Business and professional ethics for directors, executives, and accountants

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Cover Title Page Copyright Page About the Authors Contents Preface Overview of the Book CHAPTER 1: ETHICS EXPECTATIONS The Ethics Environment for Business: The Battle for Credibility, Reputation, & Competitive Advantage Environmental Concerns Moral Sensitivity Bad Judgments & Activist Stakeholders Economic & Competitive Pressures Financial Scandals: The Expectations Gap & the Credibility Gap Governance Failures & Risk Assessment Increased Accountability & Transparency Desired Synergy among Factors & Institutional Reinforcement Outcomes New Expectations for Business New Mandate for Business New Governance & Accountability Frameworks Reinforced Fiduciary Role for Professional Accountants Responses & Developments Emerging Governance & Stakeholder Accountability Models Management Based on Values, Reputation, & Risks Accountability Ethical Behavior & Developments in Business Ethics The Ethics Environment for Professional Accountants Role & Conduct Governance Services Offered Managing Ethics Risks & Opportunities Developing a Culture of Integrity Corporate Governance Questions Reading Insight References Case Insights ETHICS CASES: Cases Involving Improper Behavior Selling Only Sugary Drinks Buying and Selling Blood Pedophile Priests in the Catholic Church Sexual Abuse by a Penn State Football Coach LIBOR Manipulations Cause Widespread Impacts—located in Chapter 2 Advertising & Sales Promotion Cases Tiger Woods: “Winning Takes Care of Everything Pepsi’s iPhone App Stereotypes Women Should Porn Be Sold by Cell Phone Companies Virgin Mobile’s Strip2Clothe Campaign: Exploitive, Risqué, and Worthwhile Cases Involving Financial Transactions Goldman Sachs and The Greek Veil Martha Stewart’s Lost Reputation Cases Involving the Control of Information Google versus China China’s Tainted Baby Milk Powder: Rumored Control of Online News Cases Concerning the Environment Nestlé Bottles Water in a California Drought Bhopal–Union Carbide Texaco: The Ecuador Issue Product Safety Cases The Right to Be Informed? The Link between Talcum Powder and Cervical Cancer Valeant Pharmaceuticals vs. Coca Cola—Which Business Model Is Worse: Price Gouging or Fostering Obesity & Diabetes The Betaseron Decision (A Magnetic Toys Can Hurt Bausch & Lomb’s Hazardous Contact Lens Cleaner Accounting & Auditing Cases Where Were the Accountants To Resign or Serve READING: Andrew W. Singer: The WhistleBlower: Patriot or Bounty Hunter CHAPTER 2: ETHICS & GOVERNANCE SCANDALS Ethics & Governance: A Time Line of Important Events Ethics & Governance: The Early Developments prior to 1970 Ethics & Governance: 1970–1990 Ethics & Governance: The Modern Era—1990 to the Present Significant Ethics & Governance Scandals & Events Enron—A Failure of the Board of Directors Arthur Andersen—An Organizational Culture Gone Awry WorldCom—Power in the Hands of One Man Crisis of Confidence Sarbanes-Oxley Act—Closing the Barn Door Tax Shelters—Not in the Public Interest Subprime Mortgage Meltdown—Greed without Due Diligence Dodd-Frank Wall Street Reform and Consumer Protection Act Bernard Madoff—If It’s Too Good to Be True Public Disillusionment: The Occupy Movement Shareholder Disillusionment: Shareholder Resolutions The LIBOR Scandal: How Banks Manipulated a Benchmark Interest Rate Bribery Attracts Prosecutions and Huge Fines Automaker’s Sins Come Home to Roost Drugmakers Raise Prices, Gouging Patients New Emphasis on Individual Accountability for Corporate Wrongdoing Panama Papers Released Signs of Ethical Collapse Ethics & Governance: Trends Ethics & Governance: Timetables of Important Events, 1929–2016 Useful Videos & Films Questions Case Insights ETHICS CASES: Enron’s Questionable Transactions Arthur Andersen’s Troubles WorldCom: The Final Catalyst Bernie Madoff Scandal—The King of Ponzi Schemes Wal-Mart Bribery in Mexico LIBOR Manipulations Cause Widespread Impacts General Motors Ignores Obvious Ignition Faults VW Cheats on Emissions Tests CHAPTER 3: ETHICAL BEHAVIOR—PHILOSOPHERS’ CONTRIBUTIONS Ethics & Moral Codes Ethics & Business Self-Interest & Economics Ethics, Business & the Law Major Ethical Theories Useful in Resolving Ethical Dilemmas Teleology: Utilitarianism & Consequentialism—Impact Analysis Deontological Ethics—Motivation for Behavior Justice & Fairness—Examining the Balance Virtue Ethics—Analysis of the Virtue Expected Moral Imagination Questions Case Insights Useful Video & Film References ETHICS CASES: Cases Involving Improper Behavior An Illustration of Ethical Decision Making: Dealing with Disappointed Apple iPhone Customers Art Forgeries: Is Deceiving Art Experts Unethical Gender Discrimination at IKEA Deciding Who Receives the Swine Flu Vaccine Insurance and Genetically Inherited Diseases Terrorist Payments The Case of Cesar Correia CHAPTER 4: PRACTICAL ETHICAL DECISION MAKING Introduction Motivating Developments for Ethical Learning Ethical Decision Making Framework—An Overview Philosophical Approaches—An Overview: Consequentialism (Utilitarianism), Deontology, & Virtue Ethics Consequentialism, Utilitarianism, or Teleology Deontology Virtue Ethics Sniff Tests & Common Heuristics—Preliminary Tests of Ethicality Stakeholder Impact Analysis—Comprehensive Tool for Assessing Decisions & Actions Overview Fundamental Interests of Stakeholders Measurement of Quantifiable Impacts Assessment of Nonquantifiable Impacts Stakeholder Impact Analysis—Modified Traditional Decision-Making Approaches Integrating Philosophical & Stakeholder Impact Analysis Approaches Other Ethics Decision-Making Issues Commons Problems Developing a More Ethical Action Common Ethics Decision-Making Pitfalls A Comprehensive Ethical Decision- Making Framework Summary of Steps for an Ethical Decision Conclusion Questions References Illustrative Applications & Case Insights ILLUSTRATIVE APPLICATIONS OF STAKEHOLDER IMPACT ANALYSIS: Dealing with Disappointed Apple iPhone Customers Case Bribery or Opportunity in China Case Proposed Audit Adjustment Case—Castle Manufacturing Inc When Does an “Aggressive Accounting” Choice Become Fraudulent ETHICS CASES: Concussions in the NFL BP’s Gulf Oil Spill Costs Tylenol Recalls (2010): It’s Still About Reputation Vioxx Decisions—Were They Ethical Just Make the Numbers Smokers Are Good for the Economy—Really Ford Pinto The Kardell Paper Co CHAPTER 5: CORPORATE ETHICAL GOVERNANCE & ACCOUNTABILITY Modern Governance & Accountability Framework—To Shareholders & Other Stakeholders New Expectations—New Framework to Restore Credibility Corporate Governance Overview Accountability to Shareholders or Stakeholders The Shareholder Value Myth Governance for Broad Stakeholder Accountability Guidance Mechanisms—Ethical Culture & Code of Conduct Threats to Good Governance & Accountability Misunderstanding Objectives & Fiduciary Duty Failure to Identify & Manage Ethics Risks Conflicts of Interest Key Elements of Corporate Governance & Accountability Compelling Evidence for the Development of an Ethical Corporate Culture Developing, Implementing, & Managing an Ethical Corporate Culture Corporate Codes of Conduct Ethical Leadership Corporate Psychopaths Director & Officer Liability Public Accountability Benchmarks Conclusion—Toward a Culture of Integrity Questions Case Insights Reading Insights References ETHICS CASES: Cases on Ethical Corporate Culture Hospital Governance Challenges Wal-Mart Bribery in Mexico—located in Chapter 2 SNC-Lavalin Missing Funds Topples CEO & Triggers Investigation Siemens’ Bribery Scandal Cases on Ethical Leadership Salary Equality at Gravity Payments Merck and River Blindness Lululemon’s Questionable Leadership Cases on Bribery SNC-Lavalin Missing Funds Topples CEO & Triggers Bribery Investigation Rio Tinto’s Bribes in China Daimler’s Settles U.S. Bribery Case for $185 Million HP Bribery for Russian Contract with Antibribery Prosecutor’s Office Cases on Corporate Governance & Managerial Opportunism Spying on HP Directors Lord Conrad Black’s Fiduciary Duty Manipulation of MCI’s Allowance for Doubtful Accounts Stock Options and Gifts of Publicly Traded Shares The Ethics of Repricing and Backdating Employee Stock Options Cases on Fraudulent & Questionable Financial Reporting Satyam Computer Services—The Enron of India Nortel Networks’ Audit Committee Was in the Dark Adelphia—Really the Rigas Family Piggy Bank Tyco—Looting Executive Style HealthSouth—Can Five CFOs Be Wrong Royal Ahold—A Dutch Company with U.S.-Style Incentives The Ethics of Bankruptcy: Jetsgo Corporation Stock Market Cases Société Générale’s Rogue Trader Galleon’s Insider Trading Network KPMG Partner Shares Confidential Information with a Friend—located in Chapter Conflicts of Interest on Wall Street Loyalty, but to Whom Bankers Trust: Learning from Derivatives Barings Bank: Rogue Trader Cases on Product Safety Dow Corning Silicone Breast Implants Ford/Firestone Tire Recall APPENDIX Appendix A: Alternative Governance Theories CHAPTER 6: PROFESSIONAL ACCOUNTING IN THE PUBLIC INTEREST Professional Accounting’s Traditional Role Historic Shortfalls in Meeting Professional Expectations Professional Accounting and the Public Interest Public Expectations Control Reputation Public Expectations of a Professional Accountant Dominance of Ethical Values Rather than Accounting or Audit Techniques Priority of Duty, Loyalty, & Trust in a Fiduciary Confidentiality: Strict or Assisted Implications for Services Offered Judgment & Values Sources of Ethical Guidance Professional Codes of Conduct Purpose & Framework Fundamental Principles & Standards Discipline Interpretations of Rules Scandals & Expectations Motivate Changes in Professional Codes AICPA, CPAO, & IFAC Codes of Professional Conduct Shortfalls with and in Professional Codes Issues Not Usually Resolved in Corporate Codes of Conduct Conceptual Framework for Assessing Threats to Compliance Conflict of Interest Threats to Independence Assessing Conflicts of Interest Threats Using the Conceptual Framework Approach Conflicts of Interest: A Stakeholder Impact Analysis Conflicts of Interest Affecting Services Offered Conflicts of Interest Involving Improper Use of Influence Conflicts of Interest Involving Use or Misuse of Information (Confidentiality) Questionable Tax Services and Practices Laws & Jurisprudence Moral Courage Is Vital to Professional Accounting: Globalization Heightens the Requirement When Codes & Laws Do Not Help Broadening Role for Professional Accountants Conclusion Questions Reading Insights Case Insights References ETHICS CASES: Famous Cases Parmalat–Europe’s Enron Arthur Andersen, Enron, and WorldCom cases— located in Chapter 2 Tyco, HealthSouth and Royal Ahold cases— located in Chapter 5 Lehman Brothers case—located in Chapter 8 Sunbeam and Waste Management cases— located in the BPE Digital Resources Professional & Fiduciary Duty Cases KPMG Partner Shares Confidential Information with a Friend Livent—When Maria, When The Lang Michener Affair Wanda Liczyk’s Conflicts of Interest Strategic Roles Locker Room Talk Advice for Sam and Ruby Biker Nightmare Budget Conflict An Exotic Professional Accountant Freebie Services for Staff Summer Camp Holdback Theft Reimbursement, Twice Accounting & Auditing Dilemmas Sino-Forest Fraud? Audit Challenges in China Massive Acquisition Write-Downs in the Mining Industry Accounting Rule Changes Increase Apple Computer’s Revenue The Impact of International GAAP on Earnings Auditor’s Dilemma Management Choice To Qualify or Not Team Player Problems Minimal Disclosure Opinion Shopping Lowballing a Fee Quotation Fundamental Accounting and Auditing Issues Cases Societal Concerns Economic Realities or GAAP Multidisciplinary Practices—Ethical Challenges Tax and Regulatory Cases Multinationals and Tax Planning KPMG’s Questionable Tax Shelters Italian Tax Mores Tax Return Complications Marketing Aggressive Tax Shelters Providing Tax Advice Risk Management of Taxes Payable—Is It Ethical READING: The Liability Crisis in the United States: Impact on the Accounting Profession—A Statement of Position—see BPE Digital Resources CHAPTER 7: MANAGING ETHICS RISKS & OPPORTUNITIES Ethics Risk & Opportunity Identification & Assessment Enterprise Risk Management Must Include Ethics Risks & Opportunities Ethics Risk Review or Audit—A Comprehensive Approach Searching for Specific Ethics Risks Ethics Risk & Opportunity Management Effective Stakeholder Relations Sustainability, Corporate Social Responsibility, & Corporate Citizenship Workplace Ethics Whistleblower Programs & Ethics Inquiry Services Fraud & White-Collar Crime Bribery & International Operations Crisis Management Conclusion Questions Case Insights Reading Insights References ETHICS CASES: CSR Cases—Environmental Issues Harry Potter and the Green Brigade The Carbon Footprint of British Airways The Pollution Caused by Cruise Ships Workplace Ethics Cases—Discrimination and Abuse Pedophile Priests in the Catholic Church—located in Chapter 1 Sexual Abuse by a Penn State Football Coach—located in Chapter 1 Texaco’s Jelly Beans Gender Discrimination at Dell Inc Novartis’ $250+ Million Gender Discrimination Case Downsize or Bonus Allocation Decisions Workplace Ethics Cases—White-Collar Crime Walt Pavlo’s MCI Scams/Frauds Whistleblower/Ethics Inquiry Case Hospital Governance Challenges—located in Chapter 5 Bribery & International Operations Cases Jail and a German Subcontractor (names are fictitious) AIDS Medication in South Africa The following bribery cases are located in Chapter 5: Siemens’ Bribery Scandal Wal-Mart Bribery in Mexico SNC Lavalin Missing Funds Topples CEO & Triggers Bribery Investigation Rio Tinto’s Bribes in China Daimler Settles U.S. Bribery Case for $185 Million Bribery for Russian Contract with Anti-Bribery Prosecutor’s Office Risk & Crisis Management Cases BP’s Gulf Oil Spill Risk Management BP’s Corporate Culture Toyota’s Recall Problems Digoxin Overdose—The Need for Skepticism, Courage, and Persistence The Exxon Valdez The Brent Spar Decommissioning Disaster Crisis at Wind River Energy Inc APPENDIX Appendix A: Ethics Audit Program Annual Audit Questions CHAPTER 8: SUBPRIME LENDING FIASCO—ETHICS ISSUES The Economic Train Wreck—A Global Disaster Stages of the Subprime Lending Fiasco How Did the Subprime Lending Crisis Happen Subprime Lending Developments Transfer of Risk & the Liquidity Freeze Contributions of Fannie Mae & Freddie Mac The Conflicted Credit-Rating Sham Regulators Looked in the Wrong Direction Special Purpose Vehicles—Key to the Crisis Unlimited Toxic Risk—Credit Default Swaps, Naked & Otherwise Crisis, Bankruptcy, Bailouts, & New Regulations Worldwide Contagion Subsequent Events Ethics Issues—The Subprime Lending Fiasco Greed, Incompetence, Dishonesty, Conflicts of Interest, Non-transparency, Lack of Moral Courage, & Poor Risk Management Corporate Psychopaths—Potential Role in the Subprime Lending Crisis Lack of Regulation & Sound Decision Making Are Mark-to-Market (M2M) Accounting Standards to Blame The Ultimate Risk Bearers Ethics Lessons Questions Case Insights Useful Videos & Films References ETHICS CASES: Questionable Values Produce Resignation at Goldman Sachs Naked Short Selling—Overstock.com Lawsuit against Goldman Sachs & Merrill Lynch Lehman Brothers Repo 105 Manipulation Goldman Sachs Conflicts: Guilty or Not? Mark-to-Market (M2M) Accounting and the Demise of AIG Subprime Lending—Greed, Faith, and Disaster Moral Courage: Toronto-Dominion Bank CEO Refuses to Invest in High-Risk Asset-Backed Commercial Paper The Ethics of AIG’s Commission Sales INDEX