Case studies

Case Study: 3.1

Cement for sale by Robert Solomon and Kathlen Higgins
University of Texas at Austin

You own a cement company, and deal with most the local contractors for cement, sand, etc.
You have a reputation of high quality products, and for good customer service with your
customers. Your foreman has just run the standard quality control tests you have performed
regularly on your products.

When the test results are ready, you discover that the new batch of product is 9% less durable
than your usual material. It is still well above all industry standards and meets all building
codes and requirements for the purposes for which it is intended, but it is, nevertheless, not
up to your usual standards. Throwing it away would cost your company many thousands of
dollars.

You decide to sell the cement anyway.

Questions:

Should you tell your customers?

Should you discount the price?

Should you tell your employees, so they will be knowledgeable with the customers?

Would you use this cement on foundations for your own house?
Case Study: 3.2
The Magical $100 000 by Dennis Greer

On a weekday morning in 1975, there was an anonymous phone call to a cash teller at one of
the nation's largest national banks. The anonymous caller stated that an employee had just
stolen $$100,000 from an electronics supply subsidary of the bank. The Financial VP of the
bank was notified; he called in one of the internal auditors and assigned him to solve the case.
The auditor, working in conjunction with a retired FBI agent, employed a secretary and
immediately set up an office at the electronics supply plant. An analysis of the accounting
records showed that the theft involved inventory. The first step was to interview many of the
100 employees of the plant including all plant officers. None of the employees knew anything
about the inventory.

Second, an analysis of the Accounts Receivable records showed that a major building
construction firm only owed $9.54, though its supply trucks were always picking up large
amounts of electronic inventory. He immediately became unavailable for questioning!
Several days later the auditor was contacted by an attorney representing the building
construction firm for an appointment for his client and himself. When the auditor arrived, the
attorney stated, "I want you to know that my client has done absolutely nothing wrong! But
here is some information you might like to know." The attorney then explained how the 30-
year-old son of the president of the electronics supply plant would sell inventory at one-half
price if the construction firm made out the checks to the son personally. They had, in effect,
purchased $200,000 of inventory for only $100,000.

This information of the theft was immediately supplied to the Financial VP and the bank's
attorneys. Within 48 hours, the president of the electronics supply plant retired. His son had
fled the state and $100,000 in cash was returned to the bank.

Questions:

Did the employees know of the lost inventory?

If they did, why didn't they tell more?

Were the president of the construction firm and his employees honest?
Had they done anything wrong?

Could they be sued?

Why did the father retire?

What was his responsibility?

Should the bank's corporate officers go to the police and indite the son on grand theft?

The bank received back $100,000 from the theft. Where from?

Case Study: 3.3

The Question of Corporate Responsibility by Dr Robert C. Solomon
University of Texas at Austin

In January of last year, the S.S. Vulgass, an oil tanker of the Big Dirty Oil Company ran
around in the area just north of Vancouver, spilling millions of gallons of crude into the
waters and onto the beaches of British Columbia and southern Alaska. The damage to the
beaches and wildlife and consequently to the tourist industry, the ecology and the quality of
life of the local residents is incalculable, but in any case will require many millions of dollars
for even the most minimal clean-up.

The ship struck a small atoll, well-marked on the navigational maps, but it was a dark night
and the boat was well off course. On further investigation, it was discovered that the Captain
of the Vulgass, Mr. Slosh, had been drinking heavily. Leaving the navigation of the ship to
his first mate, Mr. Mudd, he retired to his cabin, to "sleep it off." Mr. Mudd had never taken
charge of the ship before, and it is now clear that he misread the maps, misjudged the waters,
maintained a speed that was inappropriate and the accident occurred. Subsequent inquiries
showed that Captain Slosh had been arrested on two drunk driving convictions within months
of the accident. The Vulgass itself, a double-hulled tanker, was long due for renovation and,
it was suggested, would not have cracked up if the hull had been trebly reinforced, as some
current tankers were.
R. U. Rich, the Chief Executive Officer of Big Dirty Oil declared the accident a "tragedy"
and offered two million dollars to aid in the clean up. The Premier of British Columbia was
outraged. Environmental groups began a consumer campaign against Big Dirty Oil, urging
customers to cut up and send in their Big Dirty Oil credit cards in protest. In a meeting to the
shareholders just last month, CEO Rich proudly announced the largest quarterly profit in the
history of the Big Dirty Oil Company. He dismissed the protests as "the outpourings of
Greenies and other fanatics" and assured the shareholders that his obligation was, and would
always be, to assure the highest profits possible in the turmoil of today's market.

Questions:

The question is, who is responsible?

Against whom should criminal charges be leveled?

What should be done, if anything, to punish the corporation itself?

What about the CEO?

Case Study: 3.4

Working Environment by Stephen Adams
Graphics and Commercial Art

John, an employee of XYZ Publishing, called his supervisor over to the area where he was
working and told him that he refused to do the job any more because the air conditioning in
the room created a draft which was making him sick. Sam, the supervisor, did not feel any
strong drafts, but wanted to be fair.

He summoned the buildings' safety director, who determined that the air duct was 25 feet
away from the work station, and at a 45 degree angle from John. He further explained that the
technology used by the air conditioning system diffused the air as it comes out of the duct
and does not create a draft.
The supervisor decided that John's safety complaint was unjustified and ordered him to return
to work. John again refused, stressing that since Sam was not a doctor, he was not capable of
deciding whether or not there was a problem. XYZ Publishing subsequently discharged John
for refusing a direct order from his supervisor to do a job that was covered under his regular
duties.

John protested that requests to be removed from a job were often made, and that he was never
informed that refusing to do the job would result in his discharge.

Questions:

Was John fired for just cause? (i.e., because he was sick, or because he refused a direct
order?)

Did Sam act ethically toward John?

What if John asked to be reassigned instead of refusing to work?

What else could the company have done about the problem?

Case Study: 3.5

Mortgages for Black Families by Kathleen Higgens and Robert Solomon
University of Texas at Austin

You are an assistant branch manager at a bank where a black family has just been turned
down for a mortgage, despite a good joint income and an excellent credit rating. You know
that this is a common practice in this branch, because the branch manager believes that, in
general, "minorities are a bad risk." The family asks you why their mortgage has been turned
down.

Questions:

What do you answer them?

What do you do?

Do you agree with the branch manager?

Would you do anything differently if you were the branch manager?

Is it ethical for you to continue to work for this bank?

Read the following case studies and attempt to answer the questions that follow
below each case study
Case study 1. 1
Border Officers Arrested

Kariba border post was recently threatened with closure after all immigration officers there
were arrested for allegedly pocketing US$290 they collected from day travelers who cross
into Zambia.

Beverly Komwe (46),Tonderai Nyamweda (28) Denver Mupati (30) Precious Mafunda
(24)Sandra Ncube (30) Severino Shoko (40) and Alfred Mafu (37)(ficticous names) could
however not be detained by the police as that would have resulted in the temporary closure of
the border post.

They have since appeared before a Kariba magistrate facing criminal abuse of office charges
by a public officer or alternatively theft by conversion. They were remanded to custody to
September 14. However the court ordered them to surrender their passports to the clerk of
court at Kariba.

The court further warned the seven not to interfere with witnesses until their case is finalized.

Arrangements have since been made by the Immigration Department to replace the seven
officers until their matter is finalized. At least 29 day travelers went to Kariba Border Post
intending to cross into Zambia as they usually do but they saw a notice advising all day
travelers to renew their passes. The passes are renewed after every three months at a cost of
US$10.

They confronted Kariba Immigration officer-in-charge arguing that they had renewed their
passes and he told them to produce receipts for the passes they had, but they failed.
Questions

1. Discuss the individual characteristics that could have impacted on the ethical beliefs,
sensitivities, intentions and behaviors of the perpetrators

2. How can the organisations eliminate potential unethical people during the hiring process?

CASE STUDY 1. 2

Sexual harassment exploitation

UNWELCOME sexual advances, requests for sexual favours, and other verbal or physical
conduct of a sexual nature constitutes sexual harassment when submission to or rejection of
this conduct explicitly or implicitly affects an individual’s employment, unreasonably
interferes with an individual’s work performance or creates an intimidating, hostile or
offensive work environment.

Sexual harassment can occur in a variety of circumstances, including lot not limited to the
following: the victim as well as the harasser may be a woman or a man; the victim does not
have to le of the opposite sex; the harasser can be the victim’s supervisor.

They can also be an agent of the employer, a supervisor in another area, a co-worker, or a
non-employee. Unlawful sexual harassment may occur without economic injury to or
discharge of the victim and the harasser’s conduct must be unwelcome.
Sexual harassment constitutes any unwelcome, behaviour of a sexual nature. It’s not about
fun or friendship, but about the abuse of power.
It is also worth bearing in mind that many people respond to situations a different ways.

What may seem like an innocent action or remark to one person may be deemed offensive by
another and the law sides with the “victim” not the “perpetrator”. Such statements as ‘amai
makabatana” (provocatively referring to woman as sultry looking), may land you in trouble.
Since there is no single definition, the test is how the recipient feels about the behaviour.
Whilst men can also be subject of sexual harassment, the vast majority of cases have been by
women against men. It can take place in many form which can broadly be categorised in
three groups:

a) Verbal comments about appearance, body or clothes, indecent remarks, questions or

comments about your sex life, requests for sexual favors, sexual demands made by someone
of the opposite sex, or even your own sex and promises or threats concerning a person’s
employment conditions

b) Non-verbal actions: Looking or staring at a person’s body and displaying sexually explicit
material such as calendars, pin ups or magazines

c) Physical: touching, pinching, hugging, caressing, kissing, sexual assault and rape.

If you are fired, refused a promotion, demoted, given a poor performance evaluation, or
reassigned to a less desirable position because you rejected a sexual advance, that almost
certainly is sexual harassment. It is helpful for the victim to directly inform the harasser that
the conduct is unwelcome and must stop.

The victim should use any employer complaint mechanism or grievance system available.
When investigating allegations of sexual harassment, it’s advisable to look at the whole
record, the circumstances, such as the nature of the sexual advances, and the context in which
the alleged incidents occurred. Employers are encouraged to take steps necessary to prevent
sexual harassment from occurring. They should clearly communicate to employees that
sexual harassment will not be tolerated. They can do so by establishing an effective
complaint or grievance process and taking immediate and appropriate action when an
employee complains.

In the case of Christian v Colliers Properties (2005, 5 BflR 479), Ms Christian was appointed
as a typist by the employer. Two days after starting work, her boss asked her if she had a
boyfriend and invited her to have dinner with him. He also asked her to sit on his lap and
kissed her on the neck. When she later objected to the manager’s conduct, he asked her
whether she was “in or out”. When she said that she was “not it”, he asked her why he should
then allow her employment to continue. She was dismissed with two days’ pay and referred a
sexual harassment dispute. In a default judgment, the court decided that: the employee had
been dismissed for refusing her superior’s advances. This constituted an automatically unfair
dismissal based on sexual discrimination.

Newly appointed employees are as deserving of protection from sexual harassment as are
their longer serving colleagues. The employer had to pay the employee 24 months’
remuneration in compensation as well as additional damages and interest on the amounts to
be paid as well as the employee’s legal costs. The above finding might lead employers to
believe that, in order to protect themselves, they need to dismiss any employee found guilty
of sexual harassment. However, this is not always so. For example, in the case of SABC Ltd
v Grogan (2006, 2 BLLR 207), a regional sales manager was dismissed for (among other
things) sexual harassment after he had allegedly kissed a junior female colleague several
times, given her love literature and had physical contact with her in his car.

An arbitrator later found that while he was guilty of sexual harassment, the level of
seriousness of his conduct did not merit dismissal. This was largely because the alleged
victim had not seemed to mind his advances very much and had said she did not think he
should he dismissed. The arbitrator, therefore, ordered the employer to reinstate the
employee. The employer took this decision on review to Labour Court, but lost again as the
court pronounced. the arbitrator’s finding to have been properly thought out and justified.

The above case findings show that employees cannot ignore sexual harassment of their
employees and must act swiftly. However this does not mean that dismissal is appropriate in
every case. Employers need to use reputable labour law experts to assist with deciding what
the appropriate action should be in each individual case of sexual harassment .
They should also design a comprehensive sexual harassment policy, ensuring that every
owner, manager and employee knows and understands the severe consequences of
committing such acts. They should communicate to all concerned that such misconduct will
result in severe penalties including possible dismissal, ensure that all employees feel entirely
free to report sexual harassment. In addition, they should train all employees in the above-
listed issues as well as in what constitutes sexual harassment, how to deal with it, where to
report it and the company’s supportive policy towards sexual harassment victims.

Question
In the African culture it is the norm that men force themselves onto women. Discuss the
significance of this practice against the above discussion and viz a viz issues of sexual
harassment and ethics in the work place.

CASE STUDY 1.3

Abuse of power/authority

How things got messy for ReNaissance

RENAISSANCE Financial Holding Limited (RFHL) group executives Patterson Timba and
Dunmore Kundishora wielded enormous execute powers such that all corporate governance
structures were disregarded, according to a damning report by the Reserve Bank of
Zimbabwe (RBZ).

The report alleges there was siphoning of depositors’ funds through related party loans to the
main shareholders and their associates “akin to a declaration of dividends by shareholders
from depositor’ funds”. RBZ combed at ReNaissance Merchant Bank (RMB) last month to
ascertain the financial position of the bank including its profitability, liquidity and solvency
status. This was after Indian businessman Jayesh Shar blew the whistle on Timba when the
RFHL founder failed to repay a loan borrowed to meet RMB’s minimum capital
requirements. The RBZ report accused Timba and Kundishora of operating as de facto
executive directors and signatories of the bank with the board in the dark of activities at the
bank.

“Meanwhile the board of RMB was not well versed with the condition of the bank, including
the extent and impact of RFHL exposure, and sources of funds used to recapitalize the bank,”
reads part of the report. The report accuses the bank of deliberately using a Special Purpose
Vehicle, ReNaissance Trading , to circumvent regulations and engage in non-core activities
including gold, grain and fuel trading, contrary to section 34 of Banking Act. It also noted
that there was a high credit risk at RMB “as evidenced by a high level of non-performing
loans of 38% of the total loan book of US$53.1 million as at March 31 2011”

It further said that total insider borrowings of US$12.4 million which “include exposure to
RFHL, Mr. Timba and his relatives exceeded 25% of the bank’s capital base in violation of
Section 16(2)(a) of the Banking Regulations (S.I 205 of 2000). The report blasted the bank
for abusing depositors’ funds. “The investigation revealed significant abuse of depositors’
funds by Mr. Timba through debiting of an unfunded RFHL call account held at RMB. “The
RFHL call account had an unauthorized overdrawn balance of US$9.8 ,million as at April 21
2010 against an expired limit of US$750 000,” the report said. “On several instances Mr.
Timba, RFHL and Bethel Trust converted to their own use deposits negotiated and received
by RMB as part of the bank’s money market operations.”

These activities, the report said, precipitated liquidity challenges in the bank. As of Tuesday
the bank’s unsettled maturities amounted to US$11 135 453,59. The report said internal
controls at the bank had virtually collapsed with transactions being done without
authorization from both the managing director and the finance director. The duo refused to
append their signatures on some of the transactions but they proceeded nonetheless.
“Notwithstanding refusal by RMB’s managing director and finance director to authorize (via
appending signatures) payments from an overdrawn RFHL call account, the entries continued
to be processed by treasury bank office without any authorization,” it said.

It accuses Timba and the group accountant, Attend Madzingo of giving instructions directly
to senior manager Treasury Operations Norest Kwete without the involvement of the bank’s
senior management. “The head of internal audit, Mr. Shepherd Muzivi failed to discharge his
statutory obligations of upholding the efficacy of internal checks and balances within the
group,” the report said. RFHL shareholding structure, the report said was hindering effective
regulation and supervision as “it has facilitated owner-managers of RMB to masquerade as
non-executive directors”.

In terms of Banking Regulations, the shareholding of an individual and his or her related
interest in the bank is limited to 25%. However individuals can increase their shareholding
subject to approval from the central bank.

Fresh details about how RFHL CEO Patterson Timba and other company shareholders and
directors, working in cahoots with a pliant management, plundered RMB have emerged as
pressure mounts on authorities to recover the looted depositors’ funds and bring the culprits
to book.

Latest information on Timba and his collaborators’ looting spree at RMB – which is
technically insolvent and has been put under curatorship – are contained in a RBZ report on
RMB which exposed probably the biggest pillaging scandal yet within the banking sector.
Timba and his associates, chief amongst them Group Executive Director – Business
Development Dunmore Kundishora, bulldozed RMB to dish out money like confetti to
themselves and their relatives. Timba’s relatives who got money from RMB included his
father, brother, in-laws and other cronies. The monies were usually given out or siphoned
without board or other necessary approval.

“The level of insider and related party exposures of $12 594 403 is excessively high and
constitutes 24% total loans whilst the non-performing insider loans account for 21% of the
total loan book. The proportion of performing insider loans to total loan book was 2.2%,” the
RBZ report says. Timba’s relatives were advanced with insider and related party loans
included PJ Timba, father to Patterson, who got $55 504,31, Stephenson Timba, Patterson’s
brother, who accessed $376 011.10 trough Fresco Packaging, $105 326,48 through Comrel
Trading and $82 827.65 via Wovenville Enterprises.

Timba’s cousins got $70 451.88 through Malfroy Investments and his in-laws got $170
452,87 via CCG Investiments, Timba himself on one occasion got $54 783,32 through his
company Tolrose Investments. Timba’s family owned Bethel Finance Ltd got $65 250,77 at
one time. Munotidaishe Farm, owned by Bethel Trust whose beneficiaries are members of
Timba family, got $155 645,28. Covert Investigators in which another of Timba’s brothers is
a shareholder got $198 428,98.

Other companies which got loans include the RFHL itself $9 856 428,56), ReNaissance
Securities ($315 221,11), Oxford Agrochemicals ($84 064,57), Excel Pharmacy ($47 290,36)
ReNaissance Trading ($850 000) and First Mutual Life Assurance (R1 million).

The group CEO Mr. PF Timba, in connivance the Executive Director at RFHL, Mr. Dunmore
Kundishora, siphoned depositors; funds under a well orchestrated, intricate triangular
methodology involving the following steps: transfer to counterparty, follow, ambush and
withdraw,” the RBZ report says. “There abundant evidence that Mr. Timba put in place an
elaborate scheme for siphoning interbank placements made by RMB via approaching the
respective counterparties and borrowing on behalf of RFHL, Bethel Trust and/or himself
equivalent amounts which were linked to the placements. The transactions involving the
siphoning of depositor’ funds were done at counterparty level in a thinly-veiled attempt to
conceal the fraudulent abuse of depositors’ funds. Transactions involving the Kingdom Bank,
TN Bank and Metropolitan graphically illustrate this phenomenon.”
The report says Timba’s action bordered on serious criminality and fraud. This has provoked
calls Timba to be forced to return the money he raided from the bank and for the law to be
allowed to take its course for all the culprits. The bank designed an intricate web of toxic
combination of insider loans, inappropriate withdrawals from unfunded accounts, imprudent
credit risk management and gross abuse of office siphon depositors’ funds,” the RBZ report
says. The report, under the section intragroup indebtedness and undesirable methods of
conducting business, says the RMB looting was on a “Nick Leeson-type” scale that left the
bank bleeding. Leeson is a former derivatives broker whose fraudulent, unauthorized
speculative trading and other financial engineering activities caused the collapse of Barings
Bank, the United Kingdom’s oldest investment bank, for which he was sent to prison.

“The investigation determined that a significant non-performing related party exposure to

RFHL of #9 856 428,56 constituting 18.6% of the total loan book was conveniently
camouflaged as a “dealing limit”. In addition a loan to ReNaissance Securities of $315 221
was also disguised as dealing transaction since 2009. The RFHL increased drastically to $9.8
million against an expired limit of $750 000. There was no board approval for all the
subsequent draw downs after the expiry of the transaction limit.

“Non-performing insider and related party exposures were endemic at the institution. Such
self dealing is symptomatic of banks in distress. The investigation determined a very high
level of non-performing loans of 38% of the total loan book of $53 097 759,83 as at 31
March 2001,” the report says. The RBZ reports say the way Timba, Kundishora and others
looted RMB would reduce the Nick Leeson scandal to kindergarten stuff.

Timba who ran into problems after borrowing US$5 million from local tycoon Jayesh Shah
which he struggled to repay, and Group Executive Director, Business Development Dunmore
Kundishora were the ringleaders in the whole saga. The two have between them direct and
indirect shareholdings of up to 68.9% in the group. If the 9,13% of Clementine Sibve, another
main shareholder, in RFHL, is taken into account, the effective shareholding of the three
founding directors shoots up to 78,03%, an unlawful arrangement in terms of the law.

RMB, whose closure has shaken the market in which several other small and vulnerable
banks are struggling, is wholly owned by RFHL which also controls ReNaissance Securities
Ltd and ReNaissance Capital Ltd in Uganda. In addition RFHL owns 30,89% of Africa
ReNaissance Corporation.
The bank was technically insolvent with negative capital of $16.7 million as at April 30
against a prescribed minimum capital requirement of US$10 million for merchant banks.
Given capital deficit the bank US$32,6 million to comply with regulatory capital
requirements.

The capital position is projected to worsen to minusUS$39.2 million if the contingent

liabilities on account of RFHL amounting to US$22.6 million are factored into the above
position of minus US$16.7 million. Accordingly the bank will require approximately
US$55.1 million to comply with regulatory capital requirements. Bans are expected to meet
their capital requirements by June 30.

Questions

a. Identify the ethical issues in this case study.

Case Study 1.4

Underhand dealing

Case study on United Merchant Bank

United Merchant Bank of Zimbabwe Ltd. (UMB) was opened in January 1995. Roger Boka,
founder and executive chairman of the bank, owned a wide portfolio of businesses including
Boka Investments, Boka Tobacco Auction Floors, Boka Booksales, Boka Cosmetics, and
Trust Accounting and Consultancy.

In 1998, Government regulators revoked the license of UMB after it was found to be
incapable of paying off its debts. Finance Minister of the day, Herbert Murerwa, revealed
that the finance ministry and the RBZ had become aware of problems at UBM towards the
end of 1997, following an on-site examination. A ‘Corrective Order’ was issued formally
outlining deficiencies and ordering specific actions to be taken immediately. Shareholders
ignored the ‘Corrective Order’ so the minister appointed a team of independent auditors to
investigate the affairs of UMB, on April 1, 1998. Based on the auditors’ report, the minister
directed the Registrar of Banks and Financial Institutions to cancel the banking licence to
UMB, and Boka and his related companies were subsequently “specified”. The audit
revealed that the bank was in serious financial problems reflected in low capital ratio and
inadequate liquidity to meet depositors’ claims and other liabilities.

When UMB collapsed in April 1998, the bank was owed some $3 billion by various groups,
parastatals and individuals, including government ministers. Polka Nominees, an organisation
acting on behalf of the Zimbabwe National Liberation War Veterans’ Association, arranged a
loan package with UMB to allow ex-combatants to buy tractors and grinding mills through an
arrangement with a Chinese firm. War veterans’ stated that the disbursement of funds was
suspended by government, hence the delay in payment to the bank. In the case of agriculture
loans, farmers had promised to pay back during the tobacco season of that year (ending in
September). In the case of parastatals, the bank received requests from government officials
to hold off action until strategic partners and buyers were found. Commentators later said
that the bank had questionable lending procedures – loans were extended to individuals and
institutions either with inadequate, or with no security at all.

In May 1998, following the RBZ audit, an official report on the status of UMB was
published. The report revealed that Boka siphoned more than $500 million from UMB to
finance his other companies. There were massive transfers of funds to external destinations
for such purposes as the purchase of aeroplanes, purchase of motor vehicles and investments
into Boka’s personal accounts. At least US $20,9 million could have been externalized this
way.

“UMB was managed in manner that totally disregards most laws and guidelines which
regulate company and or bank operations in Zimbabwe,” Reserve Bank Governor Tsumba
said in the report. “Laws and regulations such as Serious Offences Act, Companies Act,
Banking Act, Exchange Control Regulations and Prevention of Corruption Act were
violated.” He also recommended that the Law Society be consulted in regard to the
possibility of unprofessional conduct on the part Gregory Slater of Gollop and Blank legal
firm, in his capacity as a board member of UMB and also Boka’s lawyer. Slater assisted Boka
to divert UMB’s funds after the cancellation of the bank’s licence by operating a trust
account, although UMB and Boka had been specified.

Perhaps the biggest case of fraud, and the one that brought the story of UMB to light was the
issue of fake Cold Storage Company (CSC) bills. Boka’s empire crashed after he issued the
fake bills worth billions of dollars to unsuspecting financial institutions. The government had
tasked UMB to raise $413 million on the local for the CSC’s commercialization program.
UMB instead raised an extra $750 million using fake commercial paper, and in the process
financially exposed several companies, financial institutions and discount houses that had
dealings with the bank. Many firms had invested in the bills because of the attractive short-
term returns of 3 months maximum.
Commentators later blamed UMB’s demise on the bank’s managers who they said were ill
equipped to professionally manage the under-capitalised institution. The bank’s liquidators,
KPMG, found that the institution’s books of accounts were not being properly kept, and they
were struggling to trace the money the bank was owed.

Boka never called meetings of UMB’s board of directors. He carried out massive insider
dealings by granting loans to 11 other companies that he controlled. In fact, he had so much
control of the bank that incidents of conflict of interest were rampant.

At the time of UMB’s collapse, Zimbabwe had no clear–cut policy on bank supervision. The
role of the central bank was undermined by the fact that it had no statutory powers to control
banks. Said Governor Tsumba: “The supervisory system in Zimbabwe is ineffective. It is
legally ill equipped to timeously address critical issues. At registration (in 1992), UMB
failed to meet the minimum licensing requirements such as management, shareholding
structure and minimum capital injection but was nonetheless licensed. It is clear that
licensing standards were bent to accommodate an otherwise undeserving applicant.” Tsumba
also complained that although he had as far back as September the previous year reported to
the government, through the Ministry of Finance, the problems of UMB, the absence of tight
control measures made it impossible for his bank to act.

The bank’s liquidators, KPMG, issued a statement in December 2000 saying creditors of the
collapsed bank would not be paid in full because the money expected from the bank’s debtors
and the disposal of its assets was far less than what creditors were claiming. Creditors were
totaling $1.4 billion while only $800 million was due to be collected from debtors. Among
the creditors was the City of Bulawayo. The City had invested over $13 million in 1998
before the bank collapsed in the same year.

Question
a) What ethical issues arise from this case study?
b) What factors created the conditions for the situation to arise?
c) What were the effects of the lack of ethics policies and practices?

d) What measures would you recommend to ensure that Good ethical principles are
understood and practiced in the future?
Case study 1.5

Tax evasions

Capitalism’s Achilles Heel : Dirty Money and How to Renew the Free Market System

Enron. Tyco. WorldCom. This list of tainted companies could go on for pages. More than
ever our economic system is struggling to balance what is legal, what is ethical and what
serves the common good. The many disgraced corporations in the last five years have met
with scandal in their own unique ways. But there is a common thread that links many of them
and countless other companies that operate “cleanly.”

That tread is the dirty money structure, which consists of tax havens, secrecy jurisdictions,
abusive transfer pricing, dummy companies, anonymous trusts, hidden accounts, solicitation
of ill-gotten gains, kickbacks and loopholes left in the laws of western countries that
encourage incoming criminal and tax evading funds. Many global companies and banks use
this structure to skirt customs, tax, financial and money laundering laws. Roughly $11 trillion
is stashed away in tax havens and secrecy jurisdictions. About half of cross-border commerce
involves some part of the dirty money structure, often to hide illicit proceeds.

The result is nothing less than legitimization of illegality. It is virtually impossible to do

business using tax havens, secrecy jurisdiction, and abusive transfer pricing and secret
accounts without breaking laws in many countries.

Question

Why has so much bad behavior become business as usual?

Case Study 1.6

Mashaba Corporation

A few years ago Mashabas’ Wereville was solid enough to be included among the giants of
Zimbabwean business. Today, Wereville is in the process of turning over 80% of its equity to
a trust representing people who have sued or plan to sue it for liability in connection with one
of its principal former products, asbestos. For all practical purposes, the entire company was
brought down by questions of corporate ethics.

More than 40 years ago, information began to reach Wereville’s medical department-
implicating asbestos inhalation as a cause of asbestosis, a debilitating lung disease, as well as
lung cancer and mesothelioma, an invariably fatal lung disease. Werevile’s managers
suppressed the research. Moreover, as a matter of policy, they apparently decided to conceal
the information from affected employees. The company’s medical staff collaborated in the
cover up, for reasons we can only guess.

Money may have been one motive. ln one peculiarly chilling piece of testimony, a lawyer
recalled how 40 years earlier he had confronted Wereville’s corporate counsel about the
company’s policy of concealing chest X-ray results from employees. The lawyer had asked,
“Do you mean to tell me you would let them work until they dropped dead?” The reply was,
“yes, we save a lot of money that way.”

Based on such testimony, a Mbare court found that Wereville’s had hidden the asbestos
danger from its employees rather than looking for safer ways to handle it. It was less
expensive to pay workers’ compensation claims than to develop safer working conditions. A
New Gweru court was even blunter: it found that Wereville had made a conscious, cold
blooded business decision to take no protective or remedial action, in flagrant disregard of the
rights of others.

How can we explain this behavior? Was more than 40 years ‘worth of Wereville executives
all immoral? Such an answer defies common sense.

Answer the Following Questions

a) Identify and justify the two parties who acted unethically in the case study
b) Identify five (5) reasons why the parties failed to disclose the unethical practices at
the organization.
c) Outline other ethics guidelines which managers and employees can follow to avoid
such a crises presented in the case study.

d) Identify and Explain two (2) dilemma situations presented in the case study.
e) From your understanding of business ethics module recommend five (5) techniques
that can be used to deter and expose wrong doing and what the limitations are for each
technique.
f) From your analysis of the case study assuming that you are now the new owner of the
organization who should resign and why?

g) As the new owner of the organization Wereville, you have decided to hire an Ethics
officer, prepare a brief outline of the key competence and key result areas of the new
position.
Read the case carefully and answer the following questions:

In Turkey, the apartment buildings that collapse during earthquakes are known as “bribe
buildings.” In Africa, bridges dot the landscape with no roads to connect them. There’s no
doubt that corruption, endemic in emerging economies around the world, throws economic
development into chaos. It affects decisions made by bureaucrats, degrades the quality of
those in power, and discourages foreign investment. It’s also an increasingly hot business
topic, with a growing number of influential business and political leaders from around the
globe regularly pinpointing corruption as one of the greatest threats to global economic
development. “Corruption and bribery have moved to the forefront in discussions about
business,” says Wharton legal studies Professor Philip M. Nichols. “The list of countries that
have been politically or economically crippled by corruption continues to grow, and
businesses with long-term interests abroad will ultimately be harmed by any plans that
include bribery.”

Bribery, of course, is the most widespread form of corruption, and corporate strategies for
dealing with bribe requests vary. According to Nichols, some companies opt to pay,
sometimes damaging their public images and making it more difficult to refuse future
requests. Others have the sheer bulk and revenues to successfully and consistently say “no.”
Oil giant Texaco, for example, has such a formidable reputation for refusing to pay bribes
that its jeeps are often waved through even remote African border crossings without paying a
penny.

A key, Nichols suggests, is wiring this no-bribe ideal into a corporation’s culture, starting
with a corporate code for managers and employees, affiliates and potential business partners.
But coming to grips with what appears to be an international groundswell of corruption is far
from a simple matter. Nichols believes that unravelling and explaining the mechanics of
corruption is critical to helping the growing body of government and corporate organizations
trying to fight it.
On a practical level, what does the upswing in international corruption mean to a company?
“The fact that a great number of government officials in a great number of countries,
including some potentially large markets, seem to demand bribes is critical to any business
that has a cross-border presence,” says Nichols. “Then there’s the reality that more than 20
nations, including the wealthiest and most active trading nations, have made bribe paying
illegal, and the fact that despite this there are still competitors who will pay bribes.

“These facts combined make for some extremely difficult terrain. Officials expect you to pay
bribes, some of your competitors will pay them, but you might go to jail if you do.”
Corporations, Nichols believes, must create a corporate culture that doggedly refuses bribe
requests and establish clear corporate codes that employees unwaveringly adhere to. They
must also assure managers that the company will back them when they refuse to pay. “A
company would be foolish not to develop two general strategies, one for dealing with bribe
demands and another for dealing with competitors who offer bribes,” he says. “The potential,
in terms of criminal liability, skewed relationships, lost contracts, disqualification from
government contracts, loss of reputation and so on is simply too great to ignore. “Perhaps the
most useful action a business can take is to really understand corruption, and to create and
articulate a general response to corruption before it encounters difficult situations,” Nichols
says. “It’s also useful for businesses to work together to create assurances that each will
adhere to some agreed level of behavior.”
Other risks and costs abound for companies that succumb to the bribery game, Nichols says.
Because bribery is illegal, it is conducted behind closed doors, with those involved expending
time and resources to keep their secret. “For obvious reasons, we have not really been able to
study the quality of corrupt relationships,” he says. “But those who have endured them often
describe them as unhealthy, unstable and unenforceable.” He adds that firms’ reputations
suffer when word ultimately leaks, as happened with those who conducted business with the
family of former Indonesian President Suharto. Prior to and just following Suharto’s 1998
resignation, the former leader, his children and associates were widely accused of taking
advantage of benefits such as monopolies and tariff breaks to amass enormous personal
wealth.
Companies also face the very real possibility of being pushed to pay more and more bribes as
their reputation as a bribe-payer spreads. “One European businessman told me that after his
company made its first few payments, bribery became a part of the normal course of business
because bureaucrats worldwide expected similar treatment,” Nichols says. “This is far from
uncommon.” Lastly, there are international trade implications surrounding bribery. Bribery
degrades markets. Economist Paolo Mauro, in the article “Corruption and Growth,” finds a
direct link between high levels of corruption and low levels of foreign direct investment.
Though Mauro’s work does not explain this finding, Nichols offers three likely reasons.
“First, corruption actually increases the amount of time a company must spend with a
bureaucracy; second, corruption makes it more difficult to obtain information, which
increases transaction costs, and third, corrupt relationships are less predictable and less
enforceable. There’s probably a fourth reason too, which is that most business people are
good people and have distaste for endemically corrupt environments,” he says. “Corruption
also drastically affects economic development by causing a misallocation of resources. Yes,
Africa is littered with bridges instead of hospitals. But more damaging is the fact that in
endemically corrupt systems, regular people are not getting served by the government; they
don’t trust the government so they don’t interact with the government,” Nichols says. “But
people have to get things done. So they create their own systems to do things, such as resolve
disputes or enforce contacts or even police neighbourhoods.” These systems, however, “are
not free,” Nichols adds. “They cost money. So money goes to supporting the government
system and money goes to supporting the shadow system; twice as much money goes to
bureaucracies as it should. That means money is not going to increasing food production, or
to health, or to enlarging the economy. And that stinks.”

(a) Bribery, of course, is the most widespread form of corruption, and corporate strategies
for dealing with bribe requests vary. With respect to the case, discuss the strategies for
saying no to bribe? (10 marks)
(b) Explain risks and costs abound for companies that succumb to the bribery game. (10
marks)
(c) There’s no doubt that corruption, is endemic in emerging economies around the world.
Discuss the various unethical behaviours that constitute in business and their impact of
corruption on market system. (10 marks)
 CASE STUDY. 3.6

Chantale Leroux works as a clerk for Avco Environmental Services, a small toxic-waste
disposal company. 

The company has a contract to dispose of medical waste from a local hospital. During the
course of her work, Chantale comes across documents that suggest that Avco has actually
been disposing of some of this medical waste in a local municipal landfill. Chantale is
shocked. She knows this practice is illegal. And even though only a small portion of the
medical waste that Avco handles is being disposed of this way, any amount at all seems a
worrisome threat to public health. 

Chantale gathers together the appropriate documents and takes them to her immediate
superior, Dave Lamb. Dave says, "Look, I don't think that sort of thing is your concern, or
mine. We're in charge of record-keeping, not making decisions about where this stuff gets
dumped. I suggest you drop it." 

The next day, Chantale decides to go one step further, and talk to Angela van Wilgenburg,
the company's Operations Manager. Angela is clearly irritated. Angela says, "This isn't your
concern. Look, these are the sorts of cost-cutting moves that let a little company like ours
compete with our giant competitors. Besides, everyone knows that the regulations in this area
are overly cautious. There's no real danger to anyone from the tiny amount of medical waste
that 'slips' into the municipal dump. I consider this matter closed." 

Chantale considers her situation. The message from her superiors was loud and clear. She
strongly suspects that making further noises about this issue could jeopardize her job.
Further, she generally has faith in the company's management. They've always seemed like
honest, trustworthy people. But she was troubled by this apparent disregard for public safety.
On the other hand, she asks herself whether maybe Angela was right in arguing that the
danger was minimal. Chantale looks up the phone number of an old friend who worked for
the local newspaper.

 Questions for Discussion:

a) What should Chantale do?(4 marks)

b) What are the reasonable limits on loyalty to one's employer?(4 marks)
c) Would it make a difference if Chantale had a position of greater authority? Base your
answer to part (c) on your understanding of teleological and deontological approaches
to ethics. Further argue the ethical obligations based on the Freedman’s models and
the neo-classical paradigm. (12 marks)