ETHICS IN BUSINESS AND GOVERNMENT

CASES

(Various sources)

ETHICS IN BUSINESS AND GOVERNMENT

- CASES –

In this course we will discuss and analyze selected cases from among the following sets:

1. 20 short cases - to be resolved individually (ethical challenges of managers)
2. 15 longer cases –more involved, to be resolved in group discussion (ethical challenges of employers, managers and organizations)

A. SHORT CASES

1. You’re the plant manager in one of ABC Company’s five plants. You’ve worked for the company for 15 years, working your way up from the factory floor, after the company sent you to college. Your boss just told you, in complete confidence, that the company will have to lay off 200 workers. Luckily, your job won’t be affected. But a rumour is now circulating in the plant and one of your workers (an old friend who now works for you) asks the question, “Well Pat, what’s the word? Is the plant closing? Am I going to lose my job? The closing on our new house is scheduled for next week, I need to know!” What should you say? What will you say?

2. As an operations professional, you need to be able to interact effectively with many internal customers – from corporate managers to field representatives. One of your peers is Jessica, who is a talented operations professional, but who is downright rude to her internal customers. Her attitude is so bad, that people around your company ask specifically to deal with you instead of Jessica. You’ve heard many tales about her sarcasm and her unwillingness to deliver anything other than the absolute minimum to other employees. You’ve thought about talking to Bruce, the manager to whom you and Jessica report, but you and everyone else knows that they are dating. In the meantime, your workload is increasing because of Jessica’s reputation? How do you handle Jessica and Bruce?

3. One of your co-workers is Joanne, a computer whiz with an offbeat style and a great sense of humour. Two of Joanne’s favourite “targets” are you and Bill, another co-worker who tends to be quite stand-offish in his business relationships. Joanne is the department clown and is forever goading you and Bill; you, because you’re a great audience and clearly think she’s hilarious; Bill, because she likes to try to get him to be more approachable. Joanne frequently alludes to sexual subjects and has called both you and Bill “little alley cats” and “studs”. While Joanne’s behaviour doesn’t offend you at all, you’re surprised when Bill approaches you in the men’s room and bitterly complains about Joanne’s constant teasing.

4. You’re an employment counselor at a large outplacement firm. Your company is currently negotiating with Black Company to provide outplacement services to 500 employees who are about to lose their jobs as result of a layoff. Your neighbour and good friend is a reporter for the local newspaper, who mentions to you over coffee one Saturday that she’s writing a story about Black Company. According to her sources, 1,500 employees are about to lose their jobs. You know her number is incorrect. Should you tell her?

5. You were recently promoted to manager with five professional and two clerical staff. One of the professionals, Joe, is a nice guy, but he simply hasn’t been able to match the performance of the others in the department. When he tells you he has been interviewing for another job in a different part of the company, you pull his personnel file and see that your predecessor had rated Joe’s performance as “good to excellent”. You frankly disagree. Joe has asked you for a recommendation. Based on the written appraisals, you could give him a good one – but your personal observation is at odds with the written evaluations. Joe’s prospective manager – your peer in another department – asks for your opinion. What do you say?

6. You and Lisa met five years ago when you were hired into the management training programme for a large utility. Although you’re now in different parts of the organization, you have managed to stay close over the years. Lisa recently had a baby and plans to take advantage of the full six months of maternity leave that the company offers. She told you that she’s definitely coming back to work after her leave and that her department has promised to hold her job for her. Meanwhile, you’ve seen a posting for her job on the company’s Web site. You run into one of Lisa’s colleagues in the hall and ask about the posting. He says “Oh yeah, they’re going to fill that job. But don’t tell Lisa, she’s got five more months to be a happy mum. Besides, they’ll find something for her to do if she decides to come back.”

7. You’ve just cemented a deal between a $100 million pension fund and Green Company, a large regional money manager. You and your staff put in long hours and a lot of effort to close the deal, and are feeling very good about it. You and three of your direct reports are having lunch in a fancy restaurant to celebrate a promotion, when the waiter brings you a phone. A senior account executive from Green is on the phone and wants to buy you lunch in gratitude for all your efforts. “I’ll leave my credit card number with the restaurant owner” he says. “You and your team have a great time on me.”

8. A young woman who works for you is moving with her husband to another city, where she’ll be looking for a new job. She’s an excellent worker, and when she asks you for a reference, you’re glad to do it for her. She specifically asks for a written recommendation on your corporate letterhead.

9. As a counselor in an outplacement firm, you’ve been working with Irwin for six months to find him a new position. During that time, he has completed extensive assessment work to determine if he’s in an appropriate profession, or if he might benefit from a career change. The results of the assessment indicate that Irwin has low self-esteem, probably could benefit from psychotherapy, and is most likely ill-suited for his current profession. Irwin has been actively interviewing for a position that’s very similar to two others he has held and lost. He desperately wants and needs this job. The company where he’s interviewing happens to be one of your most important clients. You receive a call from the head of human resources at the company, who tells you that Irwin suggested she call you for information about his ability, interests and personality style, as measured by the assessment process. She also asks you for a reference for Irwin. Since he has, in effect, asked that you share information with this woman, is it ok for you to give her an honest assessment of Irwin? What are your obligations to Irwin, who is your client in this case? Is there a way for you to be honest, yet not hurt Irwin’s chances to obtain this job? Or is that important? What will you do?

10. You’re a manager in a large commercial bank. You discover that Patricia, a loan officer who reports to you, has forged an approval signature on a customer loan, which requires signatures from two loan officers. When you confront Pat with the forgery, she apologises profusely and says that her husband has been very ill. The day she forged the signature, he was going into surgery and she just didn’t have time to find another loan officer to sign the authorization for the loan. Pat has been with your bank for 15 years and has a spotless record.

11. Steven is salesman who reports to you, the regional director of sales for an office supply company. He has a great track record and has consistently surpassed his sales targets, but he has one terrible flaw; he’s not on time for anything. He’s late both for meetings with you and for lunches with clients and the problem extends to his paperwork. His expense reports, sales reports – everything is handed in a week late. As his manager, you’ve counseled him about his tardiness, and he has improved. Now instead of being 15 minutes late for a meeting, he’s only five minutes late. Instead of submitting his expenses a week late, they’re only two days late. His lateness seems minor in view of his achievements, but it’s driving you and his co-workers crazy.

12. You’re upgrading your department’s data processing capabilities and have just placed an order for four personal computers and two laser printers with a computer company representative. When you mention that you wish you had a printer at home like the ones you just ordered, the representative tells you that because of your large order, she can give you a 50% discount on a printer for your home. You feel that this is not quite right, but you’re not sure why and would like some time to think about her offer.

13. Your profession has been traditionally a male-dominated one, and Marcia is the only woman in your department. Whenever Sam, your senior engineer, holds staff meetings, he and the other males in the department compliment Marcia profusely. They say things like “It’s hard for us to concentrate with a gorgeous woman like you in the room” or “you’ve got to stop batting your eyelashes at us or the temperature in this room will trigger the air conditioning.” They compliment her apparel, her figure, her legs and her manner of speaking. Although flattering, their remarks make her feel uncomfortable. She has mentioned her discomfort to you on several occasions and you’ve told Sam and the others to cut it out. They just laughed and told you that Marcia was too sensitive. You think that while Marcia was being sensitive, she did have justification for being upset about her co-workers remarks.

14. Before the birth of her second child, she had no problem handling the workload and the demands on her time; she had a live-in nanny who could care for her child regardless of when she returned home. Recently, however, her live-in left and Ellen is now sending her children to a day care facility with strict opening and closing times. Although Ellen is very productive when she’s in the office, her schedule no longer has any flexibility – she must leave the office no later than 5.00pm. This has caused a hardship for all of her peers who must complete team assignments whether or not she’s present. Although you don’t want to cause problems for her, the situation doesn’t seem fair to her co-workers.

15. A number of physicians are recruited to participate in a large-scale multicenter study to investigate the survival rates of breast cancer victims who are being treated with a new drug. Strict rules are developed regarding inclusion of patients in the study. Only those who have had surgery within the last three months can be included. Dr Smith has a patient who hears about the study and wants very much to participate. Because Dr Smith thinks this drug could really help this patient, he agrees to include her, even though her surgery took place six months ago. He changes the dates on her charts to conform with the study requirements and reasons that this one little change shouldn’t affect the study results.

16. You’re planning to hire a new sales manager, and the most promising candidate is really homely. You are concerned about how your customers – and even his colleagues – would react to him. The specific job he’s applying for requires extensive customer contact, and his appearance is frankly disconcerting. On the other hand, his credentials are excellent and he’s certainly qualified for the job.

17. You’re the head of marketing for a small pharmaceutical company that has just discovered a very promising drug for the treatment of Alzheimer’s disease. You have spent months designing a marketing campaign that contains printed materials and medication sample kit for distribution to almost every family physician and gerontologist in the country. As the materials are being loaded into cartons for delivery to your company’s representative, your assistant tells you that she has noticed a typographical error in the literature that could mislead physicians and their patients. In the section that discusses side effects, Diarrhea and gastrointestinal problems are listed as having a probability of 2 percent. This error appears on virtually every piece of the literature and kits, and ads containing the mistake are already on press in several consumer magazines.

18. You’re working the breakfast shift at a fast-food restaurant when a delivery of milk, eggs and other dairy products arrives. There’s a story in the local newspaper about contaminated milk distributed by the dairy that delivers to your restaurant. When you read the article more closely, you discover that there’s a problem with only a small portion of the dairy’s milk, and the newspaper lists the serial numbers of the containers that are affected. When you point out the article to your manager, he tells you to forget it. “If you think we’ve got time to go through every carton of milk to check serial numbers, you’re crazy” he says “the article says right here that the chances are miniscule that anyone has a contaminated carton.” He also explains that not only does he not have the workers to check the milk, but also, destroying the milk would require him to buy emergency milk supplies at the retail price. So, he tells you to get back to work and forget about the milk. He says “I don’t have the time or the money to worry about such minor details.”

19. For 12 years, you’ve been the financial advisor for an elderly man in his late 70’s who is an active investor of his own portfolio and for a trust that will benefit his two children. In the last few months, you’ve noticed a subtle, yet marked, change in his behaviour. He has become increasingly forgetful, has become uncharacteristically argumentative, and seems to have difficulty understanding some very basic aspects of his transactions. He has asked you to invest a sizable portion of his portfolio and the trust in what you consider to be a very risky bond offering. You are frank about your misgivings. He blasts you and says that if you don’t buy the bonds, he’ll take his business elsewhere.

20. Your manager is being transferred to another division of the company in early January. He calls a meeting in early November and asks that every department head delays processing all invoices until after January 1. He wants to keep expenses low and revenues high so that his last quarter in your area shows maximum revenue.

B. LONGER CASES

1. CONFLICT OF INTEREST
Big Company is a large manufacturer of health care products that is under fire from the government to lower costs. Big Company has an excellent reputation and is widely acknowledged as one of the best-managed companies in the country. In spite of its reputation, however, Wall Street has reacted negatively to government efforts to reform the health care industry as a whole, and Big Company’s stock price has lost 30 percent of its value in the last year. To counter the effect of possible government intervention, Big Company has just purchased Little Company, a discount health care supplier. Wall Street has greeted the acquisition with enthusiasm, and Big Company’s stock price has rebounded by more than 10 percent since news of the acquisition was made public.
While this acquisition could provide Big Company with a foothold in a growing part of the health care industry, a real problem lies in the mission of Little Company. Little has made its reputation by providing objective health care advise to its customers. Now that it’s owned by Big Company, customers have expressed doubts about how objective Little can be in recommending health care products if it’s owned by a health care giant. Will Little Company be pressured to recommend the products offered by Big Company, its parent? Or will Little Company’s advice remain objective?
As the senior executive charged with bringing Little Company into the corporate fold, how do you proceed? What are your obligations to Big Company, Little Company and the customers of both? What do you owe to shareholders and the financial community? Are there other stakeholders, and what do you owe them? What provisions would you include in an ethics code for Little Company?

2. PRODUCT SAFETY
As a brand manager at a large food manufacturer, you’re positioning a new product for entry into the highly competitive snack food market. This product is low fat and low calorie, and should prove to be unusually successful, especially against the rapidly growing pretzel market. You know that one of your leading competitors is preparing to launch a similar product at about the same time. Since market research suggests that the two products will be perceived as identical, the first product to be released should gain significant market share.
A research report from a small, independent lab – Green lab – indicates that your product causes dizziness in a small group of individuals. Green has an impressive reputation ad its research has always been reliable in the past. However, the research reports from two other independent labs don’t support Green’s conclusion. Your director of research assures you that any claims of adverse effect are unfounded and that the indication of dizziness are either extremely rare or the result of faulty research by Green Lab. Since your division has been losing revenue because of its emphasis on potato chips and other high fat snack food, it desperately needs a low fat money-maker. Since you were brought into the division to turn it around, your career at the company could depend on the success of this product.
What are your alternatives? What is your obligation to the consumer? Who are your other stakeholders and what do you owe them? What is you obligation to your employer and to other employees at your company? What should your course of action be? How can you apply the due care theory to this case? 3. ADVERTISING
As a bottler of natural spring water, your advertising department has recently launched a campaign that emphasizes the purity of your product. The industry is highly competitive, and your organization has been badly hurt by a lengthy strike of unionized employees. The strike seriously disrupted production and distribution, and it caused you company to lose significant revenues and market share. Now that the strike is over, your company will have to struggle to recoup lost customers, and will have to pay for the increased wages and benefits called for in the new union contract. The company’s financial situation is precarious to say the least.
You and the entire senior management team have high hopes for the new ad campaign, and initial consumer response has been positive. You are shocked then, when your head of operations reports to you that an angry worker has sabotaged one of your bottling plants. The worker introduced a chemical into one of the machines, which in turn contaminated 120,000 bottles of the spring water. Fortunately, the chemical is present in extremely minute amounts – no consumer could possibly suffer harm unless he or she drank in excess of 10 gallons of the water per day over a long period of time. Since the machine has already been sterilized, any risk of long-term exposure has been virtually eliminated, but, of course, the claims made by your new ad campaign could not be more false.
List all of the stakeholders involved in this situation. Does any stakeholder group have more to gain or lose than others? Develop a strategy for dealing with the contamination. How much does a company’s financial situation determine how ethical dilemmas are handled?

4. SHAREHOLDERS
You work for an investment bank that provides advise to corporate clients. The deal team you work on also includes Pat, a marketing manager, and Joe, who serves as the credit manager for the team, as well as several other professionals. Just before your team is scheduled to present details of a new deal to senior management, Pat suggests to Joe that the deal would have a better chance of being approved if he withheld certain financials. “If you can’t leave out this information,” says Pat, “at least put a positive spin on it so they don’t trash the whole deal.”
The other team members agree that the deal has tremendous potential, not only for the two clients, but also for your company. The financial information that Pat objects to – though disturbing at first glance – would most likely not seriously jeopardize the interest of any party involved. Joe objects and says that full disclosure is the right way to proceed, but that if all team members agree to the “positive spin,” he’ll go along with the decision. Team members vote and all agree to go along with Pat’s suggestion – you have the last vote. What do you do?
In this hypothetical case, what is your obligation to the shareholders of your organization and to the shareholders of the two organizations that are considering a deal? Are shareholders a consideration in this case? Are customers? Are employees? Could the survival of any of the three companies be at stake in this case? In a situation like this one, how could you best protect the interests of key stakeholder groups?

5. COMMUNITY
You have just been named CEO of a small chemical refinery in the Northeast. Shortly after you resume your new position, you discover that your three predecessors have kept a horrifying secret. Your headquarters location sits atop thirty 5,00 gallon tanks that have held a variety of chemicals – from simple oil to highly toxic chemicals. Although the tanks were drained over 20 years ago, there’s ample evidence that the tanks themselves have began to rust and leach sludge from the various chemicals into the ground. Because your company is located in area that supplies water to a large city over 100 miles away, the leaching sludge could already be causing major problems. The costs involved in a cleanup are estimated to be astronomical. Because the tanks are under the four storey headquarters building, the structure will have to be demolished before cleanup can begin. Then, all 30 tanks will have to be dug up and disposed of, and all of the soil around the area cleaned.
You’re frankly appalled that the last three CEO’s didn’t try to correct this situation when they were in charge. If the problem had been corrected 15 years ago, before the building had been erected, the costs would be substantially less than they will be now. However, as frustrated as you are, you’re also committed to rectifying the situation. After lengthy discussions with your technical and financial people, you decide that a cleanup can begin in two years. Obviously, the longer you wait to begin a cleanup, the riskier it becomes to the water supply. Before you begin the cleanup, it’s imperative that you raise capital, and a stock offering seems to be the best way to do it. However, if you disclose news of the dump problem now, the offering will likely be jeopardized. But the prospect of holding a news conference and explaining your role in keeping the dump a secret keeps you up at night.
Who are the stakeholders in this situation? What strategy would you develop for dealing with the dump and its disclosure? Are you morally obligated to disclose the dump right away? How will Wall Street react to this news? Does your desire to correct the situation justify keeping a secret for another two years?
Think about the due care theory presented earlier in this chapter. Can we draw parallels between due care for the consumer and due care for the environment? What if the oil tank dump mentioned in the hypothetical case was located in a foreign subsidiary of a U.S company and the country in which it was located has no laws against such a dump? Would the CEO be under any obligation to clean it up? Should American companies uphold U.S laws concerning the environment in non-U.S locations? How much protection is enough?

6. THE GIFT
You’re an account executive with a multinational financial firm, and one of your biggest accounts is that of a shipping magnet in Greece. Several months after you’ve arranged very complex financing to build a new fleet of oil tankers for this customer, he asks if you and your wife would attend the christening of the first tanker. You, of course, agree to attend – it would be an insult to him if you didn’t. When you arrive, he asks your wife to break the traditional champagne bottle over the bow of the tanker. Two weeks after the christening, your wife receives a package from your customer. In it is a gold bracelet with her initials and the date of the christening set in diamonds. To return the gift would insult your customer, but keeping it would clearly violate your company’s policy. What should you do?

Case Questions
1. What kind of an ethical issue is this?
2. Why would it be against corporate policy to accept such a gift? Do you agree with the policy? Why or why not?
3. Put yourself in the “shoes” of each of the parties. How might they think about the issue?
4. Imagine that you are the corporate vice-president in charge of business ethics and conduct for your firm. Would you be willing to change this policy? Why or why not?

7. THE WALL STREET EFFECT
First Interstate Bankcorp of Los Angeles had been ailing for years. The bank – which has more than 500 branches in thirteen states, most of them in California – had failed to see the high tech future of the industry, priding itself instead on old-fashioned teller service. So last October 18, when Wells Fargo & Co, a San Francisco based company beloved by Wall Street for replacing traditional branches with supermarket ATM sites, announced a hostile takeover of First Interstate, the move was seen by many financiers as logical step in the evolution of banking.
But First Interstate chairman William Siart and the rest of the banks executives spurned Wells Fargo’s first offer - $10.1 billion in Wells Fargo stock – and begun searching for a “white knight” – another bank whose bid might be more palatable, even if somewhat lower. They found one in the Minneapolis based First Bank System Inc., which offered $9.9 billion worth of its stock for First Interstate. Although Wells Fargo promptly upped its offer to $10.7 billion, First Interstate executives announced that they preferred to merge with First Bank and signed a “poison pill” pledge that would force First Interstate to pay First Bank a $200 million penalty if First Interstate merged with Wells Fargo.
First Interstate’s shareholders were considering two very different deals. One offered instant gratification; the other, a long-term commitment. Well Fargo’s plans for First Interstate was to save $700 million a year by firing up to 10,000 people (mostly from Interstate employees in California) and closing more than 350 branches, shareholders profits would be substantial and immediate.
First Bank on the other hand proposed a more long-term approach. To produce $500 million in annual savings, 6,000 jobs would be eliminated. But since the two banks had overlapping operations only in Colorado, Montana and Wyoming, few of their combined 1,500 branches would be closed. Cuts would be thinly spread across twenty one states, and many of the cuts will be accomplished through attrition.
The CEOs of First Interstate and First bank began to crisscross the country, making their pitch to shareholders that although Wells Fargo was offering more per share, the First Bank merger would be the best opportunity for growth. They also pointed out that fewer jobs would be lost.
That turned out to be a tactical error. Although concern over jobs buoyed the plan’s favor with California politicians – Los Angeles mayor, Richard Riordan, had denounced the proposed Wells Fargo merger as a “job killer” and a “disaster for lower-income communities” where branches would close – it angered stockholders. “First Interstate shareholders are not at all happy,” analyst Thomas Brown noted at the time. “I have talked to four of the five largest holders and the reaction ranges from modestly negative to violently negative. The shareholders are saying that they have no obligation to the state of California.” Some shareholders went so far as to sue First Interstate’s directors, accusing them of a breach of fiduciary responsibility by spurning Well Fargo’s offer.
More than 80% of First Interstate’s shares were held by fifty large financial institutions – mutual funds, pension funds and investment partnerships such as Kohiberg, Kravis, Roberts & Co. The pressure on fund managers is to maximize investor returns – now. Their responsibility is, out of necessity, to the bottom line. First Interstate’s institutional shareholders were not concerned by the prospect of layoffs; they wanted the banks stock price boosted quickly. In fact, many managers favoured the Wells deal precisely because of the proposed layoffs and bank closings. Those moves would guarantee profit, at least in the short term.
In hearings before the Federal Reserve, California politicians and community activists made their case against the Wells Fargo deal, arguing that poor neighbourhoods in L.A need more, not less, access to banking services, and that promises of techno-banking services nodes in supermarkets were of little consolation to communities that didn’t have supermarkets. They also pointed out that Wells Fargo had recently stopped offering home mortgages and was the only major regional bank that had not provided financial support to the Southern California Business Development Corporation.
Wall Street investors made their feelings known in their own, more convincing way. They signaled their enthusiasm for the Wells Fargo deal by trading up its stock dramatically. The increase in the price of Wells stock automatically increased the value of its offer to First Interstate’s investors. By January 15, the gap between the two deals was almost $1.5 billion. Ten days later, First Interstate executives announced that the Wells Fargo merger offer had been accepted.
Layoffs were expected to begin in April. Terminated First Interstate employees will get four weeks pay for every year of service. Thirty-nine First Interstate executives fared better; they will receive golden parachutes worth a total of about $29 million. The top five will receive at least $2 million each. Chairman Siart will get $4.57 million. Questions

1. How would you asses the decision of First Interstate stockholders to accept the takeover offer from Wells Fargo? How would the stockholders actions be defended morally?
2. Are the actions of Wells Fargo immoral from the stakeholder perspective? If no, explain. If yes, indicate why the rights of the stockholders should be overridden in this case.
3. Can you think of a way that Wells Fargo management might have done better at satisfying both the rights of the stockholders and the needs of the other stakeholders?

8. A “STATE-OF-THE-ART” TERMINATION
Monday had been the most humiliating day of Bill Collin’s life. Rumours of downsizing had been swirling for months and every computer analyst in Bill’s department knew that the axe would fall on some of them. Bets had even been taken on who would stay and who would go. When the news was finally delivered, Bill was not surprised. He also understood the necessity of reducing the computer support staff in view of the merger that had made many jobs redundant; and he felt confident that he would find a new job fairly quickly. What upset him was the manner in which he had been terminated.
Bill arrived in the office at 8am sharp to find a memo on his desk about a 9.30am meeting at a hotel one block away. Since this site was often used for training sessions, he gave the notice little thought. Bill decided to arrive a few minutes early in order to chat with colleagues, but he found himself being ushered quickly into a small conference room where three other people from his department were already seated. His greeting to them was cut short by a fourth person whom Bill had never seen before. The stranger explained that he was a consultant from an outplacement firm that had been engaged to deliver the bad news and to outline the benefits that the company was providing for them. Once he started talking, Bill felt relieved: the package of benefits was greater than he had dared hope. All employees would receive full salary for six months plus pay for accrued vacation time; medical insurance and pension contribution would be continued during this period; and the outplacement firm would provide career counseling and a placement service that included secretarial assistance, photocopying and fax service and office space. The consultant assured the four longtime employees that the company appreciated their years of service and wanted to proceed in a caring manner. It was for this reason that they hired the best consulting firm in the business, one that had a reputation for a “state-of-the-art” termination process.
Bill’s relief was jolted by what came next. The consultant informed the four that they were not to return to their office or to set foot inside the corporate office building again: nor were they to attempt to contact anyone still working for the company, (At this point, Bill suddenly realized that he had no idea how many employees might be in other four-person groups being dismissed at the same time.) The contents of their desks would be boxed and delivered to their homes; directories of their computer files would be provided, and requests for any personal material would be honoured after a careful review of their contents to make sure that no proprietary information was included. The consultant assured them that all passwords had already been changed, including the password for remote access. Finally, they were instructed not to remain at the hotel but to proceed to a service exit where pre-paid taxis were stationed to take them home.
Bill regretted not being able to say goodbye to his friends in the office. He would have liked some advance warning in order to finish up several projects that he had initiated and to clear out his own belongings. The manner in which he had been terminated was compassionate up to a point, Bill admitted, but it showed that the company did not trust him. A few days later, Bill understood the company’s position better when he read an article in a business magazine that detailed the sabotage that had been committed by terminated employees who had continued access to their employer’s computer system. Some disgruntled workers had destroyed files and done other mischief when they were allowed to return to their offices after being informed of their termination. One clever computer expert had previously planted a virtually undetectable virus that remained dormant until he gained access long enough through a co-workers terminal to activate it. The advice that companies were receiving from consulting firms that specialize in termination was: be compassionate, but also protect yourself. Good advice, Bill thought, but the humiliation was still fresh in his mind.

Questions

1. Was the termination of Bill Collin legally justified? Morally justified?
2. Leaving aside the morality of the termination itself, did the company treat Bill justly?
3. Was the fear of sabotage adequate justification for not allowing Bill back on company property to say goodbye to his friends?
4. How could the company have handled the termination process better while at the same time, taking account of reports of sabotage at other companies?

9. SHUTDOWN AT EASTLAND
When Speedy Motors Company closed its assembly plant in Eastland, Michigan, lobbyist for organized labour cited the case as one more reason why the Federal government should pass a law regulating plant closings. With less than a months notice, the company laid off nearly 2,000 workers and permanently shut down the facility, which had been in operation for more than 20 years. The local union president called the action “a callous and heartless treatment of the workers and of the community”
The company executives defended the decision as inevitable in view of the harsh competitive realities of the automotive industries. “Purchases of the Speedy model produced at Eastland have fallen to almost nothing and there is nothing we can do about changes in consumer preferences.” A company spokesman said.
Labour lobbyists insist that instances such as this show the need for a Federal law which would require companies to give as much as two years notice before closing a major factory, unless they can demonstrate that an emergency exists. The proposed legislation would also require the employer to provide special benefits for workers and the community affected by the shutdown.
“Closing plants needlessly and without warning is an antisocial criminal act,” a union leader said. “Giant corporations don’t give a thought to the hardship they are imposing on long-time employees and communities that depend on their jobs. The only thing they consider is their profit.”
Opponents to the legislation maintain that the proposed law would strike at the heart of the free enterprise system. “Companies must be free to do business wherever they choose without being penalized,” a corporate spokesman argued “Plant closing legislation would constitute unjustified interference in private decision making. Laws which restrict the ability of management to operate a business in the most efficient manner are counterproductive and in direct conflict with the theory of free enterprise”

Questions

1. Does the closing of a plant when it ceases to be profitable violate the “moral minimum”?
2. Who are the affected stakeholders and how should their interests be considered?
3. Who should take primary responsibility for those laid off or termination because of plant closing?

10. “HARASSMENT” AT BRADEMORE ELECTRIC
Maura Donovan is a recent graduate of UCLA who now works as a low-level administrative assistant for Keith Sturdivant at the Brademore Electric Corporation, a large Los Angeles electrical contractor. Keith interviewed and hired Maura to work directly under him.
Maura had been employed at Brademore for only three weeks when Keith approached her to go out on the weekend. Maura was taken somewhat by surprise and declined, thinking it is best not to mix business with pleasure. But two days later, Keith persisted, saying that Maura owed him something in return for his “getting” her the job. Maura was offended by his comment, knowing that she was well qualified for the position, but Keith seemed lonely, almost desperate, and she agreed to go with him to the Annual Renaissance Fair on Saturday afternoon. As it turned out, she did not have an enjoyable time. She liked the fair, but found Keith a bit crude and at times almost uncivil in the way he treated employees at the Fair. She hoped he would not ask her out again.
But Monday morning, he came back with the idea that they go on an overnight sailboat trip with some of his friends the next weekend. Maura politely declined. But Keith persisted, insisting that she owed her job to him. Maura found herself dreading the times she saw Keith coming down the corridor. What had been a very nice work environment for her had changed into a place of frequent dread. She spent a lot of time working to avoid Keith.
For four straight weeks, Keith came up with a different idea for how they might spend the weekend – always involving an overnight trip. Maura always declined. After the second week, she lied and told him that she was dating a number of other men. She said she was quite interested in two of these and that she did not see any future with Keith. Keith’s reaction was to become even more insistent that they had a future together and to continue to ask her out.
Keith had become quite infatuated with Maura. He watched her every movement, whenever he had an opportunity. Sometimes he openly stared at her as she walked from one office to another. He began to have sexual fantasies about her, which he disclosed to two male supervisors. However, he never mentioned to Maura that he had in mind any form of sexual relationship.
Keith’s direct supervisor, Vice President B.K Singh, became aware of Keith’s interest in Maura from two sources. First, he was told about the sexual fantasies by one of Keith’s two male friends to whom Keith made the disclosures. Second, Maura had that same day come to his office to complain about what she considered sexual harassment. Mr Singh became concerned about a possible contaminated work environment, but he did not think that he or Maura could make any form of harassment charge stick. The company had no corporate policy on harassment. Mr Singh considered the situation to be just another case of one employee asking the other out and being overly persistent. Mr Singh decided not to do anything right away, not even to discuss the problem with Keith. He was worried that if he did take up the matter with Keith at such an early stage, he will himself be creating a hostile work environment. He believed that Keith’s advances would have to worsen before he should intervene or take the problem to the President.

Questions

1. Is Keith’s conduct a case of sexual harassment? Is it a clear case, a borderline case or no case at all?
2. Is it justifiable for Mr Singh to adopt a position of nonintervention? Should he speak with Keith? What would you do if you were in his position?
3. Does the fact that Maura agreed once to go with Keith mean that she encouraged him to make further requests? If so, was she sufficiently discouraging at a later point?

11. FOOD LABELS AND ARTFUL SALES
Packaged foods in supermarkets contain a list of the ingredients on the package as well as other information. Much of that information is required by law. However, research has indicated that what is said or not said on the label has an important effect on the sales of the product.
Market research has shown that some consumers react positively to the word granola when marketing cereals and snacks. Granola bars saw retail sales grow 290% from 1980 – 1985, the fastest growing segment of the candy bar market at that time. Granola bars were first introduced into the market as health food products, and the ingredients were fashioned for consumers concerned about nutrition. However, many complained that they tasted like cardboard. Manufacturers then changed the products by adding peanut butter, chocolate chips, marshmallows and sugar. Although the bars gradually became more like candy bars than granola in their nutritional value and sugar content, they are slightly more nutritious than conventional candy bars. They have a higher fiber content, slightly less fat and a higher percentage of complex carbohydrates. Advertising has continued to present the product with a healthful image, strengthening the public’s association of the term granola with such concepts as “health food” and “healthy.” Quaker Oats, General Mills and Hershey Foods have emphasized the “wholesomeness” and “goodness” of their granola bars in their advertising. In order to compete, conventional candy bar companies also decided to advertise their products as healthy snacks. This trend of the 1980’s continued throughout the 1990’s.
The amount of sugar is not the only concern of consumers. Also important is the amount of complex carbohydrates, protein and vitamins a food contains, as well as its fat content sodium content and calories. Although this information is printed on the label, the numbers found there are a function of serving size and are often presented in a way difficult for many persons to interpret. The consumer’s information is specified in protein content, calories and the like per serving, but the larger the serving size, the higher the numbers are likely to be. Reducing the serving size lowers the number of calories and the amount of sodium. Companies have therefore began describing as a “serving” an amount that is much less than most people ordinarily serve themselves.

Questions
1. Are such marketing practices by candy, cereal and soup companies manipulative? Deceptive?
2. Should companies be permitted to change the name, contents or serving size without changing the product or the amount of the product?
3. The term sugar-free literally means “free of sucrose.” Since many people purchase sugar-free foods to assist them with weight loss, should a standard be required so that “sugar-free” means “free of any high calorie sweetener”?
4. Flexi-labeling permits wording such as “contains one or more of the following.” Hence, the statement that a product “contains sunflower oil. Coconut oil and/or palm oil” is legally permitted. However, sunflower seed is a polyunsaturated fat, whereas the other two are saturated fats. Since polyunsaturated fats are more healthy, should flexi-labeling be prohibited?

12. SING’S CHINESE RESTAURANT
The Bali Hai Corporation started as a small Chinese restaurant in Boston, Massachusetts, in 1959. The restaurant was an exact replica of a Chinese pagoda. Over the years, the restaurant, owned and managed by Arnold Sing, became known for its food and atmosphere. Customers were made to feel as if they were actually in China. In the last few years, Sing decided to incorporate and open other similar restaurants throughout the country. Sing, who had come to the United States from China in the early 1940’s, was very strict in keeping up his reputation for good food and atmosphere. He had a policy of hiring only waiters of Oriental descent. He felt this added to his customers’ dining pleasure and made for a more authentic environment. For kitchen positions though, Sing hired any qualified applicants.
About a year ago at Sings Bali Hai in Washington, DC, there was a shortage of waiters. An advertisement was placed in the newspaper for waiters, and the manager of the store was instructed by Sing to hire only Orientals. The manager was also reminded of Bali Hai’s commitment to a reputation for good food and atmosphere. Two young men, one black and one white, both with considerable restaurant experience, applied for the waiters’ job. The manager explained the policy of hiring only Orientals to the young men, and he also told them he could get them work in his kitchen. The two men declined the position and instead went directly to the area Equal Employment Office and filed a complaint. Sing’s defense was that the policy was only to preserve the atmosphere of the restaurant. He said the Oriental waiters were needed to make it more authentic. Sing also added that he hired blacks, whites and other races for his kitchen help.

Questions

1. Is Sing’s defense a good one under the law? Why or why not?
2. Is Sing’s defense a good one under the standards of morality? Why or why not?
3. Is this a case of “preferential hiring”? Of “reverse discrimination”?

13. KATE: DOT-COM CEO
As the original founder and CEO of her flourishing dot.com business, Kate had some major decisions to make. Her company had been exceeding all expectations, and was about to launch a IPO. The company, “Listening.com” specialized in providing various audio formats, including songs, software, books, famous speeches, academic lectures and an assortment of sound bytes in MP3 format which could be downloaded from the company’s website. Revenues were based on two sources: 1) the payment by subscribers of either a per-unit fee of an annual fee which would entitle the user to a certain number of minutes of downloadable audio; and 2) advertising. Despite the excitement of the forthcoming IPO, which if successful could potentially make Kate a multi-millionaire, the occasion had forced her to re-examine a number of issues related to her company.
Kate’s son-in-law, who had recently been hired to assist the company’s controller, had expressed to Kate a number of concerns regarding the firm’s accounting practices. He had mentioned his concern to his supervisor, the company’s controller, and had been told “What we’re doing is completely legal. We are complying with Generally Accepted Accounting Principles (GAAP). Besides, the higher the revenue amount we report, the higher our valuation, meaning greater rewards for our stock option holders, a group to which you and I belong.”
Kate asked her son-in-law what sort of accounting irregularities he had observed. One of his concerns was over “barter revenues.” Apparently, Listening.com exchanged advertising space on its web pages for ads on radio and television. He said “The potential problem I have is that even though this is being recorded as revenue, the barter revenues do not represent real cash.” Kate asked how this was possible. “Well, because GAAP does not indicate how the ‘fair value’ of barter transactions should be determined, there is great flexibility in how to record these revenues. I’m just not sure if what we’re doing is right though.”
Kate also discovered from her son-in-law, that her marketing department had been engaging in a technique leading to higher reported revenues. Loyal customers were being given an ‘electronic coupon,’ providing them with 10% deduction on future purchases. The accounting department, however, was still recording the full purchase price as revenue, while taking the 10% charge as a ‘marketing expense.’ Her son-in-law said “Although there is no effect on the firm’s bottom line, our revenues look larger than they really are.”
Kate had other issues to ponder. She had been asked by the CEO of one of Listening.com’s largest customers to give his company thousands of share options which he could then pass to his senior executives prior to the Listening.com IPO. By doing so, the relationship between the two companies will be solidified, including the potential for a longer-term contract, which would, in turn, help the IPO. Kate was aware that although the practice of distributing such stock, known as ‘friends and family stock,’ was not illegal, and in fact was regularly practiced by internet firms, a number of larger companies such as Hewlett-Packard, Bellsouth, Bell Atlantic and Cisco Systems prohibited the acceptance of such stock by their employees. She wondered if there were any good reasons for such ethics guidelines, and if her firm should engage in giving out pre-IPO stock to their customers, or even potential customers. She had even received a few phone calls from several Wall Street analysts who were requesting some of Listening.com’s pre-IPO stock.
Kate also began to question whether her company’s board required more outside directors. Currently, of the six members, four were insiders, two were outsiders. Of the outsiders, one was acting as a consultant to the firm, and one was from the original venture capital firm. Her COO argued that “It’s better to have fewer outside directors. We need directors who can keep this company aggressive and fast moving, not those who want to maintain the status quo.” Kate had recently read about the growing concern over the lack of outside directors at internet companies, and wondered whether this necessarily applied to her company.
Several marketing firms had approached Kate and asked for her customer list and indeed the email comments from her customers regarding Listening.com’s products. The marketing firms were willing to pay several million dollars for the information, and the money would certainly go a long distance to shoring up Listening.com’s financial situation prior to the IPO. As Kate reflected upon the issue, she remembered the decision she had made early on to warn her customers on her website that their names and e-mail addresses could be distributed to others, unless they explicitly requested for this not to take place. Only 10% of her customers had chosen to do so. She now had to decide whether to exercise her legal right to sell the names and e-mail addresses of the remaining 90% of her customers.
That night, Kate heard from her son about her company’s website. “It’s great,” he said. “A bunch of my friends have figured out how to use one of the applications on your company’s site to download music from other web sites for free. No more major music bills. Anyway, we were being ripped off by the music companies.”
As if her son’s news wasn’t enough, Kate faced one final dilemma. She had always dreamed of an early retirement, to fulfill her dream of traveling around the world taking beautiful sunset pictures. If the IPO was successful, she could potentially cash out immediately afterwards and leave the company to fend for itself. But she knew that by remaining, the company had a much greater chance to survive and flourish, and bring the investors a more stable long-term financial return. She had worked hard and sacrificed a great deal to bring the company to its current state. She deserved to be handsomely rewarded, didn’t she?

Questions

1. Identify all the ethical dilemmas facing Kate and explain why they are so.
2. Put yourself in Kate’s shoes as the original founder and CEO of the dot.com business. How would you resolve her various ethical dilemmas and why? Justify your decisions with specific ethical principles that you can defend to the shareholders and other stakeholders.

14. INSIDER TRADING SCENARIOS
1. As CEO of Mover Corp. you are aware of confidential good news that should soon propel Mover’s stock above its present value of $6 per share. You sell stock short through a stockbroker who you know will tell his clients you are selling short and that the stock will decline. Mover’s stock slips to $4. You cover your short, making $2 per share. You then buy more stock at $4, release the news, and when Mover stock hits $15, you unload.
2. You work for Mine Inc. as an inventor and have just discovered an additive that seems to increase gas mileage three miles per gallon. Although you are sure of the discovery, your boss wants to wait two months to announce it; to be sure the results are triple-checked. You are sixty-five in a month, the mandatory retirement age. Mine Inc. has no retirement benefits and pays its inventors no bonuses. You take out a home-equity loan, add it to your entire life savings, and buy $250,000 of Mine stock, tripling your investment when the news is announced.
3. You and your golfing partner, both executives at Engulf, Inc are discussing Engulf’s secret plan to acquire Flaccid Inc. Your caddy overhears your discussion and purchases Flaccid stock. Next week, Engulf announces its bid and Flaccid stock doubles, whereupon the caddy sells.
4. You are an upper-level manager with Torpor, Inc and you know Torpor will announce a disappointing earnings report in a week. You know the present law prohibits you from selling before the news, but you tell your best friend, who calls his stockbroker with the news. Your friend sells Torpor stock on his broker’s advice, and the broker calls all his clients who hold Torpor and advices them to dump Torpor stock.
5. You are having a beer with Ken Moore, attorney for Art Grab, a corporate raider, when Moore leans over and confides: “Grab is going to initiate purchases of Zilch, Inc. next week.” You immediately purchase 10,000 shares in Zilch and cash out in two weeks when the price doubles on public news of the takeover attempt.
6. Upper, Inc. is about to report fantastic earnings. You go to Fax, Inc. to fax Uppers earnings to its printers, who will print the quarterly report. The fax operator sees the results and immediately places an order for Upper stock. The fax receiver at the printer also notices the results and buys Upper stock.
7. You write the column “Wall Street Beat” for Barrens, the top-ranked financial daily. You know your influence is such that a positive or negative discussion of a stock will cause it to rise or fall 6% on average. All of your information comes from your analyses; none comes from insiders of the firms you discuss. When you have particularly strong comments on a stock, you trade in your stock before your column appears. You pass your information on to your friends, who also trade on it.
8. You are working in the mergers and acquisitions department of Kidunot & Co. on a takeover concerning two companies, the details of which are confidential. You sell the information to Evan Booski, a well known arbitrager, who buys stock in the takeover target, makes $3 million from the transaction, and gives you $400,000 for the information.
9. You work for Golddigger & Co., which has a merger and acquisitions (M&A) department that advices clients on financing, mergers and takeovers, and an arbitrage department that trades in the stock of likely takeover targets. You are aware that the law requires there be no leakage of information between the two departments within a firm. You arrange through a counterpart at Kidunot & Co. to trade information between Kinunot’s arbitrage and Golddigger’s M&A departments, and between Kidunot’s M&A and Golddigger’s arbitrage departments. By trading on such information Kidunot and Golddigger each gain $30 million per year. You also trade in your own private account on the information passed to Golddigger from Kidunot.
10. As an investment analyst, knowledgeable about the banking industry, you have been approached by two bank officials who want you to expose serious wrongdoing at their bank, which will soon bring about a total collapse of the bank’s stock. They do not wish to go public themselves, for fear of never working in the industry again. You investigate further and write a critical research report but do not release it until you have called all you clients who own the bank’s stock and tell them to sell.

15. MARKETING THE GIANT QUART
Your company sells its products only in the state of New Wyoming, where state law does not prohibit marketing your cola in “giant quarts.” A quart is a standard measure, so a giant quart is the same size as an ordinary quart. A survey conducted by your firm indicates that 40% of cola buyers think that a giant quart is larger than a regular quart.

Questions

1. Would it be deceptive marketing to call your bottle a giant quart?
2. Does it make any difference in the ethics of marketing as to what percentage of cola buyers think that a giant quart is larger than a regular quart?
3. Suppose a firm sold a half-gallon of soda for $.99. In ads, the half-gallon size was called the giant size. The firm finds it necessary to increase the price of soda to $1.09. With the new price comes a new name – the giant economy size. Is the use of the new name deceptive?
4. Should there be a standard according to product for large, extra large, giant and family sizes? Why?