Business Ethics Case Studies and Selected Readings 8th Edition by Marianne M. Jennings - Test Bank

Business Ethics Case Studies and Selected Readings 8th Edition by Marianne M. Jennings – Test Bank

 

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Sample Questions Are Posted Below

 

UNIT SIX – ETHICS IN INTERNATIONAL BUSINESS

 

 

 

True/False Questions

 

F          1.         A living wage is not necessarily a part of human rights issues in labor practices.

 

T          2.         The penalties imposed for FCPA violations have been increasing.

 

T          3.         Freedom from physical abuse is a basic fair employment practice.

 

T          4.         Equal treatment and opportunity is generally a part of labor policies and principles.

 

F          5.         Sweatshops are not an issue of human rights.

 

F          6.         Sweatshops are ethical so long as they are in compliance with the laws of the country in which they are located.

 

F          7.         There are not ethical issues in the use of child labor if the children’s families approve of their jobs.

 

F          8.         Most companies do not have international labor and human rights policies.

 

F          9.         Chiquita stopped its mercenary payments in Colombia immediately after officials met with the Justice Department.

 

F          10.       No officers at Chiquita can be held criminally responsible for the Chiquita payments to mercenary groups.

 

F          11.       Yahoo did not experience a drop in share price as a result of the congressional hearings on its business in China.

 

T          12.        The failure to follow U.S. safety standards in foreign operations constitutes an ethical lapse.

 

F          13.        Product dumping does not present ethical problems in those countries without product liability recovery systems.

 

T          14.        Selling component parts that could be used to construct weapons to a nation against which an embargo on direct weapons sales is in place would be an ethical breach.

 

F          15.        “Grease” or “facilitation payments,” which are legal under the Foreign Corrupt Practices Act can be considered ethical.

 

T          16.        If I worked in purchasing in my company, it would be unethical for me to accept season tickets for my city’s NBA team from the company that has supplied catering for the company’s training sessions.

 

F          17.        Selling products banned from sale in the United States in other countries is not an ethical violation.

 

F          18.        Ethical codes for companies cannot apply internationally.

 

F          19.        Bribes to government officials are only unethical if the culture of a country does not believe they are unethical.

 

T          20.        Dumping a product that has been outlawed in the U.S. in other countries is legal.

 

F          21.        Dumping a product that has been outlawed in the U.S. in other countries is ethical.

 

T          22.        Guanxi is an example of a facilitation payment.

 

F          23.        Facilitation and grease payments are two different things.

 

T          24.        Bribery of foreign officials is prohibited by U.S. companies.

 

F          25.        The Foreign Corrupt Practices Act does not apply to U.S. companies when they have operations outside the United States.

 

T          26.        There was bribery involved in the award of the Winter Olympics 2002 to Salt Lake City.

 

T          27.        Many International Olympic Committee members had to resign after accepting bribes in connection with the Salt Lake City Olympics.

 

F          28.        Walmart executives had no prior knowledge of FCPA issues in Mexico.

 

T          29.        Italy’s freeway system has not been completed despite billions in funding.

 

F          30.        Bribery is a cultural issue and generally not regulated by law.

 

F          31.        Circumventing rules in order to get products imported is not covered under the FCPA.

 

T          32.        Extension of drilling contracts is covered under the FCPA.

 

F          33.        Gaining access to non-public bid information is not covered under the FCPA.

 

F          34.        Only one Siemens employee was involved in paying bribes.

 

T          35.        Walmart used gestores in Mexico.

 

 

Multiple Choice Questions

 

1. Which of the following is not one of the components of the four-legged stool of interrelationships in economic systems?

 

1. Government
2. Customers
3. Business
4. Stakeholders

 

2. Why is Transparency International’s Corruption Perception Index important for economic systems?

 

1. Because it shows economic systems function perfectly well without any attention to ethical issues
2. Because it shows that bribery and corruption are a necessary part of economic growth
3. Because it shows that economic growth increases at the same pace as political corruption
4. Because it shows that economic growth requires a level playing system for all risk-takers

 

3. On April 1, 2008, about 20,000 workers in Vietnamese factories that make Nike shoes walked off the job. The workers at the plants (managed by a Taiwanese company) were demanding higher wages.  At the time of the strike, the Nike workers were being paid 14% above the minimum wage for Vietnam.  However, consumer prices in Vietnam have risen 19% in one year.  The inflation rate has been the impetus for a number of labor strikes over the past year.  By April 2, 2008, the strike was settled.  The workers were given a 10 percent raise to their $5 hourly wage.  If Nike’s wages that it was paying were legal, why did it settle the strike by agreeing to pay more?

 

1. Nike had an ethical dilemma that fit into the category of organizational abuse
2. Nike was considering its stakeholders in resolving ethical dilemmas
3. Nike was exercising social responsibility
4. All of the above are correct

 

4. Ikea’s solution to obtain electrical power for the grand opening of its flagship store in Russia was:

 

1. To pay the bribes demanded by the government officials running the electric company because it was a facilitation payment.
2. To lease generators.
3. To shut down its operations in Russia.
4. To use an agent to pay the officials so that it was not violating the law.

 

5. AES’s solution to the increasing demands of the Kazakh government was:

 

1. To lease generators.
2. To make facilitation payments to government officials.
3. To offer political donations instead of bribes.
4. To shut down its operations there.

 

6. How did Siemens accomplish its long history of paying bribes to government officials in exchange for obtaining contracts from those governments?

 

1. It used business consulting arrangements in all of the countries
2.        Siemens was not involved in any bribery activities but it was found to have been involved in useful expenditures
3. Siemens is not subject to the FCPA because it is a German company
4.        Siemens used NGOs to funnel the money into the various countries

 

7. Suppose that AmTrain, a U.S.-based company, is submitting bids for the construction of a high-speed rail system in India by the Indian government. AmTrain has met with and wants to hire Josh Griffin, an international consultant who has worked with many Fortune 100 companies in their foreign business operations.  AmTrain requires all of its agents, consultants, and contractors who work with it on its international operations to sign a statement in which they promise to comply with the FCPA.  Griffin has refused to sign the AmTrain FCPA form.  Which of the following best describes AmTrain’s position when it receives the refusal?

 

1. The refusal is a red flag that would require AmTrain to at least do additional due diligence on Griffin
2. AmTrain has not violated the FCPA if it hires Griffin and he does something its agreement prohibits
3.         AmTrain is not subject to the FCPA when contracts are with government agencies and not private foreign companies
4.        AmTrain has violated the FCPA by attempting to deal with Griffin

 

8. PwC, one of the “Big 4” accounting firms, was involved in a scuffle with Russia’s Federal Tax Service over one of its clients, Yukos. PwC did not want to turn over confidential information about its client.  However, the failure to cooperate with the Federal Tax Service could result in the loss of its license to do business in Russia.  What questions should other companies consider before expanding their operations into countries in which they have never done business?

 

1. Companies should consider the legal and cultural backdrops and customs in a country before undertaking expansion into that country
2. Companies need to adapt to differing legal systems and simply comply with government requests
3.         Companies should turn to the International Court of Justice when country leaders and agencies are violating professional standards
4. Companies should realize that doing business without engaging in bribery in certain countries is not possible

 

9. Robert J. Stein was hired as the CFO for the American occupation effort in Iraq. As someone who had the authority to award lucrative contracts to companies seeking portions of the reconstruction efforts there, Mr. Stein wielded a great deal of power.  Mr. Stein had served time for felony fraud in the 1990s, but either the background check was not completed or his criminal activity was deemed irrelevant for this position of power.

 

Mr. Stein and his wife have been accused of being involved in the following transactions:

 

• Philip H. Bloom, the owner of several U.S.-based construction companies seeking Iraqi business wired $140,000 to allow Mr. Stein to purchase real estate in North Carolina.
• Other contractors spent $65,762.63 to purchase cars for Mr. Stein and his wife (a Chevrolet and a Toyota).
• One contractor gave $44,471 for home improvements for the Steins’ home.
• $48,073 for jewelry paid for from funds totaling $258,000 that had been transferred into the Bragg Mutual Federal Credit Union account begun by the Steins.
• A donation of $7,151.58 to the Steins that was used by Mr. Stein’s wife to purchase a “towing service”.
• Ironically, $200 of the credit union fund was transferred to the clerk of a Federal District court for restitution payment for his earlier conviction.

 

Mr. Bloom was awarded a significant number of contracts in Iraq.  Which of the following best describes the conduct of Mr. Bloom and Mr. and Mrs. Stein?

 

1. The conduct is not a violation of the FCPA because Mr. Stein is a U.S. government official and Mr. Bloom owns a U.S. company, but the two may have violated U.S. laws that prohibit bribery
2.        The conduct is a violation of the FCPA because the money and gifts were given with the idea of being awarded contracts
3.         The conduct is a violation of the FCPA because the money and gifts related to transactions in international operations
4.        The conduct, while ethically dubious, is perfectly legal

 

10. When Ikea was poised to open a flagship store outside Moscow in 2001, its executives were approached by employees of the public local utility. If Ikea wanted electricity for its planned grand opening, the public utility officials needed individual cash payments.

 

1. Ikea could pay the money as a facilitation payment and not violate any anti-bribery laws
2. Ikea and other companies from Sweden do not follow the OECD requirements on bribery so Ikea could pay the officials and not violate any laws
3. The payment to the public officials would be a bribe and would violate Swedish law
4. The anti-bribery provisions apply only when a company offers to pay them, not when public officials request payments

 

11. What happened to the Union Carbide plant in Bhopal?

 

1. Union Carbide still operates it
2. Dow acquired Union Carbide and now operates the plant
3. The plant has been mothballed
4. The Indian government now owns the plant and produces dry-cell batteries

 

12. What are the risks of marketing infant formula in third-world countries?

 

1. Customers cannot afford the formula
2. Customers may mix the powdered formula with bad water
3. Customers may water down the formula
4. All of the above

 

13. Which of the following practices best helps prevent sweatshop conditions in factories?

 

1. Company training
2. Independent monitoring
3. Exclusion of outsiders
4. Varying country standards
5. None of the above

 

14. The Fair Labor Association:

 

1. Is a group of companies with international labor pools.
2. Is a group of colleges and universities dedicated to human rights issues in employment.
3. Is a federal agency in the United States.
4. Does not count Nike as a member.
5. None of the above

 

15. Chiquita Banana was required to pay a $25 million fine to the U.S. government because:

 

1. It violated the Foreign Corrupt Practices Act.
2. It made grease payments to customs officials by declaring extra weight on its banana shipments.
3. It made security payments to a terrorist organization.
4. None of the above

 

16. What information did Yahoo turn over to the Chinese government?

 

1. The name of a Chinese dissident who was posting information on the net
2. Its list of customers
3. Yahoo’s proprietary information on its systems
4. All of the above

 

17. Which of the following would be both legal and ethical acts in an international operations?

 

1. Offering to pay a regulator for a favorable inspection report
2. Offering to pay a police officer for not writing a ticket
3. Offering to pay a government employee extra to speed up phone service connections
4. None of the above

 

18. Nike is changing its interaction with international suppliers by:

 

1. Ceasing to outsource its production.
2. Using third parties to negotiate labor contracts so that it can distance itself from issues.
3. Not having sudden design changes that can affect plant working hours and conditions.
4. Forming coalitions with other retail clothing manufacturers.

 

19. Which of the following is true about the Union Carbide Bhopal plant?

 

1. It met Indian safety standards
2. It was operated by Union Carbide technicians from the United States
3. It never met government regulations
4. It met both U.S. and Indian safety standards

 

20. Global Factors, a NYSE company, wanted to obtain an extension to its contract with Somalia for the sale of its government bonds. Global hired seven interns who were children of Somalian government officials. Global:

 

1. Has not violated the FCPA unless it was obtaining an exception to a rule.
2. Has not violated the FCPA unless it was evading customs and duties.
3. Has violated the FCPA.
4. Is not subject to the FCPA.

 

21. Once Walmart executives became aware of the payments in Mexico:

 

1. It self-reported the problems to the U.S. Justice Department.
2. It issued a press release.
3. It conducted an investigation.
4. It stopped the payments.

 

 

Short Answer/Essay Questions

 

1. Explain the correlation between the amount of corruption in a country and economic development.

 

SUGGESTED ANSWER:

 

The countries with the most corruption have trouble with economic development.  Corruption impedes transactions and the smooth flow of commerce.  Also, no one is sure whether they can gain approval of the government and if that approval will last.

 

2. Discuss the following statement:

 

“There’s a difference between being very competitive and can-do, and winning at all costs.  All costs is costly.”

 

SUGGESTED ANSWER:

 

The students should discuss the importance of having lines in trying to be successful.  The statement indicates that in trying to win without parameters, you can cross legal lines and end up losing a great deal.

 

3. Describe the damage to Nestle’s reputation following the decision to market infant formula in third-world countries.

 

SUGGESTED ANSWER:

 

The boycott of the company crossed over into other products and its reputation was affected for decades following the incident.  Earnings dipped and the company had trouble re-establishing itself in the infant formula market.

 

4. UBS, a bank based in Switzerland, has received a subpoena from the IRS for the bank records of 52,000 U.S. citizens. The IRS alleges that the U.S. taxpayers hid money in UBS accounts for the purpose of avoiding paying taxes.  UBS had created a program that recruited tax advisers and their clients under the guise that they could protect their funds from the IRS.

 

Swiss law prohibits banks, under privacy rights, from disclosing information about their customers and their accounts.  However, the IRS has obtained a subpoena for the records and a federal judge has issued it because UBS is soliciting business in the United States.  One banking minister in Switzerland has indicated, however, that Swiss privacy laws do not apply when there has been fraud.

 

Evaluate the ethics of UBS as well as their customers. If you worked for the bank, would you release the information?  Would you place your money in Swiss accounts?

 

SUGGESTED ANSWER:

 

Students should return to the “What if everyone behaved like this?”  They could also raise the utilitarian aspect of transferring money in this way to avoid taxes and the avoidance of taxes in the context of the “good of the whole.”  International law is different from U.S. laws and there are plenty of areas in which businesses (and here, individuals) can take advantage of the laws and regulations in other countries.  The students should reflect the realization that they often demand of companies’ behavior in other countries that meets U.S. standards (as with the labor cases), but in this situation individuals choose to take advantage of no taxes via international operations.  Few see the parallels in behavior between what they indict companies for, but for which they give individual taxpayers an “atta boy” or “atta girl.”

 

5. Discuss what business and strategic issues PwC and Chiquita missed in making their decisions on foreign operations.

 

SUGGESTED ANSWER:

 

The companies did not realize the extent of the political instability in the countries in which they were expanding and what impact that instability would have on their ability to just conduct business there.  They did not anticipate the risk or the day-to-day ethical issues that would arise that put their operations in jeopardy.

 

6. List three effects the Bhopal disaster had on Union Carbide.

 

SUGGESTED ANSWER:

 

The loss of value in the company stock price

Increase in the cost of capital

Loss of reputation

Ongoing litigation

Leadership of the company decimated

Plant shut down

Future expansion limited

 

7. Explain the ethical and economic implications of paying above-market wages to factory workers in developing countries.

 

SUGGESTED ANSWER:

 

There are the human rights issues.  The workers deserve to be treated with dignity and, under any of the tests for ethics, should be paid a fair wage.  However, if a company pays above-market wages in the country, the market wages are skewed and the result is that, for example, doctors might begin to work in factories for the higher wages US companies pay.  The students should focus on the various ethical models to discuss how they would want to be treated as well as, based on the Nike experience, the implications for companies that outsource to foreign factories but do not have good conditions or have wages that result in boycotts and international attention.

 

8. Leslie Fay Companies was a clothing conglomerate that produced lines of women’s clothing and lingerie under the brand names Leslie Fay, Joan Leslie, Albert Nipon, Theo Miles, Kasper, Le Suit, Nolan Miller, Castleberry, and Castlebrook. In early 1993, it was discovered that senior Leslie Fay executives, in an effort to inflate profits and to mask an actual loss of $13.7 million, had perpetrated an accounting fraud. Paul Polishan, Leslie Fay’s chief operating officer, was placed on leave without pay in January 1993, along with Donald F. Kenia, the corporate controller. Mr. Kenia had first alerted the company to the accounting manipulations and worked with auditors to untangle the books.

 

By April 1993, Leslie Fay, under intense pressure from creditors, filed for Chapter 11 bankruptcy (reorganization) in Manhattan. Both Mr. Polishan and Mr. Kenia were fired. Mr. Kenia, charged with two counts of filing false statements with the SEC, has entered into a plea bargain with the U.S. Attorney in exchange for his cooperation in the continuing investigation of the Leslie Fay accounting improprieties.

 

Also in April 1993, two new outside directors were named to the Leslie Fay board. The audit committee of the board discovered, through continuing investigation, that accounting irregularities had inflated the company’s profits for at least five quarters beginning in the fall of 1990.

 

As Leslie Fay continued its climb from bankruptcy, it was discovered that its law firm, Weil Gotshall & Manges, had failed to disclose its close ties to two board audit committee members. A federal bankruptcy judge ordered the law firm to pay fines totaling $800,000, which was the cost of having an independent review of the law firm’s representation and conduct in the case.

 

In March 1995, Leslie Fay placed its flagship dress and retail business up for sale and offered its CEO a success fee of $1.5 million if those businesses were sold.

 

Also in March 1995, a report detailing accounting improprieties was released by the audit committee of the Leslie Fay board. The board found that when executives realized they would not meet pre-established goals, they would ship goods out to a Wilkes-Barre, Pennsylvania, facility to inflate sales. The executives also forged inventory tags, multiplied the value of inventory, developed phantom inventory and altered records to meet sales target. Some goods were invoiced to be shipped in the final day of a quarter even though they were not actually shipped until the next quarter. Numerous shareholders have filed suit against the Leslie Fay board and BDO Seidman, the company’s auditor during this period.

 

John Pomerantz continued as CEO from 1993 onward.  The company has tried to find a buyer but has remained unsuccessful in doing so.

 

1. What signals about the importance of earnings at Leslie Fay were sent to the officers who committed the accounting improprieties?

 

1. Wouldn’t employees have been aware of the financial fraud? Why didn’t they speak up? Why didn’t they tell someone?

 

1. How might Leslie Fay have prevented what happened?

 

1. If you were the new chief financial officer, what message would you most want to impress upon all Leslie Fay employees?

 

1. Of what significance are the law firm’s ties to the board’s audit committee members? Did these ties set a poor tone at the top?

 

SUGGESTED ANSWERS:

 

1. The pressure to make quarterly earnings was so intense that the officers were willing to engage in deception, fabrication, shifting of sales, etc. to meet the earnings figures.

 

1. Employees may very well have been aware of the fraud, but with an ethical culture in which the officers were involved, it wouldn’t have done any good to speak up. In a culture such as this one, employees would be afraid to bring such matters to anyone’s attention.

 

1. Changing the signals to officers would have helped. The intense focus on earnings and pressure to meet goals set the stage for the deception.

 

1. The message would be:

 

Earnings the Right Way

Earnings Through Sales and Satisfaction

Integrity Without Compromise

 

1. There are conflicts of interest. Legal counsel for a business (which owes its business and account to the company) is not a good source for audit committee members.  The ties suggest “good ol’ pal network” and “you scratch my back…”.

 

Note:    At the time of the discovery of the earnings misrepresentation, Leslie Fay’s stock was at $13 per share.  In June, 1995, the price had dropped to 13/22.  Leslie Fay continues to attempt to struggle out of bankruptcy.

 

9. What does the statement “Americans focus on wages paid, not what standard of living those wages relate to” mean in the context of human rights?

 

SUGGESTED ANSWER:

 

The statement is one that companies offer when confronted with the issues of paying $1.00 per hour to workers when they are making shoes that will sell for $80.  The companies are asking Americans to consider the wage in relation to the economy of the country and what $1.00 will buy.  In other words, in the United States, the $1.00 per hour is an unreasonable and unfair wage.  However, in a country in which the average income is $1,000 per year, the wage of $1.00 per hour is actually a very good wage.

 

10. Chiquita officials said that they either had to make payments to a mercenary and terrorist group or its employees were in danger. Evaluate the company’s reasoning.

 

SUGGESTED ANSWER:

 

The students should point out that there was another choice, the eventual choice that the company made for other reasons:  not to do business in that country.  In fact, by the time Chiquita pulled out of Colombia, the country had such unrest that it cut into profits to try and stay there in such an unstable environment.  Chiquita used the either/or conundrum to justify its conduct.  However, it did not consider all who were affected by its decisions to make payments, including those who were harmed by the activities that were funded by Chiquita’s payments.

 

11. Price Waterhouse Coopers’ situation with the Russian government’s request for release of client information presents an ethical dilemma for PwC. However, apply the Laura Nash question:  How did they get into this situation in the first place? And discuss your observations about PwC.

 

SUGGESTED ANSWER:

 

Students should focus on the fact that the decision to do business in a country in which there is instability or differing views on laws and ethics is a critical one that requires companies to ask, “Are we prepared to . . . ?”  Students should consider the Yahoo cases and the company’s failure to understand the levels (human life at risk) of moral dilemmas that can come about because of their presence in a country and doing business there.  In short, PwC got into this either/or situation because of its failure to anticipate how difficult it can be to do business in a country in which political power is exercised corruptly.

 

12. Apply the various schools of social responsibility to product dumping.

 

SUGGESTED ANSWER:

 

The students should discuss that dumping products that are outlawed in the U.S. into other countries is perfectly legal.  Friedman would say that absent fraud or illegality, go forward.  However, there may be an impact to the company bottom line, so the enlightened self-interest group would have the company consider the impact if customers in other nations are harmed by their products when the product has been recalled in the U.S.  If we go back to the various schools of ethical thought, there is the normative and divine view of human life and that crossing that line with the sale of a dangerous product (even though it is legal) is neither socially responsible nor good for the company.  Drucker’s “above all do no harm” is particularly apt here.

 

13. Evaluate Yahoo’s decision to do business in China through a partially owned subsidiary.

 

SUGGESTED ANSWER:

 

The students should discuss the very technical nature of this form of ownership that does not eliminate the questions regarding human rights.  Yahoo is able to say that it does not do business there, but it remains a partial owner of a company that does.  The posture is a classic compliance with the law case that still has the company involved in a business that can result in human rights violations.  The students could recall the statement in the case by an ethics expert that there is no way to avoid the consequences of doing business in a country such as China where there are human rights violations.

 

14. Outline the benefits and risks of the use of international suppliers.

 

SUGGESTED ANSWER:

 

The benefits are reduced costs.  However, the risks are that there can be backlash and brand damage from low wages or reporting of poor conditions.  There is an underlying risk that you cannot always be there and don’t know what is going on – requires reliable monitoring, contract terms, and surprise visits to be sure that the operations are clean.  Seems like no company has been able to do it without incident.