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Evaluating Liabilities in Corporate Finance: A Case Study of Procter & Gamble and
Bankers Trust
Student’s Name
Institutional Affiliation
Course
Professor’s Name
Date
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Evaluating Liabilities in Corporate Finance: A Case Study of Procter & Gamble and
Bankers Trust
In analyzing this case of financial impropriety between Bankers Trust (BT) and Procter &
Gamble (P&G), it is possible to examine the legal and ethical responsibility between the two
corporations, especially the liability that P&G is claiming from BT and the liability that P&G
bears to its shareholders.
Bankers Trust’s Liability to P&G
Due to the misleading information relating to the interest rate swap agreement, Bankers
Trust owes P&G a considerable liability. The internal communications at BT also pointed to a
purposeful attempt at capitalizing on P&G’s ignorance regarding the sophisticated derivatives.
The case drew attention to the fact that the employees of BT have offended clients by
questioning their understanding, thus violating trust and ethical considerations. Due to
inadequate information about the risks and possible consequences of the derivatives, Procter &
Gamble suffered significant financial losses through BT. From a legal perspective, what BT did
was fraud and misrepresentation, hence the legal cases and the subsequent settlement
agreements. Their responsibility stems from their fraud and negligence in performing the duties
they owed to their client.
P&G’s Liability to its Shareholders
P&G is also legally responsible to its shareholders for negligence in undertaking proper
research before engaging in the interest rate swap agreement. It shows that the management has
failed in corporate governance and risk management by entering into such reportable financial
instruments without understanding and evaluating the risks involved. Executives are supposed to
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protect the stake held by shareholders by making informed and prudent decisions at the
company. Lack of supervision over BT and P&G relying exclusively on BT advice without
further assessment meant that costly mistakes were made that would have a direct effect on
shareholder value. Although P&G may defend itself because BT deceived them, it is the
responsibility of the company to act in shareholders’ interests.
Justification
The details of the case prove that although BT’s fraudulent activities were the leading
cause of the loss, the company’s insufficient assessment of risks impacted the problem. In this
particular case, BT and P&G faltered in their duties. At the same time, BT could not live up to its
ethical responsibility towards its clients; for P&G, it had fiduciary responsibility toward the
company shareholders. Thus, the risks and liabilities are divided into BT, which committed
fraudulent practices, and P&G, which failed to exercise due diligence and risk assessment. These
duties demonstrate the need to communicate well and for information on financial matters to be
disclosed.
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References
Attached PG Case Study PDF.
