The Role of Trust in Corporate Crimes - Coursework Example

The role of trust in corporate crimes One of the most sought-after virtues is trust. Trust is defined as assured reliance on the character, ability,strength, or truth of someone or something. (trust) Ideally, the trustee should be worthy of the confidence given unto him for the relationship to prosper. However, in the real world, people are taken advantage of and those who are supposedly trustworthy end up abusing the confidence given to them. This is especially true in business where trust involves risks and where, as a consequence, people find themselves victims of fraud. Fraud is generally defined in the law as an intentional misrepresentation of material existing fact made by one person to another with knowledge of its falsity and for the purpose of inducing the other person to act, and upon which the other person relies with resulting injury or damage. (Fraud Law & Legal Definition, n.d.) Simply put, fraud is when the truth as one knows it is knowingly misrepresented by another. It is a crime. Corporate fraud and Fiduciary fraud are two types of such a crime. Corporate Fraud betrays trust between parties outside an organization and/or employees, high level-management and, even CEOs of said organization. It greatly affects the organization as the people it employs, who are privy to the security policies the organization has to prevent fraud, are the very same people manipulating its financial system over a period of time. It also has a major effect on the organization’s relationship with its stockholders, advertisers and the community it belongs to. The stockholders will lose faith in the management and may pull out. The advertisers wouldn’t want to be connected with such an organization. The community that supports the company’s business will cease to do so. Because the organization is sure to incur bad publicity, its reputation will be ruined. This will cause its stock value to fall which, in turn, may eventually cause the business to declare bankruptcy. As a result, employees will find themselves unemployed adding numbers to that sector. Moreover, if the organization’s business plays a big part in the industry, its fall will somehow affect the country’s economy. The other type of corporate crime is related to corporate fraud. Fiduciary essentially refers to someone who holds another’s assets in behalf of the latter. Fiduciary fraud therefore refers specifically to the negligent mishandling of the assets or deliberate deception on behalf of a person or group in this position. (Downing, 2009b) In the English language a fiduciary is used to describe a person “of great trust.” Frauds of this nature, this writer believes, have an effect more personal in nature than corporate fraud. Where corporate fraud cheats an organization, fiduciary fraud cheats on, for the most part, people. Although the specific types of fiduciary fraud, namely: pension fraud, investment fraud, insurance fraud and thrift frauds, have victims from all segments of society, majority are everyday people who don’t earn that much yet entrust their hard-earned money to companies believing said companies will manage their money and make it grow. To be given such trust and intentionally take advantage of the same is quite disturbing. This crime does more than take other people’s money. It also makes the victims lose faith in financial services. This lack of trust might result to loss of business for legitimate companies which would affect the industry it belongs to and in a bigger scale, the economy. The problem with defining trust is that there are many different types of trust and it means something different to each person, and potentially in each context where it is applied. (Deutsch, 1973) Some authors present the idea of different forms of trust. These are simple trust, blind trust, and authentic trust. The belief of a child is simple trust. This is most obvious in newborns. They cry whenever someone other than their parents hold them. Blind trust is usually abused. This can be observed in the relationship between a womanizing husband and his wife. Blind trust is what makes the wife continue to stay with her disloyal partner. “Mature trust” is authentic trust. This kind knows the risks involved. Although it can be betrayed, there is no self-denial. In society, there is continuous research for the meaning of trust. One research states that betrayal of trust is easy to forgive if due to incompetence rather than dishonesty or disrespect. Another sociological definition states that trust is related to power. A dependent person trusts another in a behavioral, not moral, sense. Yet another says that trust is made up of structures of interaction where trustees have moral obligations. Trust isn’t limited to just individuals or society. There is also institutional trust. Institutional trust is when, in a business, the parties are apprised of each other’s plans from the big picture to the littlest detail. Every risk and benefit is discussed with one another. There is also trust in the legal context where any violation of the agreement between the trustor and trustee is punishable by enforced statutes. The talk on trust goes beyond understanding the use of the word in different contexts. As stated in the beginning of this paper, trust is one important prerequisite in any kind of relationship, especially if one wants such to be a prosperous one. Total trust and concern for one or more people truly requires much effort, but if both parties are amenable, it can create a personal or professional relationship that will last a long time. People can’t speak of living if they are confined to themselves. As a result, they usually employ trust in all the kinds of relationships they have in their lives. A man and a woman entrust their lives to each other in marriage, believing they’ll go the mile despite unseen trials along the way. People also apply trust in their public dealings or activities; such as, whenever they buy a product, invest time and money on services, directed to share information with others and so on. A good example of this particular display of trust is in people’s dealings with financial institutions. As Rosoff et al., (2007) define them, “Financial institutions (banks, savings and loan or “thrifts”, financial service companies, pension funds, and insurance companies) handle “other people’s money”. They are entrusted to properly invest and oversee large amounts of funds that are deposited with them.” (p.338) People stop to consider the companies’ reputations and performance before placing their hard-earned money in these institutions. On the other hand, said institutions spend much on advertising campaigns to encourage individuals to do business with them. Trust is also at play in the dealings of one country with another. Political trust enables countries to share resources and safeguard each other’s interests. As long as trust and respect are reciprocated, the relationship, whether personal or public, would indeed be beneficial to both parties. A world where trust is given and accepted with mutual welfare as the end goal is truly ideal. People would then be encouraged to build more bonds with others. Society would be less distrustful. Unfortunately, like everything else that’s beneficial and free in this world, trust is often taken advantage of. In today’s world, trust is what makes people vulnerable. A lot of crimes play on the trust of unsuspecting people because truly, everyone does want to trust everyone else. Trust makes it easy to get away with offenses. The exploitation of trust is common in many crimes. It is practiced especially it seems, in financial transactions. The ENRON case is an excellent example of corporate fraud. There was manipulation of assets by top management; limited partnerships were created, debts were concealed from stockholders and revenues were inflated. ENRON executives concealed their fraudulent activities even when already under question by the SEC. The basic rule governing capitalism is if the honest capitalist is honest to the customers, then the honest capitalist builds up trust from the customer. In the ENRON case, the public blindly trusted ENRON’s CEO and his visions for the company. Thus, he was able to amass billions of dollars in investments & stocks. In corporate fraud, crime is committed because the absolute trust placed on top management is abused by the trustee. Even internal auditing, that is basically designed to make sure no one within a corporation is committing fraudulent, activities seldom checks the CEO. This is ironic since main players in this kind of fraud are those same people making key decisions in the organization. The CEO & his top executives know that no one would question their day-to-day business activities because everyone else assumes their dealings are beneficial to the company’s growth. Furthermore, these individuals are free to commit fraudulent activities since detection is difficult even internally. Also, chances are the auditing authority is made part of the crime. Maybe if they are not trusted completely and given absolute power, these high level actors would think twice before committing fraud. The same goes for actors in Fiduciary fraud. Fiduciary can be traced to English common law in the Middle Ages, where a fiduciary was described as a “person of great trust”. Today, we see them in the form of people who manage pensions, investments, insurance or savings & loan companies. We entrust our money to them “in good faith”, hoping for a higher return. Some companies do come through and perform what is required of them. Problems arise when companies can’t return the customer’s assets because the same has already been mishandled. This is what happened in the infamous case of Ramona Savings and Loan. The owners used the thrift to make money which they spent on their respective businesses. Like in corporate fraud, trust has a major role in the execution of fiduciary fraud. These “persons of great trust” abuse the confidence bestowed on them. Fraudulent companies/people know that a higher return on investments appeal to the public. So, they play on the public’s innate nature to trust others, especially if nothing seems suspicious. Financial institution fraud is, unfortunately, a very real and very costly part of American life. (Rosoff, et al. 2007) Trust is a factor in the success of a business because there is dependency in the organization. Employees put faith in their bosses’ abilities. The bosses work hard to keep the stockholders’ confidence. The organization as a whole tries to win the public’s trust so business will come in. A profitable one is trusted by the government to help its economy. It is disheartening to realize though that because of this trust people in the organization are able to commit illegal acts such as fraud. It is even more alarming to know that these people are untouchables. Unless stricter regulations on fraud which encompass all levels in the corporate ladder are made, corporate crimes will still be committed by top level management who are, ironically, the most trusted people in the organization. References trust. (2009). In Merriam-Webster Online Dictionary. Retrieved March 5, 2009, from http://www.merriam-webster.com/dictionary/trust Fraud Law & Legal Definition. (n.d.). USLEGAL. Retrieved March 5, 2009, from http://definitions.uslegal.com/f/fraud/ Downing, S. (2009b). Fiduciary Fraud - Lecture. University. Deutsch, M. (1973). The Resolution of Conflict. New Haven and London: Yale University Press. Rosoff, S., Pontell, H., Tillman, R. (2007). Profit Without Honor: White-Collar Crime and the Looting of America 4th ed. Pearson Prentice Hall, NJ. Read More

” Frauds of this nature, this writer believes, have an effect more personal in nature than corporate fraud. Where corporate fraud cheats an organization, fiduciary fraud cheats on, for the most part, people. Although the specific types of fiduciary fraud, namely: pension fraud, investment fraud, insurance fraud and thrift frauds, have victims from all segments of society, majority are everyday people who don’t earn that much yet entrust their hard-earned money to companies believing said companies will manage their money and make it grow.

To be given such trust and intentionally take advantage of the same is quite disturbing. This crime does more than take other people’s money. It also makes the victims lose faith in financial services. This lack of trust might result to loss of business for legitimate companies which would affect the industry it belongs to and in a bigger scale, the economy. The problem with defining trust is that there are many different types of trust and it means something different to each person, and potentially in each context where it is applied.

(Deutsch, 1973) Some authors present the idea of different forms of trust. These are simple trust, blind trust, and authentic trust. The belief of a child is simple trust. This is most obvious in newborns. They cry whenever someone other than their parents hold them. Blind trust is usually abused. This can be observed in the relationship between a womanizing husband and his wife. Blind trust is what makes the wife continue to stay with her disloyal partner. “Mature trust” is authentic trust.

This kind knows the risks involved. Although it can be betrayed, there is no self-denial. In society, there is continuous research for the meaning of trust. One research states that betrayal of trust is easy to forgive if due to incompetence rather than dishonesty or disrespect. Another sociological definition states that trust is related to power. A dependent person trusts another in a behavioral, not moral, sense. Yet another says that trust is made up of structures of interaction where trustees have moral obligations.

Trust isn’t limited to just individuals or society. There is also institutional trust. Institutional trust is when, in a business, the parties are apprised of each other’s plans from the big picture to the littlest detail. Every risk and benefit is discussed with one another. There is also trust in the legal context where any violation of the agreement between the trustor and trustee is punishable by enforced statutes. The talk on trust goes beyond understanding the use of the word in different contexts.

As stated in the beginning of this paper, trust is one important prerequisite in any kind of relationship, especially if one wants such to be a prosperous one. Total trust and concern for one or more people truly requires much effort, but if both parties are amenable, it can create a personal or professional relationship that will last a long time. People can’t speak of living if they are confined to themselves. As a result, they usually employ trust in all the kinds of relationships they have in their lives.

A man and a woman entrust their lives to each other in marriage, believing they’ll go the mile despite unseen trials along the way. People also apply trust in their public dealings or activities; such as, whenever they buy a product, invest time and money on services, directed to share information with others and so on. A good example of this particular display of trust is in people’s dealings with financial institutions. As Rosoff et al., (2007) define them, “Financial institutions (banks, savings and loan or “thrifts”, financial service companies, pension funds, and insurance companies) handle “other people’s money”.

They are entrusted to properly invest and oversee large amounts of funds that are deposited with them.” (p.338) People stop to consider the companies’ reputations and performance before placing their hard-earned money in these institutions.

Read More