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8. Daimler Settles U.S. Bribery Case for $185 Million (Chapter 5, pages 304-306)
What this case has to offer
This is a good case to discuss the implications from bribery, the need for an ethical culture within a
company, the role of whistleblowers in raising red flags about bribery, and the prospect of bribery
charges arising from U.S. and U.K. legislation even though the bribery occurred in other jurisdictions. A
Teaching suggestions
I start this case asking students how a bribe can be detected by a company or by the government.
Arguably, detecting bribes could be difficult in a large company such as DaimlerChrysler, with worldwide
operations, a large number of bank accounts and a complex financial reporting system. In these
Discussion of ethical issues
1. Apparently Daimler executives were not concerned enough with personal sanctions to change the
company’s bribery practices to comply with German and U.S. statutes. How can these attitudes be
changed?
Daimler executives have to be made aware of the potential consequences of giving a bribe. The
U.S. FCPA (q.v.) includes the following sanctions for bribing a foreign official:
“CRIMINAL: The following criminal penalties may be imposed for violations of the FCPA’s
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The Attorney General or the SEC, as appropriate, may also bring a civil action to enjoin any
act or practice of a firm whenever it appears that the firm (or an officer, director, employee,
agent, or stockholder acting on behalf of the firm) is in violation (or about to be) of the anti-
bribery provisions.
2. What internal controls could have been usefully introduced to prevent bribery at Daimler?
The OECD (OECD 2010) has published a document listing 12 recommendations for internal
controls, ethics and compliance with anti-bribery regulations, including:
1. Strong, explicit and visible support and commitment from senior management to the
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5. Ethics and compliance programs or measures designed to prevent and detect foreign
bribery, applicable to all directors, officers, and employees, and applicable to all entities
over which a company has effective control, including subsidiaries on the following
areas:
• gifts;
6. Ethics and compliance programs or measures designed to prevent and detect foreign
bribery applicable, where appropriate and subject to contractual arrangements, to third
parties such as agents and other intermediaries, consultants, representatives,
distributors, contractors and suppliers, consortia, and joint venture partners
(hereinafter “business partners”), including the following essential elements:
• Properly documented risk-based due diligence pertaining to the hiring, as well
7. A system of financial and accounting procedures, including a system of internal controls,
reasonably designed to ensure the maintenance of fair and accurate books, records, and
accounts, to ensure that they cannot be used for the purpose of foreign bribery or
hiding such bribery;
8. Measures designed to ensure periodic communication, and documented training for all
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10. Appropriate disciplinary procedures to address, among other things, violations, at all
11. Effective measures for:
• Providing guidance and advice to directors, officers, employees, and, where
appropriate, business partners, on complying with the company’s ethics and
compliance program or measures, including when they need urgent advice on
12. Periodic reviews of the ethics and compliance programs or measures, designed to
3. What should Dieter Zetsche do to ensure the highest compliance standards?
The change of a company’s culture is a long process that takes time and a strong commitment
4. Whistleblowers on FCPA matters are eligible for up to 25% of the settlement and/or fine that results
depending on a hearing by a tribunal on the import of their evidence (see Chapter 1, page 15 for a
discussion of this). How much of the $91.4 million restitution payment would you award David
Bazzetta if you could make the decision? Provide your reasons for the choice you advocate.
Whistleblowers providing “original information” leading to a successful enforcement action
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5. Did David Bazzetta do what was expected of him as a professional accountant?
A professional accountant has the responsibility to not be associated with misleading or false
discriminated against or prosecuted.
Useful Articles, Links, and Videos
OECD (2011). Bribery in International Business.
U.S. Department of Justice. Foreign Corrupt Practices Act of 1977 (15 U.S.C. §§ 78dd-1, et seq.)
U.S. Department of Justice (2011). Lay–Persons’ Guide to FCPA.
Business & Professional Ethics for Directors, Executives & Accountants, 8e
9. HP Bribery for Russian Contract with Anti-Bribery Prosecutor’s Office (Chapter 5,
pages 306-307)
What this case has to offer
This case describes how Hewlett Packard bribed officials at the government office that is responsible for
bribery is OK at the time of the bribe, it not result in charges and/or convictions forever.
Teaching suggestions
I start this case by asking students how is it possible for a company to bribe a government official
Discussion of ethical issues
1. Why would HP bribe think they could get away with bribing an employee in the Russian anti-bribery
prosecutor’s office?
There could be several reasons, for example:
• HP used several bank accounts and indirect money transfers that would make difficult to
trace back the money to HP;
2. Why was it done through a series of companies in different countries?
3. What has changed to now allow investigators to unravel such a series, whereas in the past they
would have found it almost impossible?
The following changes have enabled the prosecution under the FCPA:
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• On November 21, 1997, the 29 member nations of the Organization for Economic
Cooperation and Development (“OECD”) and five non-member nations adopted the
4. If a company decides to bribe, how many years need to go by so that they are safe from
prosecution?
The violations to the FCPA can be prosecuted anytime, regardless of the number of years that have
5. Even though German law does not allow companies to be charged, what are the possible
consequences of the alleged bribery for HP?
HP may face the following consequences:
• Loss of reputation and future government contracts in Germany and other countries;
Useful Articles, Links, and Videos
OECD (2011). Bribery in International Business.
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Cases on Corporate Governance & Managerial Opportunism
10. Spying on HP Directors (Chapter 5, pages 307-310)
What this case has to offer
This is a good case to discuss the ethical implications from obtaining and using information from the
company’s employees in general. It also illustrates the perils of conducting secret investigations of board
members. In addition, the HP case highlights the importance of ethical guidance for the board of
directors and the need for limits to the power of the chairman of the board. The board of directors
exists to monitor management and it is appointed to act in the best interest of the company’s
shareholders. Nevertheless, there are few internal mechanisms that are needed to ensure the proper
functioning of the board.
Teaching suggestions
I start the class asking the students who should be in charge of monitoring the CEO, and then follow up
by asking who should monitor the board of directors, and how?
This sets up the questions at the end of the case for further discussion in order.
Discussion of ethical issues
1. Should the chair of the board of directors be allowed to initiate investigations into weaknesses in a
company’s internal control systems?
The investigation of internal control weaknesses is usually a management function; however, as
stated in the COSO integrated framework “Management is accountable to the board of
Business & Professional Ethics for Directors, Executives & Accountants, 8e
2. Is the strategy of pretexting an acceptable means in order to obtain critical information that will
strengthen a company’s internal control system?
The legal opinion given to HP on pretexting is a masterpiece of doubletalk, and of little value. As
it turned out, using pretexting is/was definitely not acceptable from several different points of
view:
• It involves misrepresentation designed to get information by deceit, which is quite
unethical as it is unfair and violates the rights of the subjects involved.
3. Should the reasons for resignations from a board of directors always be made public?
In general, a policy of transparency and full disclosure should be in the best interest of the
company’s shareholders. Without complete information it would not be possible for
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public; however, in a full disclosure environment, the impact of full disclosure on director’s
reputation should be an incentive to act in the best interest of the company’s shareholders.
Useful Articles, Links, and Videos
To access the article, use the search feature on the website. This website provides current and
previous coverage. At the time of the issue, coverage was provided on the internal investigation
into media leaks at HP. It provided links to the legal investigation and highlights congressional
hearings, press conferences, commentary and video footage across the scandal.
Committee of Sponsoring Organizations of the Treadway Commission (COSO). (2004). “Enterprise Risk
Business & Professional Ethics for Directors, Executives & Accountants, 8e
11. Lord Conrad Black’s Fiduciary Duty? (Chapter 5, pages 310–314)
What this case has to offer
This is an excellent case to discuss:
• the conflicts of interest risks arising when management or a dominant owner has effective
control of a public company, and
• appropriate governance controls needed to safeguard the interests of other shareholders and
stakeholders.
Conrad Black effectively controlled Hollinger International, Inc. without a majority of the corporation’s
Teaching suggestions
To start out, students can be asked three central questions on corporate governance:
• why companies have a board of directors,
One of the board’s most important roles is to oversee the company’s management for the good of the
company (on behalf of all the shareholders). Otherwise, managers will be tempted to line their own
pockets as Black did, and misrepresent facts and earnings to suit their own interests. Since it is rare that
anyone can effectively monitor themselves, there needs to be a separation of management from
ownership. It is not surprising, therefore, that boards of directors have the following basic objectives, as
well as several others:
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The students can then be asked what problems may arise if the selection of directors is left to the
discretion of the parties whose behavior the board is supposed to monitor, especially when the
Discussion of ethical issues
1. What conflicts of interest may have been involved in Black’s activities?
Conrad Black was, through a structure of holding companies, the controlling shareholder of
Hollinger International Inc. even though he did not own the majority of the corporation’s total
equity. Black’s potential conflicts of interest included:
2. Were Black’s non-compete agreements and payments unethical and/or illegal?
These payments seem to be on the borderline of legality. If the board of directors approved the
payments (there is some doubt about the quality of information provided them) and Conrad
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the company buying the newspapers wanted personal protection from Black and his partner,
that should have been a separately negotiated contract.1 By including the non-compete
3. What questions should have been asked by International’s directors?
Directors should act in the best interest of all the company – of all its shareholders. They should
have:
• discovered the non-competition payments and other expenses,
4. If the boards of directors of his various companies approved these non-compete agreements, are
the board members on the hook and Black off?
Not necessarily. The directors’ liability will depend on the kind and quality of information they
1 In fact, two of the three fraud convictions were in cases where the buyers first refused to pay Black and his
partner, but were coerced to do so in order to make the deal go through. The third conviction was for a case (if
you can believe it) where Black and his partner arranged the sale of a newspaper to themselves, but decided to
include non–compete payments to themselves in the deal so that they wouldn’t compete later with themselves.
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5. Black controlled key companies through multiple voting rights attached to less than a majority of
shares. Was this illegal and/or unethical?
Differences in voting rights and shareholding structures are common practice in public
companies. This practice is not illegal, provided it is properly disclosed.
6. What risk management techniques would have prevented Black’s potential conflicts from becoming
harmful?
A strong control environment constitutes the most pervasive means to deter fraud. An
appropriate control environment includes a culture of ethical values such as integrity, honesty,
fair-dealing, and competence; as well as a management philosophy and operating style that
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and make recommendations on matters affecting the company’s internal controls. The audit
committee of the board of directors has a responsibility to the company’s shareholders to
oversee management’s performance.
Subsequent events
On December 10, 2007, Judge Amy J. St. Eve of United States District Court sentenced Lord Black to six
and a half years in prison on three fraud charges involving self-dealing, non-compete payments and one
charge of obstruction of justice for removing 13 boxes of documents from the Toronto offices of
Hollinger International. Instead of keeping a low profile after his conviction, Mr. Black became even
more voluble. He managed to publish and publicize a 1,152-page biography, “Richard M. Nixon: A Life in
Full”. He spends his time in a Florida penitentiary teaching history to overflow classes of inmates, and
writing newspaper columns.
Useful Articles, Links, and Videos
Heritage Institute (2007, 2008). “Conrad Black Trial Background.”
This website provides information under many headings, including: accusations, criminal
charges, the trial and the trial in depth. The Heritage institute also provides a link to a report
from the internal committee at Hollinger that initially accused Black and his partner David
Radler of operating a “corporate kleptocracy” and allegedly stealing more than $400 million
from the corporation.
Waldie, Paul (July 23, 2010). “Black can’t return to Canada yet.” Globe and Mail,
[No longer available in 2017.]
“Conrad Black: Where did it all go wrong?” (Feb. 27, 2004). BBC World News,
Business & Professional Ethics for Directors, Executives & Accountants, 8e
12. Manipulation of MCI’s Allowance for Doubtful Accountants (Chapter 5, pages 314-315)
What this case has to offer
This case illustrates the problems an employee can get into when the firm develops a high-paced culture
Teaching suggestions
I would suggest that students in the class outline generally accepted accounting principles with respect
• the firm’s credit policy,
• the age of the outstanding accounts, and
• the history of collection and write-off rates over a number of periods.
In the case of MCI, the credit policies were too lenient, and had not been reviewed or changed as a
Discussion of ethical issues
1. After being told that the guideline for bad debts for 1996 was $15 million, what should Walt do?
Walt should have been more forceful in his presentation to his boss. If his boss would not
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2. What are the risks for MCI in setting an unrealistic allowance for doubtful accounts?
The allowance is simply today’s estimate of the amount of receivables that will not be collected
in the future. The actual amount of the uncollectibles remains the same, regardless of the
amount of the estimate. So, by setting the allowance too low, the firm is simply pretending that
Business & Professional Ethics for Directors, Executives & Accountants, 8e
13. Stock Options and Gifts of Publicly Traded Shares (Chapter 5, pages 316-317)
What this case has to offer
This allows the students to discuss a variety of issues, including:
• when does the exercise of CEO discretionary power become opportunistic,
Teaching suggestions
This is a good opportunity to review the major ethical theories and apply them to corporate charitable
donations, redirecting donations to stem cell research and managerial opportunism.
Deontology. This theory argues that we should not treat others as means to our personal ends. Is
redirecting donations, to a charity that the CEO has a personal interest in, using Revel Technologies as a
means to the personal goal of the CEO? Does it violate the principles of justice and fairness that the
CEO is allowed to make arbitrary decisions? On the other hand, if the shareholders are prepared to
have Revel Technologies make charitable donations, then it may not matter to them where the
Discussion of ethical issues
1. Is it right that a CEO can direct the charitable donations of his company to the charity of his choice?
There is a separation between ownership and control. The shareholders own the firm, but they
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2. Comment on the ethical aspects of Pierre’s stock option/stock donation strategy.
There are two different strategies in this case: one quite legal and the other unethical, and
perhaps illegal.
Stock Donations
Many wealthy CEOs have little surplus cash, but quite a lot of very valuable, in the money, stock
Pump and Dump Strategy
The pump and dump strategy involves artificially inflating the price of a stock, normally by
releasing false information (pump), in order to be able to sell the stock (dump) at a price higher
than the initial purchase price. This case is a reverse of the technique. By withholding the
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3. If you were Gloria, what should you do? Would you change if you were a donations specialist, a
lawyer, or a professional accountant?
As a professional accountant, Gloria cannot be associated with any information that is false or
misleading. She may consider that delaying the release of the financial statements is misleading
to the other investors on the basis that if they had that information then the stock would be
trading at the $17 level rather than the current $19 level. If so, then she has a professional