978-1285428710 Section 5 SECTION 5B

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SECTION 5B – PROMISES, PERFORMANCE, AND REALITY

CASE 5.6 – PAYDAY LOANS AND CHECKING ACCOUNT DEDUCTIONS

Answers and Key Discussion Items

1. The loans are risky – hence their high cost. Those who need them have financial issues and the

collectability is doubtful. However, there is no hope once the borrower defaults on this type of loan

2. The lending online means the companies are not subject to state regulation, hence the need for

federal oversight. However, the companies are collecting on loans made to customers in states

3. Banks are permitted to allow these lenders access for automatic deductions from checking accounts

because collection is not illegal even in those states where the loans are illegal. However, Chase

CASE 5.7 – PENSIONS: PROMISES, PAYMENTS, AND BANKRUPTCY

Use PowerPoint Slides 234 – 236.

Answers and Key Discussion Items

1. Draw on the stages of the regulatory cycle to help students apply, again, what they learned earlier to

2. The companies with pension plans had found a loophole. They could be adequately funded for

purposes of ERISA without taking a hit to their financial statements. However, adequately funded for

purposes of ERISA did not represent the actual costs and cash outlays the pension funds would

3. The economic implications are a transfer of risk, from employer to employee. With RIFs, the

employees absorb the risk of downturns. With pension plans and prohibitions against RIFs,

employers then absorb the risk or costs of keeping employees compensated. On the other hand, and

draw in the reading about Marjorie Kelly’s theories (Reading 3.6) to discuss whether there is a

Use PowerPoint Slides 234 – 236 to discuss issues here.

4. This question provides an excellent opportunity for the students to understand that the black hat/white

hat mentality of ethics and social responsibility is not as clear as it seems in superficial discussions. If

5. Students should point out the issue of moral hazard – what happens when there is no risk of failure in

a business? How do managers behave when someone will step in and save them despite their

Compare & Contrast

Feuerstein (Case 7.6) felt a personal, historical, and family obligation to pay the employees. United was

more detached and made the decision to cut the pension benefits in order to survive, and certainly United

employees are grateful for that decision. However, the Nash question of how did United get in this

position in the first place is a critical one. The company was really not taking into account the full costs of

its pension plan and that factor was a significant one in its bankruptcy. That issue needed to be

CASE 5.8 – DEPARTMENT STORE RETURNS OR RENTALS?

Answers and Key Discussion Items

1. Taking things that don’t belong to you; false impression; taking unfair advantage.

2. The store is affected; other customers are affected because this conduct increases costs in

CASE 5.9 – GOVERNMENT CONTRACTS, RESEARCH, AND DOUBLE-DIPPING

Use PowerPoint Slides 237 – 244 to follow the sequence of events in this case. Also, this is another PR

training case for how not to handle an ethical breach.

Answers and Key Discussion Items

1. Mr. Kennedy’s attitude did evolve as the case evolved. His initial statements conclude that whatever

was done was insignificant and therefore justified. His last statement (March 23, 1991) is one that

recognizes that while the accounting practices may have been legal, they were not necessarily

Mr. Kennedy also resigned as a result of the Stanford problem. He became so identified with the

problem that he needed to leave to restore Stanford’s credibility. Mr. Kennedy’s initial reaction to the

2. This case is an illustration of practices that were legal. It is also an illustration of practices that had

3. Casper has set an ethical tone for Stanford by saying that everyone must observe, question, and

4. The rationalizations in Kennedy’s statement:

“Everybody else was doing it.”

“That’s the way it has always been done.”

CASE 5.10 – YALE UNIVERSITY AND THE COMPENSATION OF PROFESSORS

FOR GOVERNMENT RESEARCH: DOUBLE-DIPPING OR CONFUSION?

Answers and Key Discussion Items

1. The university is responsible because it is the beneficiary of the funds. All employers are also

2. The universities have to watch the loopholes that are being used for the accounting here. There

3. The fact that they are doing the work, as was the case at Stanford, is not the issue. The issue is

whether the work is being done according to the terms imposed on the award of the fundings. If the

CASE 5.11 – WHEN CORPORATIONS PULL PROMISES MADE TO GOVERNMENT

Answers and Key Discussion Items

1. Incentives can be promises of development around corporate projects, reduced taxes, or waivers of

2. There are some legal rights if the agreements are drafted carefully, but the problem is the excitement

3. The moral qualm is that many of the promises made by corporations have proven to not be

4. There are the employees, the landowners, the taxpayers, the companies, their shareholders, and the

companies that do the financing for these types of city projects – bondholders as well. When the

CASE 5.12 – INTEL AND THE CHIPS: WHEN YOU HAVE MADE A MISTAKE

Legal Issues

There was warranty protection under the UCC for customers. Once Intel knew of the problems, it was

obligated to disclose the issue, even if it opted not to fix it. For some buyers, the flaw was material

information in their decision to buy Pentium.

Answers and Key Discussion Items

1. Ethically and legally, Intel should have disclosed the flaw. The inventory should have been used for

2. Yes, and now looking back most Intel executives and experts agree that an immediate recall would

3. No, the product was flawed. Legally, whether you needed it for math computations or not, the product

4. Consumer trust was sacrificed. Intel will take years to shake not that they made a mistake, but the

5. Business history would be persuasive in your meeting with Grove. You would offer the following:

Tylenol and its miraculous recovery following a recall; Jack-in-the-Box and its e-coli disaster for not

responding quickly enough; Exxon and its PR problems from the appearance of a lack of remorse;

Point out that the failure to spend a little to correct resulted in financial and PR disasters for these

firms.

6. Not a life-threatening product issue, so you might stay to try to change things. Document your

position.

Compare & Contrast (Intel)

See the list above. Add to it Sears, ATVs, EMF and VDTs. Many refer to the five-part plan as “Watergate

Intel faces the same sorts of questions now facing Microsoft. Are they dominant because they are good

Compare & Contrast (Dell)

The Dell situation is very similar to what happened at Intel. Knowledgeable customers reported a

problem and Dell had a strategy of ignoring them all until after heat and attention had died down a bit.

However, notice of the particular issue wrong with the computers was in Dell’s hands and it continued to

The scholars studying companies are often the last to pick up on the signals fraudsters emit. They are in

the midst of studying and touting the Dell management model and then the company has this major

setback.

CASE 5.13 – MORTGAGE FORECLOSURE: ROBO-SIGNATURES AND “CLOSE

ENOUGH”

Answers and Key Discussion Items

1. Robo-signing mills resulted so that they could prove more easily that they were entitled to foreclose.

2. Fundamentally it was fraud and misrepresentation and the MERS folks certified documents for the

CASE 5.14 – RED CROSS AND THE USE OF FUNDS

Answers and Key Discussion Items

1. Yes, there was an ethical violation. The Red Cross had given a false impression of how the funds

2. Dr. Healy chose the very public option of resigning under protest with full media disclosure. Such a

step is sometimes necessary when there are no internal avenues available. Her very public position

3. The Red Cross needs a policy on specific fundraisers and the use of that money. It also needs a

disclosure policy for the public on its funds and fund uses. Employees need to understand the