Business Values and Ethics Case Study Assignment Solutions

Assignment Detail:

• Number of Words: 4000

Case Study: Moral Disengagement in Corporate Financial Misconduct Background

Assignment

Part 1

Meridian Capital: The Structured Lending Portfolio

Meridian Capital, a mid-sized investment bank, ran a mortgage-backed lending division that packaged high-risk home loans into structured investment products sold to pension funds and retail investors as “low-to-moderate risk.” Internal risk models had flagged, eighteen months before the products’ collapse, that a significant proportion of the underlying loans were likely to default within three years given borrowers’ income-to-debt ratios. Senior leadership approved the sale of these products anyway. When the portfolio collapsed, thousands of investors—including several public sector pension funds—lost a combined €280 million, and roughly 4,000 mortgage holders in the underlying loan pool lost their homes to foreclosure.

Key events from the case record:

1. Aidan Walsh, the credit risk analyst who first flagged the default probability data,

was told by his supervisor: “We’re not misleading anyone—we’re pricing risk the same way the whole market does. Every bank is bundling loans like this right now.”

2. Head of Structured Products, Yvonne Marchetti, justified proceeding with the sale by comparing Meridian’s practices favorably to competitors, telling her team, “Compared to what [Competitor Bank] is putting into their tranches, our loan pool is practically “
3. The internal risk memo stopped referring to “high-default-probability loans” and

began using the term “yield-enhancing assets” in all subsequent documentation and investor materials.

4. When junior analyst Priya Nair raised concerns about the risk disclosures in a

committee meeting, the Head of Legal told her, “Compliance and the board already signed off on the disclosure framework. Your job is to model the numbers, not to set policy.”

5. Marchetti later reflected in a regulatory inquiry that the decision “wasn’t really any one person’s call—Risk, Legal, Sales, and the executive committee all touched this product at some stage.”
6. Internal communications show the loan pool was consistently referred to as “the retail tranche” or “Basket 7” in meetings, never by borrower profiles or individual case files, even after early default warnings emerged.
7. When confronted with the foreclosure data during the regulatory inquiry, one executive stated, “If these borrowers had read their loan terms properly, or if the rating agencies had done proper due diligence, this wouldn’t have caught anyone by surprise.”

8. Two years after launch, the structured products had defaulted at nearly three times the rate disclosed to investors; regulatory investigators later found that early-warning risk data had been available to senior leadership eleven months before the product was marketed as “moderate risk.”

Questions:

Question 1 — Mechanism Identification

Using Bandura’s (1999) framework of moral disengagement, identify and label the specific mechanism operating in each of the eight numbered events/quotes above. Justify each

classification with direct reference to Bandura’s definitions.

Question 2 — Mechanism Interaction

Bandura argues that moral disengagement mechanisms rarely operate in isolation. Analyze how at least three mechanisms in this case appear to have functioned synergistically (e.g., one mechanism enabling or reinforcing another) rather than as independent, isolated

cognitive distortions.

Question 3 — Apply other ethical theories

Using appropriate ethical theories from the course, explain the unethical behavior that this company exhibited in its practice.

Part 2

Question 4

Explain CSR concepts and the importance of CSR in business administration realm and provide examples of practices that reflect CSR.

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