Business and Professional Ethics: For Directors, Executives & Accountants, 9th Edition
By Leonard J Brooks and Paul Dunn
Contents:
PREFACE xiii
OVERVIEW OF THE BOOK xxiv
CHAPTER 1 ETHICS EXPECTATIONS 1
The Ethics Environment for Business: The Battle
for Credibility, Reputation, & Competitive
Advantage 2
Environmental Concerns 2
Moral Sensitivity 4
Bad Judgments & Activist Stakeholders 5
Economic & Competitive Pressures 6
Financial Scandals: The Expectations Gap &
the Credibility Gap 7
Governance Failures & Risk Assessment 8
Increased Accountability & Transparency Desired 8
Synergy among Factors & Institutional Reinforcement 9
Outcomes 10
New Expectations for Business 11
New Mandate for Business 11
New Governance & Accountability Frameworks 13
Reinforced Fiduciary Role for Professional Accountants 14
Responses & Developments 15
Emerging Governance & Stakeholder Accountability
Models 15
Management Based on Values, Reputation, & Risks 20
Accountability 23
Ethical Behavior & Developments in Business Ethics 24
The Ethics Environment for Professional
Accountants 27
Role & Conduct 27
Governance 28
Services Offered 29
Managing Ethics Risks & Opportunities 29
Developing a Culture of Integrity 29
Corporate Governance 30
Questions 32
Reading Insights 33
References 33
Case Insights 34
ETHICS CASES:
Cases Involving Improper Behavior
Selling Only Sugary Drinks 36
Buying and Selling Blood 37
Pedophile Priests in the Catholic Church 38
Sexual Abuse by a Penn State Football Coach 39
Advertising & Sales Promotion Cases
Tiger Woods: “Winning Takes Care of Everything” 39
Pepsi’s iPhone App Stereotypes Women 40
Should Porn Be Sold by Cell Phone Companies? 41
Virgin Mobile’s Strip2Clothe Campaign: Exploitive, Risqué,
and Worthwhile? 42
Cases Involving Financial Transactions
Goldman Sachs and the Greek Veil 43
Martha Stewart’s Lost Reputation 44
Cases Involving the Control of Information
Google versus China 49
China’s Tainted Baby Milk Powder: Rumored Control of Online
News 50
Cases Concerning the Environment
Nestlé Bottles Water in a California Drought 52
Bhopal–Union Carbide 53
Texaco: The Ecuador Issue 56
Product Safety Cases
The Right to Be Informed? The Link between Talcum Powder
and Cervical Cancer 58
Valeant Pharmaceuticals vs. Coca Cola—Which Business
Model Is Worse: Price Gouging or Fostering Obesity &
Diabetes? 60
The Betaseron Decision (A) 62
Magnetic Toys Can Hurt 63
Bausch & Lomb’s Hazardous Contact Lens Cleaner 64
Accounting & Auditing Cases
Where Were the Accountants? 65
To Resign or Serve? 66
READING
The Whistle Blower: Patriot or Bounty Hunter? 67
CHAPTER 2 ETHICS & GOVERNANCE SCANDALS 76
Ethics & Governance: A Time Line of Important
Events 77
Ethics & Governance: The Early Developments prior to
1970 77
Ethics & Governance: 1970–1990 79
Ethics & Governance: The Modern
Era—1990 to the Present 79
Significant Ethics & Governance Scandals &
Events 82
Enron—A Failure of the Board of Directors 82
Arthur Andersen—An Organizational Culture Gone
Awry 84
WorldCom—Power in the Hands of One Man 85
Crisis of Confidence 86
Sarbanes-Oxley Act—Closing the Barn Door 88
Tax Shelters—Not in the Public Interest 89
Subprime Mortgage Meltdown—Greed without Due
Diligence 91
Dodd-Frank Wall Street Reform and Consumer Protection
Act 94
Bernard Madoff—If It’s Too Good to Be True 95
Public Disillusionment: The Occupy Movement 96
Shareholder Disillusionment: Shareholder
Resolutions 97
The LIBOR Scandal: How Banks Manipulated
a Benchmark Interest Rate 98
Bribery Attracts Prosecutions and Huge Fines 103
Automaker’s Sins Come Home to Roost 103
Drugmakers Raise Prices, Gouging Patients 106
New Emphasis on Individual Accountability
for Corporate Wrongdoing 107
Panama Papers & Paradise Papers Eliminate Secrecy on
Offshore Tax Evasion 107
Unethical Bank Cultures Produce Scandals 108
#MeToo Movement Reaches a Tipping Point 109
Harmful Products Draw Huge Settlements
and Change Perspectives 109
Accounting Crises Lead to Reimagination of Professional
Accountant’s Role 110
U.S. Business Roundtable Statement Signals Acceptance
of Stakeholder Interests 111
Signs of Ethical Collapse 112
Ethics & Governance: Trends 112
Ethics & Governance: Timetables of
Important Events, 1929–2019 113
Useful Videos & Films 114
Questions 115
Case Insights 116
ETHICS CASES:
Enron’s Questionable Transactions 117
Arthur Andersen’s Troubles 122
WorldCom: The Final Catalyst 130
Bernie Madoff Scandal—The King of Ponzi Schemes 136
Wal-Mart Bribery in Mexico 146
LIBOR Manipulations Cause Widespread Impacts 148
General Motors Ignores Obvious Ignition Faults 150
VW Cheats on Emissions Tests 152
Deutsche Bank—A Cultural Disaster 154
CHAPTER 3 ETHICAL BEHAVIOR—PHILOSOPHERS’ CONTRIBUTIONS 158
Ethics & Moral Codes 159
Ethics & Business 162
Self-Interest & Economics 163
Ethics, Business, & the Law 165
Major Ethical Theories Useful in Resolving Ethical
Dilemmas 166
Teleology: Utilitarianism & Consequentialism—Impact
Analysis 166
Deontological Ethics—Motivation for Behavior 172
Justice & Fairness—Examining
the Balance 175
Virtue Ethics—Analysis of the Virtue
Expected 180
Moral Imagination 183
Questions 183
Case Insights 184
Useful Video & Film 184
References 185
ETHICS CASES:
Cases Involving Improper Behavior
An Illustration of Ethical Decision Making 185
Spy versus Spy: Corporate Espionage in the Canadian Airline
Industry 188
Art Forgeries: Is Deceiving Art Experts Unethical? 190
Gender Discrimination at IKEA 190
Deciding Who Receives the Swine Flu Vaccine 191
Insurance and Genetically Inherited Diseases 192
Terrorist Payments 193
The Case of Cesar Correia 194
CHAPTER 4 PRACTICAL ETHICAL DECISION MAKING 196
Introduction 196
Motivating Developments for Ethical Learning 197
Ethical Decision Making Framework—An
Overview 198
Philosophical Approaches—An Overview:
Consequentialism (Utilitarianism), Deontology, &
Virtue Ethics 200
Consequentialism, Utilitarianism, or Teleology 200
Deontology 201
Virtue Ethics 203
Sniff Tests & Common Heuristics—Preliminary
Tests of Ethicality 205
Stakeholder Impact Analysis—Comprehensive
Tool for Assessing Decisions & Actions 206
Overview 206
Fundamental Interests of Stakeholders 207
Measurement of Quantifiable Impacts 209
Assessment of Nonquantifiable Impacts 213
Stakeholder Impact Analysis—Modified Traditional
Decision-Making Approaches 216
Integrating Philosophical & Stakeholder Impact
Analysis Approaches 219
Other Ethics Decision-Making Issues 220
Commons Problems 220
Developing a More Ethical Action Using Moral
Imagination 221
Common Ethics Decision-Making Pitfalls 221
A Comprehensive Ethical Decision-Making
Framework 223
Summary of Steps for an Ethical Decision 223
Conclusion 225
Questions 225
References 226
Illustrative Applications & Case Insights 227
AN ILLUSTRATION OF COMPREHENSIVE
ETHICAL DECISION MAKING
Dealing with Disappointed Apple iPhone Customers Case 228
ILLUSTRATIVE APPLICATION OF
STAKEHOLDER IMPACT ANALYSIS
Bribery or Opportunity in China Case 229
Proposed Audit Adjustment Case—Castle
Manufacturing Inc. 232
When Does an “Aggressive Accounting” Choice Become
Fraudulent? 237
ETHICS CASES:
Concussions in the NFL 238
BP’s Gulf Oil Spill Costs 239
Tylenol Recalls (2010): It’s Still About Reputation 243
Vioxx Decisions—Were They Ethical? 245
Just Make the Numbers! 248
Smokers Are Good for the Economy—Really 248
Ford Pinto 250
The Kardell Paper Co. 251
CHAPTER 5 CORPORATE ETHICAL GOVERNANCE &
ACCOUNTABILITY 254
Modern Governance & Accountability Framework—
To Shareholders & Other Stakeholders 255
New Expectations—New Framework to Restore
Credibility 255
Corporate Governance Overview 256
Accountability to Shareholders or Stakeholders? 260
The Shareholder Value Myth 262
Governance for Broad Stakeholder Accountability 263
Guidance Mechanisms—Ethical Culture & Code of
Conduct 268
Threats to Good Governance & Accountability 269
Misunderstanding Objectives & Fiduciary Duty 269
Failure to Identify & Manage Ethics Risks 270
Conflicts of Interest 272
Key Elements of Corporate Governance &
Accountability 279
Compelling Evidence for the Development of an Ethical
Corporate Culture 279
Developing, Implementing, & Managing an Ethical
Corporate Culture 282
Corporate Codes of Conduct 288
Ethical Leadership 297
Corporate Psychopaths 302
Director & Officer Liability 302
Public Accountability Benchmarks 305
Conclusion—Toward a Culture of Integrity 306
Questions 306
Case Insights 307
Reading Insights 310
References 310
ETHICS CASES:
Cases on Ethical Corporate Culture
Hospital Governance Challenges 312
Siemens’ Bribery Scandal 313
Cases on Ethical Leadership
Salary Equality at Gravity Payments 315
Merck and River Blindness 316
Lululemon’s Questionable Leadership 317
Cases on Bribery
SNC-Lavalin Missing Funds Topples CEO & Triggers Bribery
Investigation 318
Rio Tinto’s Bribes in China 320
Daimler’s Settles U.S. Bribery Case for $185 Million 322
HP Bribery for Russian Contract with Antibribery Prosecutor’s
Office 324
Cases on Corporate Governance & Managerial Opportunism
Spying on HP Directors 325
Lord Conrad Black’s Fiduciary Duty? 328
Manipulation of MCI’s Allowance for Doubtful
Accounts 332
Stock Options and Gifts of Publicly Traded Shares 333
The Ethics of Repricing and Backdating Employee Stock
Options 335
Cases on Fraudulent & Questionable Financial Reporting
Satyam Computer Services—The Enron of India 336
Nortel Networks’ Audit Committee Was in the Dark 338
Criminal Charges for Fraud Dismissed
Adelphia—Really the Rigas Family Piggy Bank 348
Tyco—Looting Executive Style 352
HealthSouth—Can Five CFOs Be Wrong? 356
Royal Ahold—A Dutch Company with U.S.-Style Incentives 361
The Ethics of Bankruptcy: Jetsgo Corporation 364
Stock Market Cases
Société Générale’s Rogue Trader 366
Galleon’s Insider Trading Network 368
KPMG Partner Shares Confidential Information
with a Friend—located in Chapter 6
Conflicts of Interest on Wall Street 371
Loyalty, but to Whom? 373
Bankers Trust: Learning from Derivatives 376
Barings Bank: Rogue Trader 379
Cases on Product Safety
Dow Corning Silicone Breast Implants 382
Ford/Firestone Tire Recall 384
APPENDIX
Appendix A: Alternative Governance Theories 395
CHAPTER 6 PROFESSIONAL ACCOUNTING IN THE PUBLIC
INTEREST 400
Professionalism for Accountants 401
Professional Accounting’s Traditional Role 402
Historic Shortfalls in Meeting Professional
Expectations 403
Professional Accounting and the Public
Interest 404
Public Expectations Control Reputation 404
Dominance of Ethical Values Rather Than Accounting or
Audit Techniques 408
New NOCLAR Standards 412
Guidance for Professional Accountants Discovering Actual
or Potential NOCLAR Activities 414
NOCLAR Requirements for Professional Accountants
Providing Audit or Nonaudit Services 416
NOCLAR Responsibilities of Professional Accountants in
Business (PAIB) 416
NOCLAR Implementation Issues 417
Implications for Services Offered 417
Assurance & Other Services 417
Judgment & Values 421
Sources of Ethical Guidance 422
Professional Codes of Conduct 424
Conceptual Framework for Assessing Threats to
Compliance 440
Conflict-of-Interest Threats to Independence 442
Conflicts of Interest Affecting Services
Offered 446
Laws & Jurisprudence 462
Moral Courage Is Vital to Professional Accounting:
Globalization Heightens the Requirement 464
When Codes & Laws Do Not Help 465
Broadening Role for Professional Accountants 465
Conclusion 466
Questions 467
Reading Insights 468
Case Insights 468
References 472
ETHICS CASES:
Famous Cases
Carillion Bankruptcy: A Nightmare That Challenged the
Foundations of the U.K. Accounting Profession 473
Parmalat–Europe’s Enron 478
Arthur Andersen, Enron, and WorldCom cases—located
in Chapter 2
Tyco, HealthSouth and Royal Ahold cases—located
in Chapter 5
Lehman Brothers case—located in Chapter 8
Sunbeam and Waste Management cases—
located in the BPE Digital Resources
Professional & Fiduciary Duty Cases
NOCLAR Solutions to Toshiba’s Accounting Scandals &
Confrontations with Auditors 485
KPMG’s Ethical Red Flags—Advance PCAOB Information and
Cheating on Ethics Exams 487
KPMG Partner Shares Confidential Information with
a Friend 488
Livent—When Maria, When? 489
The Lang Michener Affair 490
Wanda Liczyk’s Conflicts of Interest 494
Strategic Roles 496
Locker Room Talk 496
Advice for Sam and Ruby 497
Biker Nightmare 498
Budget Conflict 498
An Exotic Professional Accountant? 499
Freebie Services for Staff 499
Summer Camp Holdback 499
Theft Reimbursement, Twice 500
Accounting & Auditing Dilemmas
Sino-Forest Fraud? Audit Challenges in China 501
Massive Acquisition Write-Downs in the Mining Industry 506
Accounting Rule Changes Increase Apple Computer’s
Revenue 508
The Impact of International GAAP on Earnings 509
Auditor’s Dilemma 510
Management Choice 512
To Qualify or Not? 512
Team Player Problems 515
Minimal Disclosure 515
Opinion Shopping 516
Lowballing a Fee Quotation 517
Fundamental Accounting and Auditing Issues Cases
Societal Concerns 517
Economic Realities or GAAP 518
Multidisciplinary Practices—Ethical Challenges 518
Tax and Regulatory Cases
Multinationals and Tax Planning 519
KPMG’s Questionable Tax Shelters 520
Italian Tax Mores 522
Tax Return Complications 524
Marketing Aggressive Tax Shelters 525
Providing Tax Advice 526
Risk Management of Taxes Payable—Is It Ethical? 528
CHAPTER 7 MANAGING ETHICS RISKS & OPPORTUNITIES 529
Ethics Risks & Opportunities Identification &
Assessment 529
Enterprise Risk Management Must Include Ethics Risks &
Opportunities 529
Ethics Risk Review or Audit—A Comprehensive
Approach 535
Searching for Specific Ethics Risks 537
Ethics Risks & Opportunities: Management &
Mitigation 540
Ethics Risks & Opportunities: Effective Stakeholder
Relations 540
Ethics Risks & Opportunties: Stakeholder Accountability 542
Sustainability, Corporate Social Responsibility, &
Ethics Risks & Opportunities: Key Risk Issues &
Tools 558
Workplace Ethics 558
Whistleblower Programs & Ethics Inquiry Services 566
Fraud & White-Collar Crime 568
Bribery & International Operations 573
Crisis Management 585
Conclusion 589
Questions 590
Case Insights 591
Reading Insights 593
References 593
ETHICS CASES:
CSR Cases—Environmental Issues
Harry Potter and the Green Brigade 595
The Carbon Footprint of British Airways 596
The Pollution Caused by Cruise Ships 597
Workplace Ethics Cases—Discrimination and Abuse
Pedophile Priests in the Catholic Church—located in Chapter 1
Sexual Abuse by a Penn State Football Coach—
located in Chapter 1
Texaco’s Jelly Beans 599
Gender Discrimination at Dell Inc. 604
Novartis’ $2501 Million Gender Discrimination Case 605
Downsize or Bonus Allocation Decisions 606
Workplace Ethics Cases—Spying
Barclays Bank: How Not to Deal with Whistleblowing 607
Workplace Ethics Cases—White-Collar Crime
Danske Bank’s Money-Laundering Scandal 608
QuadrigaCX—A Cryptocurrency Fiasco 610
Walt Pavlo’s MCI Scams/Frauds 613
Bribery & International Operations Cases
Jail and a German Subcontractor (names are fictitious) 615
AIDS Medication in South Africa 616
The following bribery cases are located in Chapter 5:
Siemens’ Bribery Scandal
Wal-Mart Bribery in Mexico
SNC Lavalin Missing Funds Topples CEO &
Triggers Bribery Investigation
Rio Tinto’s Bribes in China
Daimler Settles U.S. Bribery Case for $185 Million
Bribery for Russian Contract with Anti-Bribery
Prosecutor’s Office
Risk & Crisis Management Cases
BP’s Gulf Oil Spill Risk Management 616
BP’s Corporate Culture 620
Toyota’s Recall Problems 621
Digoxin Overdose—The Need for Skepticism, Courage, and
Persistence 625
The Exxon Valdez 627
The Brent Spar Decommissioning Disaster 630
Crisis at Wind River Energy Inc. 632
APPENDIX
Appendix A: Ethics Audit Program Annual Audit Questions 635
CHAPTER 8 SUBPRIME LENDING FIASCO—ETHICS ISSUES 637
The Economic Train Wreck—A Global
Disaster 637
Stages of the Subprime Lending Fiasco 638
How Did the Subprime Lending Crisis Happen? 640
Subprime Lending Developments 641
Transfer of Risk & the Liquidity Freeze 643
Contributions of Fannie Mae & Freddie Mac 644
The Conflicted Credit-Rating Sham 645
Regulators Looked in the Wrong Direction 646
Special Purpose Vehicles—Key to the Crisis 646
Unlimited Toxic Risk—Credit Default Swaps,
Naked & Otherwise 649
Crisis, Bankruptcy, Bailouts, & New Regulations 649
Worldwide Contagion 652
Subsequent Events 654
Ethics Issues—The Subprime Lending Fiasco 658
Greed, Incompetence, Dishonesty, Conflicts of Interest,
Non-transparency, Lack of Moral Courage, & Poor Risk
Management 658
Corporate Psychopaths—Potential Role in the Subprime
Lending Crisis 659
Lack of Regulation & Sound Decision Making 661
Are Mark-to-Market (M2M) Accounting Standards to
Blame? 662
The Ultimate Risk Bearers 664
Cynicism 664
Ethics Lessons 666
Questions 667
Case Insights 668
References 670
ETHICS CASES:
Questionable Values Produce Resignation at Goldman Sachs 671
Naked Short Selling—Overstock.com Lawsuit against Goldman Sachs & Merrill Lynch 672
Lehman Brothers Repo 105 Manipulation 673
Goldman Sachs Conflicts: Guilty or Not? 685
Mark-to-Market (M2M) Accounting and the Demise of AIG 692
Subprime Lending—Greed, Faith, and Disaster 694
Moral Courage: Toronto-Dominion Bank CEO Refuses to Invest
in High-Risk Asset-Backed Commercial Paper 696
The Ethics of AIG’s Commission Sales 697
INDEX 699