EthicsCase Study
EthicsCase Study
Theincrease in competitiveness in the business environment has madeethical practice an issue of concern. Financial constraint is amongthe key factors that subject companies to ethical dilemmas that forcethem to weigh between their decisions remaining ethical and usingunethical means to enhance their cash flows (Withey, 2014). The casestudy considered in this paper involves an expected deal that willhelp Cambridge, a venture capital company, buy a controlling share of55 % in Solodor Pharmaceutical (SP). Solodor Pharmaceutical is apharmaceutical company that is in the process of developing a newdrug known as Celenza, which will be used in the treatment acutelymphoblastic leukemia. However, SP is experiencing cash flowproblems, which has forced it to look for funding. The SP’s chieffinance officer (CFO) believes that equity financing is the immediatepriority for the company.
Keyissues
AlthoughSP has identified a potential source of capital financing, thecompany’s CFO feels that the transaction will reduce the capacityof SP to pursue its corporate social responsibility policy. This isbecause, Cambridge, which is the venture capital firm that isexpected to buy about 55 % of the stake in SP has a history ofchanging employees and policies of the companies that it acquires.For example, Roger holds that Cambridge uses the marketing strategyof high-price/low-volume. This implies that SP would have to sellCelenza at a price that poor patients will not afford. Roger decidesto buy 470,000 shares in Dugas Incorporation in order to preventCambridge from buying a controlling stake in SP. However, Roger usesSP’s operating funds without approval to buy the shares. SP’sinternal auditor, Beth Sullivan, is in a dilemma since she does notknow whether it will be ethical to report Roger to the board.Therefore, the key issues in the case study include the significanceof pursuing a social responsibility objective and the use of SP’sfunds to buy shares without approval.
Thedilemma faced by Beth Sullivan
Ethicaldilemma refers to a complex situation that involves a conflictbetween different moral imperatives, where a decision to obey one ofthem would lead to digressing the other one (McAuliffe, 2005). In thecase of Beth, her mental conflict involved making a decision onwhether to report her boss, Roger McDaniels, for a financialmisappropriation. Beth had to weigh between reporting Roger’s fraudto SP’s board and the need to help the patients from the poorbackgrounds access the new drug known as Celenza, which could only beaccomplished by keeping silent. Each of the two options had negativeand positive outcomes. For example, a decision to report Roger to theboard could give Cambridge an opportunity to sell the Celenza at ahigher price, thus making it a reserve of the rich patients. However,this decision would have shielded Beth from possible prosecutionunder the Sarbanes-Oxley Act. A decision not to report Roger to theboard, on the other hand, would have given SP an opportunity toexercise its corporate social responsibility policy by selling theCelenza at an affordable price. Therefore, the imperatives to theconflict include the need to protect the Beth’s employer frommisappropriation of funds and the desire to facilitate theaffordability of the Celenza to the poor patient.
Ethicalgrounds of Beth’s decision
Theethical grounds of any action should be justified by its consistencyor inconsistency with the principles of a given ethical theory. Forexample, the utilitarian theory is founded on the notion that anethical action should seek to maximize the happiness of the greatestnumber of the people being affected by that action (Kwang, 2014).This takes account of the people affected directly and directly. Inthe case of Beth, a decision to write to the SP’s board and reportthe fraud would promote the happiness of the board members and theshareholders by promoting the financial well-being of the company inthe short-run. This is because Beth would have proved her loyalty andthe dedication to protect the company from any form of fraud as aninternal auditor.
However,the same decision would have minimized the happiness of Beth’simmediate boss, Roger, and the population of patients suffering fromlymphoblastic leukemia, especially those who come from poorbackgrounds. This is because the reversal of the transaction thatinvolved the purchase of 470,000 shares in Dugas Incorporation wouldgive Cambridge a chance to acquire a controlling share at SP. Thiswould mean that Cambridge would enforce its high-price/low-volumestrategy, thus reducing the affordability of Celenza to poorpatients. This is a self-centered approach that takes account of theprofitability of the company, while neglecting the well-being of theconsumers. Based on the principles of the utilitarian theory, Beth’sdecision to report Roger was unethical since it focused on thefinancial welfare of SP at the expense of the happiness of the largerpopulation of the poor patients who may not be able to buy Celenza ifCambridge acquires a controlling share in SP.
Alternativecourses of action
Apartfrom reporting Roger to the board, Beth had two more alternativecourses of action at her disposal. The first alternative was to playalong with Roger and do whatever she could to conceal the transactionthat involved the purchase of 470,000 shares. By taking this action,Beth would have given her company an opportunity to remain sociallyresponsible, which could be achieved by reducing chances forCambridge to buy the controlling stake of 55 % in SP (Mark &Robert, 2013). Beth could use her accounting intelligence to cover-upfor Roger in order to achieve the ultimate goal of ensuring theCelenza will be accessible to poor patients once it is approved.However, Beth would have broken the law since she is expected toaudit the financial statements of SP and disclose any misstatementsand cases of fraud.
Thesecond alternative course of action would be to quit her job. Byresigning, Beth would avoid being prosecuted and give Roger a chanceto accomplish the goal of preventing Cambridge from purchasing acontrolling stake in SP. This alternative would help Beth pursue amoral objective of helping the poor Lymphoblastic Leukemia affordCelenza, which would maximize the well-being of the larger populationof the needy patients. However, the alternative would reduce herhappiness and the financial well-being of her employer. The theory ofutilitarianism holds that a moral action should lead to a positivenet happiness (Kwang, 2014). Therefore, the second alternative wouldbe moral since more people (including the poor patients) will behappy, while only a few of the stakeholders (including Beth andowners of SP) would be sad.
Conclusion
AlthoughBeth would be expected to report any cases of misappropriation ofSP’s funds under normal circumstances, the application of theutilitarian theory indicates that reporting Roger to the board wouldbe unethical. This is because Roger spent the SP’s operating fundswith the objective of maximizing the happiness of the largerpopulation of the poor leukemia patients. In addition, Roger’sdecision would help SP pursue its corporate social responsibility bypreventing Cambridge from implementing its self-centered strategy ofmaking more profit by selling Celenza at a higher price, thusensuring that the drug is affordable to poor patients.
References
Kwang,Y. (2014). Happiness,life satisfaction, or subjective well-being? A measurement and moralphilosophical perspective.Nanyang: Nanyang Technology University.
Mark,M. & Robert, M. (2013). Roger`s Dilemma: A SituationalExamination of Ethical Behavior in the Presence of Internal ControlDeficiencies. Issues in Accounting Education, 28 (2), 337-351.
McAuliffe,D. (2005). I’m still standing: Impacts and consequences of ethicaldilemmas for social workers in direct practice. Journal of SocialWork Values and Ethics, 16, 1-11.
Withey,J. (2014). Ethical dilemmas in marketing practices among small andmedium sized enterprises. Journal of Academic and Business Ethics,1, 1-7.