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CHAPTER FOURTEEN: PERSONAL AND CORPORATE ETHICS
The learning goal of this chapter is to encourage discussion among students about how
their behavior with regard to ethics will affect their long-term careers.
Hal of Erhardt encourages the discussion of professional standards of ethics in the
context of an accounting engagement. McArthur Place addresses the frequent conflict
between personal friendships and one’s responsibility to one’s employers.
The text lays out two models for discussing ethical issues: Milton Friedman’s classic
article and the ethical frameworks developed by Tom Piper, Kenneth Goodpaster, and
Mary Gentile. You may well choose to start the class by comparing these approaches.
A background note for the instructor: Amitai Etzioni, a prominent student and scholar of
ethics, tells some rueful stories of his attempts to teach ethics to business students. Fresh
from publishing a highly-regarded book on ethics, The Moral Dimension, he set out to
teach ethics to Harvard MBA candidates. Two years later, in an article for Newsweek
1. Often, students will say people act considerately because it makes them feel
good. Ask why does it make them feel good? Does this not mean that nature and
2. In recent years, prominent conservative ethicists such as William Bennett have
injected the call for moral reform into mainstream American politics. This
3. Business students, more than most, tend to doubt the existence or effects of
subliminal messages, whether in broadcasting or advertising. Focusing on
advertising to young people, may help them see what often helps to sell
Teaching HAL OF ERHARDT & COMPANY
The audit engagement described in this case really took place. The purpose of the case is
less to describe how to behave with integrity in public accounting than to examine one
way an individual’s integrity may be put to the test. No one wants to put his career in
jeopardy: Foreseeing what could happen and doing the right thing may help a young
professional to face a real crisis and emerge stronger from it.
On the surface, the case leaves no room for maneuvering. The reader is taken step-by-
step through an audit engagement where little room for debate seems possible. The audit
Suggested questions for discussion:
(Note: the instructor may want to call particularly on students who have had some
experience in accounting.)
1. What is the relationship between personal integrity and professional
competence?
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2. Has Hal exceeded his assigned responsibilities? Why are the assignments made
3. How may the timing of the FBA audit affect the quality of the result?
4. What do other team members know about the company’s unusual accounting
practices? What can Hal expect them to do about this? What should he say to
5. What courses of action are open to Hal? Rank them in terms of their effect on his
6. Does the case offer any evidence that calls Erhardt and Company’s accounting
practices into question? If so, at what point should Hal have suspected these?
7. Does Hal have any reason to distrust Frank, the partner-in-charge? (His
8. What has caused more stress to the audit company — the client’s accounting
practices or the partners’ responses?
Resolution
Hal decided he would do all he could to prevent issuing the audit report. He met with
Frank and told him he wouldn’t support it. Moreover, he said he would report his
disagreement to Frank’s superior John, the Managing Partner, as the firm’s policy
required. Hal subsequently met with John, who refused to allow the report to be issued
until a full investigation had been completed.
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Teaching McARTHUR PLACE
In the McArthur Place case, a friend and colleague asks the Controller of a mid-sized
non-profit organization to cover up some important information. The request made by
Carolyn is difficult in three ways. First, it concerns the performance of an employee who
is already being considered for termination. Second, it concerns the Emily’s ability to
carry out the responsibilities of her job. Finally, it involves a choice between what is best
for the organization and what is best for Carolyn and her son.
The purpose of this case is to raise the ethical ramifications of everyday business
interactions. It considers the ethical dilemma raised when a conflict arises between
Ethical Issues
If Emily goes along with Carolyn and remains quiet, Emily would be ignoring one of the
basic requirements of her position– to be objective and fair while protecting the
organization. It is her responsibility to be the impartial view on organizational issues. By
hiding the charges and payment, Emily would lose this objectivity and instead, would be
directly involved in a cover-up. Among other things, because Emily’s supervisor is the
President, she currently has little direct supervision of her actions. If her boss determined
that she could not be trusted, this may change.
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Recommended Resolution
Given the reporting systems that are in place, it is likely that Kelly would find out about
the calls even if Emily did not bring up the payment. It would, therefore, be better to be
pro-active about the situation. In addition, if Emily tells Kelly, in the same way that she
would another supervisor, she would reinforce the objectivity of her position. While her