Ethics Case

Integrity without knowledge is weak and useless, and knowledge without integrity is dangerous and dreadful. Rebecca and Susan operate a beauty salon as partners who share profits and losses equally. The success of their business has exceeded their expectations and is operating quite profitably. Rebecca is anxious to maximize profits and schedules appointments from 8 am to 6 pm daily, even sacrificing some lunch hours to accommodate regular customers. Susan schedules her appointments from 9 am to 5 pm, and takes long lunch hours. Susan regularly makes significantly larger withdrawals of cash than Rebecca does. However, she says, “Rebecca, you needn’t worry I never make a withdrawal without you knowing about it, so it is properly recorded in my drawing account and charged against my capital at the end of the year.” Susan’s withdrawals to date are double Rebecca’s.

Instructions

Who are the stakeholders in this situation? Identify the problems with Susan’s actions and discuss the ethical considerations of her actions. How might the partnership agreement be revised to accommodate the differences in Susan’s and Rebecca’s work and withdrawal habits?

Business Insight

An interesting question is: Who runs a corporation—the stockholders or the board of directors? This issue has taken on increased importance because stockholders and board of directors are often on the opposite sides of the fence these days when potential takeovers occur.

A classic example is unfriendly takeover bid made by Paramount Communication Inc. for Time Inc. Paramount bid up Time’s stock price substantially; many stockholders said sell—but Time’s board of directors had other plans. They were in the process of trying to make a friendly deal with Warner Communications. Some stockholders said, “Let us vote on what we should do.”

However, Time decided to proceed without stockholders’ vote, even though the board of directors knew the Warner deal would depress Time’s stock price. They figured that many stockholders would prefer to accept the Paramount bid. The stockholders sued to overturn the deal with Warner Communications but lost.

The judge wrote: “Corporation law does not operate on the theory that director, in exercising their powers to manage the firm, are obligated to follow the wishes of a majority of stockholders. In fact, the directors, not the stockholders, are charged with the duty to manage the firm.”

Ethics Note

Managers who are not owners are often compensated based upon the performance of the firm, and thus may be tempted to exaggerate firm performance by inflating income figures.

It is not necessary for a corporation to have an office in the state in which it incorporates. In fact, more than 50 percent of the Fortune 500 corporations are incorporated in Delaware. A primary reason is the Delaware courts’ long-standing “business judgment rule.” The rule provides that as long as directors exercise “due care” in the interests of stockholders, their actions will not be second-guessed by the courts.

The rule has enabled directors to reject hostile takeover offers, even with hefty premiums, or to spurn takeovers simply because they did not want to sell the company. However, new interpretations are emerging. In a recent case, the state court ruled for the company that made a hostile takeover bid. On appeal, the Delaware Supreme Court ruled for the directors but gave the following guideline to the state courts: “Was the board’s response reasonable in the light of the threat posed?”

Interest sometimes perverts the noblest minds. They publically declare that they know God, but they disown him by their works. True Christians unselfishly use their time and resources to help encourage others. Our Creator is wiser than we are. As a loving Father, he cares for us. Also, he did not intend for us to be independent of him. So just as a small child needs the guidance of parents, we all need the guidance of GOD. Bible principles provide guidance that is a gift from God.

God’s laws and principles teach us the best way of life now and show us how we can gain everlasting rewards in the future. Since God created us, it is only right that we respond appreciatively to his guidance. The greatest merit any person could have is to be good and useful. We canna love just where other folks’ud have us. There is nobody but God can control the heart of man. Teach your family how to be united by love.