Please help in answering the three questions to this ethics case -
Anne Distagne was the CEO of Linkage Construction
Inc., which served as the general contractor for the
construction of the air ducts for large shopping malls
and other buildings. She prided herself on being able
to manage her company effectively and in an orderly
manner. For years there had been a steady 22–25 percent
growth in sales, profits, and earnings per share,
which she wanted to continue because it facilitated
dealing with banks to raise expansion capital.
Unfortunately for Sue Fault, the chief financial officer,
the situation has changed.
“Sue, we’ve got a problem. You know my policy of
steady growth—well, we’ve done too well this year.
Our profit is too high: it’s up to a 35 percent gain over
last year. What we’ve got to do is bring it down this
year and save a little for next year. Otherwise, it will
look like we’re off our well-managed path. I will look
like I didn’t have a handle on our activity. Who
knows, we may attract a takeover artist. Or we may
come up short on profit next year.”
“What can we do to get back on track? I’ve heard we
could declare that some of our construction jobs are not
as far along as we originally thought, so we would only
have to include a lower percentage of expected profits
on each job in our profit this year. Also, let’s take the
$124,000 in R&D costs we incurred to fabricate a more
flexible ducting system for jobs A305 and B244 out of the
job costs in inventory and expense them right away.”
“Now listen, Sue, don’t give me any static about
being a qualified accountant and subject to the rules
of your profession. You are employed by Linkage
Construction and I am your boss, so get on with it. Let
me know what the revised figures are as soon as possible.”
Questions
1. Who are the stakeholders involved in this decision?
2. What are the ethical issues involved?
3. What should Sue do?
To answer these questions, let's analyze the case:
1. Who are the stakeholders involved in this decision?
Stakeholders are individuals or groups who are directly or indirectly affected by a company's actions or decisions. In this case, the stakeholders are:
- Anne Distagne (CEO): She is concerned about maintaining the image of well-managed growth, attracting takeover artists, and ensuring future profit.
- Sue Fault (CFO): She is the chief financial officer and is being instructed by the CEO to manipulate the financial figures.
- Employees: They may be indirectly affected by the decision as it could impact the perception of the company's stability, potential layoffs, or changes in the work environment.
- Shareholders: They are interested in the company's financial performance and may be affected by any misrepresentation of profits.
- Banks and potential investors: They rely on accurate financial information to assess the company's stability before providing loans or investments.
- Customers: If the company's financial misrepresentation leads to instability or bankruptcy, it may impact the customers with delayed projects or unfinished construction works.
2. What are the ethical issues involved?
The ethical issues raised in this case include:
- Financial manipulation: The CEO is requesting the CFO to manipulate the financial figures by misrepresenting the progress of construction jobs and expensing research and development costs inappropriately. This goes against accounting principles and may result in misleading financial statements.
- Misleading stakeholders: By altering the financial figures, the CEO aims to create a false impression of the company's performance, potentially deceiving shareholders, investors, banks, and other stakeholders.
- Violation of professional ethics: The CEO is pressuring the CFO to go against her professional responsibilities as an accountant and disregard the rules and principles of her profession.
3. What should Sue do?
As the CFO, Sue Fault faces a difficult ethical dilemma. Here are some possible actions she could consider:
- Discuss concerns with the CEO: Sue can express her reservations about the proposed actions and explain the ethical issues involved. She can highlight the importance of financial transparency, credible reporting, and adherence to accounting standards.
- Seek advice from professionals or regulatory bodies: Sue can consult with colleagues, industry experts, or even accounting regulatory organizations to get guidance on how to handle the situation appropriately.
- Stay true to professional ethics: Sue should prioritize her professional obligations and accountability. She should consider her duty to provide accurate and reliable financial information and act in the best interest of the company and its stakeholders.
- Report the issue: If the CEO insists on engaging in unethical practices despite Sue's objections, she may need to escalate the matter by reporting it to the appropriate authorities or higher management to ensure that the company follows ethical standards.
It is important to note that the specific actions Sue should take would depend on her own judgment and the company's internal policies and procedures. Seeking legal advice and consulting with relevant authorities can also help guide her in making the right decision.