Business Ethics

The paper is an analysis of the case “Accounting Fraud at WorldCom” (the case is included in the Course pack – we will discuss this case in class on March 30, the same day the paper is due).

Evaluation of Paper: Good performance on this assignment consists of systematically and thoroughly applying relevant concepts and methods from the course to the case. When you introduce a concept, please explain what it means and how it applies to the case (make sure it is clear that you know what the concept means and why it is relevant). Please explain the concepts in your words, not mine (from slides).

Apply concepts from class! In preparing your paper, you may read outside articles and books on the topic of the WorldCom scandal. In doing so, you will likely read other people’s opinions and analysis regarding what happened and why it happened. This analysis will likely apply concepts that we have not covered. These concepts will probably not help you write your paper. Your assignment is not simply to analyze the case; it is to use concepts from this course to analyze the case. You will be graded on how well you explain and apply concepts from class. If your paper is based heavily on other people’s analysis of the situation, you will likely fail to adequately cover concepts of class and will likely introduce foreign concepts that are not meant to be part of this assignment.

The paper is due by 5:30pm on March 30, 2016. Please submit the paper (preferably as a Word doc) on the Blackboard website for the course. The paper should be 12-pt font, 1-inch margins, double-spaced.

Penalties for late submission: Because we are discussing the case in class on March 30, it is critical that you submit your paper on time (before class starts that day). It is not a good strategy to wait until after class discussion that day to turn in your paper. To discourage this approach, late papers will be penalized as follows. A paper submitted on March 30 but after 5:30pm will be penalized 5 points (out of the 100 total). Papers submitted on March 31 will be penalized 8 points, papers submitted on April 1 will be penalized 11 points, and so on (with each additional day late adding 3 points to the penalty). There is a separate document (called “schedule of late penalties”) that lists the penalty associated with each possible date of submission.

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Organize your paper as follows, with these section headings:

I. Summary of Situation(length: .5 – 1 page): Summarize the situation. What happened? Don’t focus too much on the technical details (e.g., the specific accounting practices). Don’t give a step-by-step description of the sequence of events. Instead, imagine you are trying to explain what happened to someone with no business experience. What would you say?

First, set the scene that leads up to the accounting fraud. Describe WorldCom and its general situation at the time. What is WorldCom like as a company? How is the company organized(e.g., the composition of the board of directors and its relationship with the company; the company’s relationship with Arthur Anderson, its external auditing firm)? What is WorldCom’s business model or strategy? How are things going financially, for the company and for the broader telecommunications industry?

Second, describe the accounting fraud itself. Who are the key figures and what role did they play? You do not need to describe the specific accounting practices in detail. You also do not need to explain whyeach person did what he or she did (that would be causal analysis – you can save that for the causal analysis section). Instead, you should just summarize the series of actions that led to the fraud being committed and ultimately reported.

Finally, end by briefly identifying the key stakeholders of WorldCom (i.e., who is impacted by the operation of the company and thus has a stake in its success or failure?)

II. Normative Analysis(length: 2-3 pages):In this section you should use concepts from class to evaluate the people in question and explain why what they did was, or was not, ethically wrong. Did anyone violate their fiduciary duties and if so, how? How were stakeholders impacted?

The Fraud
The purpose of this section is for you to explain why the fraudulent accounting and other behavior described in the case was ethically wrong. What makes it wrong? To do so you should use the concepts from class. Think about fraudulent accounting in general (not just this case, specifically). Why is it wrong?

Those in charge at WorldCom had an ethical responsibility to its shareholders (this responsibility has a name!) and perhaps also to other stakeholders (e.g., employees, customers, potential investors, society as a whole). How does fraudulent accounting (e.g., misrepresenting financial performance to make a company look more valuable than it actually is) affect these various stakeholders? For example, from the perspective of shareholders, why is this so bad (how are shareholders impacted)? From the perspective of potential investors, why is this so bad (how are potential investors impacted)? From the perspective of society, why is this so bad (how is society impacted)?

After explaining the impact on various stakeholders, you could take a stance on whether or not you think the company has an ethical responsibility to take these various consequences (for non-shareholders) into account or whether the impact on shareholders should be their sole concern (recall the Friedman/Mackey debate).

Other Behavior
Apart from the fraudulent accounting, were there any other ethical violations? Think carefully about fiduciary duty (and its different types). Do you see any other instances where someone violated their fiduciary duties? If so, describe and explain.

III. Causal Analysis(length: 2-3 pages): In this section your job, you should use concepts from classto explain why things happened the way they did. Apply the concepts you’ve learned in the course. What elements of moral or social psychology were operating here? Did you see anything like this situation in any of the cases we have read, or the situations we have discussed during the course?

Here are some key concepts that may be relevant (this is not a comprehensive list) normative social influence, informational social influence, ambiguity, escalation/slippery slope, bounded ethicality, ethical fading, motivated blindness, discounting, overconfidence bias, conflict of interest, confirmation bias, moral foundations (e.g., concerns about harm, fairness, loyalty, and respect for authority), corporate governance.

Note: Do not attempt to mention every single possibly relevant concept from class (or the above list). It would be better to pick a few factors/concepts that you think are most important and then explain, clearly and thoroughly,what they are and how they contributed to the fraud.

IV. Ethical Systems Design(length: 2-3 pages):If you were in charge of a company like WorldCom, how could you apply concepts from class to prevent situations like this from arising? More generally, how could you change the rules, norms, or other aspects of the environment so that the organization was less prone to this sort of ethical problem in the future?

These recommendations should follow directly from the causal factors you identified in the previous section. For example, if your causal analysis focused on how factors X, Y, and Z were the primary reasons for the accounting fraud, you should suggest ways that the company could be changed to lessen (or eliminate) the influence of factors X, Y, and Z. Be concrete! If you think some aspect of the company can be improved, explain the specific, concrete steps you will take to change it. It is not enough to say, for example, “I will make the corporate culture better.” How exactly will you make it better? And why will your plan work? How would your plan address the needs/rights of key stakeholders?
Reference Section: When you reference an article (e.g., an article that we read for class), please include an in-text citation and add it to a reference section. Use APA (or MLA) style for the reference section and in-text citations.

Citing Lecture/Slides: You may find yourself referring directly to lecture or lecture slides. If you do so, you should explain the concepts in your own words, not mine. Also, if you quote anything word-for-word from the slides (which I don’t recommend because you should be explaining the concepts in your won words), you must put it in quotation marks. To cite lecture slides in the following way:

In-text citation:insert a parenthetical citation that says “Sherman” and the date of class. For example:

(Sherman, September 9)

Reference section:

In the references section, add a full reference for the lecture. You can use the title from the first slide. For example:

Sherman, G. (September 9, 2015). Foundations: Moral Philosophy and Psychology. Lecture Slides.
Total Length:Each section has a specified page range (see above). Please be sure to at least hit the minimum length for each section. It is perfectly fine to be on the shorter end of the page range as long as you are able to apply the relevant concepts concisely and clearly. In other words, I care about substance not length.

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