Please answer the following questions after reading the case below:

1. Which instances do you believe laws were broken? Why?

2. Which instances do you believe ethics were violated? Why?

3. Would you expect most companies with this opportunity to act in this manner? Or differently? Explain.

4. If there was a Chief Ethics Officer at Vulcan Inc, do you believe the outcome would have been different? In what way and why?

Case: Vulcan, Inc.

The Company

Vulcan, Inc. is a multinational Fortune 200 company engaging principally in the exploration for and extraction of minerals. It is listed on the New York Stock Exchange and has more than 615 million shares outstanding.

The Meeting (March 7)

On March 5, Stewart Myer, the company's CEO, personally telephoned Martha Bordeaux, the vice president for finance; Lamont Johnson, the chief geologist; and Natasha Bylinski, the vice president for acquisitions, to arrange a March 7 meeting at the Atlanta airport. He emphasized to each of them the need for the utmost secrecy, directing them to arrange their travel to Atlanta as a connection to other and different destinations. When they all arrived at the meeting room, Myer reemphasized the need for complete secrecy. He then asked Johnson to present his report.

The Report

Johnson read his report:

Over the past few years, we have conducted extensive aerial geophysical surveys of the areas west of the Great Plains. These revealed numerous anomalies or extreme variations in the conductivity of rocks. One appeared particularly encouraging, so late last year we began a ground geophysical survey of the southwest portion of the Z segment in Montana. This survey confirmed the presence of anomalies. Accordingly, on January 14 we drilled some core samples and sent them to our lab. The results were so extraordinarily promising that on February 1 o we obtained more core samples and had them chemically assayed. On February 25, we received the assay, which revealed an average mineral content of 1.17 percent copper and 8.6 percent zinc over 600 feet of the sample's 650-foot length. Johnson then commented, "In my forty years in the business I have never seen such remarkable test results. On a scale of one to ten, this is an eleven."

The Reaction

Bordeaux exclaimed, "Our stock price will go through the roof" Bylinski retorted, "So will land prices!"

The Strategy

Myer interrupted, "Look, we're not here to celebrate. There are many better places to do that. We can't keep a lid on this very long so we have to strike soon. We need to line up the right agents to acquire the land. We must fragment the acquisitions to keep the sellers in the dark. Most critical is maintaining absolute secrecy. No one else in the company must know this. I will decide who needs to know and I will tell them. It is your duty to the company to keep quiet. Now, let's discuss the acquisition plan." the land, Johnson explained, "We pretended to be a motion picture company looking for locations to remake the movie High Noon. we drilled the samples in isolated areas and quickly filled the holes. To further cover our tracks, we drilled some barren core samples from land we owned and hid the cores on our land."

The Plan

Bylinski outlined the plan to acquire the land. "We only own about 20 percent of the land we want and we have options on another 15 percent. However, we currently own none of the principal portion. So we have a lot of work to do. We will employ several agents to negotiate the purchases. We will instruct them not to disclose that they are acting for us. In fact, we will order them not to disclose they are acting for anyone. We need to acquire approximately twenty square miles of additional land." Bordeaux asked, "What if the locals start getting curious?" Myer replied, 111 deal with that later if it arises."

Stock Options

On March 15 Vulcan issued stock options at $23.50 per share to thirty of its executives, including Myer, Bordeaux, Johnson, and Bylinski. At this time neither the stock option committee nor the board of directors had been informed of the strike or the pending land acquisition program.

The Rumors

While the land acquisition plan was nearing completion, rumors about a major strike by Vulcan began circulating throughout the business community. On the morning of March 20, Bordeaux read an account in a national newspaper reporting that ore samples had been sent out of Montana and inferring from that fact that Vulcan had made a rich strike. Bordeaux called Myer and told him about the article.

The Press Release

Myer prepared the following press release, which appeared in morning newspapers of general circulation on March 21 :

During the past few days the press has reported drilling activities by Vulcan and rumors of a substantial copper discovery. These reports are greatly exaggerated. Vulcan has engaged in normal geophysical explorations throughout the West. We routinely send core samples to verify our visual examinations. Most of the areas drilled have been barren or marginal. When we have additional information we will issue a statement to shareholders and the public.

Land Acquired

On April 6, Vulcan completed its land acquisition program. It had employed seven different agents. In total, it had acquired thirty-seven parcels from twenty-two different sellers at prices ranging from $300 to $600 per acre. The land cost a total of approximately $6 million.

Official Announcement

At 10:00 a.m. on April 11, Myer released on behalf of Vulcan an official announcement of a strike in Montana containing at least 30 million tons of high-grade copper and zinc ore. The release appeared on the wire services at 10:30 a.m. The price of Vulcan stock shot up eleven points to $38 by the close of business that day and continued to rise, reaching a price of $56 on May 16.

Loose Lips

Prior to the April 11 official announcement, a number of people purchased Vulcan stock with knowledge of the mineral discovery. Some people also purchased land adjacent to Vulcan's holdings in Montana. These purchasers included the following:

The Vulcan Executives

Myer, Bordeaux, Johnson, and Bylinski

The Eager Eavesdropper

After leaving the March 7 meeting, Bordeaux and Bylinski went to the airport lounge to wait for their flights. They excitedly-and loudly-discussed what they had learned at the meeting. Several people overheard their remarks, and one of them, Rae Bodie, immediately called her broker and bought fifteen hundred shares of Vulcan stock. Ms. Bodie also purchased a large tract of land next to Vulcan's site in Montana for approximately $600 per acre.

The Crestfallen Security Guard

On March 9, Johnson went into the home office very early to finish up the exploratory work on the new find. At the elevator he encountered Celia lidey, one of the company's security guards. Johnson knew her fairly well, since they both had worked for Vulcan for more than fifteen years. Noting her despondent visage, Johnson asked her what was wrong. She related to him her tale of woe: her husband had become disabled and lost his job, and her son needed an expensive medical procedure that their health insurance did not cover. Johnson felt great empathy for her plight. He told her that big doings were afoot at Vulcan and that if she bought Vulcan stock soon she would make a lot of money in a month or so. She took her savings and bought two hundred shares of Vulcan stock, which were as many shares as she could buy.

The Avaricious Agent

William Baggio, one of the agents hired to acquire the land, inferred that whatever was up had to be good for Vulcan. Accordingly, on March 21, he purchased twenty-five hundredshares of Vulcan and five thousand acres of land adjacent to the Vulcan property.

The Trusted Tlppee

On March 8, Myer called Theodore Griffey, his oldest and dearest friend. After getting Griffey to swear absolute confidentiality, Myer told him all the details of the strike. After hanging up the telephone, Griffey immediately purchased fifteen thousand shares of Vulcan stock. Griffey then told his father and sister about the land; each of them bought fifteen thousand shares.

The Scampering Stockbroker

Morris Lynch, Myer's stockbroker, was intrigued by Myer's purchases of an unusually large volume of Vulcan shares. During the last two weeks of March, he recommended Vulcan shares to a number of his other clients, telling them, "I've looked at this stock and it's good for you." About a dozen of his clients purchased a total of eight thousand shares.

The Land Grab

After the official announcement on April 11, several of Vulcans competitors began exploring the area and purchased large tracks of land, bidding up the price of land to $2,250 per acre. Both Bodie and Baggio sold their newly acquired land to Vulcan competitors at this higher price.