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BUE201 EXERCISES

Name : Nguyen Duy Tien

Student Code : FB00384

Class : FB00384

Contents Exercise 1 – Bernard Madoff’s Ponzi scheme ............................................................................................... 2

Exercise 3 - Piggybacking .............................................................................................................................. 6

Exercise 4 – FSB WAY .................................................................................................................................... 7

Exercise 5 – KOTO ....................................................................................................................................... 10

Exercise 6 – Toyota, the CEO, the Assistant, and Inaction ......................................................................... 11

Exercise 7 – Bloggers ................................................................................................................................... 12

Exercise 8 – Cheerios and cholesterol ........................................................................................................ 15

Exercise 10 - Norsk Hydro – Norway ........................................................................................................... 16

Exercise 11 – AIG ......................................................................................................................................... 18

Exercise 12 – Enron ..................................................................................................................................... 20

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Exercise 1 – Bernard Madoff’s Ponzi scheme

1. Case summary

Bernard Madoff is an American businessman, a former stockbroker, investment

advisor, and financier, and also the former non-executive chairman of the NASDAQ

stock market. He earneda lot of money by Ponzi scheme through his wealth

management company that is considered to be the largest financial fraud in U.S.

history came to an end late in 2008.Mandoff used Ponzi scheme as a fraud to attract

investors by promising of very high returns for investors compared with legitimate

profit. A lot of investors, who expect higher than normal return, joined the scheme.

However Madoff didn’t invest these amounts of money for investing, the profit of

investors came from the initial money of other investors later. Therefore, Ponzi

scheme can collapse whenever the flow of money into the scheme declines, it means

the number of investor takes part in this scheme decreases.

When this case was disclosured, it really made people stunned because of its’

negative impacts on both economic side and social side. It was not only costed

clients more then 10$ billion, but also caused the recession in the period

2008-2009. It also caused the bad consequences for many stakeholders including

Madoff’s relatives, employees who worked for him, their families, investors, and

many non-profit organizations, etc.

One more thing that needs to mention in this case is the role of government

regulators, specifically in this case is SEC (Stock Exchange Commission). They

didn’t investigate or fail to follow when received complaints and tips of investors

about Madoff’s investments. After everything was clarified, Madoff was

sentenced to 150 years in prison. He also apologized for what he caused.

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2. Ethical issues

From the ethical perspective, Mandoff had many actions go against the moral

values in business.

Firstly, he had knowledge and many-year-experience in financial sector,

therefore, hecertainly knew his business was wrong and would cause the negative

effects for other people. But he still implemented it. He only cared about individual

benefits and ignored the others, even harmed society. Secondly, he based on his own

reputation to gain beliefs and deferences of people. Then, he used them for the

not good purposes. It means that, he took advantages them to trick people

invested money in his scheme by promising them for high returns through legal

investments. But he didn’d do as they said. He took money from them but didn’t

invest money to create legitimate returns. He only continued to cheat others and took

money to pay for earlier investors.

Thirdly, if we research more carefully, we will easily see that, Mandoff couldn’t do

this plan by himself in such a long time (1960-2008). Therefore, it raised another

ethical issues in this case that related to some people who knew Mandoff’s

actions were wrong but because of some reasons such as high salary or other

benefits, they hided and lended a hand to Mandoff’s plan.

Finally, in this case the responsibility of Government reguators is a remarkable

issue. Because as the information was mentioned in this case, the SEC did

not do the right task in checking carefully the Madoff’s business although

there were many complains of investors. Their lack of responsibility and

sensitivity with information leaded to the bad consequences of victims.

3. Case analysis

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From all of the ethical issues that we mentioned above, this part will use some

theories to analyze this case study. First of all, related to the Stakeholder Theory.

This theory emphasizes that how the ethical norms and values in business

management will affect to benefits of stakeholders. It means that, each decision of

a firm, in particularly is manager will definitely affect to a number of people

who have relative benefits as well as community. In this case, when applying this

theory, we can point out many relative parti es seperated into 2 main groups, and

they are directly or indirectly bared the negative effects:

- Internal stakeholders: are people who are already in that particular line of

business or the organization. These are people who already serve the

organisation, for example, staff, board members or volunteers. In this case

aims to employees who worked for Mandoff, when thousands of employees lost

their jobs, their retirement funds, and their health care benefits; the investors who

give him so much money including many individuals as well as non-profit

organizations who lost their money when invest in Mandoff’s company; his relatives

especially are his wife and sons.

- External stakeholders: are stakeholders outside the organisation, but those who

have an impact on the organisation, such as the community or the organization's

clients. In this case arecommunity was also hurt by the loss of a major employer

and community benefactor; Families of employees, investors were also hurt,

financial situation went to recession, and Many of the individuals directly involved

will themselves suffer criminal and civil punishment, including prison sentences

for some.Secondly, we will focus on Personal responsibility vs Social

responsibility: Whenever manager makes decision or business strategy, it isn’t only

related to individual’s benefits as well as personal responsibility, but its’

consequences also impact on community and many relative stakeholders as

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mentioned above. Therefore, personal and social responsibility is always a

sensitive matter in business ethic.

In this case, this issue was also clarified. When Mandoff made the decision to

implement the Ponzi scheme to gain the money from investors to enrich for

himself but ignore others’ benefits, it pointed out that he seemed to stand on his

own point of view – it meaned personal responsibility. He perhap only answered

the questions “What should I do? How should I act?”but he forgot the question

“How should we live?” refers to how we live together in a community. Mandoff

passed the benefits of many people and community to focus on his own benefit in

short term.

Moreover, as we mentioned above about some parties who took part in this

deal with Mandoff also need to consider between personal and social

responsibility. They certainly got some extra benefits, money, or even high

salary for their silence before the fault of Mandoff. They are the same as

Mandoff when hided his cheating. They traded off between their own benefits

and the others one.

Thirdly, we will talk about Ethical norms vs Economic values. In doing

business, the trading off between ethics and economic profits is popular. Beside

many firms, which have kept their ethical norms, there are many firms

concerning so much to the short term profits and ignoring the ethics. Mandoff

in this case is a specific example. Becau se of the huge amount of money he scamed

and used money of other investors unjustly. His other partners in crime are also stood

before the choices. On the other hand, they will gain a lot of money if they keep

silence and lend Mandoof a hand. But on the other hand, they will gain nothing,

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however keep the ethical norms. At the end, these people choosed the first way by

selling out their moral norms to take economic values.

Finally, Legal responsibility vs Ethic responsibility will be mentioned here.

The law provides an important guide to ethical decision making. But ethical norms

and legal norms are not idential, or in other words they are not always agreed.

However, a commonly accepted view, a business fulfills its social responsibility

simply by obeying the law. In this case, Mandoff is remarkbly law violation when

he applied Ponzi scheme to scam many people. Of courses, as we analyzed in detail

above, he also violated ethical norms. Therefore, he was sentenced 150 years in

prison.

The other partners in crime of him also violated in both two norms when they

recognized the faults in Mandoff’s actions but they still covered it and helped him

to reach his goals.

In conclusion, business ethic is a process in giving responsible decision

making. Whenever giving any decision, people must consider carefully among

many norms and responsibility that related to that decision. Because each decision

will not only affect the people who make decision, but also others, even society. In

this case, it pointed out a fact that Ethic Failures = Business Failures. It is an

expensive cost for unethical behaviors.

Exercise 3 - Piggybacking

Background of concerned firms in the case

With the development of the Internet, many people pay a monthly fee to use wi-fi

service. However, almost of them are not set up password or have low security

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because of some reasons. On the other hand, their neighbors who want to use internet

but don’t want to charge money will tap into their wireless Internet connection and

become Piggybacking. It leads to slow down connection and sometimes apartment

dwellers are hacked by them.

Ethical issues

According to Kant, piggybacking is seriously intrusion dignity of human being. In

case of virtue ethics, the wifi owner and piggybacking have affected to each other,

as well.

Analysis

About Kant theory, piggy-back don’t respect wifi owner agreement, they also act for

their own ends and don’t care about wifi owner.

Because the owner don’t set password, piggy-back will feel free to access network.

Then they think that they needn’t to charge money anymore. Someday, when they

can’t access network free, they will try to “steal” network from the other.

Solution/ proposed module of decision.

Someday, if enough neighbors piggy-back on their neighbors’ wireless access, they

will very angry about that, pay money for many users and using slow internet. It’s

like a insult.

Exercise 4 – FSB WAY

Case summary

The case study comprises of the following parts:

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1. Vision of educational target

Student – FSBers: good beginners in business, quick adaptability and

success, be a leader in future

FSB – Elite school: top of business school in Vietnam

2. FSB Way

FSB consists of 5 values:

4M Methodology: Multi-media and Multi-mode

Passionate learning and teaching

Innovation and Practicability

ICT-based environment

Be leading

Multi-media and Multi-mode (4M) is better than Hollywood teaching (7 activities).

4M has in-class activities and extracurricular activities.

3. 4M – In class

Enhanced Hollywood

5 mental experiences for students: happy, sad, regret, angry, revengeful

6 main strategies: more games, debating, creative room, ICT

application, educational tactics and oral examination.

4. 4M – Extracurricular activities

Extracurricular activities have 7 main strategies: imitate room, clubs, online

business, business beginner class, online golden board, OJT, guest speaker program.

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5. Conclusion

FSB Way: 5 values

4M: Hollywood in class and Extracurricular activities

Ethical issues

Both FSB’s culture and style of leadership from FSB’s CEO apparently have

influence on ethical issues of the whole FSB and FSBers.

1. Values-based cultures:

Students oriented

Lecturer oriented

Flexibility

2. Ethical leader:

People oriented

Traits of ethical leader

3. FSB goals:

Best choice for students

Attracting excellent students

Attracting funds and investment to for strong development, business

consultant.

FSB’s culture is recognized as values-based culture. It is said that FSB is a good

place where people can find out and develop themselves. Indeed, FSB creates

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various opportunities for people working, studying and entertaining following the

way they like.In FSB, studying normally doesn’t make student feel stress, both FSB

teachers and students negotiate together to find out the best and most suitable way

to teach and study; for example, both teachers and students see every subject as a

game, teachers let game be carried out and controlled by all students in the class;

which makes students become the main subject, they create the way to acquire

knowledge and use it in concrete situations by themselves, and it helps them to

remember easier. When studying, students can discuss with not only teachers but

also other friends. Students can present their thinking, evaluations without any

prevention. Teachers here always respect students’ ideas, and invite them to support

and ask questions all the time.

Exercise 5 – KOTO

Background of concerned firms in the case

KOTO stands for “Know One, Teach One”: Learning should be passed on;

knowledge is there to be shared. This is the essential idea of KOTO’s founder,

Jimmy Pham, a Vietnamese-Australian who more than 10 years ago opened a

training center in hospitality in Hanoi, giving disadvantaged youth the possibility to

learn and strive in their lives. As a social enterprise, KOTO has trained over 400

students. Foundation arm in that focuses on raising funds to support its cause through

charitable activities and initiatives.

Ethical issues

The main issue is using the disadvantaged youth or street children for purpose in

which not only for helping them, but also like marketing plan in order to attract

customers.

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Analysis

In this case, the company follows corporate social responsibility. In particularly,

following philanthropy. This model is different from other entrepreneurs and NGO

by "love of humanity" in the sense of caring for, nourishing, developing, and

enhancing "what it is to be human" on both the benefactors' (by identifying and

exercising their values in giving and volunteering) and beneficiaries' (by benefitting)

parts.

Solution/ proposed module of decision.

The company should grasp thoroughly this issue, don’t make people think badly

about idea of stating up the business.

Exercise 6 – Toyota, the CEO, the Assistant, and Inaction

I. Background of concerned firms in the case

Toyota Motor Corporation, abbreviated TMC, is a Japanese multinational automaker

headquartered in Toyota, Aichi, Japan. In 2010, Toyota employed 325,905 people

worldwide and was the third-largest automobile manufacturer in 2011 by production

behind General Motors and Volkswagen Group. Toyota is the eleventh-largest

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company in the world by revenue. In July 2012, the company reported it had

manufactured its 200-millionth vehicle.

II. Ethical issues

Sayaka Kobayashi’s boss had been making romantic and sexual

advances to her for 3 months, the lawsuits asked for $40 million in

compensatory damages for her career and $190 million in punitive

damages.

III. Analysis

She sent a letter to the senior vice president of Toyota North America

to notify that her boss’ harassment. Kobayashi filed a lawsuit in New

York with full details that had the tabloids clucking over the lurid

details.

IV. Solution/ proposed module of decision.

Need to consider about U.S harassment laws for international

executives.

Exercise 7 – Bloggers

1. Introduction the case

Frenkel - founder of a popular blog “Troll Tracker”, who was claiming to be a patent

lawyer with address in Afghanistan. Cisco is the company with brand which was

consulted to public to the market by Frekel. One day, Cisco was sued by other

companies who were licensed copyright with Cisco brand. As one anonymous

investor, Frenkel said that people who had sued him and Cisco had repaired the Cisco

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licensed to earlier and if someone can shot and kill 2people who was said in above,

as a good lawyer, he will defend into manslaughter or something like that to mitigate

the guilty.

Till through a subpoena to Google, they found that Frenkel had his blog hosted by a

server in Korea and put down his address as one in Afghanistan.

The lawyers have sued both Frenkel and Cisco for defamation. Cisco has taken full

responsibility for the issue but note that Troll Tracker played an important role in

highlighting issue.

2. Define the ethical issue

- Violations from the management and provide server in update

information which facilitated Frenkel become an anonymous business who

can said everything he want as public in his blog.

- Many companies maintain or depend on the using blog to manage

whether they know clearly about risk when using blog to manage through

Cisco event or sth like that. Sometime, because of hatred they post some

information to public in blog to damage company images.

- Load the false or private information on blogs which affect

company fame.

- Mismanagement of company information

3. Ethical philosophy analyze:

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- Utilitarianism: Frenkel’s behavior had violations utilitarianism

because he just decides based on his benefit not based on overall

consequences.

- Deontological: violation not only utilitarianism but also

deontological ethics because he act not on the basis of moral principles

(copy right, fake information about patent lawyer….)

- Privacy protection : disrespect for privacy ( load private

information on blog contents)

- Challenges posed by Technology usage: because of lack of

understanding about information management, many companies and

lawyers are defamed by false information that spreads on the net.

4. Recommendation for effectively ethical monitoring:

- Internet-use monitoring: develop a policy : When posting a

comment or piece of information or opinions that affects the company,

users should note they work for that company.

- Monitor information at workplace: all information would be

managed but announced to employees in advance and all employees would

have access to this source of information.

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Exercise 8 – Cheerios and cholesterol

1. Introduction the case

The Food and Drug Administration (FDA) warned General Mills about the content

of its ads for Cheerios. Cheerios is a cereal. General Mills claims that Cheerios was

“clinically proven to help lower cholesterol.” The ads claim that it could reduce bad

cholesterol by 4 percent in six weeks.However, the FDA pointed some analysis of

the studies is not true. One commentator commented wryly that those in the ads

appear to have conquered heart disease.

Other companies have been facing the same increasing scrutiny on their health

benefit ads claims as FTC claim that Frosted Mini- Wheats improve children’s

attentiveness by 20 percent.

2. Define the ethical issue

- General milk made hype ads about their product- Cheerios.

- This ads bring good moods for viewer however it made customer

have trend buy their product base on emotion not rational

- This ads can make a bad precedent for follower.

3. Ethical philosophy analyzes:

- Ultitarianism: in this issue, General Mills is ethic, because they

bring benefit for both social and their own company.

- Deontology: not satisfy because it infringe law and job ethic.

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- Human right: not ethic because their ads make customer confuse

and satisfy about emotions and make trend to buy Cheerios.

- Virtual ethics: if this ads effective, it makes the others want to copy

this concept, it’s not good for customer.

4. Recommendation for effectively ethical monitoring:

- Give exactly what they research on the ads, it makes customer trust them and bring

both benefit and solve ethics problem.

-Give a public apologize, make sure their message obviously, Cheerios is not treat

anyone, and it just not meet what ads said.

Exercise 10 - Norsk Hydro – Norway I. Case summary

Norsk Hydro operates globally in environmentally sensitive and technically

complex fields such as plant nutrients, offshore oil and gas, aluminum, magnesium,

and petrochemicals

the 'repairs phase‘: cleaning up local pollution and amending 'sins of the past‘

The ‘repairs’ phase did not result from a business strategy, nor were its projects

closely

linked to business activities. Norsk Hydro had long been a ‘closed’ company

regarding environmental issues

the 'preventive phase‘: developing and installing 'cleaner technology’

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The second phase made environmental work a key part of operations, integrated

throughout the organization. Clear lines of responsibility were established, goals set,

reporting improved, results analyzed and organizational expertise developed

the 'business development phase‘: analyzing and minimizing the environmental

impact of products throughout their entire life cycle.Environmental care: an

important strategic business issue through Life Cycle Analysis: enabled

application of the most advanced knowledge. The company also sought to

establish closer links between customers, business needs, and R&D activities.

the 'globalization phase': addressing the challenges of globalization of economies

and markets, as well as global environmental issues

II. Ethical issues

1. Three pillars of sustainability: economic, environmental and ethical

sustainability

2. Environmental protection is in Norsk Hydro’s operations

3. Create efficient management of natural resources, reduce waste and emission

while taking great care to insure a kind operation toward humans and

environment

4. Applying of theories

Utilitarianism

Norsk Hydro's environmental work evolved in 4 phases to rectify

environmental ills:

• Phase 1, the 'repairs phase' : clean up local pollution and amending 'sins of the

past‘

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• Phase 2, the 'preventive phase‘: develop and install 'cleaner technology

• Phase 3, the 'business development phase‘: analyze and minimize the

environmental impact of products throughout their entire life cycle

• Phase 4, the 'globalization phase‘: address the challenges of globalization of

economies and markets, and global environmental issues

→ Norsk Hydro maximizes the positive impact on communities and the natural

environment.

Deontology

• Comply strictly with the provisions of the Government and the Kyoto Protocol

about environmental protection

• In Phase 4, the ‘globalization phase’, Norsk Hydro began addressing the

challenges of globalization of economies and markets, as well as global

environmental issues such as climate change and the Kyoto protocol

→ Follow legal of Government and international

Exercise 11 – AIG 1. Summary

American International Group (AIG) is one of the largest and most respected

insurance companies in the word

• AIG is one of the most controversial players in the 2008 – 2009 financial crisis

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• The government rescued AIG to help many other global financial institutions

that depended on AIG

2. Ethical issues

• Capital: AIG did not have enough mortgage collapse when they sold the

CDSs.

• Investigation: Cassano and Sullivan reassured investors and auditors that AIG

researched and they confidence in their evaluation methods.

• Bailout: It was reveled that $ 165 million of the bailout money went to bonuses

of the employees of the Financial Products unit

3. Applying of theories

Conflict of interest

• It exists where her or his personal interests and/or obligations conflict with

those of others.

• Managers focus on short-term financial gain served their personal interest.

They received millions for selling CDSs

• Utilitarianism: The government bailouts give to AIG, it is not only preventing

AIG bankruptcy, and it also prevents the other financial institution collapsed

which may make the crisis in 2008-2009 had been worse. Thus, it brings the

best for larger number of people. However, from public taxpayer perspective,

their money used to help the superior class, which is unfair.

• Kant theory: Greenberg CEO of AIG was manipulated the financial statement

that treat to the customer autonomy to know about the financial information.

In another case, when the financial meltdown occurred, AIG audit know the

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market indicators that AIG swap should be lower. However, the AIG

executives continued reassure the investors that they indentified all the area

of loss, and confidence in their evaluation. That had misled the investors.

• Virtue ethics: AIG culture was focus on a reward that placed little

responsibility on executives that made very poor decisions. It raise opinion

that they don’t need contribute to company development and still get rewards.

• Deontological theory: AIG ignored their obligation to the shareholders and

clients by continuing extending the issued risk what the company could not

pay back and waste money for bonuses. Moreover, they depend too much on

computer model that fail to take into account of real risk

Exercise 12 – Enron

Background of concerned firms in the case

Enron Corp was an energy company that was incorporated in Oregon in 1985. In

2001, Enron Corp was the world largest energy company. It holds 25% of all trading

contracts in the world. It became the largest energy trader in the world, with $40

billion in revenue in 1998, $60 billion in 1999 and $101 billion in 2000 but its

success was based on magnify profits and accounting fraud.

Ethical issues

When discussing mark-to-market accounting, Jennings explained what mark-to-

market accounting was and then proposed that the investors had no idea whether the

company adopted the conservative or aggressive assumptions, which was the way

Enron utilized the non-transparent information to beautify its financial statement. In

terms of off-the-books entities, Jennings described it as another trick Enron played.

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Enron used these entries to maximize its income and minimize its liabilities. Enron

even used a related company called LJM Cayman, L.P to transfer the profits to Enron

and suffer liabilities for Enron.

Analysis

Utilitarianism theory: Enron made its financial statement analysis difficult to read,

minimal public disclosure to stakeholders to hide its wrongdoing just to gain more

investment to maximize the profit of their company while pushed many investors of

them into risk without knowing that, which are considered to be the greater number.

Deontological theory: Enron violates the legal rules when did not disclosure risk of

hedge fund in SEC document and have their independent auditors to have a close

relationship with their company.

Kant theory: The investors and employees of Enron have the right to know the exact

financial information of Enron. Enron hiding its financial situation mistreated their

autonomy.

Virtue Theory: If the wrongdoing of Enron was not explored, criticized, other

company might see that action is ethical and apple Enron’s “innovative” accounting

method, or so called “aggressive” method for their company because it seems to be

harmless, legal and brings about a lot of benefit for their companies.

Solution/ proposed module of decision.

It increased the independence of the outside auditors who review the accuracy of

corporate financial statements, and increased the oversight role of boards of

directors. Financial statement should be clearly. Using independent directors to

control power of CEO and it also protects protect the benefit of shareholders.

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