cooperative performance. In consequence, the multi-functioning role of Mr. Mozilo led to wrong decision-making, which was typical of such sort of cases. Eventually, it should be noted that there is no way to justify his actions from the perspective of business ethics. Moral, legal, and ethical codes were severely violated so that none of claims about initially positive intentions could be considered a sound argument.

Conclusion

All in all, it is to be said that this paper has followed the discussion of the case study of Countrywide company. It is primarily focused on analyzing the ethical perspective of actions of the company’s representative, Mr. Mozilo. The company faced a decline caused by excessive taking of loans. Furthermore, Mr. Mozilo arrived at a decision to hide the company’s debts from the investors and file SEC financial statements without mentioning certain assets. The paper has given an account of the context of the case. Then, the study discussed the case from the ethical perspective. It strongly criticized such actions because they violated the main principles of business ethics. This statement has been proved with regard to various aspects of business ethics so that the paper has expressed a strong opinion regarding the ethical side of the case. It is obvious that the devastating condition of the firm cannot justify such illegal actions .

The paper has underlined the fact that business ethics regards good intentions of company’s workers at different angles. Initially, Mr. Mozilo attempted to avoid a loss of liquidity. However, initiating illegal and potentially fraud activities cannot be considered as a good intention since every single fraud case is investigated sooner or later. Hence, investment manipulations would not result in positive outcomes even in the long run. Likewise, excessive confidence of Mr. Mozilo played an important role in taking the wrong decision. That is why, business ethics should be understood as a set of moral values aimed at improving the performance and social well-being within the organization. Finally, it is necessary to suggest a direction for the further research. It is recommended to focus on the influence of the ethical aspect on the outcome of the case. In other words, it is suggested to distinguish relations between Mr. Mozilo's ethical behavior and its impacts on the performance of Countrywide.