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Business Ethics, 8e Jennings
115. Who said, “I felt like if I didn’t make the entries, I wouldn’t be working there”?
116. Who was held personally liable to WorldCom shareholders for their losses?
117. To whom did the internal auditor at WorldCom express concerns?
118. Tyco was originally founded:
119. What was KELP at Tyco?
120. Which of the following officers raised concerns about loans to Tyco officers?
121. Which of the following accounting techniques did Tyco use?
122. Which of the following was not a Kozlowski expense that Tyco paid for?
123. Which director had a conflict of interest in his acceptance of a broker’s fee for a Tyco acquisition?
124. Who warned Tyco officers about accounting issues and odd payments at Tyco?
125. What other criminal charges did Kozlowski face beyond the Tyco issues?
126. Who said, “We don’t believe in perks, not even executive parking spots”?
127. Who of the following were named CFOs of the year by CFO Magazine?
128. When testifying about the company-financed decorations for his New York City apartment, Mr.
Kozlowski said:
129. Who was acquitted of charges for their work at Tyco?
130. Joseph Jett:
131. The SEC concluded in the Jett decision:
132. What was the motto of the Kidder Peabody bond department?
133. What was Jett’s penalty for his actions at Kidder Peabody?
134. Who was the CEO at GE at the time GE owned Kidder Peabody?
135. Who said, “It’s a pity that this happened. Jett could have made $2 to $3 million honestly”?
136. What loophole regarding consumer debts was closed by the bankruptcy reforms passed in 2 005?
137. Who in the following list did not declare bankruptcy?
138. Under Sarbanes-Oxley, which of the following would be a conflict of interest for the outside
auditor of a company?
139. Under Sarbanes-Oxley, how often must the auditor partner in charge of an audit client be
rotated?
140. Under Sarbanes-Oxley, when must a company file an 8-K?
141. Under Sarbanes-Oxley, who cannot be a member of an audit committee of a publicly traded
company?
142. How much of Andersen’s Enron revenues came from auditing fees?
143. How much of Andersen’s Enron revenues came from consulting fees?
144. David Duncan, the audit partner in charge of the Enron account for the Houston Andersen office :
145. What ethics code provision did the board waive for Andrew Fastow?
146. Whom did David Duncan contact about the proposed off-the-books entities that Enron had
proposed?
147. Who else did David Duncan consult about the off-the-book entities?
148. How did Andersen’s lead defense lawyer describe David Duncan?
149. Who reminded employees of Andersen’s document destruction policy?
150. Prior to the Enron collapse, how many employees did Andersen have?
151. What was part of HealthSouth’s vision statement?
152. The “Monday morning beatings” referred to:
153. How many CFOs did Scrushy have at HealthSouth from 1998 through 2003?
154. Who recorded phone conversations with Scrushy in order to document numbers manipulation?
155. The HealthSouth “Pristine Audit” focused on:
156. The total restatement of revenues at HealthSouth was:
157. Which of the following is not a conflict of interest?
158. You work in the finance division of a NYSE company. You have just learned that your supervisor
has been using information on quarterly returns, prior to the time they are made public, to trade in
the company's stock. You:
159. Which of the following is not a form of earnings management?
160. Dennis Kozlowski, Mark Swartz and Mark Belnick of Tyco:
161. The KELP program at Tyco:
162. What Enron accounting practice did Arthur Andersen label as medium to high risk?
163. Arthur Andersen was convicted of what crime in relation to its work on Enron?
164. What auditor practice was stopped by Sarbanes-Oxley?
165. WorldCom’s accounting scandal resulted from:
166. The subprime mortgage market grew :
167. A predatory loan:
168. The subprime loan market infiltrated investment firms:
169. Who said, “Subprime mortgages can be productive and fruitful. We just have to put boundaries
in place”?
170. Warren Buffett is the CEO of:
171. Warren Buffett was paid less:
172. The March 2007 rule of the SEC requires new disclosures on:
173. Home Depot shareholders rebelled because:
174. Which of the following were convicted of bank fraud and securities fraud?
175. The MMS had investigations of which two divisions?
Business Ethics, 8e Jennings
176. What was the major issue uncovered in the Colorado MMS audit?
177. Why did Albert Meyer hesitate to disclose his findings on New Era?
178. William Aramony:
180. Which of the following is an effective tool for preventing company/organization lapses?
181. Which of the following is an effective tool for preventing individual ethical lapses?
182. Which of the following is an effective tool for preventing industry level ethical lapses?
183. Which of the following is an effective tool for stopping cultural and societal ethical shifts?
184. Who is the “Rain man”?
185. Who is responsible for the losses at Chase?
186. What was different about the losses resulting from Robert Citron’s conduct?
187. What problem did Claremont McKenna encounter that resulted in national headlines about the
school?
188. Where is Timothy Mayopoulos now employed?
189. What happened to Matthew Lee when he raised questions about Lehman’s risk level?
190. Repo 105:
191. Which of the following would be an individual ethical lapse?
192. How does numbers pressure develop in an organization?
Short Answer/Essay Questions
1. Explain the point George Lefcoe was making with his experience with the hams as gifts.
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2. 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?
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3. 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.
Business Ethics, 8e Jennings
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?
Business Ethics, 8e Jennings
d. Evaluate the ethics of clergymen, counselors, and probation officers accepting referral
fees.
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4. List five categories of ethical and moral development and explain each one and give an example
of each.
5. Describe the impact of a company’s reliance on computer models.
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6. Explain the process prosecutors use to obtain guilty pleas and convictions among the high
executive ranks of a company for financial fraud.
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7. Discuss the ethics of walking away from a mortgage. Be sure to include an analysis of any
rationalizations.
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8. Explain why the Westland/Hallmark Meat Company employees used forklifts and shocks in
processing cattle and why.
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9. Discuss the effect of the termination of a whistleblower on the culture of an organization.
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10. List the tools companies can use for getting information from employees to those who can and
will do something about the issues being raised.
11. Explain the role of group think in the decision to launch the Challenger.
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12. Evaluate and compare the actions of LiCari at Beech-Nut and Boisjoly at NASA.
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13. Describe which ethical models would help auditors and financial officers as they work to prepare
fair and accurate financial statements.
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14. 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
15. What common characteristics do you see in the HealthSouth, Adelphia (Unit 3) , Fannie Mae,
FINOVA, Tyco, WorldCom and Enron cases?
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16. Dennis Kozlowski said, “Money is the only way to keep score.” Is this Mr. Kozlowski’s credo?
Discuss how this view might interfere with his ability to analyze ethical issues.
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17. Compare Ed Cerullo as a boss to Dennis Kozlowski. Then discuss the culture at Kidder and
compare it with the cultures at Tyco, WorldCom, MiniScribe, Bausch and Lomb, and Enron.
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18. List the factors that determine the tone at the top.
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19. When Enron first proposed its off-the-book entities, David Duncan clearly had concerns. Discuss
what he did about those concerns.
20. “Per Dave – NO more shredding. We have been officially served for our documents.” – was the
e-mail David Duncan’s secretary sent to Andersen employees. Discuss the ethical standard that
was being followed during the shredding.
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21. Richard Scrushy said, “Shine a light on someone – it’s funny how numbers improve.” How does
this Scrushy philosophy compare with those of other CEOs in the cases you have studied?
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22. Develop a chart on the tone-at-the-top factors you see in HealthSouth and the other companies.
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23. Discuss the dangers in earnings management.
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24. Make a list of the factors common to the cultures of Enron, WorldCom and Tyco.
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25. “Each time I see Jeff [Greenberg] I feel like I have a bull’s eye on my forehead,” was the
statement of a CEO’s direct report. Discuss how the culture at MMC was similar to the cultures of
HealthSouth, Tyco, MiniScribe, Bausch & Lomb, and others.
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26. Describe John Rigas, the former CEO of Adelphia.
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27. List the types of ethical violations the Department of Interior uncovered in its MMS division?
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28. Compare the New Era and Baptist Foundation cases. What common threads do you see?
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29. Compare the behaviors of William Aramony with those of Dennis Kozlowski. Are there signals
these CEOs send with their behaviors?
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30. Explain how Ms. Winters began her habit of taking snack food while working at Walmart.
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