Durable Batteries Ethics Assignment
Giving Voice to Values Example Case
Remember the ethical example from the lectures, specifically the fact that the company had over-valued
inventory resulting in inflated profits. If the inventory was valued correctly, profits would plummet and
the stock would drop by about 25%; but senior management has decided to leave the inventory and
profits inflated to insure they receive their substantial mid-year bonus (which works out to be about
50% of their salary). Now imagine that the Chief Financial Officer (Katherine) was uncomfortable with
this situation and decided to use a Giving Voice to Values (GVV) approach to convince her boss (i.e. the
President) to value the inventory correctly and take the financial hit. Katherine has a husband and 2
teenage daughters (one in university and one in grade 11).
Questions:
1) What is at stake for all the parties concerned, regardless or not of whether they agree with you?
2) What are the main arguments/thoughts Katherine is trying to counter? What reasons and
rationalizations does Katherine need to address?
3) What levers/arguments can Katherine use to influence those with whom there may be
disagreement? (And to counter any arguments she might have herself.)
ANSWERS:
Question 1
Example 1
Katherine, senior management, the president, employees, suppliers, customers, Katherine’s daughters,
Katherine’s husband, etc.
NOT AT ALL ADEQUATE! Explanation as to why they are stakeholders needs to be discussed!!
Example 2
Katherine
Keeping her boss happy
Making sure the firm remains solvent
Her judgement
Her credibility both inside and outside the firm
STILL NOT AT ALL ADEQUATE! Yes, all these are what’s at stake for Katherine; but they are at stake
for Katherine every minute of every day she is at work, and with every decision she makes, not
just ethical decisions/dilemmas. This offers nothing specific to the situation.
Example 3
Katherine
Katherine could lose the respect of (and quite possibly be ostracized by) some or all of the senior
managers since, if the financial statements are corrected, they would all lose their hefty bonus.
Katherine could gain the respect of senior managers if they were of the same mindset as Katherine and
did not want to partake in ill-gotten gains (i.e. their bonus) by falsifying the financial statements.
Katherine could damage the relationship with her boss (the President), such that he subsequently finds
a way to get rid of her.
Katherine could earn the respect of shareholders for not allowing falsified financial statements to be
used to give unearned bonuses to senior management. Some may say that if Katherine is successful in
changing the President’s mind, the inevitable drop in the stock price will hurt shareholders. While that is
true, given the magnitude of the inventory misstatement it is highly likely that this fraud will be found
out, especially thanks to SOX and related Canadian legislation requiring auditing firms to be much more
vigilant in their quest/attempt to find fraud. In other words, the stock price is eventually going to take a
hit anyway. So better to make the adjustment now, do the right thing, and think of how to reverse the
situation as opposed to waiting when things could be (much) worse in terms of the turmoil within the
company and the ultimate hit to the stock price.
If Katherine brings this to light (internally or externally) Katherine could lose her job and find it difficult
finding a new one given the sad reality that a lot of firms will not hire whistle-blowers. They see the
value in whistle blowers, but only when they work for another firm. If Katherine encounters difficulty in
finding a new job and/or it takes a while to find one, that will probably put substantial financial pressure
on the family.
If Katherine does nothing, when this comes to light, she could lose the respect of her husband and/or
daughters given that she had said she valued honesty and integrity, but actually behaved in a manner
completely opposite to what she preached.
If Katherine stays silent, when this fraud comes to light, Katherine could do jail time. There is intent,
material misstatement, the information would be reasonably relied upon, and harm would be done. If
she is a CPA, then it is highly likely she would lose her credentials given the magnitude of the fraud.
(If this was the Canadian sub of a foreign parent company, one could also mention that the management
of the parent company would be pleased if the company had a strong ethical culture as this would be
lauded as an example of the type of behaviour the company expects. Alternatively, if the parent office
has a lax attitude/culture towards “doing the right thing”, then it could severely damage Katherine’s
reputation with the parent company’s management.)
THIS IS WHAT I AM LOOKING FOR! A fulsome explanation for EACH stakeholder…as appropriate
Katherine’s Daughters
Katherine’s daughters are stakeholders as their ability to go to university might be undermined if
Katherine is unable to find a job after she reports the incident. That said, if Katherine stays quiet, when
her fraudulent actions are uncovered, her daughters’ ability to go to university might be more
threatened given that it would probably be more difficult, if not impossible, for Katherine to find a
comparable job given her fraudulent behaviour, especially if she ends up in jail.
They are also stakeholders in that Katherine probably raised them to be honest and forthright, such that
if Katherine doesn’t bring this egregious unethical and illegal behaviour to light, when it eventually does
come out, they could lose a tremendous amount of respect for their mother.
Question 2
Example 1
The President and senior management are suffering from overoptimism. (NO!)
Versus
Example 2
The President and senior management are suffering from overoptimism. They are thinking about the
prospect of a big payoff, while not thinking it through that this is fraudulent behaviour that will almost
certainly be uncovered during the annual audit a few months from now. As such, they will undoubtedly
be criminally charged with fraud and/or sued in civil court and have to pay the money back (perhaps
with penalties for “pain and suffering”) to the company and, by extension, the shareholders. What’s
more, they will have to pay it without the benefit of a job as who is going to hire fraudulent business
people. Then there is the distinct possibility of jail time. (YES!)
A similar paragraph could be written with respect to having a short term focus.
Question 3
Example 1
Katherine should tell the President and the other senior managers that the audit will catch this
fraudulent move. (NO!)
Versus
Example 2
Katherine should point out that the President and those senior managers that agree with the decision to
leave the inflated inventory value are suffering from overoptimism. To counter this point, Katherine
could use research and show these folks how there were a whole bunch of other companies that
conducted themselves in this fraudulent manner and figured they wouldn’t get caught either. Now they
sit on the slag heap of failed businesses. The examples are, sadly, legion and include Enron, Adelphia,
Worldcom, etc. Katherine could point out how the schemes that brought down these companies were
much more complex than simply over valuing inventory as is being done here and, therefore, much
more difficult to detect via audit; but they still got caught! (YES!)
Additional Points to Consider
For most cases we cover:
1. There will be about 6 to 8 stakeholders, irrespective of approach (i.e. GVV or “arguing both
sides”).
2. There will be 6 to 10 “reasons and rationalizations”.
3. There will be 6 to 10 counter arguments.
For your reflection memo:
1. You should have 6 to 8 stakeholders, irrespective of approach (i.e. GVV or “arguing both sides”).
2. You should have 6 to 10 “reasons and rationalizations”.
3. You should have 6 to 10 counter arguments.
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