978-1285428710 Section 7 SECTION 7B

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SECTION 7B – WORKPLACE LOYALTY

CASE 7.6 – AARON FEUERSTEIN AND MALDEN MILLS

Use PowerPoint Slide 275.

Answers and Key Discussion Items

1. Mr. Feuerstein’s conduct demonstrated that it is possible to consider employee well-being in a

Mr. Feuerstein indicated that he made the decision for his conscience and not on the basis of what

Point out to the students that Malden Mills had a set of circumstances in which employees would

2. Point out to the students that Mr. Feuerstein has his grounding in both his faith and in the example of

his parents and grandparents. He has a sense of obligation about who he is and how he should

3. Mr. Feuerstein did not have the publicly-held company syndrome in which he must be accountable to

large and small shareholders and the outcry they often produce when they disagree with the CEO or

resent the resulting impact on their earnings. Nonetheless he did have creditors and obligations as

4. Have the students discuss whether ethics and social responsibility always mean success. Discuss all

the components of business working together, including ethics, as the secret to success. Be sure to

CASE 7.7 – JCPENNEY AND ITS WEALTHY BUYER

Go over with the students the categories of ethical breaches in the case (Use PowerPoint Slide 276):

Taking things that don’t belong to you

Personal decadence

Conflicts of interest

False impressions

Interorganizational abuse

Discuss who was harmed (Use PowerPoint Slide 277). Those harmed include:

Shareholders of Penney’s

Penney’s customers

Other buyers

Other vendors, suppliers, manufacturer’s reps

Penney’s employees

Locklear’s family(ies?)

Answers and Key Discussion Items

1. Locklear was doing well in his job at Penney’s. Why rock the boat? Why question? Still, Locklear

2. It is an “everybody does it” philosophy; a rationalization; doesn’t make it ethical.

3. Yes, both have engaged in act; both are unfair to others.

4. The advantages: no line-drawing; no benefits; all quid pro quo is removed. The simplest policies

seem to be the easiest for employees to follow. And with a definitive rule, there are less likely to be

5. Poor products; pricing issues; bad choices in lines; product liability. The buyer becomes conflicted –

6. Mr. Locklear acknowledged that it was his personal life that was fueling his taking the kickbacks. He

Mr. Locklear’s minister makes an incisive remark in that many good people who do fine things in the

community lose sight of their values in the business world. It’s as if they see their lives as

CASE 7.8 – THE TRADING DESK, PERKS, AND “DWARF TOSSING”

Use PowerPoint Slides 278 – 282.

Answers and Key Discussion Items

1. A conflict is a conflict is a conflict. Use PowerPoint Slide 278 to discuss the ONLY two ways to

manage a conflict: don’t do it or disclose it. Saying, “But I was not influenced by that” ex post facto is

not managing a conflict. You are managing damage control at that point. Investment firms may well

be about the same, and there is a critical point. Any one of them can give stuff. As a strategy, this is

We worry because of the failure to concentrate on our duty of loyalty to our companies and our

clients. Also, we worry because the line slips gradually and we become compromised without even

2. All of these self-regulators and regulators worry about “stuff” because of what happened in the

Traders are conflicted by receiving stuff. That is, these kinds of material gifts turn a head and change

3. Some people have a “no stuff” rule, Walmart for one. Others put limits on stuff. Still others insist that

4. Some of the brokers were terminated, but some were not. The concern is that the failure to enforce

the policy against all, including Mr. Lynch, sets a tone for the culture. The lack of consistent

5. Research shows that when a top performer crosses an ethical line, we tend to look the other way,

rationalize it, and provide only a slap on the hand. For those in the lower ranks, we impose harsher

CASE 7.9 – THE ANALYST WHO NEEDED A PRESCHOOL

Use PowerPoint Slide 283.

Answers and Key Discussion Items

1. Yes, there were several layers of conflicts of interest here. Mr. Grubman was conflicted in his

recommendations on WorldCom because of his desire to recruit WorldCom’s business for his

The IPO allocations were conflicts for the CEOs (they profited personally by giving their company’s

business to the investment bank that gave them the first shot). Mr. Grubman was also conflicted over

his preschool enrollment desires as well as the IPO allocations because they were not disclosing

Mr. Weil had conflicts by using his company to achieve personal goals for himself and others.

2. The credo elements clearly relate to involving personal wants and needs in business relationships

and the dangerous bargains that can be struck in the name of something that is personally important,

3. No. The behavior of “everybody” is not the ethical standard. When all of this conduct was revealed,

analysts had an epiphany regarding their drift away from standards. This was a classic industry

practice, but, remember, there always remains the individual level and the ability to say no. Also,

Disclosure: The author has assisted, as a consultant, the Chartered Financial Analysts Association

(now the CFA Institute) in revamping its disciplinary processes.

4. Whether laws were violated is a tougher call. The IPO allocation has resulted in an investigation and

Mr. Spitzer used state criminal statutes that were obscure and focused on the common law crimes of

conspiracy, obstruction, etc.

5. E-mails at work are not private. The employer has a right of access and they are all discoverable. For

Compare & Contrast

Whitley had some very clear lines and also the courage to raise issues. Whitley had some values that

gave him the gumption to raise an issue that would create at least ripples in the company. Grubman, on

the other hand, was unable to see what his actions did and that he was conflicted on his personal goals

CASE 7.10 – TASER AND STUNNING BEHAVIOR

Answers and Key Discussion Items

1. While Taser pays officers on active duty $195 per session to instruct other officers on how to use

Tasers, the officers also received stock options after recommending their agencies adopt Taser

products for use by officers. Taser could have been “greasing the skids” if the intent of issuing the

options was to accelerate an important decision. If the department did adopt the Taser product, they

could use the reasonable-man defense proving they made a reasonable choice of product. If the

The appearance of impropriety, particularly with something that involves as much public trust as the

2. The stock options to police officers who recommend their products to their departments is bribery or

at least a conflict of interest. These officers are responsible for recommending products and are

Taser may have opportunities to embrace the concerns of the opposition and industry, and make

positive strategic changes. Apple did this when they launched iTunes with $.99 downloadable songs

while record labels fought to prevent the pirating of CDs. There is so much in jeopardy with Taser that

3. The non-lethal self-defense device industry is in the regulatory stage. Litigation with regards to the

Taser devices are also regulated by the TSA. Taser products are also regulated internationally. It is

important for the company to address the reasons why certain states and companies have prohibited

Another step Taser should consider is to initiate some public awareness campaigns regarding their

products. Negative press travels fast, so to alleviate any negative word of mouth, Taser should

embrace the opportunity to educate people about their products’ safety and the small likelihood that

4. There will always be close relationships between Taser and the agencies that use its products. But

those relationships need to be based on mutual respect and trust, not because of payments to

officers to recommend the product. The public is really a client as well, in terms of public relations

Ethical issues arise when considering the use of self defense weapons by private citizens. The

devices are truly a matter of controversy – much like guns – because of their potential for injury or

death. Self defense laws are very subjective and vary from state-to-state. A claim of self defense must

be comparable to the threat of danger. People who have self defense devices may experience a

CASE 7.11 – BOEING AND THE RECRUITING OF THE GOVERNMENT

PURCHASING AGENT

Answers and Key Discussion Items

1. The category of ethical dilemma is a conflict of interest. Along the way those involved did not tell the

truth, left false impressions, took unfair advantage, and violated the law with conspiracy and

2. Mr. Sears focused on self-interest or Boeing benefiting from access to and hiring Ms. Druyun. Ethical

3. Ms. Druyun also had self-interest, even including the jobs for her daughter and son-in-law. She did

4. Heather started the chain rolling with her involvement. She was looking to set up a conflict of interest

and violation of the law. Heather was clearly a beneficiary of her mother’s conduct in her being hired

CASE 7.12 – KODAK, THE APPRAISER, AND THE ASSESSOR: LOTS OF

BACKSCRATCHING ON VALUATION

Answers and Key Discussion Items

1. Those who were hurt included the other taxpayers in the community whose valuations were not

negotiated by the assessor as a means of making money, the community for the loss of revenue.

Kodak did not benefit – it only postponed the payment of taxes and had to grapple with the fallout

2. Trust in government officials is paramount in economic systems. Capitalism is based on trust and to

the extent that businesses cannot count on equal application of the law, there is the introduction of

additional risks and costs that cannot be anticipated and planned for as well as uncertainty about

3. Yes, the contingent fee arrangements do open the door for this kind of activity. The wave of subprime

problems has caused a new wave of regulation of appraisers in terms of process and computation.

New regulations will, once again, try to curb the temptations business people have to involve

4. The three could probably rationalize that no one was truly hurt by their scheme and that, in fact,

Kodak benefited. It was perhaps difficult for them to see that spreading the savings around a bit was

more than just an inconsequential action among friends that served everyone well. They also

probably realized that it would be difficult to track and discover and that they enjoyed some protection

there. That assumption, as so many cases have shown, is wrong. There will always be room for

CASE 7.13 – MEDTRONICS, JOURNAL ARTICLES, CONSULTING, AND ETHICS

Answers and Key Discussion Items

1. These gifts fall into the ethical category of conflicts of interest. The doctors’ decisions could be

clouded by their acceptance of various perks, the type of perks, level of perks, etc. from the various

companies. Use PowerPoint Slide 284.

2. The doctors have melded together the line between independence and being beholden. The

continual barrage can break down barriers on duties and cloud judgment. Doctors often insist that

The issue is not resolved because people keep trying to find ways around the new rules and codes of

There are two ways to manage a conflict of interest (which is what funded research is): don’t or

disclose it. Research funded by a pharma presents a conflict for a researcher because obviously the

pharma wants the research to come out in its favor. The doctor should disclose the funding and

perhaps both the doctor and the pharma would want to set up some checks and balances so that the

3. Ms. Kelley was fired because she was interfering with what was a very simple sales model that those

in the field felt was working, that everyone else was doing (industry issue), and that would result (they

believed) in a substantial reduction in sales and, hence, their compensation. Whistleblowers do have

significant federal protection, particularly when it comes to the pharma industry because blowing the

4. Use PowerPoint Slide 285. A conflict is a conflict is a conflict. That the good doc’s payment was not

for Avandia does not change the fact that he received compensation from a company whose fate he

CASE 7.14 – CORNELL RESEARCHERS AND FOUNDATION FUNDING

Answers and Key Discussion Items

1. There are no grades of conflicts of interest – there are only two ways to manage a conflict of interest:

2. Use PowerPoint Slide 286:

Those who funded the research

Those using the research: physicians and patients

The basics on conflicts will cover this situation with the additional caveat – you cannot one-step away

yourself from a conflict – indirect ties are still a conflict. Companies should require disclosure in the

research of those who are funded – in the long run it helps the company because it does not lose trust in