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Ac504: Ethics

In: Business and Management

Submitted By benarielle
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Assignment I: Tainted Baby Powder Milk
1. Yes, I believe there has been some damage to Baidu.com’s reputation because there was a significant stock price drop from $308 to $110. Stock price drops usually are the result of a lack of confidence by the stakeholders in the future performance of the company. Lack of confidence can often be attributed to actions by a company that are revealed to the stakeholders.

2. Future reputational damage could be reflected by a lack of confidence of the stakeholders. This lack of confidence could be measured in consumer behavior. Consumers could choose to buy goods elsewhere, so as not to risk their family’s health by potential tainting of products. This change in consumer behavior has been demonstrated many times when the media reports a fast food restaurant serving tainted beef, or even the drastic reduction in air travel immediately after the attack on the World Trade Center on Sept. 11, 2001. Even though, 9/11 was not the direct fault of an airline, consumers feared more attacks and therefore would not travel. This greatly affected profits and stock prices of the airline industry.

3. Baidu must prove to the stakeholders that it is reporting the issue fully and honestly. It is tempting for companies to withhold damaging information, but eventually it will come out and the deception is more damaging to the company many times than the truth ever would have been. The more transparent the company is in communicating the issues, the easier it is for stakeholders to “forgive and forget.” For example, I have seen many times where the public has a short memory of personal failures of politicians. It seems they are much more willing to forgive a politician who says, “I made a mistake. I’m sorry” than it is to forgive one who insists he/she is innocent, and then evidence shows the person lied. It’s almost as if the public is more willing to forgive someone for being human and making a mistake, than to forgive a liar.

1. Cultural differences are difficult to overcome, especially when a country is trying to withhold or manipulate the truth. Many Asian cultures believe it is more important to “save face” than to be forthright. That cultural difference can lead to problems for that country when it is revealed that they aren’t forthcoming. A couple of years ago, I supervised a high school student from China. We had a very lively discussion about how Americans viewed China and vice versa. This was shortly after China had hosted the Olympics and some information had come out that China was making decisions to project a certain image to the world that wasn’t entirely accurate. For, example, the Chinese girl that was chosen to sing the national anthem, wasn’t actually singing it. She was lip-syncing the song because the actual singer wasn’t as cute, as the lip-syncing girl that presented a better image. I told the student that when actions like this are brought to light, it damages China’s reputation in the rest of the world, and China is viewed as being dishonest and that China can’t be trusted.

She provided an interesting explanation for decisions like this. She acknowledged that China does these types of things but also didn’t think there was anything wrong with that. She stated that China has seen itself as always “not good enough” to compete with the rest of the major countries, such as the U.S. Therefore, they had to present an image that was better than the reality in order to compete with the rest of the world in their view.
I thought that was interesting that to them, it was more important to present an illusion of competence than to show the world the reality.

What China, and other countries don’t realize is that in the short term they might look better than they are, but if the deception is eventually revealed, their reputation suffers more than it would have if they had just been honest to begin with.

ASSIGNMENT II: World Com
Q. 1: a. WorldCom capitalized costs that should have been expensed, and as a result hid those expenses from the income statement, giving stakeholders the inaccurate impression that the company was making a profit, when in effect, it was operating at a loss
b. WorldCom created excess cash reserves. These reserves were then used to offset current and future expenses, which were then added to profits, which came to be known as “cookie jar” accounting, whereby a company sets up artificial reserves to offset future losses. Q. 2:
From the case study, I couldn’t discern that Arthur Anderson did go along with each of these mechanisms. It’s possible that they were aware of what was being done, but also possible that they weren’t aware. Given Arthur Anderson’s own ethics violations with re: to Enron, it is quite possible they were engaging in the same types of violations with re: to WorldCom but based on the facts presented in the case study, it is inconclusive as to whether Arthur Anderson was aware or not.

Q. 3: a. Based on our other case study assignment re: the advantages of a comprehensive ethics program over only legal compliance standards, it may have helped WorldCom if there was a comprehensive ethics standard in place. Then the other employees may not have been so inclined to go along with Bernie Ebbers’ demands.
b. If the internal and external auditors had done a better job of examining WorldCom’s financial data, they may have been able to expose the errors much sooner, thus stopping Ebbers and other employees from manipulating the financial records to the extent that was done.
c. The Board of Directors giving Ebbers such a large loan with little accountability to ensure it was spent in the manner that it was intended, was an egregious error on their part. They got swept away with his promises and did not look at his actions in an objective manner.

Q. 4: From the facts in the case, Ebbers was a very persuasive and intimidating leader. He obviously convinced the Board to lend him over $400 million with little or no accountability. If he was able to successfully manipulate the board, surely he could do the same for employees who were under his authority. The accountants probably felt pressure to go along with his manipulations in order to keep their jobs. In the absence of a well-defined, comprehensive ethics program, the accountants didn’t have a guideline to follow to ensure they were behaving ethically. There were no written guidelines outlining ramifications of unethical practices, either. Accountants probably rationalized their behavior or Ebbers assured them that these manipulations were only temporary, but in effect, they became a house of cards, with each violation, unable to sustain the previous ones. Eventually, the plan was going to collapse. Q. 5:
I believe the board was swayed by Ebbers’ strong personality and persuasion. They might have also been influenced by the initial positive financial figures and selfishly wanted the stock to continue to increase so they did not adequately scrutinize the information that was given to them. I feel it was foolish for them to approve an excessive loan in the first place. Then to not follow up to ensure the money was being spent in the condition that it was loaned was even worse.
Q. 6:
It is essential that WorldCom have a comprehensive ethics program in place. Within that program should be specific protection for employees who report ethics abuses, i.e. whistle-blowers. The case study indicated that at the time of the scandal, no code of ethics existed. Furthermore, the case study indicates that Ebbers thought a code of ethics was “a colossal waste of time.” When you have a corporate culture where the leader of the company is very vocal about the unimportance of ethics, then it is much easier for other employees to follow along and adopt the same types of attitudes.…...

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