Entry #3: Is Fannie Mae an Honest Company?

When reviewing the Jennings and Entine (1998) model of eight questions, Fannie Mae cannot be labeled as an honest company.  Fannie Mae refers to the Federal National Mortgage Association (FNMA) which is enterprise sponsored by the United States federal government to grow the stream of mortgage money by forming a secondary mortgage market. Though formed in 1938 during the latter part of the Great Depression, from 1968 to the present, it has been a publicly traded company operating under a congressional charter. Congress directs Fannie Mae to channel its efforts into increasing the availability and affordability of home-ownership for low-, moderate- and middle-income Americans (Investopedia, n.d.).

The firm has not consistently complied with the law, as evidenced by its breach of the securities exchange commission (SEC) rules in their accounting practices, whereby they were dishonest in their practices in an attempt to increase returns. The firm lacked sufficient capital and had incompetent internal controls, and thus ended paying fines worth $125 million (Jennings, 2011). The firm lacks a sense of propriety because the employees used unethical means to earn bonuses and other incentives.

The product claims did not meet the reality, due to the existence of incompetent internal controls. Although the incentives criteria were based on earnings per share capital, in efforts to earn this incentive payout, Fannie Mae had to double the earnings per share capital. In efforts to conceal the unscrupulous deals, the information was not forthcoming as the leaders informed did not share the information with others, even though some employees asked about the credibility of the accounts. The firm’s employees were treated unethically by the top management disregarding facts of impropriety presented to them by other employees.

Based on the fact that the firm was very unethical, it did not care about the third parties either. They were never shown any true respect because they were being used by the top management for its own gain. The firm cannot be claimed to be sufficiently charitable because it used offerings to charities to some members of the congress in order to win favors, and the top management was offered various incentives in return.  Upon negative disclosures being made public, the CEO denied their acknowledgment rather than taking responsibility. And again, whistle blowers about the accounting malpractices were ignored.  For all these reasons and more, Fannie Mae definitely lacks the requirements of what can be considered an honest company.  Therefore, the answer to whether Fannie Mae is an honest company is a resounding – No.

References

Fannie Mae. (n.d.).  In Investopedia.  Retrieved from       http://www.investopedia.com/terms/f/fanniemae.asp

Jennings, M. M. (2011). Business ethics: Case studies and selected readings. (Seventh Edition). Mason, OH: South-Western Cengage Learning.

Jennings, M., & Entine, J. (1998). Business with a soul: A Reexamination of what counts in business ethics. Hamline Journal Of Public Law & Policy20(1), 1-88

James E. Burroughs, Jr., MBA, Northcentral University, (480) 748-9534.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s