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business
understanding business ethics
Business Ethics Case Studies And Selected Readings 6th Edition Marianne M. Jennings - Solutions
In 2000, a full two years before WorldCom’s collapse, Steven Brabbs, WorldCom’s director of international finance and control, who was based in London, raised objections when he discovered after he had completed his division’s books for the year that $33.6 million in line costs had been
David Duncan was active in his church, a father of three young daughters, and a respected alumnus of Texas A&M. Mr. Duncan’s pastor talked with the New York Times following Enron’s collapse and Duncan’s indictment, and discussed with the reporter what a truly decent human being Duncan was.610
With regard to the destruction of the documents, was there a difference between what was legally obstruction of justice and what was ethical in terms of understanding what was happening at Enron? When the U.S. Supreme Court reversed the Andersen decision, the Wall Street Journal noted that the
Refer to the examples given in the reading, and compare the good and bad outcomes for the companies.What made the difference in how well they handled their situations?
What happens when employees feel that they are held to a different standard?
What does the "tone at the top" mean?
What list of governance practices would you give to a company so that it could be in compliance with SOX?
What additional costs do you see as a result of the new SOX requirements?
List all of the issues and activities you see that are now covered by SOX that could, or should have been, handled as ethical issues and resolved voluntarily.
Did Joel take an ethical route? Is his solution more ethical than bankruptcy?
What do you learn about ethical lines and legislative reforms?
Is there a presumption of good faith built into the bankruptcy code?
Is declaring bankruptcy by the members of these musical groups legal? Is it ethical? Are the musicians using bankruptcy as a way to avoid contract obligations? Are the musicians using bankruptcy as a way to maximize their income?
Do the three women of TLC meet the standards for declaring bankruptcy? Evaluate whether Lopes’s Lloyd’s claim should have been discharged. Determine whether the record contract should have been discharged.
Mr. Jett is now an off-shore hedge-fund trader.Does he violate the spirit of the SEC sanctions against him?
Are there some items that Mr. Jett’s experience could offer for inclusion in your credo?
Lynch’s report noted that some Kidder employees had questions about Jett’s trading but “were reluctant or unsure how to report their concerns despite the existence of legal and compliance departments and an ombudsman.”What could Kidder Peabody have done to eliminate such hesitancy?
Lynch’s report concluded that the attitude in the Kidder bond department was “never question success,” and that no one was willing to ask hard questions about Jett’s ever-increasing profits. Were other employees enjoy-ing the success too much? What ethical breaches did they commit by
Why were Bush’s and LaPrade’s allegations so readily dismissed? Why were they fired?
What parts of the GE-Kidder culture and circumstances contributed to the “Do what is necessary” ethical posture?
Cerullo earned an estimated $20 million in compensation during the time of Jett’s alleged scam. In other words, he enjoyed increased compensation if Jett did well.Consider this rap song, “Requiem Rap at Kidder P Blow,” that circulated around Kidder during its final presale days:Big Boss and
An executive noted that Wall Street firms“have become victims of compensation schemes resulting in outrageously high salaries and bonuses. It brings out the worst in people who have any worst in them.” Are compensation schemes responsible for poor ethical choices? Does a firm establish an
Make a list of the lines Mr. Kozlowski crossed in his tenure as CEO. Can any of those items help you in developing your credo? Mr. Kozlowksi said, when he was named CEO of the Year by BusinessWeek, Most of us made it to the chief executive position because of a particularly high degree[of]
Evaluate the e-mails from Wilmer Cutler to general counsel and others in the company.Why were these warnings signs unheeded?
What questions could Mr. Kozlowski and Mr.Swartz have asked themselves to better evaluate their conduct?
How do you think the spending and the loans were able to go on for so long?
What do you think of the ethics of Ms. Prue?
Warren Rudman, former U.S. senator and a member of the board at Raytheon, who knew and worked with Mark Belnick, was astonished at Mr. Belnick’s indictment when it was issued.Mr. Rudman said, when told of Mr. Belnick’s fall from grace: “I don’t understand. Ethical, straight, cross the
Recall your readings from Unit 2 on the relationship between ethics and economics. How did Tyco’s initial problems establish this connection as a very real one for the U.S. markets?What made Tyco’s stock price fall initially?Evaluate this comment from a market observer: “When a CEO steps down
Consider Mr. Fanueil’s statement that he could not live with the lies. Also, reflect on Mr. Bacanovic’s experiences after prison and the following additional information.Mr. Bacanovic had been so close to Ms. Stewart that he spent Christmases with her at her Connecticut home. They shared the
What advice can you offer someone who has engaged in trading similar to Ms. Stewart’s?Make a list of all the costs of Ms. Stewart’s sale of the stock and compare it with the losses she avoided by selling the day before the public announcement.
What do we learn about long-term consequences from Ms. Stewart’s conduct and case?
Was selling the shares illegal? If selling the shares was not illegal, was it unethical?
What issues did Stewart, Bacanovic, and Faneuil miss in making their decisions about selling the ImClone stock and in their conduct following the sales? Apply the models and make a list of suggested questions they could have asked that might have affected their decisions.
What do you learn about hubris here? What lessons for your credo?
Do you think this was insider trading?
John Coffee, a securities law and corporate governance expert and professor at Columbia Law School, said, “This evidence raises more doubts about his sanity than his criminality.The merger is a major business strategy, and he’s undercut it with reckless, self-destructive behavior. It’s a
Does his apparent success following the pump-and-dump scheme show that being honest and fair doesn’t really matter? Why or why not?
Do you think Master Lebed’s conduct was ethical?Why or why not? Was it honest? Was it fair?
Did Master Lebed take unfair advantage, or should investors be more wary of information they get over the Internet?
Can you distinguish his conduct from a CEO or analyst plugging a particular stock?
Do you think Master Lebed violated the law?Why or why not?
Compare and contrast the WorldCom case with the others you have studied, and develop a list of common threads and “take-aways” you would have to incorporate into a company as prevention tools. Be sure to consider elements for your credo in the process.
One analyst noted, “You always had this question about whether WorldCom was a house of cards. Everything was pro-forma. It drove us nuts.”384 Yet another analyst described the World-Com phenomenon as “a game of chicken, where you get as close as possible to the end before getting out. We all
At his sentencing, Scott Sullivan told the federal judge of his diabetic wife’s need for care and their four-year-old daughter and said, “Every day I regret what happened at WorldCom. I am sorry for the hurt caused by my cowardly decisions.”381 Scott Sullivan stated at his sentencing hearing,
Even when the first multi-billion-dollar restatement came, many near Clinton, Mississippi, appeared to be more in mourning than angry.One employee, sharing the shock with bar patrons at Bravo Italian Restaurant & Bar, said,“People are taking it with exceptional grace.In my experience with MCI, I
What did Scott Sullivan miss in making his analysis to capitalize ordinary expenses? What questions and models might have helped him see the decision and the impact of his decision differently?
Mr. Ebbers’s conduct shows that he still believes he has done nothing wrong. At church services in Mississippi immediately following the revelation of the WorldCom accounting impropriety, Mr. Ebbers arrived as usual to teach his Sunday school class and attend services.He addressed the
WorldCom was eerily meeting its earnings targets precisely. One analyst did, however, notice that WorldCom was making its targets for several quarters in a row within fractions of cents. “When you see that they’re making it by one one-hundredth of a penny you know the odds of that happening
Bill Parish, investment manager for Parish &Co., explained the collapse of Enron, World-Com, and others with this insight: “There’s massive corruption of the system. Earnings are grossly overstated.”374 Accounting Professor Brent Trueman at the University of California, Berkeley, added,
Consider the following:This phenomenon of confusion ruling in a bullish market is not unique to the 1990s stock market. Following the 1929 stock market crash, one of the biggest collapses, and a shocker to the investment world,was the bankruptcy of Middle West Utilities.The company was run by
Consider the following statement by a government official. Securities Exchange Commissioner Cynthia Glassman included the following in a speech she gave to the American Society of Corporate Secretaries on September 27, 2002:[T]he distribution of securities by companies that had not made a previous
Experts have commented that one of the reasons for the success of the Enron task force is that it worked its way up through employees in the company. That is, it got plea agreements and information from lower-level employees and then used the information to go after higher-ranking officers in the
Evaluate Enron’s culture. Be sure to compare and contrast with Fannie Mae, Bausch & Lomb, and MiniScribe. As you evaluate, consider the revelations from the testimony of David W. Delainey at the Skilling and Lay criminal trial. Mr. Delainey, the former head on Enron Energy Services retail unit,
Was Ms. Watkins a whistle-blower? Discuss the timing of her disclosures. Compare and contrast her behavior with Paula Reiker’s.Paula H. Reiker, the former manager of investor relations for Enron, was paid$5,000,000 between 2000 and 2001. She testified that she was aware during teleconferences
What elements for your personal credo can you take away from the following testimony from David Delainey and Andrew Fastow? As you think about this question, consider the following from their testimony at the Skilling and Lay trial.When asked why he did not raise the issue or simply walk away, Mr.
Did Mr. Fastow have a conflict of interest?
What questions could the officers of Enron have used to evaluate the wisdom and ethics of their decisions on the off-the-book entities and mark-to-market accounting? Be sure to apply the various models you have learned.
Do you think that Enron’s financial reports gave a false impression? Does it matter that most investors in Enron were relatively sophisticated financial institutions? What about the employees’ ownership of stock and their 401(k) plans? How should his relationships with Enron’s partially owned
Can you see that Enron broke any laws?Andrew Fastow testified at the Lay and Skilling trial as follows: “A significant number of senior management participated in this activity to misrepresent our company. And we all benefited financially from this at the expense of others. And I have come to
Reviewing the unfortunate series of events from 2002 forward, do you see issues with Bausch & Lomb culture? Or are these just an unfortunate series of events? Do the events have more impact because of the response of the company?
Why do you think Bausch & Lomb has struggled for so many years to make a recovery that seems to elude it?
What changes would you make in the company to prevent these types of issues?
Why are all those named in the consent decree“former” employees? Evaluate the comment of the SEC on the lack of knowledge among the officers about the culture issues.
How was the company affected? Financially?Competitively?
What went wrong with the Bausch & Lomb culture? What similarities do you see between Bausch & Lomb and FINOVA? Fannie Mae?
Nearly all of the FINOVA employees are gone or have been laid off. What impression do you think their time at FINOVA makes as prospective employers read their résumés? Do you see any lines for your credo in the experience of these young businesspeople at a young company?
Was FINOVA forthcoming about the level of risk in its business?
Was FINOVA so generous with its perks for employees that there was a resulting loyalty that was blinding the employees to the real financial condition of the company and the financial reporting issues? Would these perks have had an effect on you if you worked for FINOVA?
Do you think the incentive plans had any effect on the reported earnings? Why or why not?
Why do you think the officers and managers waited until the auditors required it to write off the $70 million loan? Given FINOVA’s fate and its freefall in stock price to a final price of$0.12, what issues did the executives miss in analyzing the decision to write down or not write down the loan?
What was different about MiniScribe’s vs. Fannie Mae’s culture? What role did Barnes play in resolving Fannie’s issues? By waiting to take action, what had he lost?
Were the auditors just duped? Should deceived auditors be held responsible for investors’ losses?
What would drive so many people in the company to violate accounting rules when they were fully aware that they were crossing the line?
Suppose you were a manager who was asked to wrap construction bricks in disk drive packaging.Would you ask, “Why?” Would you be able to continue your employment? Would you be morally responsible for investors’ losses by wrapping the bricks?
Were the auditors, Coopers & Lybrand, morally responsible for the investors’ losses?
What types of pressures led managers to“cook the books” at MiniScribe?
Evaluate the pep talk of the risk vice president and its effect on Fannie Mae’s culture. Are there some ideas for your credo that stem from the conduct and responses of various executives at Fannie Mae?
Why was dealing with the volatility not the issue?Why were the changes in the numbers necessary?
What observations can you make about incentive plans and earnings management? Incentive plans and internal controls?
List the signals that were missed in Fannie Mae’s devolution. Were they missed or ignored? Evaluate the actions of Mr. Barnes and Fannie Mae’s response to him.74
Consider the ethics recognition that Fannie Mae received and the reasons given for those awards. Then consider that Fannie Mae was rated by Standard & Poor’s on its corporate governance scoring system as being a 9, with“10” being the maximum CGS score. Fannie Mae received a 9.3 for its board
Make up a headline description of earnings management.
Put earnings management into one of the ethical categories you have learned.
Don’t shareholders benefit by earnings management?Who is really harmed by earnings management?
What are the motivations for moving around expenses and revenues in quarters and years?
Is there a gradual increase in the level of earnings management?
Would you participate in an alibi cell phone club? Explain your decision using the models you have applied.
If you were developing a policy for your company on human rights and international labor operations, how would you go about doing so?
What omissions are there in the company policies when compared with the principle statements?
Make a list of all of the factors that the statements of principles and company policies have in common.
Why do you think the public seized on the Kathie Lee Gifford and Nike issues?
Would you work to provide educational opportunities for these child laborers?
Would you limit hours and require a minimum wage even if it were not legally mandated?
Would you employ a twelve year old in one of your factories if it were legal to do so?
One executive noted, “We’re damned if we do because we exploit. We’re damned if we don’t because these foreign economies don’t develop. Who’s to know what’s right?
Are there any credo elements you find from either Mr. Welch or Ms. Wetlaufer?
Did the headline of the newspaper test apply to Mr. Welch’s original contract terms?
Does Mr. Welch rationalize his postemployment perks?
What were the consequences of Mr. Welch’s affair and divorce? Is it troublesome that he and Ms. Wetlaufer are so successful?
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