Tourism and terrorism in egypt

Tourism and terrorism in egypt Introduction The tremendous historical sites and sights and rich cultural heritage has made Egypt a unique tourism destination. The prominence of tourism industry has had such undeniable impact on the overall Egyptian economy that it has been regarded by many observers as the life blood of Egyptian economy. The crucial significant of tourism industry have not been overlooked by Egyptian political dissents. Although unsuccessful, they at time attempted to make their political demands by carrying out terrorism attacks on this vulnerable industry. This chapter attempted to offer some general insights on tourism industry and terrorism accidents in the contemporary Egypt. The chapter begins with a cursory review of the Egyptian context proceeding with discussion on the fluctuation of the tourism industry in Egypt in the past three decades. The analysis is largely based upon the official data taken from Egypt Central Agency for Public Mobilization and Statistics (CAPMAS) and the annual analysis of the Economist Intelligence Unit (EIU). On occasions, the complementary aggregated data has been adapted from other resources like Business Source Premier and Regional Surveys of the World, the Middle East and North America (2008). The analysis is spilt into three periods, comparing the international tourists arrivals and receipts. Finally the results are represented in a graph tracing the trends in past three decades. The next section deals with the main tourism stakeholders playing role in the tourism in the Egypt. The final section di scusses the emergence, evolution and challenges of terrorism groups in Egypt and their engagement in terrorist attacks targeted tourism destinations. In this section counter-terrorism strategies oscillating between carrot and stick policies will be reviewed and discussed the degree to which each has been successful. Egypt at a glance The Arab Republic of Egypt located in the northeastern of the African continent and the Sinai Peninsula. It has land borders with Sudan in the south and with Libya in the west and shoreline extending along the Mediterranean Sea in the north and Red Sea and the Gulf of Aqaba in the East. Since the most of the country is desert, the population is distributed very unevenly in Cairo and Alexandria and around the Nile and Suez Canal. These areas are among the worlds most densely populated regions. (Countries of the World and Their Leaders Yearbook, 2008) Egypts geographic arrangement and distribution of population, and especially the sole reliance on the Nile River for irrigation has been resulted in central administration and allowed the government to extend well its authority to the peripheries. (Goldschmidt, Arthur, 1988) In 2008, the total population of Egypt was 81,713,520 which make the Egypt one of the most populous countries in the region. A large proportion this population is young; half of them are under twenty years of age and two-thirds are under thirty a situation that severely strains the economy. (CAPMAS, 2008) Egypts government is hardly able to meet the demands for food, shelter, education, and jobs. Around three million Egyptians have migrated to other Arab countries, particularly the oil-rich states, in search of work. Their payments to their families constitute a major source of Egypts income. Much like elsewhere in the world economy have come to play a crucial role in Egyptian lives. The long history of colonial exploitation and the legacy of enduring authoritarian rulers forestalled the industrial development of Egypt in nineteen century. At the turn of twentieth century, the industrialization began to take root by a rapid growth in textile industry. The growth was comparatively satisfactory before socialist government of Abdel Nasser (1956-1970) took the power. Abdel Nasser eighteen years era is characterized by militarization of politics and concentration of power through the supremacy of the executive branch. Under Nasser the state took the control of the economy to ensure equitable development, a policy known later as Arab Socialism. Nasser was a charismatic leader and earned reputation as champion of Arab interest, however, his economic policies brought the country on the verge of bankruptcy. Nassers death in 1970 ushered in a massive political and economic change i n Egypt. By initiating the economic policy of Enfetah (openness), which means liberalization of economic, Sadat his successor began a series of fundamental reforms in the economy. In addition, Sadats regional foreign policy including peace initiative and rapprochement with Israel enhanced the international image of the Egypt. Under President Hosni Mubarak (1981 until now) Egypt paved the same routes and strove for the same goals, however, there was along way to go as the country still was grappling with chronic problems emanated from inside and abroad. (Countries of the World and Their Leaders Yearbook, 2008) Flow and ebb of Tourism Industry in Egypt Between 1982 and 1990, the number of international tourist arrivals went up from 1,423,251 to 2,600,117 which indicate an increase of 182 per cent. Coupled with the numbers of arrivals, revenue from tourism was about 2.5 billion US dollars by 1990, ranked tourism sector as one of the most lucrative sectors of the Egyptian economy. (Table. 5.1) Such great advancement was mainly because of the Egypt government economic initiatives of liberalization I indicated before. (Wahab, 1997) However, the tourism industry proved to be one of the most susceptible sectors to instability in the region. The triggering of terrorist activity in the Middle East after mid-1980s and the anti-American sentiment in the region, intensified by the US air-strikes on targets in Libya in 1986, resulted in tourists reduction, particularly US citizens, in traveling to Egypt. The 90s started with one of the most dramatic event of region caused by the Iraqi invasion of Kuwait in August 1990 and the following international dispatching of troops to the region. Not surprisingly the tourism industry in Egypt was affected considerably by the consequences of this event. (Conrad, 2005) In February 1991 tourist arrivals fallen off to 57,000, compared with 208,000 in February 1990. Following the end of the Persian Gulf conflict, tourist numbers recovered quickly, reaching to 2214277 on average in 1991 and account for the record figure of around 3 millions in the 12 months to June 1992. (Table. 5.2) Yet, the tourism sector in Egypt went bust again, when a tourism destination were targeted by Islamist militants terrorists. The number of tourists visiting Egypt dropped off about 22% in 1993, while revenue fell by 38%. (Table 5.2) Having failed to eradicate the problem of terrorism through its campaign against militant Islamists, the Government allocated 25 million US dollars for a venture to promote tourism in 1994, with the aim of restoring revenue from this sector to its 1992 level. (Wahab, 1997) However, the number of visitors in the first three months of 1994 was 15% lower than the 1993 level. In January 1993 the World Bank had approved a 130 million US dollars loan for the development of new tourism infrastructure, within the frame ­work of a program, valued at some 805 billion US dollars (EIU, 2004) Realizing that tourism is one of the main cornerstones of the national economy, a com ­prehensive plan was prepared for the fiscal year 1994/1995 to enhance the efforts in three main tourism fields: (a) development; (b) promotion; and (c) public awareness (El Beltagui 1995). The Ministry of Tourism was among the pioneer to put into action the policy of privatization. In addition, an overall national tourism development strategy drawing on marketing techniques was adopted. This strategy laid out the priority zones and determined the detailed rules for investors while taking into account a sustainable development strategy by protecting the natural and cultural resources. The Ministry of Tourism also undertook practical measures in the promotion of tourist industry through an ambitious plan. One important element of this promotional plan was to strengthen Egypts image on the international tourism map as a place for convention tourism. Furthermore, it attempted to raise public awarenes s of the significance of tourism through the mass media. Ten TV spots were produced in 1993-94 and repeatedly shown on main Egyptian TV channels. Also, an agreement was made between the Ministry of Tourism and Ministry of Education to incorporate tourism issues in the curricula of primary and secondary schools. (El Beltagui 1995). By mid-1995 several developmental plan with the aim of enhancing tourism infrastructures were implemented in the Abu Soma and the Red Sea coast at Sahl Hashish. According to the Tourism Development Authority report during these years some 27 new projects also were taken into consideration on the south Sinai coast. (EIU, 1998) the consequences of such measures was obvious, in 1995 tourist arrivals increased a quarter further compared to last year culminating to 3.13 millions, a pattern repeated in the following year with some 3.9 million tourist arrivals and estimated revenue of 3.7 billion US dollars. (Table 5.2) Source: Egypt Central Agency for Public Mobilization and Statistics (CAPMAS) Flourishing of the tourism industry was halted by a dramatic setback in late 1997. Constant fears of the safety and security of travelers followed a terrorist attack on a German tour bus in Cairo in September, which nine German tourists and one Egyptian lost their lives, were aggravated the next month by the massacre of 58 tourists and four Egyptians in Luxor. Many tourist agencies cancelled their travels and similarly many potential tourists withdraw their application for travelling to these destinations. Immediately the Government took extensive recovery measures including compensation of loss of tourism by internal tourism in the region. (Conrad, 2005) Egypt Air, which lost many foreign tourists, offered a half priced fares tickets for domestic tourists. Key among the recovery measures taken in these years is a numerous discounts on several goods and services to urge the potential travelers to come back to the region. The official statistics estimated 1.2 billion US dollars result ed from decrease of tourists numbers from 3.9 to 3.7 and other recovery expenses. Since 1999 the tourism industry undergone recovery and the former construction plans in tourism industry accelerated. The statistics in this year confirm such rapid recovery as around 4.8million tourists visited Egypt and brought about revenue of about 3.9 million US dollars. (CAPMAS, 2008) The investing in tourism industry in the following years was unprecedented. For instance, the value of only one contract for development of luxury accommodation in Port Ghaleb on the Red Sea was around 2,000 million US. These investments proved to be effective as tourist arrivals increased to 5.5 million in 2000, bringing around 4.345 billion US dollar income. (EIU, 2000) The regional crisis including conflict between Palestinians and Israelis in second intifada in September 2000 and the September 11th attacks of 2001 put the sector once again into decline, a number of projects put on hold and many travellers cancel their flights as a result. By November 2001 tourist numbers had fallen off 54.5% compared with the same month the previous year. Since then tourist arrivals have steadily risen and by August 2002 arrivals were a remarkable 15% up on the previous year. However, revenues were taking longer to return to pre-September 11th levels as a result of increased discounting. (Table 5.3) Once again the Government took into consideration the recovery measures in 2002 to make up for the tremendous losses of tourist revenues. Due to global values of Egypt heritages the prestigious international organization showed willingness to make investment in tourism industry in Egypt. A prime example is UNESCO which supported a 350 million dollar project to reconstr uct the Great Egyptian Museum near the Pyramids at Giza. The second Gulf War in 2003 affected the tourism industry in Egypt in some extent. The same year Egypt was host of an international conference on promotion of sustainable tourism following which contribute immensely in offering a positive image of Egypt tourism industry. In 2004 tourist income reached 6.1 billion US dollar which was the Egypts most important current-account credit in the economy history of the country. Tourist arrivals increased by 35% in 2004 to 8.1 million arrivals and a second successive record. (EIU, 2004) The Egyptian government since kept supporting the industry by targeting the markets in European and Arab countries and removing the existing barriers for foreign investing. A successful measure taken by Egypt government was sponsoring the travel of tourism journalists and allowing German and Italian visitors to show any identification cards rather than passport. Key among these measures has also been investing in human resources. The latest measure in this respect was signing a contract with Cornell University to offer training course for Egyptians in the hospitality and tourism industry. The similar educational contract has also been signed with countries with high experiences in the tourism industry such as Greece and France. In addition a five-year campaign with the aim of raising the awareness of public was undertaken in April 2006. Within these programs Egyptians are given training about significant of tourism industry in their life and how to communicate in a hospitable manner. Such training has also incorporated in the primary school curriculum. The campaign also makes best use of televised and printed media to meet its mission. Another campaign has been undertaken to enhance tourism at international level. UK-based DDB International has been hired for this purpose. Marwa Fayed, senior account manager notes â€Å"The campaign borrows some of the same concepts used by Malaysia and India .We are trying to make Egypt into a brand.† (Cited in Meed, 2007) These measures resulted in the renewal of attacks on tourist facilities in 2004 and 2005 and a victory for authorities. Finally according to most recent statistics, in 2006 tourism revenue reached 7.6 billion dollars, Egypt largest source of export earnings. Tourists arrivals rose by 5 percent to 9.1 million, a third successive record. (EIU, 2008) Source: Egypt Central Agency for Public Mobilization and Statistics (CAPMAS) Tourism stakeholders in Egypt Central and Local government Due to centralized system of governance, appointed authorities in Egypt at local and central level has taken major roles in tourism industry. In particular in recent years they have drawn considerable attention to the industry. Egypt is organized into 27 governorates, each headed by an appointed governor. The local government system act in 1960, stipulated a diverse responsibility for governorates ranging from social, health, welfare, and educational services to the social and economic development of their region. They are monitoring on the measures and plans of the city and village councils. The actual authority however rest with top officials in Cairo in a highly centralized manner through a heavily burdened bureaucracy. The village mayors who were only elected local authorities are now selected by the Ministry of the Interior. (Fahmi, 2002) The ministry of tourism The Ministry of Tourism has come to play destination management organization (DMO) role in Egypt albeit with more and more limited power compared to its Western counterparts. The Ministry is organized into four major sections: (a) Planning and Development; (b) Regulation of Tourist Services; (c) Administration; and (d) Financial and Legal Affairs. Like most other ministries, the Min ­istry of Tourism suffers from overstaffing and inadequate technical capa ­bility. The Ministry in recent years has taken many proactive steps to ensure the private sector dependency tourism. The initial step was establishment of the Tourism Development Authority in 1991 with the aim of enhancing the relationship of private sector with the Ministry in guiding and promoting touristic investments. (Wahab 1997). The Ministry also supervises a number of public sector organizations: (a) Egypt ­ian General Authority for Promotion of Tourism; (b) Public Authority for Conference Centres; and (c) Tourism Dev elopment Authority. A crisis management unit has been established in the Ministry of Tourism to coordinate the stakeholders activities during and after crisis. Key to the recent changes in the Ministry is the new position of the public sector Tourism Authority, as an umbrella company consists of five associated companies including Egyptian General Organization for Tourism and Hotels, Misr Travel Company, Egyptian Hotels Company, Misr Hotels, and Grand Hotels of Egypt (Wahab 1997).The new appointments in the top managerial body of the Ministry of Tourism 2004 is also represents fundamental positive changes for the tourism sector in Egypt. (American Chamber of Commerce in Egypt, 2008) Ministry of Interior and Police There are two major branches of the police in Egypt. The State Security Investigations Sector (SSIS) dealing with crime and investigation, and the Central Security Force (CSF) dealing with internal security issues like public protests and combat with oppositions. As a whole, the force maintains law and order, detects and prevents crime, collects evidence, processes passports, controls traffic, and screens immigrants. In each governorate, a director of police oversees law enforcement in the district. The director reports to the governor. Both the governor and director are overseen by the Ministry of the Interior. Police ranks reflect the gradations within the army, with the higher ranking police officers being major generals down to first lieutenants. Below this are lieutenant-chief warrant officers. Enlisted officers hold the ranks of master sergeant, sergeant, corporal, and private. There is a special tourist police, who wear an armband with an insignia in Arabic and English and are able to speak in English. It was established in 1997 after the massacre of 60 tourists at the Hatsheptsut temple in Luxor. According to one report, a large body of tourist police has been deployed to guard tourist sites. (Fielding, D. and Shortland, A. 2005) Egyptian Tourism Federation (ETF) The tourism private sector in Egypt is represented by Egyptian Federation of Tourist Chambers (EFTC) which was established in 1968 when the first law for tourism was enacted. With new demands for more and more enhancing the tourism industry its official title was changed to Egyptian Tourism Federation (ETF) in 2002. The main ETF task as mentioned in its constitution is to ensure the common interests of the tourism industry by developing strategic cooperation and joint planning between the five Affiliate Associations. This is accomplished through close relationship with the five affiliate business associations: Egyptian Hotels Association (EHA) Egyptian Travel Agents Association (ETAA) Egyptian Chamber of Tourist Establishments (ECTE) Egyptian Chamber of Tourist Commodities (ECTC) Egyptian Chamber of Diving and Water Sports (CDWS). The ETF is also work in association with the following institutions: Travel and tourism enterprises Ministry of Tourism and public authorities in general Supply structure of the tourism industry According to its official site the areas of activity of the ETF is to enhance and support following sectors: Resources development Transportation Infrastructure and superstructure of tourism destinations Human resources development International and regional organizations concerned with tourism development (ETF website) Egypt Airline EgyptAir is a major Egypt state-owned airline established in 1932 and headquartered in Cairo, Egypt. Beginning in 1980, EgyptAir embarked on a modernization and marketing plan. Accordingly, EgyptAir planned its network to maximize its traffic and scope, reaching main cities in all five continents. To carry out its marketing plan, EgyptAir purchased several new aircraft and then developed an autonomous infrastructure to support and serve its fleet in order to operate in a safe and efficient manner. As a result of its market research, EgyptAir was reinvented in a stepped-pyramid form. The base of the pyramid was EgyptAirs most profitable markets. This was a significant step toward establishing the airlines financial credibility, which can be very challenging for an airline from an underdeveloped region of the world such as Egypt. EgyptAir owns shares in many tourism companies and hotel chains, such as Cairo Airport Mà ¶venpick, Tut Amon, and Nefertari in Aswan and Abu Simbel, and Taba Hilton resorts in Sinai. EgyptAir also owns shares in many charter companies, such as Shorouk Air and Air Cairo. Such investments have increased EgyptAirs assets tenfold since the implementation of the airlines modernization and expansion plan in 1980. EgyptAirs network has also expanded to reach major cities and capitals in all five continents. (Groenewege, Adrianus, 2003) Terrorism in Egypt There is little debt that the main challenge to the Tourism Industry comes from a major anti-government extremist movement, the Islamic Group (IG, known in Arabic as Al-Gamaat al-Islamiya).[7] IG emerged in the late 1970s with the principle objective of removing the current Egyptian government from power and replacing it with an Islamic regime. Affiliated with al-Qaida, it has also developed an absolute anti- United States (U.S.) pledge. From 1992 until 1999, IG militants carried out several attacks against tourist destinations in Egypt, most notably a November 1997 attack at Luxor that claimed the lives of 58 foreign visitors. (Graph, 2) Since 1992 Egyptian police and security centres embarked massive attacks on Islamic groups. Coupled with these counter terrorism measures Egyptian parliament passed new anti-terrorism law stipulating death penalty for some crimes and consequently and the Egyptian martial judiciary convicted a number of terrorist to death on accusation of overthrowing the regime. The Islamic groups fought back through terrorism attacks mainly toward the tourism destinations. Such attacks continued constantly over 1993, and proved to be a suitable target for terrorists to gain their goals and at the same the tourism industry suffered considerably from the attacks. These left an intensively negative image of Egypt as a tourism choice and were resulted in withdrawal of many international tourism operators from Egypt. This time the government accelerated its counter-terrorism measures by deployment a massive number of security forces. Those accused of terrorist act were received very severe punishments by military courts. In 1993 these courts in an unprecedented action convicted a record number of 38 Islamists to death and 29 were executed. (Tal, 2005) Not surprisingly, such measures run in contrast with human right principles and triggered an extensive international criticism. Such opposition slowed down a little aggressive measure. The Egyptian government also tried to carry out the policy of carrot instead of stick by allowing the oppositions to occupy some minor public posts. (Kepel, 2005) The tug of war between government and Islamic dissents carried out till after 1997 when in massive trial 98 oppositions were sentenced charges of subversion, four of whom were convicted to death penalty and eight to imprisonment for life. This triggered a new wave of terrorism fight back marked by terrorism attack to tourist bus in Cairo which lead to killing nine German tourists and injuring 11 others. This attack is still remained unclear as the government claimed that terrorist had no link with IG but evidences all support the strong connection IG members with the event, following this event two suspects of conducting the attack were executed. This severe reaction led to the tragedy of Luxor in which 70 people, including 58 foreign tourists, wore massacred by members of IG. This over reaction learnt the Government to emphasis more on carrot policies. As such, they opened up a dialogue with moderate oppositions as part of a national reform. (Kassem, 2004) As a result, Muslim Brotherhood condemned the attack. Other political measures taken into account to combat terrorism was secret agreement between Egypt and the West for the identifying and extraditing IG leaders in exile. Since the public opinion no longer supporting the aggressive actions of terrorist, IG showed the signs of ceasefire in 1999. In 2000 Al-Jihad also paved the same way and declared the halt in terrorism attacks. The ceasefire was short-lived when in October 2004, 34 people were killed in bomb attacks at Taba. These were followed by terrorists attacks in Sharm al-Sheikh in 2005, which led to 64 lose of life, and a series of bombings exploded in Dahab in April 2006, which killed 20 people. Yet, the government has linked these attacks to terror cells of local Bedouin from North Sinai, which have connections to al-Qaida. Conclusion The progress in tourism industry in Egypt was maddeningly slow in Nasser era; however, aftermath of Nassers death the country drew attention back to tourism industry and since as the official statistics indicates it has thrived and dramatically developed. The industry proved to be very vulnerable to the security incidents. In respond, the Egyptian government has undertaken a plethora of counter terrorism techniques. The balance sheet of their measures demonstrated a capacity of for rebounding strongly from such incidents, but a sustained campaign would be far more difficult.

Hard rock Cafe global strategy Essay

1. From your knowledge of restaurants, from the video, from the Global Company Profile that opens this chapter, and from the case itself, identify how each of the 10 decisions of operations management is applied at Hard Rock Cafà ©? Design of Goods and services Hard Rock Cafà © is providing the customers with an experience of music, rock and roll ambiance as well as good food. This unique experience is not limited to the meals on the menu. They combine the good food with the harmony of their memorabilia and the rock and roll spirit, which makes the experience non-replicable elsewhere. Managing Quality Surveys are done on a regular basis to make sure of customer satisfaction. If the result is less than 7 from the scale of 1 to 7 it is considered a failure. Process and Capacity Design Every product is designed and tested for cost of ingredients, labor requirement and client satisfaction. Then they are only put on production is the ingredients are available from qualified vendor. Location strategy: They narrow down the search from country to city and then to precise street corner. They try to select the right market and go there at the right time. Layout Strategy The company designs the kitchen flows for food preparation and the bar layout for the maximum revenue. Every piece of experience strategy including memorabilia, music and visuals takes on a new significance Human Resources and job design: The company seeks people who are love music and enjoy serving and share the experience to visitors. They train and support the employees and help them develop as contributors to their community. Supply Chain management: They buy their ingredients based on market analysis and from qualified suppliers. The supply chain process is designed to yield a quality meal. Inventory, MRP, JIT: The inventory includes food and merchandise as well as $40M of Rock and Roll memorabilia which most of them are on the walls of its cafes around the world. Their warehouse in Orlando cataloged every single item and every single story with that item. They know exactly what is on what wall in which cafà ©. They can locate that value. Scheduling: The staffs are scheduled down to 15 minutes intervals to meet daily and seasonal demand. Maintenance: Every 5 to 7 years they collect all the memorabilia in each cafà © and bring it to the main warehouse, they refurbish them and then replace it with new gear. 2. How would you determine the productivity of the kitchen staff and wait staff at Hard Rock? Single factor productivity for kitchen staff is unit food produced divided by labor hours and for the waiting staff is number of people served divided by labor hours. 3. How are the 10 decisions of OM different when applied to the operations manager of a service operation such as Hard Rock versus an automobile company such as Ford Motor Company? Although Hard Rock Cafà © is considered service industry and Ford Motor is a company that manufactures goods, the application of 10 critical decisions are applied to both of them. They both have marketing, operations, and finance. They also have labor hours, supply chain of goods, facility costs and are needed to provide high quality products (service or good).

Ethics: Goldman Sachs Essay

Goldman Sachs, founded by German immigrants, began as a small humble business looking to succeed. Over time their business strategy changed and they entered into ethical and legal issues they had not encountered before. In the late 1920s Goldman Sachs began maliciously investing in companies to drive their demand. They coined this term â€Å"laddering† from overleveraging them selves and putting the market at risk. Their actions created the bubble that burst in the stock market crash of 1929. Furthermore, Goldman Sachs engaged in â€Å"trading huddles†. Only their preferred customers where chose to participate on this unethical schemes, and the same customers were shot changed on financial profit from unprofitable IPO’s shares. It was clear that Goldman Sachs business focus was not customer based but self-based by the mantras that they use to have: â€Å"long-term greedy† and â€Å"Filthy rich by forty.† In 2008 the market once again crashed equally as hard as in 1929 and Goldman Sachs was at the root of the cause. With self-fulfillment and greed in mind, Goldman Sachs used Collateralized Debt Obligations and bet against their clients to increase profitability. Goldman Sachs progressively became more unethical in their dealings, and the SEC took notice. Goldman was accused on two accounts of fraud because of one particular portfolio of securities, named ABACUS, which they dealt with. After analyzing the case and reviewing the unethical actions and alleged accusations against Goldman Sachs, it is clear that Goldman Sachs was operating unethically. They misrepresented, hid information, and engaged in conflicts of interest with their clients. Goldman Sachs took an unfair advantage with their â€Å"toes to the line mentality† on their legal and ethical issues leading the SEC to establish harsher regulations for the banking industry. Goldman Sachs can become more ethical by adopting Warren Buffet’s front page of the newspaper principles. When a firm finds that its employees needs to convince themselves that their work is adding social value, the firm should questions its ethical practices. The recommendation for a firm when they find themselves condoning unethical actions is to be honest with the regulating entity and its clients. It is likely to reward them in the long run despite the immediate consequences. Goldman Sachs Background In 1869 two German immigrants came to the US and founded Goldman Sachs with the humble purpose of being both an originator and a clearinghouse for commercial paper (Jennings, 73). However, the firm started to gradually drift from its initial business strategy set by its founders and started to provide other services and undertook investment strategies. In the late 1920’s Goldman Sachs created investment companies that it would itself invest in to drive up the market demand. As a result, investors started to invest in the company because of the perceived high demand. With the new proceeds, Goldman would borrow more money and create another investment company and repeat the process. As a result of this action, Goldman contributed to the stock market crash in 1929 and, with a similar strategy, the recent financial crisis in 2008 (Jennings, 73). During the Internet bubble in the 1990’s, Goldman engaged in an activity known as laddering. Goldman, as the underwriter of a security, would enter an agreement with its best clients to sell a portion of IPO’s shares at a predetermined price after their initial offering. This led to a misconceived demand in the secondary market of the stock due to the predetermined secondary pricing Goldman had set with some of it’s clients. Furthermore, in the 2000’s, Goldman would sell Collateralized Debt Obligations, for which it had a negative outlook, to its clients and issue trading reports, developed through the existing â€Å"trading huddles† in the firm, to certain preferred customers that was different from the analyst reports that were issued to the public. Its practices has been scrutinized and particularly its â€Å"toes to the line† on legal issues. In most cases, Goldman and its clients are the two main parties involved, and it is the clients that usually end up with the short end of the stick. Goldman’s actions are partly explained by the mantras that they use to have: â€Å"long-term greedy,† and â€Å"Filthy rich by forty.† This paper is relevant for current business leaders because it presents a case where a successful firm has come under great scrutiny due to its unethical actions and questionable practices. Bending the rules and pushing the envelope continuously to be a profitable firm has put Goldman in an unfavorable light in society. The paper will further discuss the ethical and legal issues Goldman has run into through its practices and will provide a general recommendation for how a business can avoid and deal with unethical practices. Analysis of Relevant Legal and Ethical Issues Initial Public Offerings Goldman created a synthetic demand in its IPOs through selling a portion of the IPO shares to its clients at a predetermined price higher then the initial price. This caused the price of the IPO shares to rise due to manufactured demand by Goldman (Jennings, 75). The Securities and Exchange Commission filed a complaint against Goldman alleging that they had violated Rule 101 of Regulation M under the Securities Exchange Act of 1934, which states: â€Å"Rule 101 of Regulation M, among other things, prohibits underwriters, during a restricted period (the five-day period preceding the determinations of IPO prices and prior to the completion of distributions of IPO shares), from directly or indirectly bidding for, purchasing, or attempting to induce any person to bid for or purchase any offered security in the aftermarket† (SEC). Goldman clearly attempted to induce, or induced, certain clients to bid for or purchase offered securities in the aftermarket through its laddering practices, which clearly violates Rule 101 of Regulation M. Goldman agreed to settle with the SEC by paying a fine of $40 million without admitting or denying the allegations (SEC). Some of the unethical practices present in Goldman’s laddering activities were: * Misrepresentation- Goldman inflated the price of the IPO shares consciously through the manufactured demand and the price of the shares were misrepresented. * Lying- Goldman Sachs lied to some of its best clients and had them pay higher price than the initial price under the laddered IPOs. * Violating Rules – Clearly making money from laddering is a violation of rules and therefore Goldman paid a heavy fine when they were caught engaging in this illegal practice Collateralized Debt In order to understand Goldman’s involvement in CDO’s it is pertinent to explain the security. Collateralized debt is simply an Asset-Backed Security, which means that there is a physical asset backing the security under contract. For example, a house serves as collateral for a mortgage and the bank has the right to claim the house in the event that the borrower defaults on the loan. A security is considered any investment contract that gives the owner evidence of indebtedness or business participation. Notes, stock, bonds, debentures, warrants, subscriptions, voting trust certificates, rights to oil, gas, and minerals, and limited partnership interest are all example of securities (Jennings, 728). A Collateralized Debt Obligation is a variety of fixed-income assets that are pooled together to create one security. In 2008, many of these CDOs became completely worthless because they were filled with sub-prime mortgages that defaulted, and Goldman was a big player in the CDO market. ABACUS was one particular CDO deal in which Goldman had created and sold. Fabrice Tourre, a vice president at Goldman Sachs at the time, put together the ABACUS CDO to be sold to clients. Tourre intentionally filled ABACUS with subprime mortgages so that Goldman could take a short position on the security, which means betting against its success, in order to profit. This CDO deal became infamous because the SEC uncovered a few emails written by Tourre. In one of the emails Tourre wrote: â€Å"More and more leverage in the system. The whole building is about to collapse anytime now †¦ Only potential survivor, the fabulous Fab [rice Tourre] †¦ standing in the middle of all these complex, highly leveraged, exotic trades he created without necessarily understanding all of the implication of those monstrosities [sic]!!!† (Quinn) The SEC filed a civil action suit against Goldman and Tourre for their conduct under the ABACUS deal. The SEC’s complaint charged Goldman and Tourre with violations against Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Exchange Act Rule 10b-5 (SEC). Each of the following rule of law states, among other things: â€Å"It shall be unlawful for any person in the offer or sale of any securities †¦ (2) to obtain money or property by means of any untrue statement of a material fact or any omission to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made†¦ â€Å" (SEC) â€Å" POSITION LIMITS —As a means reasonably designed to prevent fraud and manipulation, the Commission shall, by rule or regulation, as necessary or appropriate in the public interest or for the protection of investors, establish limits (including related hedge ex ­ emption provisions) on the size of positions in any security-based swap that may be held by any person.† (SEC) â€Å"It shall be unlawful for any person †¦ (a.) To employ any device, scheme, or artifice to defraud,†¨(b) To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statementsmade, in the light of the circumstances under which they were made, not misleading, †¦Ã¢â‚¬ Ã¢â‚¬ ¨ (Taft Law) Goldman clearly violated Section 17(a) by not including the information that their ABACUS securities were based on poor mortgages. They violated Section 10(b) by taking a large short position in the Abacus deal. Lastly, they violated Rule 10b-5 by omitting material fact of their short position in the security. Furthermore, the SEC prohibits any analyst from issuing reports on securities that run contrary to the analyst’s true beliefs about the securities. Goldman denies betting against clients in an 8 page letter to it shareholder signed by CEO Lloyd Blankfien as well as President Gary Cohn. Goldman claims that they were protecting themselves and Blankfien said, â€Å"†¦Certainly we did not know the future of the housing market† (SEC). Goldman agreed to pay a fine of $550 million and admitted that it failed to disclose vital information in their marketing of ABACUS securities. Goldman’s actions did not reflect honesty, integrity, or responsibility. Some of the ethical issues present in the ABACUS deal are: * Taking unfair advantage – Goldman consciously made poor recommendations to their clients in order to sell the Abacus CDOs so they could make a profit on their short position. * Engaging in Conflict of Interest – Goldman stated: â€Å"We may trade, and have existing position, based on trading ideas before we have discussed those ideas with you†(Jennings 80). Despite this argument, they had a significant incentive to market and sell the securities in order to profit. * Hiding or Divulging information – Goldman used another firm to create the Abacus CDOs in order to distance themselves from the trade conflicts that would arise by shorting the CDO. They also omitted crucial information about the security, which was the knowledge of the amount of high-risk mortgage securities in the Abacus CDO. * Violating Rules- Goldman was charged with securities fraud, as explained by above, and did not look out for the best interest of their clients. Trading Huddles Goldman’s first obstacle with their trading huddles activities came from their Fundamental Strategies Group of analysts. The group consisted of Goldman analysts employed by their Securities Divisions. These groups of desk analysts were not regulated by the SEC rules because they did not involve â€Å"GIR [Global Investment Research Division] equity research analysts.† The SEC have strict guidelines that, â€Å"prohibits an analyst from issuing reports on securities that run contrary to the analyst’s true beliefs about the securities.† (Craig) Goldman did not break any statutory laws with the Fundamental Strategies Group since they were not covered in the SEC ruling. From the uprising, Goldman’s executives sent an email to all their clients, explaining their â€Å"Trading Ideas† and advice. The email was meant to elucidate the firm and public’s â€Å"conflict of interest† policy. In the message, Goldman stated, â€Å"You should not consider Trading Ideas as objective or independent research or as investment advice. When we discuss Trading Ideas with you, we will not be acting as your advisor (including, without limitation, in relation to investment, accounting, tax or legal matters) and the provision of Trading Ideas to you will not give rise to any fiduciary or equitable duties on our part† (Sorkin 1). In the case of Goldman vs. Common Wealth of Massachusetts, the court ruled, â€Å"Goldman failed to reasonably supervise GIR equity analysts’ communications to prevent and detect dissemination by GIR equity analysts of certain unpublished short term trading ideas† (SEC) and were held accountable to Section 204 (a)(2)(J) of the Act, which in part states that: â€Å"The secretary may by order†¦. deny, suspend, or revoke, any registration †¦ if he finds (1) that the order is the public interest and (2) that the applicant or registrant (J) has failed reasonably to supervise agents, investment adviser representatives or other employees to assure compliance with this chapter† (SEC). Goldman failed to supervise its agents to guarantee compliance with the act. The court ruled that Goldman must have a policy that allows a GIR equity research analyst to identify an unpublished report and follow its publication through more than 14 persons. Furthermore, Goldman will be required to disclose in their Terms of Use Agreement that the amount of GIR equity research report varies from client to client (Stempel). â€Å"Goldman agreed to pay a fine of $10 million and stop giving favored clients trading ideas developed at internal gatherings known as â€Å"trading huddles†Ã¢â‚¬  (Stempel). In addition, they were charged with not dealing in with honesty with all clients and took advantage over others, known as fair dealing with clients. While all companies try to balance on the line of pursuing profits and maintaining a moral conduct, Goldman Sachs was unable to keep their balance. After the reports of intentionally avoiding regulation from SEC Regulation AC, requiring equity research analysts to certify that their issued reports represents their actual views (SEC), the company crossed ethical boundaries. With their Fundamental Strategies Group, Goldman as a whole company condoned unethical action. Instead of following the regulation of the SEC they went around it. Some of the ethical issues present in the case were: * Taking unfair advantage – one part of the firm issued equity research reports to the public and another part of the firm did also engage in equity research but came to a different conclusion. However, the latter report was only issued to certain clients. By releasing one view on a subject and taking another position themselves, thereby taking unfair advantage. * Violating rules – even though their Fundamental Strategies Group were not violating any laws or regulation, they failed to follow the SEC Regulation AC Recommendation and Conclusion The cases mentioned above are only a few of the instances where Goldman has been scrutinized by government entities and the public. Its continuous practice of â€Å"toes to the line† on legal issues has many times resulted in lawsuits against the firm. As we can see, the legal issues they are pushing are unethical, however, they are not violating those laws. Instead, they are charged with other violations that result from operating at the line of illegal practices. Their reputation took a hit due to multiple SEC allegations and fines. To avoid these ethical situations Goldman Sachs should use the ethical principles that are taught. For example, they should have used Warren Buffet’s front page of the newspaper test in the case with the IPOs. Goldman Sachs should ask itself if they would be indifferent of their actions if the public would know that they intentionally manufactured demand for their IPOs. A partial reason for their unethical conduct was due to rationalizing; when they were confronted about their actions they proceeded by rationalizing and labeling their actions in order to avoid the ethical dilemmas. In the ABACUS case, Goldman stated that their clients are â€Å"qualified† and â€Å"sophisticated† enough to make market risk decisions. They most likely rationalized their actions by saying that the system is unfair and â€Å"if we don’t do it, someone else will†. In their case with trading huddles, it was a practice carried out by other firms, however, not to the same degree as Goldman. They waited until the lawyers told them it was wrong and rationalized by thinking â€Å"It’s a gray area†. Goldman Sachs’s pushed the limit of both the letter of the law, and the spirit of the law when dealing with its clients. Goldman’s history of brushing past ethical decisions have created many problems for the firm in the past years. It is clear that pursuing this strategy has not been to their benefit. A business should not have to argue how its actions add social value; it should be clear by the actions themselves. Therefore, if a business finds itself engaging in activities that do not pass Warrant Buffet’s Front of the Newspaper test it should reconsider its actions and business model. A red flag should rise when employees convince themselves that they are adding social value, as in the case with Tourre, or if employees feel any discomfort with their actions. If a company finds itself condoning unethical actions and violating the law, the best solution is to make an action plan on how to present their violations to the regulating government entity most truthfully and inform their clients of the unethical conduct with an apology. Despite that these measures might have a negative impact on the firm, it is highly likely be a short-term effect. The longstanding trust built up from their honesty and confrontation of the unethical actions could be beneficial to the firm’s future reputation. Work Cited Craig, Susanne. â€Å"Goldman’s Trading Tips Reward Its Biggest Clients.† The Wall Street Journal. 24 Aug. 2009. Web. 23 Mar. 2012. . â€Å"Goldman Sachs & Co.: Lit. Rel. No. 19051 / JANUARY 25, 2005.† U.S. Securities and Exchange Commission (Home Page). Web. 28 Mar. 2012. . Quinn, James. â€Å"Goldman Sachs, Fabrice Tourre and the Complex Abacus of Toxic Mortgages.† The Telegraph. Telegraph Media Group, 16 Apr. 2010. Web. 25 Mar. 2012. . â€Å"Rule 10b-5 — Employment of Manipulative and Deceptive Devices.† Law School  » University of Cincinnati College of Law. Web. 28 Mar. 2012. . â€Å"SEC Charges Goldman Sachs With Fraud in Structuring and Marketing of CDO Tied to Subprime Mortgages.† ; 2010-59; April 16, 2010. Web. 28 Mar. 2012. . Sorkin, Andrew. â€Å"DealBook.† Mergers, Acquisitions, Venture Capital, Hedge Funds. 12 Jan. 2010. Web. 28 Mar. 2012. . â€Å"Statement by SEC Chairman: Proposal of Regulation AC.† Statement by SEC Chairman: Proposal of Regulation AC (Harvey L. Pitt). Web. 28 Mar. 2012. . Stempel, Jo nathan. â€Å"Goldman Fined $10 Million, Agrees to Stop Trading Huddles.† Reuters. Thomson Reuters, 09 June 2011. Web. 28 Mar. 2012. .

What Is a Hydration Reaction

A hydration reaction is a chemical reaction where a hydrogen and hydroxyl ion is attached to a carbon in a carbon double bond. Generally, one reactant (usually an alkene or alkyne) reacts with water to yield ethanol, isopropanol, or 2-butanol (all alcohols) are a product. Formula and Example The general formula for a hydration reaction is:RRCCH2 in acid → RRC(-OH)-CH3 An example is the hydration reaction of ethylene oxide to produce ethylene glycol: C2H4O H2O → HO-CH2CH2-OH