Family Games, Inc. Case 4-4

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Family Games, Inc.Case 4-4

• By
• John Duarte and Justin Bost

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Overview

• Introduction
• Ethical Decision-Making Model
• Framing the issue
• The facts
• Stakeholders
• Core values
• Operational issues
• Accounting issues

• Ethical Decision-Making Model (cont.)
• Possible Alternatives
• Evaluate Alternatives
• Ethical analysis
• Decision
• Questions

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Family Games, Inc.

• Helen Strom, controller
• Forced into making a decision
• Carl Land, CFO
• Threatens Helen with taking away reimbursements
  for child care
• CEO aka The Big Boss
• Using company funds in Vegas

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Step 1 Framing the Issue

• Should Helen perform an unethical act to maintain
  reimbursements for much needed child care
  services?

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Step 2 The Facts

• Usual annual sales of about 50 million
• Net loss the last two years due to cost-cutting
  measures
• CEO has a gambling problem
• CEO has borrowed money from company for personal
  reasons (sizeable I Owe U)

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Step 2 The Facts (cont.)

• Transaction began 12/30/07 and finished 1/2/08
• CFO tells Strom to record 12 million revenue in
  2007
• Strom refuses to cook the books
• CFO leaves Strom with ultimatum approved by CEO

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Step 3 Stakeholders

• CEO
• Needs performance bonus
• CFO
• Following orders from superior
• Parties affiliated with the company
• Employees, shareholders, creditors, etc. need
  reliable financial information
• Helens son
• Needs full time care (autism)

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Step 4 Core Values

• Trustworthiness
• Honesty
• Knowingly recording a transaction wrong is not
  honest
• Integrity
• Likelihood of not getting caught

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Step 4 Core Values (cont.)

• Trustworthiness (cont.)
• Reliability
• Financial information
• Operations of company
• Loyalty
• Helens son
• The company
• Herself

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Step 4 Core Values (cont.)

• Respect
• Helen isnt receiving any
• Responsibility
• Helens son
• Users of financial information
• Fairness
• A no win situation

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Step 4 Core Values (cont.)

• Caring
• CEO and CFO only caring for themselves
• Citizenship
• Public trust in financial statements
• Code of Ethics

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Step 5 Operational Issues

• Inappropriate use of company resources
• Internal controls
• Collusion
• Abuse of upper level position
• Coercion
• Possibly throughout entire company
• Board of directors
• Lack of governance

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Step 6 Accounting Issues

• Improper revenue recognition
• Could affect several accounts
• Overstate revenue and AR
• Understate inventory
• Improper matching
• Manipulating a sales invoice

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Step 7 Possible Alternatives

• Go along with the CFO and CEO
• Refuse to go along with CEO and CFO
• Go to Board of Directors, internal auditors,
  ethics board, or someone else above CEO
• Quit

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Step 8 Evaluate Alternatives

• Go along with CFO and CEO
• Use improper revenue recognition
• Investors, creditors, stockholders rely on
  inaccurate statements
• Employees jobs are at stake if company gets
  caught
• Competitors have to compete with a company with
  false statements

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Step 8 Evaluate Alternatives

• Go along with CFO and CEO (cont.)
• Helen, CFO, and CEO are liable
• Helen gets reimbursed and her son gets proper
  care

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Step 8 Evaluate Alternatives

• Go along with CFO and CEO (cont.)
• 6 pillars
• Trustworthiness Not honest, not reliable, not
  acting with integrity, loyal to CEO/CFO but not
  other stakeholders,
• Respect Not respectful of needs of other
  stakeholders
• Responsibility Not responsible
• Fairness Not fair to stakeholders
• Caring Caring only towards herself and her son
• Citizenship Poor citizenship

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Step 8 Evaluate Alternatives

• Go along with CFO and CEO (cont.)
• Rights Theory
• Stakeholders have right to fair statements which
  they arent getting
• Utilitarianism
• Only serves self interest and CEO/CFO
• Justice
• Doesnt satisfy virtues

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Step 8 Evaluate Alternatives

• Refuse to go along with CEO and CFO
• Proper revenue recognition
• Should result in accurate statements for
  investors, creditors, and shareholders unless CEO
  and CFO intervene
• Helen loses reimbursement payments and maybe her
  job

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Step 8 Evaluate Alternatives

• Refuse to go along with CFO and CEO (cont.)
• 6 pillars
• Trustworthiness Honest, reliable, acting with
  integrity, not loyal to CEO/CFO but other
  stakeholders
• Respect Respectful of needs of other
  stakeholders
• Responsibility Responsible
• Fairness Fair to stakeholders
• Caring Caring to stakeholders but hurts her son
• Citizenship Good citizen

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Step 8 Evaluate Alternatives

• Refuse to go along (cont.)
• Rights Theory
• Stakeholders have right to fair statements which
  they hopefully will get
• Utilitarianism
• Most good is done if statements are presented
  fairly
• Justice
• Satisfies virtues

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Step 8 Evaluate Alternatives

• Go above CEO and CFO
• Tell someone with more power what is going to and
  try to get them to support you
• Might result in CEO and CFO being caught, proper
  statements for investors, creditors, and
  shareholders
• Helen might get to keep payments and job
• Worse care scenario, Helen isnt supported

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Step 8 Evaluate Alternatives

• Go above (cont.)
• 6 pillars
• Trustworthiness honest, acting with integrity,
  reliable, not loyal to CEO/CFO but other
  stakeholders
• Respect Respectful of needs of other
  stakeholders
• Responsibility Responsible
• Fairness Fair to stakeholders
• Caring Caring to stakeholders but might hurt
  her son
• Citizenship Good citizen

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Step 8 Evaluate Alternatives

• Go above (cont.)
• Rights Theory
• Stakeholders have right to fair statements which
  they hopefully will get
• Utilitarianism
• Most good if statements are presented fairly
• Justice
• Satisfies virtues

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Step 8 Evaluate Alternatives

• Quit
• Refuses to go along with unethical practice
• Keeps her pride but loses reimbursement payments
  and proper care for her son
• CEO and CFO might get someone to do the job
  anyway leading to false statements

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Step 8 Evaluate Alternatives

• Quit (cont.)
• 6 pillars
• Trustworthiness honest, acting with integrity,
  doesnt guarantee reliability, not loyal to
  CEO/CFO
• Respect Respectful of needs of other
  stakeholders, but doesnt guarantee
• Responsibility Responsible
• Fairness Not guaranteed as it doesnt guarantee
  accuracy
• Caring Caring to stakeholders but hurts her son
• Citizenship Good citizen

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Step 8 Evaluate Alternatives

• Quit (cont.)
• Rights Theory
• Stakeholders have right to fair statements which
  they may or may not get
• Utilitarianism
• Depends on what happens when she quits
• Justice
• Depends on what happens when she quits

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Step 9 Ethical Analysis

• Go along with CEO and CFO
• Not legal
• Not consistent with professional standards,
  in-house rules, or virtue considerations
• Not right
• Harms/Benefits discussed earlier
• Not fair

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Step 9 Ethical Analysis

• Refuse to go along
• Legal
• Consistent with ethical standards, in-house
  rules, and virtue considerations
• Right
• Harms/Benefits discussed earlier
• Fair

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Step 9 Ethical Analysis

• Go above CEO and CFO
• Legal
• Consistent with ethical standards, in-house
  rules, and virtue considerations
• Right
• Harms/Benefits discussed earlier
• Fair

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Step 9 Ethical Analysis

• Quit
• Legal
• Dont violate professional standards, in-house
  rules, or virtue considerations but doesnt
  guarantee ethics will be followed
• Not really fair to stakeholders

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Step 10 Decision

• Refuse to go along with CEO and CFO and go above
  them

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Step 11 Reflect

• Feel good about my decision
• Utilitarianism-most good for the most people
• Rights theory- stakeholders have right to
  accurate information
• Justice-required by code and ethical obligations
• Satisfies core values, ethical reasoning, and
  virtues

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Questions?