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Q:
What common characteristics do you see in the HealthSouth, Adelphia (Unit 3) , Fannie Mae, FINOVA, Tyco, WorldCom and Enron cases?
Q:
Recording artists and Hollywood actors have used bankruptcy as a means of being relieved of contract obligations.
Q:
Provide the accounting for the following: Operating Revenues:
$10,000,000 Nonrecurring, non-operating gain:
$4,000,000 Nonrecurring, non-operating loss:
$8,000,000 Operating expenses:
$6,000,000
Q:
Prior to working for Kidder Peabody, Joseph Jett was fired from one job and laid off from another.
Q:
Describe which ethical models would help auditors and financial officers as they work to prepare fair and accurate financial statements.
Q:
All of the officer loans at Tyco were approved by the Tyco board.
Q:
Evaluate and compare the actions of LiCari at Beech-Nut and Boisjoly at NASA.
Q:
Both Kozlowski and Tyco were generous in their philanthropic activities.
Q:
Explain the role of group think in the decision to launch the Challenger.
Q:
Goodwill was not a part of Tyco's accounting and financial reports.
Q:
List the tools companies can use for getting information from employees to those who can and will do something about the issues being raised.
Q:
Tyco was not forthcoming in its financial statements about its acquisitions.
Q:
Discuss the effect of the termination of a whistleblower on the culture of an organization.
Q:
Dennis Kozlowski's first trial resulted in a hung jury.
Q:
Explain why the Westland/Hallmark Meat Company employees used forklifts and shocks in processing cattle and why.
Q:
Enron did not disclose that an officer of the company was a principal in the off-the-book entities.
Q:
Discuss the ethics of walking away from a mortgage. Be sure to include an analysis of any rationalizations.
Q:
No employees at WorldCom raised any objections to the accounting practices.
Q:
Explain the process prosecutors use to obtain guilty pleas and convictions among the high executive ranks of a company for financial fraud.
Q:
The WorldCom stock frenzy is unique in business history.
Q:
Describe the impact of a company's reliance on computer models.
Q:
Mr. Ebbers was a Sunday School teacher at his Hattiesburg, Mississippi church.
Q:
List five categories of ethical and moral development and explain each one and give an example of each.
Q:
WorldCom's accounting was confusing because of its mergers and acquisitions.
Q:
National Medical Enterprises, Inc. (NME) is a multinational health care enterprise with 143 hospitals on four continents. NME was started by Richard K. Eamer, a tax attorney, in the 1960s. Eamer's development of NME was possible because of the implementation of the Medicare and Medicaid programs. He saw the programs as opportunities for a virtual guarantee of profits.
He began by acquiring six hospitals. He paid for these hospitals with promises to the physicians on staff of stock in his company. After the six hospitals were acquired, Eamer did a $25 million national stock offering and gave the physicians shares of stock in NME.
Eamer adopted a decentralized structure for the company. Hospital managers were simply given a financial goal and complete autonomy in their operations. Eamer traveled a great deal and used a company plane to get to NME-owned condominiums in London and Aspen. While Eamer was not a hands-on manager, he set very clear goals for NME managers. Achievement of established goals was rewarded. Under NME's pay structure, it was possible for managers to double their pay by meeting goals. Eamer was harsh when goals were not met. In meetings he would refer to those executives who had failed to meet established goals as "morons."
Eamer's managerial style paid off in the form of earnings growth of 15% per year through 1985. But, in 1986, earnings growth was off, down to 3%.
When informed by his managers of the decline in earnings growth, Eamer announced that NME would now focus on operating and acquiring psychiatric, substance-abuse and rehabilitation hospitals. NME had 62 psychiatric hospitals in 1986, but by 1991, that number had grown to 86. Further, NME occupancy rates for its psychiatric hospitals were 25% higher than any of its competitors. NME maintained an occupancy rate of 84%.
The director of NME's Fair Oaks Hospital in New Jersey, testified at a Congressional hearing that NME executives circulated information on how to maximize insurance payments. Strategies included longer stays and additional tests.
NME's intake manual specified as a goal that one of every two people who came to the hospital for a psychological assessment would be hospitalized.
Some adolescent patients were billed for as many as 10 therapy sessions per day. A memo from one senior officer to the various NME hospitals stated that the length of a patient's stay would be determined "not by the patient's individual medical needs, but on the insurance or payor mix." A controller for an NME hospital in Texas testified that probation officers, clergymen and officers in corporation employee-assistance offices were offered up to $2,000 in referral or "bounty hunter fees" for referring patients to NME. The controller also testified that he was required to make "cold calls" on facilities for purposes of soliciting referrals. He indicated that one of his cold calls was to a nursery school.
Former executives of NME have provided information showing that physicians were given 50-year leases for $1 per year by NME and then referred their patients exclusively to NME hospitals. Many of these physician-occupied buildings operated at a loss. Both Medicare and Medicaid regulations prohibit payment of referrals fees to physicians.
By 1991, occupancy rates at NME psychiatric hospitals were down to 52%. Eamer began selling of the psychiatric hospitals and announced to shareholders than NME would return its focus to its core 35 general hospitals. In announcing the refocus to shareholder, Eamer noted, "Our focus is on the patient. We know everything else will follow."
a. What type of ethical culture existed at NME? Why?
b. What does NME need to change?
c. Do you think NME's strategies with respect to the psychiatric hospitals were ethical?
d. Evaluate the ethics of clergymen, counselors, and probation officers accepting referral fees.
Q:
WorldCom employees who followed orders and made the accounting entries for capitalizing ordinary expenses served prison time.
Q:
Albertson's, the grocery retailer, has the highest profit margins in the industry at 6%. A union has filed suit against Albertson's for its "off-the-clock" without pay practices with respect to manager trainees. These trainees worked 4-5 hours extra each week without pay and did not complain because of promises of progression in the organization. When progression did not materialize, the trainees returned to checking positions and their union filed a class action suit on their behalf. The potential for back pay and penalties in the case is $200 million.
Albertson's notes that some managers may prod trainees to work longer without pay but that such is not company policy.
a. Who is responsible for the "off-the-clock" policy?
b. Is it each store manager or Albertson's?
c. Is "off-the-clock" an ethical policy?
Q:
WorldCom employees who raised questions about the company's accounting were forbidden from talking with Arthur Andersen auditors.
Q:
Explain the point George Lefcoe was making with his experience with the hams as gifts.
Q:
Both the director of general accounting and the controller at WorldCom were comfortable with capitalizing ordinary expenses.
Q:
How does numbers pressure develop in an organization?
a. Through incentive plans
b. Through performance evaluations
c. Through amount of time devoted to discussing numbers and performance
d. All of the above
Q:
WorldCom's accounting issues were discovered by its head of internal audit.
Q:
Which of the following would be an individual ethical lapse?
a. Shipping out goods early without customer's permission
b. Inflating your travel expenses
c. Following what other competitors are doing
d. Capitalizing ordinary expenses
Q:
FINOVA was a second-tier lender.
Q:
Repo 105:
a. Is a toll that Enron used for off-the-book entities.
b. Allowed debt instruments to be sold prior to public announcement of financial results.
c. Was used by WorldCom to capitalize ordinary expenses.
d. Was Chases' derivative trading strategy.
Q:
Warren Buffett bought FINOVA in bankruptcy.
Q:
What happened to Matthew Lee when he raised questions about Lehman's risk level?
a. The board responded and fired the company's CEO
b. Federal regulators arrived and closed down the investment bank
c. Outside auditors began an investigation
d. He was fired
Q:
FINOVA eventually declared bankruptcy.
Q:
Where is Timothy Mayopoulos now employed?
a. At Bank of America
b. At Lehman Brothers
c. At Fannie Mae
d. At Kidder Peabody
Q:
EBITDA is a GAAP method of financial reporting.
Q:
What problem did Claremont McKenna encounter that resulted in national headlines about the school?
a. It was allowing law students to attend review courses
b. It was allowing law students to use application consultants
c. It was increasing its SAT score averages above what they actually were
d. There was no problem except a rogue admissions officer
Q:
What was different about the losses resulting from Robert Citron's conduct?
a. He was not given discretion on trading
b. He was not earning bonuses for profitable yields and trades
c. There are no differences
d. He did not invest in anything risky
Q:
Who is responsible for the losses at Chase?
a. Joseph Jett
b. Jerome Kerviel
c. The "Rain man"
d. The "London Whale"
Q:
Who is the "Rain man"?
a. The man responsible for the losses at UBS
b. The man responsible for the losses at Chase
c. A nickname for Joseph Kett
d. A nickname for Robert Citron
Q:
Which of the following is an effective tool for stopping cultural and societal ethical shifts?
a. Ethics training
b. Screening
c. Internal controls
d. Educational standards
Q:
Which of the following is an effective tool for preventing industry level ethical lapses?
a. Self-regulatory activism
b. Ethics training
c. Screening
d. Internal controls
Q:
The duty of loyalty between employee and employer makes whistle-blowing unethical per se.
Q:
Which of the following is an effective tool for preventing individual ethical lapses?
a. Ethics training
b. Screening
c. Internal controls
d. All of the above
Q:
The employment-at-will doctrine contains an exception for whistle-blowers.
Q:
Which of the following is an effective tool for preventing company/organization lapses?
a. Ethics training
b. Enforcement
c. Screening
d. Industry organizations
Q:
What was the impact of the behavior of the Jefferson County, Alabama supervisors on the city of Birmingham?
a. The city of Birmingham got a new election process
b. None " it only affected the county
c. The city of Birmingham went bankrupt
d. None of the above
Q:
An underwater mortgage is not enforceable.
Q:
William Aramony:
a. Was convicted of fraud and served a prison sentence.
b. Still received his compensation.
c. Had his pay taken by the federal court.
d. a and b only
e. a, b and c
Q:
Timothy Mayopoulos met with the board of Bank of America to discuss financial disclosures.
Q:
Why did Albert Meyer hesitate to disclose his findings on New Era?
a. He was not sure
b. He was asked by his superiors to let it go
c. He did not have tenure
d. Both b and c
e. All of the above
Q:
Timothy Mayopoulos was not fired by Bank of America.
Q:
What was the major issue uncovered in the Colorado MMS audit?a. Embezzlementb. Inflated travel expensesc. Conflicts of interestd. A waiver of the ethics policy
Q:
Nick Leeson did not serve time in prison for his activities at Barings Bank.
Q:
The MMS had investigations of which two divisions?a. DC and Coloradob. DC and Louisianac. Colorado and Louisianad. Colorado only
Q:
Joseph Jett did not serve time in prison for his activities at Kidder Peabody.
Q:
Which of the following were convicted of bank fraud and securities fraud?
a. John Rigas
b. Michael Rigas
c. Ellen Rigas
d. All of the above were convicted
Q:
Jerome Kerviel was sentenced to three years in prison for his activities at Socit General.
Q:
Home Depot shareholders rebelled because:
a. Of excessive compensation and poor earnings performance.
b. The failure of board members to face shareholders.
c. They were not given discounts at stores.
d. Both a and b
e. All of the above
Q:
Incentive plans influence employees' choices on ethical dilemmas.
Q:
The March 2007 rule of the SEC requires new disclosures on:
a. Officer perks.
b. Options.
c. Grants.
d. Both a and b
Q:
Screening bad apples out before hiring is an effective way to curb employees' unethical conduct.
Q:
Susan is interviewing for a position in purchasing with a major international retailer. Susan would like to go into consulting and sees this job, if she gets it, as experience for joining a consulting firm in 2-3 years. The interviewer asks Susan, "Where do you see yourself in five years?" Susan replies, "Working here"¦and I probably would have moved up to head one area of purchasing." Evaluate Susan's response, considering ethical categories and applying the readings from Unit 2.
Q:
In May 2010, Martha Stewart gave an interview to the New York Times magazine in which she was asked, "Do you find it odd that the SEC investigated you for insider trading, which resulted in your conviction in 2004, while letting a sociopath like Bernie Madoff run unchecked?" (Mr. Madoff ran a $50 billion Ponzi scheme). Ms. Stewart responded, "Let me just say one thing. They should have been paying closer attention to other things." She then added that she never stole anyone's money like Madoff did.
Evaluate Ms. Stewart's comments in the context of ethical analysis, a credo, and her attitude about ethics in business.
Q:
Discuss why Goldman Sachs was a disciple of Albert Carr's theory of "business is a poker game and we are all bluffing."
Q:
Lee Iacocca, chairman and CEO of Chrysler Corporation, announced on January 27, 1988, that the automaker would be closing its Kenosha, Wisconsin, plant. Iacocca and his board of directors were under significant pressure from shareholders due to Chrysler's continuing poor financial performance. Chrysler had acquired the Kenosha plant when it purchased American Motors Corporation in 1987. In his announcement, Iacocca blamed national trade policy for Chrysler's declining sales and resultant earnings problems.
At the Kenosha plant, which manufactured the Dodge Omni and the Plymouth Horizon, 5,500 of the 6,500 workers were to be laid off and production moved to a Detroit plant. Kenosha, a city of 77,000 on the shores of Lake Michigan, depended heavily on Chrysler's presence.
The announcement of the closing came at a critical time. Chrysler was negotiating to renew its contract with the United Auto Workers (UAW). Also, the Kenosha plant carried a history of union financial assistance. The UAW had loaned American Motors over $60 million to keep the Kenosha plant running, and Chrysler had assumed the loan obligations as part of the acquisition. Also, Wisconsin had paid $5 million for job training at the Kenosha plant in 1987 after Chrysler promised that the plant would build Omnis and Horizons for at least five more years.
Peter Pfaff, a member of the UAW Local 72 of Kenosha and an employee at the plant since 1972, said: "I was there. We"ve got it on tape and in writing. They said they"d stay. Greenwald (then Chrysler Motors chairman) keeps saying Chrysler never said that, but I was there when he said it."
The Kenosha local threatened to delay negotiations on renewing the national contract with 64,000 workers. After the threat, Iacocca announced that Chrysler would establish a $20 million trust fund to aid the 5,500 Kenosha workers through housing payments and educational funding. This fund would be in addition to severance pay, extended unemployment benefits, and repayment of the UAW loans. While denying that Chrysler was setting a precedent, Iacocca declared it had a "moral obligation" to Kenosha.
Wisconsin threatened to sue Chrysler over the job training program but agreed to hold off in exchange for Iacocca's promise to extend production at the plant for several months into the fall of 1988.
Iacocca stated that Chrysler was "guilty as hell of being cockeyed optimists. Blame us for being dumb managers, for spending $200 million to put two old cars (the Chrysler Fifth Avenue and the Dodge Diplomat) in an eighty-six-year-old plant, but please don"t call me a liar when I"ve got to close it sooner than I thought." Iacocca sought congressional support for converting the Kenosha plant to defense work by Chrysler.
Chrysler and the UAW negotiated a contract that provided additional unemployment benefits for the 5,500 laid-off workers and more job security for the 1,000 workers who would transfer to other Chrysler operations. Ultimately, the plant closing resulted in 3,700 layoffs.
By mid-1990, Kenosha was enjoying unprecedented economic growth. At a July 1990 ceremony in which engineers detonated explosives to destroy the 250-foot-high smokestack of the Chrysler plant, dignitaries and former workers cheered. Kenosha resident T. R. Garcia said at the blasting, "I think it's about time they got rid of it. What we need to do is develop the lake front, and this thing is the last to leave." City planner Ray Forgianni, Jr., added, "The community's image is probably the best it's been in 100 years. The closing was almost like a catalyst. The handwriting was on the wall-the economy needed to diversify."
a. Did Chrysler have a moral obligation to the Kenosha workers and Wisconsin, or was it just responding to pressure?
b. Do arrangements like Chrysler had with the UAW loans and Wisconsin interfere with the ability to make business decisions? Review Iacocca's quote on business mistakes as you evaluate the issue.
c. Were the shareholders required to pay twice for the closing " once in severance pay and again in extended benefits?
d. Was Chrysler simply putting its duty to shareholders above its duty to Wisconsin, Kenosha, and its workers? Is this proper? Is it ethical?
e. Was Chrysler's action just a catalyst for needed economic development?
f. Iacocca, after having stepped down as chairman of Chrysler, made a takeover offer for Chrysler in 1995. What would Chrysler's ethical culture be like if Mr. Iacocca had succeeded in his takeover bid?
Q:
Frank Hoffman is the CEO of Triple Plus, Inc., a group of four successful restaurants in the Southwest. One member of the Triple Plus board of directors, Sam Wasson, has a daughter, Chelsea Wasson, who has just started Chelsea's Cloths, a business that supplies restaurant linens. Wasson has approached Hoffman to explain Chelsea's business. Chelsea's Cloths has adopted an environmental emphasis in its operations as a way of countering the industry trend toward the use of paper products in restaurants. Sam Wasson initially recruited Hoffman as CEO, was instrumental in having the board select Hoffman, and is one of Hoffman's strong backers. Wasson supported Hoffman when other board members were impatient with his new procedures, policies, and changes.
Ordinarily, when someone approaches Frank Hoffman with information on a new supplier, he takes the information and refers it to the purchasing/supply area or refers the person directly to the manager of purchasing. In this case, Frank personally presented the information to Triple's purchasing manager, Deidre Hall. Frank offered Deidre the Chelsea's Cloths brochure and card and explained, "She is Sam Wasson's daughter. She just graduated in marketing from State University last June and now has her own firm. See what you can do. Our contract with Lila's Linens is up for renewal. Maybe we can do something."
Deidre evaluated Chelsea's and Lila's proposals as well as that of an additional firm in making the purchasing decision. Although the pricing between Chelsea's and Lila's is equivalent, Chelsea's is too young a firm to have a track record, and Deidre is not convinced that Chelsea's can handle Triple's large account. Given Mr. Hoffman's interest, however, Deidre is confused about what recommendation to make.
a. Should Deidre recommend Chelsea's firm or offer her true recommendation?
b. Would it be ethical for Hoffman to change Deidre's decision?
c. What if Wasson had requested bid information so that his daughter could be competitive? Should Deidre supply it? Should Hoffman direct Deidre to supply it?
d. Can you solve the conflict without offending the director?
e. Does Hoffman need to be concerned about how his intervention would reflect the "tone at the top"? Could employees misinterpret his actions?
Q:
Raymond Randall is an attorney with the Federal Trade Commission. A 19-year veteran with the agency, Mr. Randall was known as a good trial attorney. The FTC charged William Farley, the chairman of Fruit of the Loom, Inc., with violations of the reporting provisions of the Hart-Scott-Rodino Act, when he purchased shares of West Point-Pepperell Corporations prior to a Fruit of the Loom takeover bid. The Hart-Scott-Rodino Act requires investors to notify the government when their holdings in a firm pass $15 million.
The FTC sought a fine of $10,000 per day against Mr. Farley, for a total of $910,000. Mr. Farley did notify the FTC once Fruit of the Loom made its decision to acquire West Point-Pepperell. Randall was assigned the Farley case. The FTC took a position of refusing to disclose to Farley and his attorneys documents relating to the case. Mr. Randall felt that the documents pointed to weaknesses in the FTC case and supported Mr. Farley's point that he notified the FTC once the takeover position was announced. Mr. Randall leaked the documents to Mr. Farley's lawyer.
Mr. Farley's lawyers were concerned that they should not be in possession of government documents returned the documents and resigned from the case because they had seen the documents. Mr. Farley's new attorneys went to court demanding production of the documents. The documents were ordered produced by the court. When the FTC refused to produce them, the case against Mr. Farley was dismissed by a federal district judge.
a. Did Mr. Randall do the right thing in disclosing the documents to Farley's attorneys?
b. Did Mr. Farley's lawyers do the right thing in returning the documents to the FTC?
Q:
Althea Caldwell is the director of Arizona's Department of Health Services (DHS). DHS is charged the administration of the state's behavioral health system and is responsible for contracting with private providers for millions of dollars of mental health care each year for eligible patients.
Ms. Caldwell accepted a $20,000 per year director position for a hospital group corporation. One of the hospitals in the group was one to which state contracts for mental health treatment had been awarded.
One month after accepting the position, Ms. Caldwell asked the state's attorney general for an opinion as to whether she had a conflict of interest.
Does Ms. Caldwell have a conflict of interest?
Q:
In 1991, James McElveen fell 30 feet from a waterfall and broke his back. He was employed by a small business and had no medical insurance. His lifetime friend, Benny Milligan, was with him when the fall occurred. Benny took James to the emergency room. Moved by his friend's severe injuries and pain and suffering and realizing that James did not have insurance, Benny switched IDs with James in the hospital emergency room. James required surgery to fuse his back to avoid what doctors said would have been certain paralysis. The cost of the surgery and hospitalization was $41,107.45. Neither James, employed as a mechanic, nor Benny, employed as a painter, could have paid for the surgery and follow-up care. Benny's employer's insurance paid for the surgery because the hospital took the information from Benny's ID found in James' pockets.
While Benny was contemplating telling his employer, someone notified the insurance company of the switch. Benny, James, and Benny's wife, Tammy Milligan were charged and convicted of mail fraud, wire fraud and conspiracy. Tammy, because of the Milligans' three young daughters, is serving her sentence through home confinement, Benny is serving 9 months and James is serving 7 months. All three were serve three years on probation and pay restitution.
Benny states, "I know what I did was wrong. But I look back on it, and I feel that I had to do it at the time. I don't feel like I'm a criminal in the sense of rapers, muggers and murderers." Benny said he did not understand that a hospital has an obligation to treat someone who is dying. Friends testified that as they were racing James to the hospital they told Benny that hospitals in the area had routinely refused to provide medical treatment.
Benny said he wanted to tell his employer, but he was afraid he would be fired and then be stuck with the bill. Tammy adds that the government is right to demand restitution but wrong to imprison them. James asked the judge if he could go to prison for all three of them, "I would be lost without my friendship with Benny. I probably would be dead."
a. Benny and James committed an illegal act. Was it unethical?
b. What punishment is appropriate in the case?
c. If you were Benny's employer, what would you have done?
Q:
James and Jennifer Stolpa and their five-month old son, Clayton, were stranded outdoors in a snowstorm for 8 days. They were rescued after James left Jennifer and Clayton in a cave and hiked 30 miles in subfreezing temperatures to get help.
During the time they were stranded, the Stolpas ate Doritos-brand corn chips that they had with them in their car. When they were rescued and taken to the Washoe Medical Center for treatment of severe frostbite, they were visited by boxing champ, George Foreman. Mr. Foreman is a spokesperson for Doritos. His visit to the Stolpas earned national press and television coverage that emphasized the Doritos consumption.
If you were an executive with Doritos, would you have sent Mr. Foreman to the hospital?
Q:
Data Processing, Inc. is a service firm that performs word processing functions for law firms, corporations and government agencies. Their facilities consist of 120 office units with a word processor in each unit.
Their facilities were formerly a shoe manufacturing plant, and all of the office units are located in one large room. Over the past 14 months, 7 of the 120 word processors have been diagnosed with breast cancer. In six of the seven cases diagnosed, there is no family history of breast cancer. Jane Quinn, the owner and CEO of data processing, has seen a cluster study that links employment as a word processor to a higher rate of breast cancer. Ms. Quinn does not disclose the study to her employees and takes no further action. Discuss the ethical issues.
Q:
Why do companies issue press releases when executives depart that indicate the executives are leaving to spend more time with their families? What are the ethical issues in issuing such statements if they are not true?
Q:
Paul Babcock gave the following advice to Standard Oil Company executives who were going to testify before Congress about the business practices of Standard Oil, "Parry every question with answers which, while perfectly truthful, are evasive of bottom facts." Apply ethical analysis to the advice and the statement.
Q:
What is Mr. Rajaratnam, the former head of Galleon Hedge fund, accused of doing?a. Advance trading on IPOsb. Trading on inside informationc. Honest services fraudd. Fraud in financial reports
Q:
Who said a corporation has no conscience?
a. The chairman of General Motors
b. Jeff Dachis of Razorfish
c. Bill Gates
d. Sir Alfred Coke