Q1) The following 3 cases (VW, Wells Fargo and Madoff) all are examples of what?

Volkswagen Scandal

Figure 4.2

Top executives at Volkswagen were found guilty by the courts.

Source: Carsten Reisinger / Shutterstock.com

You might think students would cheat (not you, obviously) but would you think a car company would cheat? Well, this is exactly what the Volkswagen (VW) company diduntil it was caught in September 2015. Why did the company cheat and how did it happen? VW management was under pressure to increase sales of its diesel cars. To make them more attractive to potential buyers, they wanted to say they were cleaner than other cars, i.e. their levels of pollutants were low. The problem was that they were not cleaner. In fact, their level of emissions were much higher than U.S. standards.

So, some VW engineers and computer scientists got together to determine how to reduce the level of emission from the cars. They gave up on the right way to fix thingswork hard to come up with a way to reduce emissions. Instead, they cheatedthey equipped their diesel cars with little devices that did three things: 1) figured out when a car was being tested; 2) slowed down the engine during testing so emissions were reduced; and 3) returned the car to normal high polluting performance when it finished the test and hit the road.

The scheme worked but like students who cheat, eventually they got caught. The catcher was the U.S. Environmental Protection Agency (EPA) that figured out the diesel dupe scheme and the repercussions to VW began. Heads started to roll, including that of the companys CEO, who stated his company had broken the trust of our customers and the public. And recalls began. The total price tag to fix almost 500,000 cars in the U.S. and 11 million worldwide was $18 billion. Thats a pretty expensive penalty for cheating!

Wells Fargo Scandal

Before the Volkswagen scandal was off the front pages, a new scandal involving Wells Fargo (the third largest U.S. bank) emerged. This one had a different twist and taught Wells Fargo a hard lesson:

You get what you measure, even if it is not what you wanted. Lets say youre working for a company that rewards you based on the number of hours you work. What will you do? Likely, you will stay at your desk well beyond quitting time. Now you might just be checking emails, looking at recent posts on Facebook, or watching a football game or TV show, but you will be there. And, therefore, you will be rewarded: you will earn more than those who work hard all day, but leave on time.

Now, put yourself in the place of an employee at Wells Fargo. And picture that youre overworked and underpaid, and the only way to keep your crummy job is to meet a quota set by Wells Fargo. To achieve your daily quota, youre required to set up a certain number of new banking and credit card accounts. And if you dont meet these often unattainable quotas you will be made to stay late, without pay, until you meet the quota. What would you do? You might do what 5,300 employees did: meet their quotas by setting up fake and unauthorized banking and credit card accounts for customers. Its fairly easy for bank employees to do thisyou just have to search your computer system for a real account, set the pin number to 0000 and enroll the customer in some banking program, perhaps online banking (without the customer knowing this). To complete the process of setting up the fake account, you need to add some additional contact information, but thats easyyou just make up emails, addresses, etc. One of your favorite fake email addresses is fakeperson@wellsfargo.com or noname@wellsfargo.com.

Figure 4.3

If you bank with Wells Fargo, when the scandal on false accounts surfaced did you check your bank records to see if a bank employee set up any fake or unauthorized banking and credit card accounts?

Source: chrisdorney / Shutterstock.com

Collectively, employees set up more than 1.4 million fake banking and credit card accounts from May 2011 to July 2015. And, here is the money partthese 1.4 million fake accounts generated $2.4 million in fees. Was this good for Wells Fargo? Absolutely not! No one won: the 5,300 employees involved in the scam were fired, customers were unhappy, Wells Fargos reputation was severely damaged, profits declined, and the bank had to pay more than $500 million in fines and other costs. Wells Fargo learned a hard lesson: They wanted employees to open lots of real accounts, and designed a system that they hoped would encourage that. But they designed it badly, and ended up instead encouraging employees to open a lot of fake accounts. That's not what anyone wanted, but it happened anyway.

Madoff Scandal

Unethical behavior is not reserved for only large organizations as is infamously shown by the actions of Bernie Madoff, founder of Bernard L. Madoff Investment Securities and former chairman of the NASDAQ stock exchange.

Madoff ran a giant Ponzi scheme that cheated investors of up to $65 billion. His wrongdoings won him a spot at the top of Time Magazines Top 10 Crooked CEOs. According to the SEC charges, Madoff convinced investors to give him large sums of money. In return, he gave them an impressive 8 percent to 12 percent annual return. But Madoff never really invested their money. Instead, he kept it for himself. He got funds to pay the first investors their return (or their money back if they asked for it) by bringing in new investors. Everything was going smoothly until the fall of 2008, when the stock market plummeted and many of his investors asked for their money back. As he no longer had their money, the game was over and he had to admit that the whole thing was just one big lie. Thousands of investors, including many of his wealthy friends, not-so-rich retirees who trusted him with their life savings, and charitable foundations, were financially ruined. All those harmed by Madoff either directly or indirectly were pleased when he was sentenced to jail for 150 years. And, by the way, Madoff has cornered the prison market on hot chocolate.

Are these cases aberrations? A Time/CNN poll conducted in the midst of all these revelations found that 72 percent of those surveyed dont think so. They believe that breach of investor and employee trust represents an ongoing, long-standing pattern of deceptive behavior by officials at a large number of companies. If theyre right, then a lot of questions need to be answered. Why do such incidents happen (and with such apparent regularity)? Who are the usual suspects? How long until the next corporate bankruptcy record is set? What action can be takenby individuals, organizations, and the governmentto discourage such behavior?

Q2) The United States currency (money) exchange rate is fixed by its government. True or False.