Question

1. In recent years, there have been many large- and small-scale corporate failures, driven in part by ethical, accounting, or risk management improprieties. However, the executives and directors of these companies have in many cases gained employment as directors of other firms. Should this be a concern for shareholders of these firms?

Answer 1

It is true that the reputation of Executive and directors of companies that have failed due to ethical or accounting malpractices is tainted. The shareholders of the companies in which these executives take up new jobs need to understand their extent of involvement in these malpractices. They also need to consider the position in which they could have influenced these improprieties. For instance if the executive in question was the CFO of a company which failed due to accounting malpractices he was certainly in a position to know about the improprieties. Even his defence that he was not aware of the malpractices would hold against him because that shows that he was not performing his duties as required. Hence the shareholders of the new company in which he would take up a job should be concerned about his past engagements.