In November 2022, Sam Bankman-Fried's multi-billion-dollar crypto exchange, FTX, collapsed, wiping out investors and throwing the crypto industry into disarray. As FTX's founder and CEO, Bankman-Fried developed a reputation for his unerring business sense and high-profile charitable giving. To many, it came as a shock when in the wake of FTX's collapse, the attorney responsible for restructuring the company professed he had never seen "such an utter failure of corporate controls at every level of an organization." How had Bankman-Fried managed to hide his malfeasance so well, and for so long? The investigation also raised questions about the people and organizations that enabled Bankman-Fried's wrongdoing. What should regulators have done differently? Were the VC funds that bankrolled FTX partly responsible?
Icahn Enterprises, a publicly traded limited partnership founded and operated by famed activist investor Carl Icahn, had earned above market returns for over a decade. Between 2018 and early 2023, it had a compound annual return of 31%. Icahn invested in undervalued companies and then publicly pressured boards of directors to make changes to increase the share price. Hindenburg Research (Hindenburg), an activist short-selling investment firm founded by Nathan Anderson, took short positions in companies it felt were overvalued, published research reports to drive down the stock price, and then profit from the decline. In May 2023, Hindenburg published a report claiming that Icahn Enterprises stock price was overvalued by 75%, that its 15% dividend yield was not sustainable, and that it sustained itself through a Ponzi-like economic model by issuing new stock to new investors so it could pay dividends to existing investors. Would Icahn Enterprises continue to outperform the market or was it a Ponzi disaster waiting to happen?
Ginkgo Bioworks, a synthetic biology company based in Boston, Massachusetts, faced divergent views on its revenue possibilities and accounting practices. After a report emerged accusing it of fraudulent accounting and lack of innovation, its share price plunged. But some investors saw this as a buying opportunity and still believed in Ginkgo's prospects. Who was right?
Wedbush Securities analyst Michael Pachter said "hell freezing over" was more likely than him upgrading the "sell" rating he had maintained on movie and television streaming giant Netflix since 2011, despite meteoric subscriber and share price growth. In 2022, however, Pachter raised his rating - twice. The case explores the sell-side equity analyst industry, Netflix from the perspective of an equity analyst, Pachter's "bear" thinking through the years, and his logic in becoming a "bull."
In 2019, Bruno Masson, the vice chairman of Veolia's Ethics Committee, was preparing for a meeting on a rollout plan for a new whistleblowing system to more countries. Veolia, a global supplier of water, waste, and energy services, had recently gone through several incidents of corporate misconduct. In response, Veolia believed that strengthening corporate whistleblowing was an essential next step to prevent future incidents of misconduct. Given the positive experiences with its existing platform in the U.S., Veolia had originally tested this platform in Germany, where both corporate and legal protections for whistleblowers were weaker compared to the U.S.. However, this rollout turned out to be unsuccessful. This initial setback prompted Masson to try a different approach to encourage more whistleblowing. They hired an outside vendor to provide Veolia with new whistleblowing capabilities. Would the new system be more successful in encouraging employees to report their concerns? How would the whistleblowing laws in Germany influence the effectiveness of this platform? Could this technology have negative implications for employee trust and productivity in the long run?
The case tells the story of the rise and fall of Scott Tucker, an entrepreneur, businessman, passionate race car driver, competitor, and owner of a professional racing team. From 1997 to 2012, Tucker built a nationwide network of payday lending businesses, becoming a pioneer in online lending along the way. Many of his borrowers depended on payday loans as a lifeline in dire times-a pricy-yet-reliable source of cash to pay bills and cope with emergency expenses. However, Tucker's reign came to an end in 2012 when federal prosecutors indicted Tucker on several criminal charges, including the violation of disclosure laws. This (B) case completes the narrative, describing the outcomes of the legal cases and consequences for Tucker and his businesses. This case allows students to discuss the role of individual executives in the corporate governance process, and how the regulatory-level, firm-level, and personal levers of governance may interact to create trust in markets. The case also allows discussions of the importance of effective communication of information by management to help facilitate the decision-making of various stakeholders (such as investors, employees, and customers).
The case tells the story of the rise and fall of Scott Tucker, an entrepreneur, businessman, passionate race car driver, competitor, and owner of a professional racing team. From 1997 to 2012, Tucker built a nationwide network of payday lending businesses, becoming a pioneer in online lending along the way. Many of his borrowers depended on payday loans as a lifeline in dire times-a pricy-yet-reliable source of cash to pay bills and cope with emergency expenses. However, Tucker's reign came to an end in 2012 when federal prosecutors indicted Tucker on several criminal charges, including the violation of disclosure laws. This case allows students to discuss the role of individual executives in the corporate governance process, and how the regulatory-level, firm-level, and personal levers of governance may interact to create trust in markets. The case also allows discussions of the importance of effective communication of information by management to help facilitate the decision-making of various stakeholders (such as investors, employees, and customers).
In September 2020, Diana Ferguson was nearing her first Audit Committee meeting as the newly appointed Audit Committee chair of Mattel, Inc. Mattel was just recovering from an accounting scandal which had revealed the company's poor internal controls and weak board oversight over financial reporting, and the committee had important decisions to make going forward. In early 2018, Mattel's Tax team had discovered a significant reporting error in its third-quarter financial results. In consultation with Mattel's independent auditor, PricewaterhouseCoopers (PwC), Mattel's finance team opted not to issue a correction and instead (effectively) concealed this mistake. This cover-up came to light in 2019, when an anonymous whistleblower reported the incident, setting off a chain of negative press coverage and senior-level resignations. Mattel responded by conducting an internal investigation, and concluded that, while their accounting processes needed to be improved, there was no evidence of fraud. Despite this, this issue had resurfaced in early 2020 when the United States Securities and Exchange Commission (SEC) launched a fresh investigation into the accounting error and subsequent cover-up. In light of these events, Ferguson and the Audit Committee faced a challenging road ahead with several important issues to consider. They needed to tackle Mattel's problematic governance and internal controls, and restore investor confidence in the company's financial disclosures. They also needed to review their earlier decision to continue to engage PwC as Mattel's auditor going forward.
Set in April 2021, this case tells the story of Mauro Botta, a senior manager at PricewaterhouseCoopers (PwC). In 2016, Botta filed a whistleblower claim with the U.S. Securities and Exchange Commission, alleging that PwC had failed to fulfill its obligations to remain independent on several audits dating back to 2012. In 2017, PwC fired Botta. While PwC claimed that the decision had nothing to do with the SEC complaint, Botta believed that the move was retaliatory. In March 2018, he sued PwC for wrongful termination.
The issue of gender diversity on boards has received increased attention in U.S markets over the past few years. In 2018, California introduced a law which required boards of U.S-listed firms with headquarters in California to include at least one female director by the end of 2019, and at least two by the end of 2021. In December 2020, Nasdaq asked the Securities and Exchange Commission to approve new diversity rules where the goal is to have boards of firms listed on Nasdaq have at least one female director and at least one underrepresented minority or LGBTQ+ director. However, such initiatives have invited criticism from various market participants, who argue gender quotas could violate the U.S. constitution because they could force companies to turn down a male board candidate or displace a male board member based on his sex. However, countries like Norway endorsed gender quotas more than a decade ago. What can we learn from Norway's actions? This note discusses the views from four prominent male and female executives and board members from the Norway business community on the quota law a decade after its legalization. They point out both challenges faced, and benefits gained by companies from this law. Students can debate the pros and cons of quota laws by drawing from the views and experiences of these executives, and can discuss the merits of corporate diversity quotas in the U.S.
The case revolves around the decisions that the board of directors of ecommerce giant Amazon would need to make in response to the controversial letter that activist shareholder CtW investment group sent to Amazon's shareholders, urging them to vote in favor of a proposal aimed at increasing Amazon's board diversity. The board had formally recommended voting against the proposal in the upcoming annual shareholder meeting. The board's stance ignited an internal debate at Amazon, with several employees questioning the diversity of Amazon's leadership relative to other high-profile technology companies. Institutional Shareholder Services and Glass Lewis, two top advisory firms to public company shareholders, remained divided on the issue. The case presents the opportunity to discuss the importance of having a diverse board, in particular, along the dimensions of race and gender. The case is likely to generate spirited debate about the merits of diversity on corporate boards and the role that a powerful multinational company can play in promoting diversity in technology and business. More fundamentally, the case raises the issue of how organizations should measure diversity.
The case discusses the strategy of DER SPIEGEL, the leading news magazine in Germany, in the aftermath of the discovery of a fake reporting scandal. It had come to light that one of DER SPIEGEL's own reporters had falsified and made up entire articles for years, despite DER SPIEGEL's large fact-checking departments. New editor-in-chief Steffen Klusmann and an internal investigation commission had set to work to discover the problems within DER SPIEGEL that made this failure possible, and had come up with a series of recommendations for improvement. At the heart of the investigation was the question whether the scandal was the result of one bad apple or whether DER SPIEGEL had systematic failures in its control systems.
The case revolves around the actions that Barbara Novick, co-founder and Vice-Chair of Blackrock, and Michelle Edkins, Global Head of Investment Stewardship, would need to take in response to the controversial CEO letters from Laurence (Larry) Fink, Chairman and CEO of BlackRock. Fink's letters focused on the importance of corporate purpose and investing considering environmental, social, and governance (ESG) issues. The case also discusses Blackrock's plans for a new model of shareholder engagement to help drive the changes proposed in the letters. The case presents the opportunity to discuss the governance role played by major institutional investors as well as how the responsibilities and actions of one large investor, BlackRock, should evolve in this role going forward. It is not clear whether BlackRock should play such a role and, if so, whether they have the ability to enforce corporate compliance and to carry out this role given they are primarily an index investor. The case is likely to generate spirited debate about the merits of BlackRock's pronouncements and the importance of corporate investments in ESG themes and allow for discussions on measurement and disclosure strategies that can judge progress on these dimensions.
Mark Cooke, Global Head of Operational Risk, needed to decide between a traditional regulatory control system and a new regtech system to manage non-financial risks. Non-financial risks failures such as money laundering and tax evasion had cost HSBC billions of dollars in fines and settlements over the previous decade. In response, HSBC had hired thousands of risk and compliance staff and invested billions in traditional control systems. Cooke, however, could not be sure HSBC's traditional methods were sufficient and he was worried they were not sustainable. Cooke recently ran a pilot test of a regtech solution that promised to warn of problem areas in advance, and do so at a much lower cost than traditional systems. The regtech solution provider was a small startup and the technology was not fully developed. Cooke wondered how much he could trust a technology from a startup company with a handful of employees and almost no revenue to meet the needs of a world-leading bank with global operations.