Chapter Questions and Case Solutions

Business & Professional Ethics for Directors, Executives & Accountants, 9e Leonard J. Brooks and Paul Dunn Chapter 1—Ethics Expectations Chapter Questions and Case Solutions Chapter Questions..................................................................2 Case Solutions.........................................................................8 1 / 4

P a g e | 2 Business & Professional Ethics for Directors, Executives & Accountants, 9e Leonard J. Brooks and Paul Dunn, Chapter Questions 1.Why have concerns over pollution become so important for management and directors?Because the public perceive that our environment is finite and that our well-being is threatened.In turn they have influenced politicians to enact tougher laws and heavier penalties...up to $2 million/day, with the prospect of personal liability and jail. In addition, U.S. courts have agreed to hear lawsuits brought by foreigners for pollution on foreign soil (see ethics case “Texaco: The Ecuador Issue” in Chapter 1). Finally, pollution can erode the trust necessary to preserve stakeholder support, and this will be seen by stakeholders with resultant negative consequences in consumer and capital markets.

2.Why are we more concerned now than our parents were about fair treatment of employees?Our social consciousness is higher due to the reasons listed in Chapter 1.

3.What could professional accountants have done to prevent the development of the credibility gap and the expectations gap?See the discussion on the Treadway, Metcalf and Macdonald Commissions. Also see case “Arthur Andersen’s Troubles,” in Chapter 2.

4.Why might ethical corporate behavior lead to higher profitability?Because attention to ethical concerns can keep corporations out of costly problems such as clean-up of pollution, fines, low morale, and loss of reputation and stakeholder support; and it can open up profitable opportunities such as developing green product lines.

5.Why is it important for the clients of professional accountants to be ethical?Because auditors don't check 100% of all transactions and, even if they did, there would be conflicts of interest and other hidden issues which would be found only by chance. Making sure that clients are ethical provides assurance that they will not be hiding things from the auditors or engaging in unethical activities. The value of the auditor's opinion depends upon it.

6.How can corporations ensure that their employees behave ethically?By developing ethical corporate cultures based on codes of conduct to provide guidance; training to provide awareness and understanding; monitoring to assure compliance; and rewards or sanctions to reinforce the desired behavior. Also, the top executives should set the best example possible.

7.Why didn’t some corporations protect women employees from sexual abuse before 2017–2019?Many factors have contributed to changes in workplaces and attitudes toward sexual abuse over the last decade, including the following reasons. 2 / 4

P a g e | 3 Sexual abuse was once a taboo subject, but when media reported on sometimes decades-old abuses associated with pedophile priests, residential schools, and sports coaches, etc., taboos were eroded, particularly because abuses had been directed toward boys and men. Public outrage, media appetite, and victims realizing that they were not alone, increased coverage of the topic.At the same time, cultural norms concerning the roles and treatment of women were changing.The advent of desktop computers even played a role, because corporate employees were expected to type their own documents and not rely on “traditional” secretarial work by women.In professions and workplaces, more and more women were moving into non-traditional jobs. In still male-dominated workplace and professions, women in new roles feared reprisal if they complained of sexual abuse—if, indeed, they could find anyone to complain to. Complaints in male-dominated workplaces—particularly against a high-power or high-profile abuser–may have fallen on deaf ears. As more women gained roles of influence, recognition of workplace discrimination led to employment equity and pay equity programs.As workplace norms changed, so did cultural ones. Through continued media coverage, people learned more about the pervasiveness of abuse and its recipe: abusers were usually in positions of power and worked to isolate insecure or vulnerable victims and pressure them into secrecy through shame or threats of reprisal. Old attitudes of victim blaming—that women were responsible for or complicit in abuse, and that “No!” did not mean “no”–were being dispelled.Social media, used as a vehicle by the #MeToo movement in 2017, rocketed the awareness of abuses against women to new heights. The movement spread a feeling of strength-in-numbers and an attitude of “We’re not going to take it anymore.” Emboldened by widespread support, changing attitudes among women and men, and more women in roles of influence, corporations were forced to appear proactive and intolerant of abuse.Prior to 2017, there were relatively few instances were powerful men were successfully prosecuted in court with serious fines or prison as outcomes. That all changed with cases involving Bill Cosby (convicted in 2018) and Harry Weinstein (convicted in 2020).12 Corporations took note, and they took action against executives they formerly excused.See also the answer to question 13, Chapter 7, page 590: “The #MeToo Movement has finally succeeded in getting women’s allegations of sexual abuse to be taken seriously by management and boards of directors. Why did it take so long for this tipping point to be reached?” 8.Should executives and directors be sent to jail for the acts of their corporation's employees?Yes, they should, if the executives and directors act negligently or without engaging in due 1 Eric Levenson, “Harvey Weinstein's trial is closely tracking Bill Cosby's. But there's 1 major difference,” CNN.com, January 28, 2020, https://www.cnn.com/2020/01/28/us/harvey-weinstein-bill-cosby-trial/index.html.2 Mike Hayes and Meg Wagner, “Harvey Weinstein found guilty,” CNN.com, February 24, 2020,

https://www.cnn.com/us/live-news/harvey-weinstein-verdict/index.html.

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P a g e | 4 Business & Professional Ethics for Directors, Executives & Accountants, 9e Leonard J. Brooks and Paul Dunn, diligence procedures, which are designed to ensure that reasonable and proper actions are taken.

9.Why are the expectations of a corporation’s stakeholders important to the reputation of the corporation and to its profitability?Without the support of key or primary stakeholders such as customers and employees, sustained profitability is not possible. A corporation’s reputation is based on the elements that such stakeholders find relevant to their support, including credibility, reliability, trustworthiness and accepting responsibility.

10.How can a corporation show respect for its stakeholders?By taking their interests into account (respecting them) when making decisions.

11.How can conflicts between the interests of stakeholders be resolved by a corporation’s management?By displaying sensitivity to each side, ranking the interests involved, and using this ranking to favor the most important, as discussed in the Text, Chapter 4. Stakeholders should be made aware of the ranking and decision process where possible. In the end, tough trade-off decisions may be involved, but stakeholders should have confidence in the process.

12.Why are philosophical approaches to ethical decision making relevant to modern corporations and professional accountants?The philosophical approaches to ethical decision making (utilitarianism, deontology, and virtue ethics—see Text, Chapters 3 & 4) are relevant because of stakeholders’ greater and growing ethical awareness, sensitivity, and power. Stakeholders can make a difference to the reputations and fortunes of companies and of professional accountants. Their support is needed now more than ever.

13.What are the common elements of the three practical approaches to ethical decision making that are briefly outlined in the chapter?The common elements are measures of well-offness, fairness, right(ness), and virtues expected.

14.Is a professional accountant a businessperson pursuing profit or a fiduciary that is to act in the public interest?Both, but when there is a conflict between these roles, the professional accountant must place fiduciary duty above personal profit. Otherwise, the public interest will not be protected (which is the primary goal of a professional—see later chapters in the Text, particularly Chapter 6, for discussion).

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