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Business Ethics, 8e Jennings
UNIT SIX – ETHICS IN INTERNATIONAL BUSINESS
True/False Questions
which they are located.
their jobs.
the Justice Department.
mercenary groups.
on its business in China.
lapse.
liability recovery systems.
which an embargo on direct weapons sales is in place would be an ethical breach.
Act can be considered ethical.
tickets for my city's NBA team from the company that has supplied catering for the
company's training sessions.
violation.
Business Ethics, 8e Jennings
believe they are unethical.
operations outside the United States.
connection with the Salt Lake City Olympics.
Multiple Choice Questions
1. Which of the following is not one of the components of the four-legged stool of interrelationships
in economic systems?
2. Why is Transparency International’s Corruption Perception Index important for economic
systems?
3. On April 1, 2008, about 20,000 workers in Vietnamese factories that make Nike shoes walked off
the job. The workers at the plants (managed by a Taiwanese company) were demanding higher
wages. At the time of the strike, the Nike workers were being paid 14% above the minimum
wage for Vietnam. However, consumer prices in Vietnam have risen 19% in one year. The
inflation rate has been the impetus for a number of labor strikes over the past year. By April 2,
2008, the strike was settled. The workers were given a 10 percent raise to their $5 hourly wage.
If Nike’s wages that it was paying were legal, why did it settle the strike by agreeing to pay more?
4. Ikea’s solution to obtain electrical power for the grand opening of its flagship store in Russia was:
5. AES’s solution to the increasing demands of the Kazakh government was:
6. How did Siemens accomplish its long history of paying bribes to government officials in exchange
for obtaining contracts from those governments?
7. Suppose that AmTrain, a U.S.-based company, is submitting bids for the construction of a high-
speed rail system in India by the Indian government. AmTrain has met with and wants to hire
Josh Griffin, an international consultant who has worked with many Fortune 100 companies in
their foreign business operations. AmTrain requires all of its agents, consultants, and contractors
who work with it on its international operations to sign a statement in which they promise to
comply with the FCPA. Griffin has refused to sign the AmTrain FCPA form. Which of the
following best describes AmTrain’s position when it receives the refusal?
8. PwC, one of the “Big 4” accounting firms, was involved in a scuffle with Russia’s Federal Tax
Service over one of its clients, Yukos. PwC did not want to turn over confidential information
about its client. However, the failure to cooperate with the Federal Tax Service could result in the
loss of its license to do business in Russia. What questions should other companies consider
before expanding their operations into countries in which they have never done business?
9. Robert J. Stein was hired as the CFO for the American occupation effort in Iraq. As someone
who had the authority to award lucrative contracts to companies seeking portions of the
reconstruction efforts there, Mr. Stein wielded a great deal of power. Mr. Stein had served time
for felony fraud in the 1990s, but either the background check was not completed or his criminal
activity was deemed irrelevant for this position of power.
Mr. Stein and his wife have been accused of being involved in the following transactions:
• Philip H. Bloom, the owner of several U.S.-based construction companies seeking Iraqi
business wired $140,000 to allow Mr. Stein to purchase real estate in North Carolina.
• Other contractors spent $65,762.63 to purchase cars for Mr. Stein and his wife (a Chevrolet
and a Toyota).
• One contractor gave $44,471 for home improvements for the Steins’ home.
• $48,073 for jewelry paid for from funds totaling $258,000 that had been transferred into the
Bragg Mutual Federal Credit Union account begun by the Steins.
• A donation of $7,151.58 to the Steins that was used by Mr. Stein’s wife to purchase a “towing
service”.
• Ironically, $200 of the credit union fund was transferred to the clerk of a Federal District court
for restitution payment for his earlier conviction.
Mr. Bloom was awarded a significant number of contracts in Iraq. Which of the following best
describes the conduct of Mr. Bloom and Mr. and Mrs. Stein?
10. When Ikea was poised to open a flagship store outside Moscow in 2001, its executives were
approached by employees of the public local utility. If Ikea wanted electricity for its planned grand
opening, the public utility officials needed individual cash payments.
11. What happened to the Union Carbide plant in Bhopal?
12. What are the risks of marketing infant formula in third-world countries?
13. Which of the following practices best helps prevent sweatshop conditions in factories?
14. The Fair Labor Association:
15. Chiquita Banana was required to pay a $25 million fine to the U.S. government because:
16. What information did Yahoo turn over to the Chinese government?
17. Which of the following would be both legal and ethical acts in an international operations?
18. Nike is changing its interaction with international suppliers by:
Business Ethics, 8e Jennings
19. Which of the following is true about the Union Carbide Bhopal plant?
20. Global Factors, a NYSE company, wanted to obtain an extension to its contract with Somalia for
the sale of its government bonds. Global hired seven interns who were children of Somalian
government officials. Global:
21. Once Walmart executives became aware of the payments in Mexico:
1. Explain the correlation between the amount of corruption in a country and economic
development.
SUGGESTED ANSWER:
2. Discuss the following statement:
“There’s a difference between being very competitive and can-do, and winning at all costs. All
costs is costly.”
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3. Describe the damage to Nestle’s reputation following the decision to market infant formula in
third-world countries.
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4. UBS, a bank based in Switzerland, has received a subpoena from the IRS for the bank records of
52,000 U.S. citizens. The IRS alleges that the U.S. taxpayers hid money in UBS accounts for the
purpose of avoiding paying taxes. UBS had created a program that recruited tax advisers and
their clients under the guise that they could protect their funds from the IRS.
Swiss law prohibits banks, under privacy rights, from disclosing information about their customers
and their accounts. However, the IRS has obtained a subpoena for the records and a federal
judge has issued it because UBS is soliciting business in the United States. One banking
minister in Switzerland has indicated, however, that Swiss privacy laws do not apply when there
has been fraud.
Evaluate the ethics of UBS as well as their customers. If you worked for the bank, would you
release the information? Would you place your money in Swiss accounts?
SUGGESTED ANSWER:
5. Discuss what business and strategic issues PwC and Chiquita missed in making their decisions
on foreign operations.
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6. List three effects the Bhopal disaster had on Union Carbide.
SUGGESTED ANSWER:
7. Explain the ethical and economic implications of paying above-market wages to factory workers
in developing countries.
Business Ethics, 8e Jennings
SUGGESTED ANSWER:
8. Leslie Fay Companies was a clothing conglomerate that produced lines of women’s clothing and
lingerie under the brand names Leslie Fay, Joan Leslie, Albert Nipon, Theo Miles, Kasper, Le
Suit, Nolan Miller, Castleberry, and Castlebrook. In early 1993, it was discovered that senior
Leslie Fay executives, in an effort to inflate profits and to mask an actual loss of $13.7 million,
had perpetrated an accounting fraud. Paul Polishan, Leslie Fay’s chief operating officer, was
placed on leave without pay in January 1993, along with Donald F. Kenia, the corporate
controller. Mr. Kenia had first alerted the company to the accounting manipulations and worked
with auditors to untangle the books.
By April 1993, Leslie Fay, under intense pressure from creditors, filed for Chapter 11 bankruptcy
(reorganization) in Manhattan. Both Mr. Polishan and Mr. Kenia were fired. Mr. Kenia, charged
with two counts of filing false statements with the SEC, has entered into a plea bargain with the
U.S. Attorney in exchange for his cooperation in the continuing investigation of the Leslie Fay
accounting improprieties.
Also in April 1993, two new outside directors were named to the Leslie Fay board. The audit
committee of the board discovered, through continuing investigation, that accounting irregularities
had inflated the company’s profits for at least five quarters beginning in the fall of 1990.
As Leslie Fay continued its climb from bankruptcy, it was discovered that its law firm, Weil
Gotshall & Manges, had failed to disclose its close ties to two board audit committee members. A
federal bankruptcy judge ordered the law firm to pay fines totaling $800,000, which was the cost
of having an independent review of the law firm’s representation and conduct in the case.
In March 1995, Leslie Fay placed its flagship dress and retail business up for sale and offered its
CEO a success fee of $1.5 million if those businesses were sold.
Also in March 1995, a report detailing accounting improprieties was released by the audit
committee of the Leslie Fay board. The board found that when executives realized they would not
meet pre-established goals, they would ship goods out to a Wilkes-Barre, Pennsylvania, facility to
inflate sales. The executives also forged inventory tags, multiplied the value of inventory,
developed phantom inventory and altered records to meet sales target. Some goods were
invoiced to be shipped in the final day of a quarter even though they were not actually shipped
until the next quarter. Numerous shareholders have filed suit against the Leslie Fay board and
BDO Seidman, the company’s auditor during this period.
John Pomerantz continued as CEO from 1993 onward. The company has tried to find a buyer
but has remained unsuccessful in doing so.
a. What signals about the importance of earnings at Leslie Fay were sent to the officers who
committed the accounting improprieties?
b. Wouldn’t employees have been aware of the financial fraud? Why didn’t they speak up?
Why didn’t they tell someone?
Business Ethics, 8e Jennings
c. How might Leslie Fay have prevented what happened?
d. If you were the new chief financial officer, what message would you most want to impress
upon all Leslie Fay employees?
e. Of what significance are the law firm’s ties to the board’s audit committee members? Did
these ties set a poor tone at the top?
SUGGESTED ANSWERS:
9. What does the statement “Americans focus on wages paid, not what standard of living those
wages relate to” mean in the context of human rights?
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10. Chiquita officials said that they either had to make payments to a mercenary and terrorist group
or its employees were in danger. Evaluate the company’s reasoning.
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11. Price Waterhouse Coopers’ situation with the Russian government’s request for release of client
information presents an ethical dilemma for PwC. However, apply the Laura Nash question:
How did they get into this situation in the first place? And discuss your observations about PwC.
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12. Apply the various schools of social responsibility to product dumping.
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13. Evaluate Yahoo’s decision to do business in China through a partially owned subsidiary.
SUGGESTED ANSWER:
14. Outline the benefits and risks of the use of international suppliers.
SUGGESTED ANSWER:
