An Analysis And Study Of Unethic Behavior Of Senior Management

Corporate governance is increasingly in the limelight over the years. Reviews of the recent series of worldwide business fraud cases, followed by corporate collapses and management crises, imply that they could be resulted from corporate governance failure, board negligence, unethical behavior of senior management, etc. In the last few decades, several corporate fraud cases, taken place in Taiwan, have been concluded to be attributed to the unethical behavior of senior management, and in turn reflected that the performance of corporate governance rests on the attributes of the internal stakeholders, especially the senior management.If the business management or operation crisis outbreak is not handled appropriately, the hard-earned money of investors would vanish into thin air and the public confidence in the overall stock market might also be affected.With primary reference to the case studies conducted by the Association of Certified Fraud Examiners, this research analyzed and studied the unethical behavior of senior management, based on the financial statements fraud analysis of listed companies in Taiwan.Adopting the exploratory and case study research methodology, this research involved literature review, collation and analysis of individual cases and inductive reasoning before the derivation of research propositions as follows:1. Features of unethical behavior of the senior management,2. Key factors of unethical behavior of the senior management,3. Main modes of unethical behavior of the senior management,4. Tactics of unethical behavior of the senior management, and5. Relationship between corporate governance and unethical behavior of the senior management.In this research,17major financial statements fraud cases of Taiwan listed companies were studied. Unethical behavior of corresponding senior management was analytically and comprehensively reviewed based on the scope and dimensions of finance statements fraud, deliberate misstatement of financial statements, fraud duration, corporate governance mechanisms and controls against unethical behavior, net revenue, earnings per share, total cash flow, cash flow from operating activities, cash flow from investing activities, cash flow from financing activities and cash flow per share. Concluding remarks and recommendations from the government, industry and academic perspectives were then derived by inductive reasoning accordingly.Major findings are summarized as follows:1. Common and dominant characteristics of the main modes and tactics of unethical behavior of senior management are listed as follows:(1) unethical behavior of senior management was mostly involved in financial statements fraud, followed by misappropriation of assets,(2) most financial statements fraud cases involved issuance and misstatement of fictitious European Convertible Bond at the middle of the financing cycle,(3) the most commonly adopted tactics were misstatement of assets, inadequate disclosures and misstatement of revenues respectively, and (4) financial statements fraud period generally covered from one to two years.2. Unethical behavior of senior management, with tactics involving financial statements fraud, was bound to adversely affect the corporate financial performances, which would be reflected on the financial statements with characteristics as follows:(1) the operating capital rested heavily on cash flow from financing activities rather than operating activities,(2) operating cash flow experienced downtrend; in12out of17cases, of which, the organization was running a negative cash flow in three years,(3) cash flow per share failed to support corresponding earning per share meanwhile.3. Case studies, which involved unethical behavior of senior management, shared the common corporate characteristics as follows:(1) the companies were publicly listed,(2) insider stock trading was involved,(3) innovative mode of financial statements fraud was adopted,(4) financial statements fraud was supported by a professional team, and (5) corporate governance system was not standardized. This research brought about innovative contribution as follows:1. With reference to the common characteristics identified in the case studies, responsible stakeholders should have a better understanding how to evaluate and/or develop a corporate governance system that prevent financial statements frauds by guarding against unethical behavior of senior management. 2. As the proverb goes,"wiser men learn from the mistakes of others", corporate leaders could refer to the case studies, follow the "Plan, Do, Check and Action" cycle, review their corporate performance and financial statements, as well as corporate governance structure and refine their policy and procedures accordingly.3. The research topic is yet to be thoroughly investigated. The author tried to identify fraud symptoms that merit various stakeholders’attention for preventive measures planning and facilitated research informed teaching. Besides, also made an effort to link the government, industry and academia perspectives, in the expectation to bring about concerted effort to undertake further studies, thereby exploring more innovative preventive measures of financial statements fraud.