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The ethical issues Billy might face are customer transparency because the bank had not told Billy
that they had invested in one of the bank’s money market accounts that was earning a merger
rate of return relative to other investments options at the same risk. The banks was not upfront or
honest about what they were going to do in the beginning. Other ethical issues Billy faces with
community relationships. Profit maximization also suggests that your best move in a community
is to figure out how to get the best location, tap into all possible subsidies and give little
consideration to how your money-making endeavors affect the local area in which you operate.
Since the bank never told Billy of better options to begin with, there will be a struggle of
building a relationship full of integrity. The stakeholders in this situation are Billy who will be
affected by the banks actions. This will not just affect Billy, it will affect all the other customers
who hold accounts in the bank.
Answering the third question, Billy could also have addressed the concern in the very beginning
even if he felt he was too new to even say anything. Billy can also address his concern to the
audit committee over the company in which they will monitor the activity in a more control
substantial way. Designed to overstate assets and earnings, schemes can deliberately overstate
existing investments or create fictitious investments. Investments may also be intentionally
misclassified resulting in the improper recognition of gains or failure to recognize losses. Other
schemes are designed to hide or defer losses from sales or permanent write downs from
impairments Billy can simply take note of what he have witnessed and can report to the
authorities of GAAP. You can also use consequence-based reasoning to mention what could
happen if the bank continues to perform the same activity.
Always going up to your boss for any concern is very challenging, especially if you are new.
You can tell your boss you want to obtain an Alternative Dispute Resolution in which you will
suggest based on the knowledge you know what is not right. Out of good faith, you could ask a
small protest to be considered in which you will wish to see proper following of the GAAP
guidelines followed. It will be good to have the ethic policy handbook with you and the code of
ethics.
The ethical models from Chapter Two in the business law book that can be applied here is the
stakeholder model. Through this model the “corporation is responsible to society at large, and
more directly; to those constituencies on which it depends for its survival. Thus, it is argued that
a corporation should be managed for the benefit of all of its stakeholders- stockholders,
employees, customers, suppliers, and managers, as well as the local communities in which it
operates”(22). The stakeholder model can be applied to this case by…
MGT 330-FINAL PAPER
DUE:
On or before November 28, 2016
VALUE:
30% of your final grade. Please note, in the absence of excused lateness, papers received
after November 28, 2016 will be downgraded 20%.
Times New Roman, Twelve Point Font, Double Spaced, Justified Margins
FORMAT:
I.
Instructions
Read and reflect on the prompt entitled "Trusting the Trust Accounts" here:
http://www.babson.edu/Academics/teachingresearch/gvv/Documents/Student/Trusting-The-Trust-
Accounts A S.pdf
In two distinct sections of your paper, address the following issues and questions:
A. Ethics Portion (2 pages)-> wnte 3 gire to him and will
provide feedback
1. What ethical issues does Billy face?
2. Who are the stakeholders?
3. If you were Billy, what would you do? Why would you take that course of action?
4. How would you explain your course of action to your boss? What would you say? How would you say
it?
5. What ethical models (from Chapter 2) could you apply here? How?
B. Legal Portion (3-4 pages)
Assume that:
1. The contract between Bank and Customer says: "Bank shall manage Customer's accounts in such a
manner as to maximize the return on the Customer's accounts.
2. Billy did nothing, and Customer discovered that the Bank failed to ensure that Customer's deposits
earned the maximum amount of interest possible.
3. Customer wanted to sue the Bank after discovering these facts. Joe, Billy's supervisor, asks Billy to
explain what legal risks the Bank is facing and also come up with some alternative dispute resolution
mechanisms besides litigating in court.
a. Does Customer have a good breach of contract claim against the Bank? Explain your answer.
b. Does Customer have a good negligence claim against the Bank? Explain your answer.
c. What alternatives to court are available?
d. What are the pros and cons of each alternative?
{P0700453 V 1)
4829-5110-3537. v. 1
B
BABSON
Giving Voice to Values
Mary Gentile, Pho. Director
wanaingietoves.org
Trusting the Trust Accounts (A)'
Billy was excited to start his summer internship in the Trust Department at a local, publicly-
traded community bank. He had just completed his junior year majoring in Finance at a highly
ranked undergraduate university and he was looking forward to applying the skills he had
learned in his classes. His internship started in early June, and Billy spent the first few days
getting to know the systems of the bank and the five other employees in the Trust Department.
He also helped the staff within the Trust Department with minor tasks. Billy was able to quickly
form relationships with the other employees. He wanted to display his interest and enthusiasm,
so he made a point of reaching out to each member of the staff with a friendly introduction. In
addition, due to the small staff, he was able to quickly form a strong relationship with his
immediate supervisor, Joe, who was also a member of the bank's senior management.(Joe took
Billy out to lunch for his first couple of days at the bank and the two discovered that they both
enjoyed golf, which allowed for friendly small talk in the office.
One of Billy's first projects was to monitor the cash sweep balance of the trust accounts. These
accounts were comprised of the(cash not invested in stocks or bonds, and also included any
incoming cash from items such as dividends on investments. For each individual account, the
cash sweep account made up a very small percentage of the overall trust account) However,
when each of the cash sweep accounts was combined within the Trust Department, the account
totaled a much more significant number of nearly $5 million. While the trust sweep balance
account made up a relatively small portion of the bank's overall size, the Trust Department was a
rapidly growing and profitable division.
Developed by John T. Lytle and Jessica McManus Warnell, University of Notre Dame, with Karen Whelan-Berry,
Providence College,
This case was inspired by an actual internship experience but names and other situational details have
been changed, and interview sources left un-credited with permission, for confidentiality and
teaching purposes.
ALBISOLEDU
This material is part of the Giving Voice to Values curriculum collection (www.Giving VoiceToValues.org).
The Aspen Institute was founding partner, along with the Yale School of Management, and incubator for Giving Voice to Valnes (GVV).
Now Funded by Babson College
Do not alter or distribute without permission. © Mary C. Gentile, 2010
3
Giving Voice to Values
?
After analyzing the cash balances of the trust accounts for a few days, Billy became(curious as to
the specific return being generated on the cash sweep balances.) He learned that this cash was
invested in one of the(bank's money market accounts)that was earning a very meager rate of
return relative to other investment options of the same risk. This finding puzzled Billy because
he had learned in many of his classes in the previous semester that maximizing client revenue as
well as the bank's revenue was critical to the operations of a successful bank. Billy was
concerned that the bank was not maximizing the earning potential of the cash within the trust
accounts. He was also worried that the bank may be keeping the cash within the bank by
investing the cash balances in a money market account in order to boost the bank's overall size,
but at the expense of the client's return. After giving it some thought, Billy thought that the bank
may want to keep the money within the bank and increase the bank's apparent assets in order to
draw new customers. However, that did not address the fact that the existing customers could be
earning a larger return.
Billy felt confident about his opinion about what had been happening with the cash sweep
balances of the trust accounts. If his hunch was correct, the bank was not doing all that it could
to maximize the earnings of customers. Although he felt sure of his assessment, Billy also felt
nervous about sharing his findings because he had only been at the bank for a short time and was
an intern. His supervisor, Joe, a member of senior management, had been there for two years,
but had nearly twenty years of experience in banking. In addition, the other Trust Officers had
each been at the bank for roughly ten years.
Billy knew he should take action. He had recently taken a course in business ethics and he
wanted to put into action his skills that he had learned in the class. He also knew that
maximizing the investment returns of customers was an important issue, especially given the
economic downturn that had negatively affected so many people. But how should Billy raise the
issue, and with whom?
Rev. 3/22/2014
This material is part of the Giving Voice to Values curriculum collection (www Giving VoiceToValues.org).
th the Yale School of Management, and incubator for Gluing Voice to Values (GW).
22
Part 1
The Legal Environment of Business
assert, however, that business has certain obligations beyond corporation is responsible to society at large, and more
making a profit or not harming society. Critics contend that directly, to all those constituencies on which it depends for
business must help to resolve societal problems, and they its survival. Thus, it is argued that a corporation should be
offer a number of arguments in support of their position. managed for the benefit of all of its stakeholders-stockhold-
ers, employees, customers, suppliers, and managers, as well
THE SOCIAL CONTRACT Society creates corporations and as the local communities in which it operates. Compare Fig-
accords them a special social status, including the grant of ure 2-2 with Figure 35-1.
limited liability, which insulates the owners from liability for
debts the organization incurs. Supporters of social roles for
SEE FIGURE 2-2: The Stakeholder Model
corporations assert that limited liability and other rights LESS GOVERNMENT REGULATION According to another argu-
granted to companies carry a responsibility: corporations,
ment in favor of corporate social responsibility, the more
just like other members of society, must contribute to its bet- responsibly companies act, the less regulation the govern
terment. Therefore, companies owe a moral debt to society
ment must provide. This idea, if accurate, would likely appeal
to contribute to its overall well-being. Society needs a host of
to those corporations that typically view regulation with dis-
improvements, such as pollution control, safe products, a
taste, perceiving it as a crude and expensive way of achieving
free marketplace, quality education, cures for illness, and social goals
. To them, regulation often imposes inappropri-
freedom from crime. Corporations can help in each of these
ate, overly broad rules that hamper productivity and require
areas. Granted, deciding which social needs deserve corpo-
extensive recordkeeping procedures to document compli-
rate attention is difficult; however, this challenge does not
ance. If companies can use more flexible, voluntary methods
lessen a company's obligation to choose a cause. Corporate of meeting a social norm such as pollution control, then gov-
America cannot ignore the multitude of pressing needs that
ernment will be less tempted to legislate norms.
still remain, despite the efforts of government and private
The argument can be taken further. Not only does antici-
charities.
patory corporate action lessen the likelihood of government
A derivative of the social contract theory is the regulation, but social involvement by companies creates a cli-
stakeholder model for the societal role of the business cor-
mate of trust and respect that reduces the overall inclination
poration. Under the stakeholder model, a corporation has fi-
of government to interfere in company business. For exam-
duciary responsibilities to all of its stakeholders, not just its
ple, a government agency is much more likely to show some
stockholders. Historically, the stockholder model for the role leniency toward a socially responsible company than toward
of business has been the norm. Under this theory, a corpora-
one that ignores social plights.
tion is viewed as private property owned by and for the
benefit of its owners-the stockholders of the corporation. LONG-RUN PROFITS Perhaps the most persuasive argument
(For a full discussion of this legal model, see Chapter 35.) in favor of corporate involvement in social causes is that
The stakeholder model, on the other hand, holds that a such involvement actually makes good business sense.
FIGURE 2-2: The Stakeholder Model
Managers
Suppliers
Employees
Corporation
Customers
HI
Community
© Cengage Learning
Stockholders