1 Ethical theories can be referred to as the rules and principles determining the nature of right and wrong in regard to the present situation. In this regard, it is worth mentioning that, ethics can be referred to as the branch of philosophy that has been dealing with the principles of morality and the standards defining right and wrong (Foreman-Peck & Hannah, 2015). In this context, mention can be made about the existing ethical theories which can be categorized as-
The theory of individualism emphasizes upon the needs of an individual before any other person. In case of business scenario, it refers to the maximization of profits for the company and its shareholders. The decisions on the part of the company will be such that it will be concerned with the ones making profit (García-Sánchez, Rodríguez-Domínguez& Frías-Aceituno, 2015).
According to the theory of Kantianism, an individual should act rationally and in such process shall motivate people to act rationally with due respect and motivation (Gottschalk, 2017). The theory emphasizes that in order to stay motivated one should promote goodwill and be rational.
According to this theory, business enterprises should aim maximization of profit in the long run by valuing the happiness of other individuals as well (Harrison & Ryder, 2016). This theory states that if an action creates nuisance other than being beneficial; then it is considered to be unethical.
The concept of virtue ethics is such that it emphasizes upon the mind and character of an individual whether he acted honestly or not (Katmon& Al Farooque, 2017). Virtues are the characteristics that allows individual to perform ethically while vices are the ones that gives rise to unethical behavior.
Business ethics can be referred to as moral principles that have formed guidelines in which a business operation usually takes place. These principles determine the actions on the part of an individual involved in such business operation (Harrison & Ryder, 2016). Therefore, business ethics can be defined as the study of business policies and practices that involves the subject-matter of corporate governance, corporate social responsibility, fiduciary duties and insider trading.
It is worthwhile to refer here that Martin Shkreli has subscribed to the theory of individualism. This is because, according to the theory of individualism, Martin Shkreli acted for maximizing the profit of the company. This is due to the reason that Martin Shkrelihas already stated that, the business decision can be considered to be great if it proves to be beneficial for the shareholders (Kusumaningtias et al., 2016). The action on the part Martin Shkreli can be considered to be legal and ethical by the theory of individualism however; the profits were earned by keeping the well being of the people at stake.
2 The Fraud Triangle can be defined as the structural framework that has been designed for the purpose of explaining the reason behind a decision on the part of a worker to commit fraud related to workplace (Mangala & Kumari, 2015). The Fraud Triangle can create an effect on the individual that can be categorized as-
It forms a motivation behind the crime which can be either personal issues or financial pressure. However, the nature of the pressure is such that it is unsolvable, orthodox and cannot be shared with others.
In this stage, there is an opportunity on the part of the individual to defraud the organization. In such process, the individual can sense a clear course of action depending upon which they can abuse their position.
In the final stage, the ability on the part of the individual to rationalize the crime is measured. In this stage, it is required on the part of the individual to justify the crime according to their external and internal situations (O’Connell, 2015).
It is worthwhile to refer here that, in the present case study; Martin Shkreli fell into the second stage of the fraud triangle because he had an opportunity to defraud the organization in which he was acting as a CEO. However, he chooses to abuse his position as a CEO by raising the price of that particular drug.
White collar crime can be defined as the crime committed on the part of an individual belonging to the high social status in the organization. White-collar crime is concerned with financial fraud that is being committed by directors and senior executives of the company. Therefore, white-collar crime can be defined as a non-violent crime committed in order to gain financial stability (Raiborn et al., 2017).
Securities fraud can be defined as the deceptive and fraudulent activities that usually involve stock or commodities markets (Sadasivam et al., 2016). Securities fraud generally occurs when a false statement is made regarding an organization by an individual and the financial decisions are made relying upon such false statements.
It is noteworthy to mention here that, Martin Shkreli has committed fraud by lifting the prices of specific drugs which can cure are diseases. As a result of it harmed the general community as a whole. However, Nick Leeson has committed the act of money laundering which is a serious crime.
3 The CEO is the decision-maker of the company and the executives are answerable to him. Various roles and responsibilities are there on the part of the CEO. The CEO is responsible for executing the long-term strategies for the purpose of increasing the shareholder value. However, the roles and responsibilities of the CEO vary from one organization to another. The CEO communicates on behalf of the company with the shareholders (Salleh& Othman, 2016).The CEO is entrusted with the responsibility of implementing the vision and mission of the organization.
The Chairman occupies a position superior than the CEO. The Chairman acts as the board of directors and his role is to protect the interests of the investors by keeping intact the profitability and stability of the organization (Soltani & Maupetit, 2015).The Chairman is entrusted with substantial power in setting the agenda of the board with the determination of the outcomes of the votes.
When Tilles has taken over the CEO position of the company, he could prevent the fraud in the company from going forward in an exemplary way. He could formulate a clear code of ethics and conduct along with a well-articulated written policy covering the protection of company data by avoiding conflict of interests. He can implement policies for the purpose of recognizing the signs under which employees generally commits fraud. These include working under intense pressure and being unappreciated at times.
4 Martin Shkreli has committed securities fraud by manipulating the share price of Retrophin from US$33.00 to US$13.60. He was aware of the fact that the drug was very essential as it was beneficial to the general public as a whole. If the price is increased considerably, then the general public shall be affected as a result of it. Therefore, by increasing the price of Retrophin, Martin Shkreli has committed serious offence.
The offence securities fraud committed by Martin Shkreli is a civil offence. This is because; a civil offence is something which involves disputes between individuals in regard to their legal duties and responsibilities. However, the nature of the offence was such that it can be termed as a criminal offence because a criminal offence is one which is against the state or against the community (Soltani & Maupetit, 2015). Similarly, the act on the part of Martin Shkreli was such that it affected the general public as well.
Martin Shkreli was sentenced to 7 years in prison for guilty of conspiracy and for committing securities fraud.
The abuses could have been prevented if investors were aware of certain facts. Firstly, it is important for the investors to involve in extensive research regarding the products and services before investing in it.
The agency theory emphasizes upon the relationship between principals and agents in a business organization. This theory is concerned resolving disputes existing within agency relationships (Toms, Wilson&Wright, 2015).
This theory is based upon the principle that, the shareholders of the company takes part in the day to day business activities for their own benefit (Salleh & Othman, 2016). According to the shareholder theory, the shareholders are at the authority to serve their interests and in such process shall make as much profit as possible.
The stakeholder theory emphasizes on the fact that, an organization has certain responsibilities towards the stakeholders other than the shareholders. According to the stakeholder theory, the organization has certain responsibilities towards the communities for the purpose of improving their reputation (Tunley et al., 2018).
In the present case study, the shareholder theory can be applied to the actions on the part of Martin Shkreli. This is due to the reason, the actions on the part of Shkreli was such that it was for the purpose of maximizing his personal interests and the interests of the shareholders of the company. The agency theory can also be applied because the shareholders (principal) of the company were not aware of the activities of Martin Shkreli (agent). The stakeholders’ theory can be applied because Martin Shkreli being the CEO failed to take responsibilities of the stakeholders.
Conclusion:
In the conclusion, it can be stated that, the principles of corporate governance are such that it cannot control the practice of White Collar Crime in the long run. Therefore, it is important on the part of the management to emphasize upon the ethical codes of conduct for the purpose of strengthening the punishment related to White Collar Crime. It can be finally concluded that, the management for the purpose of increasing the integrity of the company shall monitor certain compliances in order to reduce corporate fraud.
References:
Foreman-Peck, J., & Hannah, L. (2015). UK corporate law and corporate governance before 1914: a re-interpretation. Retrieved from https://books.google.co.in/books?id=6YleCwAAQBAJ&dq=Foreman-Peck,+J.,+%26+Hannah,+L.+(2015).+UK+corporate+law+and+corporate+governance+before+1914:+a+re-interpretation.&lr=&source=gbs_navlinks
García-Sánchez, I. M., Rodríguez-Domínguez, L., & Frías-Aceituno, J. V. (2015). Board of directors and ethics codes in different corporate governance systems. Journal of Business Ethics, 131(3), 681-698. doi https://doi.org/10.1007/s10551-014-2300-y
Gottschalk, P. (2017). Private police legitimacy: the case of internal investigations by fraud examiners. Policing: An International Journal, 40(3), 628-640. doi https://doi.org/10.1108/PIJPSM-04-2016-0053
Harrison, K., & Ryder, N. (2016). The law relating to financial crime in the United Kingdom. Routledge. Retrieved from https://www.taylorfrancis.com/books/9781317026051
Katmon, N., & Al Farooque, O. (2017). Exploring the impact of internal corporate governance on the relation between disclosure quality and earnings management in the UK listed companies. Journal of Business Ethics, 142(2), 345-367. doi https://doi.org/10.1007/s10551-015-2752-8
Krambia-Kapardis, M. (2016). Financial Crisis, Fraud, and Corruption. In Corporate Fraud and Corruption (pp. 5-38). Palgrave Macmillan, New York. Retrieved from https://link.springer.com/chapter/10.1057/9781137406439_2
Kusumaningtias, R., Ludigdo, U., Irianto, G., & Mulawarman, A. D. (2016). Rethinking of Corporate Governance. Procedia-Social and Behavioral Sciences, 219, 455-464. doi https://doi.org/10.1016/j.sbspro.2016.05.020
Mangala, D., & Kumari, P. (2015). Corporate fraud prevention and detection: Revisiting the literature. Retrieved from https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2678909
O’Connell, D. (2015). The UK Bribery Act: Challenges and opportunities for Australian business. Governance Directions, 67(5), 311. Retrieved from https://search.informit.com.au/documentSummary;dn=257511793204055;res=IELBUS
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Soltani, B., & Maupetit, C. (2015). Importance of core values of ethics, integrity and accountability in the European corporate governance codes. Journal of Management & Governance, 19(2), 259-284. doi https://doi.org/10.1007/s10997-013-9259-4
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Tunley, M., Button, M., Shepherd, D., & Blackbourn, D. (2018). Preventing occupational corruption: utilising situational crime prevention techniques and theory to enhance organisational resilience. Security Journal, 31(1), 21-52. doi https://doi.org/10.1057/s41284-016-0087-5
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