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William Lazonick is a professor of economics at UMass - Lowell

The assignment is to read (or re-read) these articles and comment on the ideas presented from the perspective of potential risks and dangers to the areas of accounting and auditing, internal control, and financial statement presentation.


As a lead-off to start the flow of ideas and discussion:

1- William Lazonick is a professor of economics at UMass - Lowell (formerly Columbia or NYU I believe). He has been writing for nearly thirty years on the dangers of "mis-incentives" in the corporate sphere and how these can - contrary to the original intent - incent management to do bad things for the long - term health of the enterprise in return for short-term gain. He presents some of his ideas in two relatively tight articles: Profits without Prosperity (HBR) and Stock Buybacks... (Brookings). (Note: I myself do not agree with every point or linkage which Lazonick makes, but these two articles are very highly referenced in other articles and contain points of interest and thus, you should be aware of these pieces).


2- The Error at the Heart of Corporate Leadership (HBR) is authored by two highly respected academic legal scholars and presents its own critique of the management concept known as "maximization of shareholder value" or MSV. Like Lazonick. the two authors take a jaundiced view of executives who manage for short-term results and personal gain. In a somewhat deeper way than Lazonick, they also lay out a series of thoughts on what could replace MSV as the predominate mode of corporate management.


Discussion (please.... use this as a guideline, not a robotic checklist!):

1- In Profits, what corporate practices is Lazonick taking issue with? What dangers does he see to the health of the company as a result? Assuming we even partially agree with the author's assessments, what flags would we are auditors look for in a corporation which may resemble his "anti-model" .


2- In Error, Bower and Paine are also critiquing MSV , and also introducing us to a financial player known as the "activist investor". As with the Profits article, what are author's primary critiques of corporate management philosophy and what dangers would this represent to the firm from a potential financial statement fraud perspective? What prescriptions do these authors give us for a "new model" or management. At a core level, what dangers are Lazonick, Bower, and Paine alerting us to? How are these dangers manifesting themselves in real world corporate eexamples in the present (hint: think Sears, Toys R' Us, or any number of other firms in some level of financial distress). What are the "red flags" from an analytical perspective which we may have seen (probably in hindsight!) that may have alerted us to potential dangers? How can we translate the somewhat theoretical and academic thoughts of the authors into real world action items? Note: responses should be thoughtful and in 10 tightly reasoned paragraphs.

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