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UNIT FIVE – ETHICS AND CONTRACTS
SECTION 5A – CONTRACT NEGOTIATIONS: ALL IS FAIR AND
CONFLICTING INTEREST
CASE 5.1 – THE GOVERNOR AND NEGOTIATIONS FOR FILLING A PRESIDENT’S
SENATE SEAT
Use PowerPoint Slides 229 - 232.
Answers and Key Discussion Items
1. Mr. Doherty cannot recognize the basic ethical issue which is accepting compensation for doing your
job as a public official from someone other than the public via the salary. The credo is “I would never
2. This is a conflict of interest. If he did indeed accept anything (he was stopped from accepting
3. The defense amounted to “this is politics as usual for Chicago” or “everyone does it.” As we have
studied in other sections, in everything from speeding to mark-to-market accounting, the fact that
4. Use PowerPoint Slide 232. Stakeholders include the public in Illinois, the political parties, those who
provide funding for elections by using legal ways, those candidates who run “by the book” and honor
CASE 5.2 – FACEBOOK AND THE PRE-IPO
Answers and Key Discussion Items
1. Yes – it was critical – it affected the earnings of the company going forward.
2. It was a conflict of interest because he worked for the bank and the analysts researched for the bank
3. The stock has hovered at $24 – where it should have been in the offering. The market has reset the
CASE 5.3 – FINDING A WAY AROUND GOVERNMENT REGULATIONS
Answers and Key Discussion Items
1. There is the category of giving a false impression. The business is not really owned or operated by
2. If everyone uses the program and is certified as women- or minority-owned, then there is no program.
And the stakeholders are the government agencies, the women and minority business owners, and
citizens who pay for the administration of the program. However, a question to be asked is whether
CASE 5.4 – SUBWAY: IS 11 INCHES THE SAME AS 12 INCHES?
Answers and Key Discussion Items
1. Technically, the statutes were violated. The description, trademark or otherwise, was not accurate.
2. Subway should have responded sooner and should have made its commitment from the get-go. The
3. Those filing suit have grounds to file the suit – there was deception. However, goodwill on the part of
CASE 5.5 – SEARS AND HIGH-COST AUTO REPAIRS
Use PowerPoint Slide 233.
Answers and Key Discussion Items
1. The employees were under an incentive system that indeed gave them every incentive to sell more
2. Have the students grapple with their credos and their role as a service advisor. What would serve
them as well as their company best? Short-term profits or long-term customer relationships? The
Repairs for safety reasons are not unethical recommendations. Repairs recommended when the
brakes are fine or the service will not be needed for some time are unethical. The case revealed the
fact that cars that had just been repaired were being re-repaired at the recommendation of the service
3. Sears reputation has been damaged. Its earnings were down for the quarter following the
4. Reinstating the incentive program creates the same types of pressures that led to the missteps.
5. Sears’ culture was created in tandem with its financial rewards. Get the service dollars in, get the
rewards. There were no parameters around rewards or service recommendations to customers.
6. Short-term gains produce long-term consequences with greater implications for shareholders. There
Use PowerPoint Slide 233 to discuss the total bankruptcy strategy costs.
• $60 million fine
• $40 million in state fines
• $12 million shareholder suits
• $126 million write-off of bankruptcy debts
• $36 million settlement on class-action suit
• $118 million in coupons to affected customers
• $56 million in legal and administrative costs
• TOTAL of $448 million!
7. The ongoing problems with Sears that seem to erupt every few years evidence a culture that does not
value customer trust. There is a constant desire to push the envelope and see how much Sears can
The basic credo principles would be not violating the law and not being dishonest with customers. Those
two basic credo principles would have covered both the lawyers and the mechanics.
