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Business & Professional Ethics
for Directors, Executives &
Accountants, 8e
Leonard J. Brooks and Paul Dunn
Cengage Learning, Boston, MA, 2018
Chapter 5 – Corporate Ethical Governance &

Accountability
Chapter Questions and Case Solutions
Chapter Questions..................................................................2
Case Solutions........................................................................9
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Chapter Questions
1. Must a company be incorporated as a benefit corporation in order to legally consider actions other
than those in pursuit of profit?
No.
All publicly traded corporations must meet governance requirements. Given the ability of non-
shareholder stakeholders to exert pressure on corporations, that may include taking
stakeholders’ interests into account, and in some jurisdictions, this is a legal requirement.
Therefore, corporations have legal accountability to shareholders, but strategic accountability
also to stakeholders. Because gaining the support of non-shareholder stakeholders may be in
the best interest of a company, choosing a course of action may involve trade-offs between
shareholders and other stakeholders in order to gain in the long-term, rather than just the
short-term.
Also, a company can apply for designation as a Certified B Corporation (B Corp) after
incorporation as long as it meets requirements of transparency and social and environmental
performance.
2. If Lynn Stout is correct, that the drive for shareholder value is a myth, why do so many companies
continue to use it as a goal?
Stout asserts that U.S corporate law does not require corporations to maximize share price,
shareholder wealth, or shareholder value; thus, the myth. But many lawyers, board members
and executives have been living in a world where they only needed to be concerned that a
proposed action was legal, and was intended to produce a profit (and that was usually only a
short-term profit that was needed). They have found those to be a rather easy set of tests to
consider and to meet. Longer term considerations usually involve measurement difficulties that
many of these individuals consider to be problematic, so they naturally were reluctant and
therefore slow to embrace them.
In addition, historically companies have been classified as “for-profit,” “not-for-profit,” or “non-

profit,” so the continuing rubric for monikers contributes to the myth.
The myth is also perpetuated by common compensation schemes that focus only on profit or
return on investment, not on the contribution to stakeholders. For example, when executives,
directors, and shareholders stand to gain from short-term, rather than long-term thinking under
the banner of shareholder value (for example, at Valeant Pharmaceuticals), they may see little
incentive to change, because they may be motivated by greed. Increasingly, however,
enlightened directors and executives realize that recognizing stakeholders--other than just
shareholders--and gaining their support, may be in the best long-term interest of the
corporation. In some jurisdictions, corporate statutes are changing so that directors can act in
Business & Professional Ethics for Directors, Executives & Accountants, 8e

L.J. Brooks & P. Dunn, Cengage Learning, 2018
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the best interest of stakeholders, not just shareholders, especially if that increases long-term
benefits for a corporation, even at the loss of short-term gains.
3. What is the role of a board of directors from an ethical governance standpoint?
The board is responsible for the actions of the corporation, both with regard to the achievement
of the corporation’s strategic objectives to enhance shareholder value and maintain the support
of the company’s stakeholders to achieve those objectives. This means that the board must
build into the company’s governance framework such objectives as growth, profitability in the
short- and long-run, compliance with laws, and respect for the rights of the primary
stakeholders. The board must set or approve policies that will achieve these objectives, hire
executives and monitor their performance in accord with those objectives, and make
corrections where required. The directors must oversee the governance system, monitor it and
take responsibility for it as the agents of the shareholders.
4. Explain why corporations are legally responsible to shareholders but are strategically
responsible to other stakeholders as well.
Corporations are created under the laws of a particular jurisdiction (Country, state,
province …) and the directors, as agents of the shareholders’, must account to those
shareholders and must follow the laws of the jurisdiction in which they are incorporated
as well as where they operate. In addition, according to stakeholder theory,
corporations need the support of their stakeholders to reach their strategic objectives
on a continuing and sustainable basis. This support can best be obtained it the
corporation take into account the interests of stakeholders when building and
implementing its strategy. Consequently, corporations are legally responsible to
shareholders and strategically responsible to a broader set of stakeholders.
5. What should an employee consider when considering whether to give or receive a gift?
An employee should be aware that giving or receiving a gift may raise conflicts of
interest (COI), and should understand the COI discussion in this chapter, including the
material to be considered specifically that is in Table 5.6.
6. When should an employee satisfy his or her self-interest rather than the interest of his or her
employer?
An employee’s self-interest, should be satisfied first, if satisfying the employer would be

unlawful or harm society, or harm the employee or other employees or other people
physically or mentally, or in the case of a professional would offend the professional’s
code of conduct. Use of an ethical decision making approach such as those discussed in
Chapter 5 could be helpful.

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7. Can an apparent conflict of interest where there are adequate safeguards to prevent harm be as
important to an executive or a company as one where safeguards are not adequate?
Yes, because an apparent conflict of interest can be perceived as real and actions triggered in
response, whether or not safeguards are present, it can be a risk with the potential to do
significant harm. An apparent conflict of interest can damage reputations, so avoiding conflicts
of interest is ideal; managing them is second-best.
8. How can a company control and manage conflicts of interest?
See the discussion on pages 257-264 of the text. Employees must be constantly made aware of
potential COI and their consequences through training and reinforcement. There must be a
mechanism provided for clarification and guidance including codes and counsellors. Monitoring
and sanctions are essential. Table 5.5 provides a list of helpful management techniques and
issues to consider. Table 6.13 provides safeguards that are available in the accounting firms and
profession, which may be of some use in corporations to manage the risk of COI problems.
9. What is the role of an ethical culture and who is responsible for it?
An ethical culture provides continual guidance to executives and other employees with regard
to appropriate patterns of behavior, standards of conduct, and how decision are to be made. It
is a vital part of the dissemination of company policies and of the internal control compliance
mechanism required by SOX of directors, the CEO and CFO. External auditors have long relied
upon an organization’s internal controls for assurance that transactions, records and reports are
handled properly.
Without an effective ethical corporate culture, directors, executives and auditors are very much
at risk. A corporation needs an ethical corporate culture to guide employees to do what the
directors and senior officers have decided to be appropriate behavior. Codes of conduct are not
always read or understood well, nor comprehensive, so employees usually consider and emulate
what they believe to be appropriate norms or actions from informally observing their bosses
and colleagues. An ethical culture is one where those informal observations are intentionally
integrated with formal ethics program objectives and guidance. The informal signals given by
senior executives are so important to good ethical governance that directors are now expected
to continually assess the ethicality of the “tone at the top”, and to hire/fire/encourage good role
models. Consequently, the corporation’s directors are ultimately responsible for the ethical
culture, and in turn so are the senior executives, as are auditors to some extent (for not finding
obvious flaws). In turn, executives and managers at lower levels are expected to be supportive.
A corporate ethics officer or advisor can be quite helpful.

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10. What is the most important contribution of a corporate code of conduct?
Guidance to ensure minimum standards of behavior and protect the reputation of the person,
profession or organization, so that no one can later say: "No one ever told me...", or "I though
that's what top management wanted.”
11. Are one or more of the fundamental principles found in codes of conduct more important than the
rest? Why?
I would argue that all of the ethical principles named at the start of Table 5.18 – honesty,
fairness, compassion, integrity, predictability and responsibility – are very important and each is
essential in specific situations. However, integrity is perhaps the over-reaching principle.
12. Why should codes focus on principles rather than specific detailed rules?
Principles are susceptible to interpretation to give guidance on complex or newly emerging

issues. They are far easier to remember and therefore understand and use than an exhaustive,
detailed listing of rules. Few people would read, or could remember what they have read of
such a list.
13. How could you monitor compliance with a code of conduct in a corporation?
The internal auditor should be charged with testing to see if employees have complied with the
code. Tests could involve surveys, annual sign-offs, interviews, whistle-blower comments,
review of HR complaints and lawsuits, and reporting of disciplinary actions. The annual sign-off
process can be broadened to include a statement that each employee has done nothing to
contravene the code in letter and in spirit, nor do they know of anything they haven't reported
that anyone else has done. An annual report should be made to the Audit Committee in
addition to more frequent communication if required.
14. How can a corporation integrate ethical behavior into their reward and remuneration schemes?
Rewards could be offered for outstanding performance, such as for assistance in revealing fraud.
The recognition could take the form of paper medals (certificates for the office /factory wall),
publicity of good deeds, cash payment on a percentage of recovery/cost avoidance basis, or an
increment of base salary. Sanctions should be applied for wrongdoing, including disciplinary
interviews, reduction of raises, fines, dismissal etc. Management-by-objective (MBO)-type goals
may be employed to provide the appropriate basis for positive recognition.
15. Other than a code of conduct, what aspects of a corporate culture are most important and why?
See the discussion beginning on Chapter 5, page 264 of the text. Tables 5.10 and 5.11 are
specifically instructive, as are Tables 5.12, 5.13, and 5.14.

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16. Is the SOX-driven effort being made to check on the effectiveness of internal control systems worth
the cost? Why and why not?
The SOX governance reforms, and the ensuing SEC internal control certification by the CEO and
CFO, and audit thereof, have triggered costly Section 404 reviews of internal control and
subsequent improvements that were overdue in many cases. Without sound internal control
systems, accurate financial statements are very unlikely. Lynn Turner, former Chief Accountant
at the SEC, has indicated that the aggregate cost of all the Section 404 reviews by SEC registrant
companies is well below the amount lost by Enron’s investors, and that is only one such
bankruptcy.
It is also clear that many companies have good systems of internal control and do not need the
motivation and cost of Section 404 compliance. Their costs, however, should be less than for
the offending firms. See also the answer to question 17.
17. Why should an effective whistle-blower mechanism be considered a “failsafe mechanism” in SOX
Section 404 compliance programs?
No matter how good a company’s internal controls are, frauds will still occur because systems
cannot prevent and/or catch everything – they can only lower the risk of wrongdoing. It is likely;
however, that someone has seen or become concerned about an individual’s behavior or a
transaction. If that person can be induced to become a whistle-blower, then the whistle-
blowing mechanism could be considered a “fail-safe” mechanism or add-on to normal internal
controls and/or Section 404 compliance programs.
18. If you were asked to evaluate the quality of an organization’s ethical leadership, what would the five
most important aspects be that you would wish to evaluate, and how would you do so?
Linda Treviño and others, in 1999, identified five important aspects of a company’s ethical
leadership. Beside each are some questions of many that could be asked to test a corporation’s
adherence to each.
• Ethical leadership by executives and supervisors: Do they espouse the values of the
organization? Support and promote ethical decision making? Are decisions made in
stakeholders’ best interests, rather than to benefit corporate leaders? Are realistic goals
set that do not exert undue pressure on employees to meet those goals whatever the
cost? Are product problems corrected when they are found or covered up?
• Reward systems that incorporate ethical considerations: Are rewards systems tied to
values espoused by the corporation (for example, to reducing tailings in a mining
company espousing sustainable development or increasing organic content of offerings
in a health-espousing grocery chain or putting patient health first at a pharmaceutical
company)?
• Perceived fairness, fair treatment of employees: Does the company offer living wages?
Benefits? Reasonable working conditions? Flexible working hours?

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• Open discussion of ethics in the organization: Do leaders walk the talk? Do people
consider ethics in decision making? Do employees sign off on a code of ethics?
• Authority structure that emphasizes an employee’s accountability and responsibility to
question his or her own actions and an obligation to question authority when something
seems wrong: Are top executives willing to be corrected? Can employees disagree with
management without fear of reprisal? Can employees present poor company results
without being pressured to disguise them? Are employees encouraged to provide input
to improve operations?
19. Why is it suspected that corporate psychopaths gravitate to certain industries, and what should
corporations within those industries do about it?
Among other traits, corporate psychopaths pursue their own objectives, rather than others’, and
lack empathy and conscience. When working in the finance industry, in areas such as investment
and banking, they are thinking about the game or wealth (their own), but are not concerned
with how their actions might affect people or their or corporations. Corporations in those
industries need to conduct personality tests on prospective employees and ensure that people
fitting the profile, if hired, have limited power and little unchecked autonomy in their work. The
corporation should constantly be on watch for individuals who display poor motivation or
judgement that reflects a negligible respect for what is right based on the projected impacts on
other stakeholders.
20. Descriptive commentary about corporate social performance is sometimes included in annual
reports. Is this indicative of good performance, or is it just window dressing? How can the
credibility of such commentary be enhanced?
Sometimes CSP reporting indicates good performance, while at other times it is window
dressing. The credibility of such disclosure can be enhanced by:
• the inclusion of negative performance or results
• review and attestation by an independent reviewer/auditor/committee
• comparison with benchmarks now available for similar companies
• comparison with ethically screened companies or inclusion in ethically screened investor

databases – Domini, EthicScan or FSTE4Good Indices or lists.
21. Should professional accountants push for the development of a comprehensive framework for the
reporting of corporate social performance? Why?
Yes, such a framework will assist in making directors and executives aware of what they should
and can do to develop and ethical culture, manage risks and ensure a sound system of internal
control. All of these will assist greatly in maintaining trust, credibility, and accurate reporting of
ethical transactions that external auditors must certify. Professional accountants working within

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corporations will find that their professional responsibilities will be much easier to discharge if
they are working in an ethical culture.
22. Do professional accountants have the expertise to audit corporate social performance reports?
They have an understanding of audit and reporting principles. However, they usually lack specific
knowledge of the accountability frameworks and key indicators involved. These can be learned
as readily as for any other management control system. From time to time, expert engineers or
environmentalists may need to consult with professional accountants to ensure that such
frameworks and indicators are appropriate. Students will increasingly be aware of the
developments that are taking place worldwide in regard to such reporting. For an up-to-date
picture of developments, see the references in Table 5.23, and refer to the discussion of CSR
reporting and audit in Chapter 7.

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Case Solutions
Cases on Ethical Corporate Culture
1. Hospital Governance Challenges (for Chapter 5)

This case is new to Chapter 5, and is provided here:
ETHICS CASE Hospital Governance Challenges
Kelly Brown had been a member of the the board who was better equipped wanted to
Board of Governors of the Wolfson take the time required.
General Hospital for two years, and had Kelly realized that she had the advantage
been asked to consider becoming the of growing up in the community and of
Vice-Chair of the Board. She had been a knowing many of the senior doctors and
nurse before leaving to raise her family, nursing staff. But that was a mixed blessing,
and now enjoyed participating on the because several of her nursing friends had
Board to make the healthcare provided been confiding in her about questionable
by Wolfson General (WGH) as good as medical practices, and rumors about strange
possible for her community. However, purchasing deals and other “close”
she wasn’t sure she wanted to become relationships.
the Vice-Chair because that meant that She had also been reading news stories
within a year or so, she would become about scandals at three nearby hospitals that
the Chair, and would be responsible for had destroyed the reputation of the hospitals
all hospital functions, its reputation, and and of their governors, including the
the generation of funds for growth. She following:
realized that her knowledge of • Fraud, embezzlement and kickback
governance matters was limited, and she schemes by senior managers of
asked for your assistance in helping her construction projects, including:
consider several issues, and her final o Bid-rigging and
decision to become the Chair. manipulation of bids to
Kelly knew that there would be favor specific contractors
increasing expectations for maintenance and suppliers
o Inflated prices in
of WGH’s reputation, and she wasn’t
exchange for kickbacks
sure that the existing governance
o Work by contractors on
mechanisms were effective in
manager’s homes
identifying and assessing reputational o Provision of jobs for
and financial risks, and she doubted she manager’s children, partly
that was personally equipped to play a funded by hospital
leading role in improving a hospital overpayments
governance system. But no one else on o Luxury fishing trips

P a g e | 10
o Luxury trips to Napa, of the patients and hospitals involved, and

California, and on a some nurses were negatively influenced
Baltic cruise against identifying misdeeds, as well.
o Payment for old Moreover, the reticence to identify problem
invoices for which no professionals was also evident in that many
one remembered the of the governors and senor officers of the
work happening.
hospital were doctors or nurses, and many of
• A manager of redevelopment,
them didn’t want to get involved in
who was involved in the
disciplinary or dismissal processes.
contractor selection process,
Kelly realized that WGH had a mission
failed to disclose conflicts of
interest with contractors, statement and code of conduct that called for
including: high levels of service and integrity, but they
o Two business hadn’t been updated for over 15 years and,
ventures (bottled although they had been provided to new
water and commercial doctors, nurses, or administrative staff when
real estate) with the they joined the hospital, there was no
bid-winning significant discussion or training related to
contractor them. When Kelly considered the Board and
o A loan over $100,000 its subcommittees, she realized that most
from the contractor to Board members were dedicated to providing
the bottled water excellent health care, but lacked extensive
company. corporate Board expertise, and preferred to
• A manager arranged for leave financial matters and administrative
purchases from companies her
detail to others. In fact, of the five Board
husband was involved with
Subcommittees, four (Executive, Medical
without competing quotations,
Advisory, Nursing Advisory, Quality
purchase orders or contracts. In
fact, the paper trail for Committee, Quality of Care) concentrated
purchases was frequently primarily on health services, and only one
created after purchases had focused on financial matters (Fiscal
been made. Also, her husband Advisory), and that one was chaired by the
sent invoices to the hospital senior administrative executive (CEO) at
through pre-existing vendors to WGH. The internal and external auditors
avoid procurement policies. also reported to the Board through the Fiscal
Of course, scandals frequently came Advisory Committee. Although the Medical
to light on the medical practice side of Advisory and Nursing Advisory Committees
the hospitals as well, and here the reported on questionable medical practices,
problem of doctors not wishing to Kelly couldn’t remember any similar report
criticize or “tell” on colleagues was on questionable personnel or financial
evident. Doctors who made mistakes matters. She wondered if this was because
that caused patients a great deal of pain WGH’s personnel and financial functions
or dysfunction were rarely identified and had been “outsourced” to a shared operation
dismissed, so that the hospitals involved with two other hospitals. Nor could she
had to incur serious costs, time wastage, remember
and loss of reputation when the problems
came to light and lawsuits were
launched. The doctor’s “cone of silence”
was simply not serving the best interest

P a g e | 11
any organized review and discussion of

the risks WGH was facing, and of plans
to reduce those risks.
Not surprisingly, her dear friend, the
current Chair of the Board, was pushing
Kelly for her answer on whether she
would accept the nomination as Vice-
Chair. He had just dealt with a serious
crisis and wanted her answer before he
could discuss the details confidentially.
Questions:
Kelly has asked you to give her advice

on the following matters:
1. What major governance problems

does WGH face? Which problems
are the most important and need to
be fixed as soon as possible?
2. What are the most important ethical
problems faced by a general
hospital? How could these ethical
problems best be managed?
3. Should WGH introduce a crisis
management process? If so, what
should its objective be? How could
that best be achieved?
4. Why should WGH introduce a
protected whistleblower program?
Who should administer it, what
factors would make it successful,
and how should it report?
5. Are these any other governance
issues that Kelly should consider?
6. Should Kelly accept the nomination
as Vice-Chair?
1. Hospital Governance Challenges (Case above)

What this case has to offer
Hospitals can be for-profit or non-profit, and they answer to many stakeholders. Where health is
concerned, many ethical issues arise, and good governance and an ethical corporate culture can reduce
ethical risk. This case looks at Wolfson General Hospital (WGH) that has an opportunity to save itself
from the reputational damage neighbouring hospitals have suffered because they lacked ethical
corporate culture and good governance. In this case, a former nurse, Kelly, has been asked by the
Chair—a dear friend—to accept the nomination as Vice-Chair.
Teaching suggestions
This case can be used to examine board structures, director nomination, roles and responsibilities, in
addition to the variety of ethical issues that hospitals face. The hospital context makes tangible a
discussion of risk management, crisis management and ethical risk.
Discussion of ethical issues
Kelly has asked you to give her advice on the following matters:
1. What major governance problems does WGH face? Which problems are the most important and
need to be fixed as soon as possible?
Major governance problems
Kelly has a board of directors whose members have…
• little independence on the board: this is one of most important issues and needs to be
addressed
o inappropriate recruiting methods (e.g., the current Chair—“her dear friend”--

has asked her as a friend to accept a nomination for Vice-Chair)  There should
be an impartial process for recruiting potential board members; otherwise, the
board could be composed of cronies whose independence to think or act could
be compromised by conflicts of interest and like-mindedness or group think.
o the CEO chairs the Fiscal Advisory Committee (the closest to an audit committee
that Wolfson General Hospital (WGH) has): a non-executive member of the
board, an independent lead director should serve in this role
• limited knowledge and understanding of board functions: this is one of most important
issues and needs to be addressed
o the directors have medical, but not financial knowledge, and may not have
governance or ethics training
P a g e | 13
o the directors have poorly defined roles, since they “preferred to leave financial
matters and administrative detail to others.”  When roles are defined and
understood, directors perform the duties required of the role, rather than
deciding they don’t like some duties and passing them off.
o the Chair “had just dealt with a serious crisis and wanted [Kelly’s] answer before
he could discuss the details confidentially.”  For the Chair to act alone to deal
with a crisis—instead of invoking a well-rounded crisis management response
with feedback from the directors, stakeholder advisors, etc. -- is inappropriate.
o no internal financial controls and reporting to the board (equivalent of an audit

committee)
o no whistleblowing channel and reporting system (to address accounting and

medical or personnel issues) to help support a culture of integrity
• limited time for hospital matters
Kelly would have a hospital with…
• Ethical Risk: this is one of most important issues and needs to be addressed, because
of:
o a moribund mission statement and code of conduct: no review in many years,

no associated training, no commitment from employees to agree with the
mission or abide by the code; likely no mission or values that reflect the code
o unknown culture: want a culture of integrity, but neighbouring hospitals seem

to lack one
o no whistleblowing mechanism to help support a culture of integrity
o no stakeholder analysis or risk assessment and management
o reputation risk in the form of association with other area hospitals known for a
lack of integrity
2. What are the most important ethical problems faced by a general hospital? How could these ethical
problems best be managed?
Ethical Problems
Useful reference: (Der Bedrosian 2015)
• Fair and safe treatment of stakeholders, for example, patients and staff. For example:

P a g e | 14
o providing care without prejudice or judgement (even to a suspected criminal or

murderer or …)
o fair treatment of staff (work hours, work shifts, burden of care; compensation).
o access to drugs and opportunities for misuse (may relate to perceived unfair
compensation or workplace conditions or hiring practices)
o end-of-life care; care for the vulnerable
o errors/malpractice (may arise when current practices are unchallenged and
people fear speaking up and when a corporate culture is one of organizational
secrecy/covering up rather than one of organizational learning and continuous
improvement)
• Quality versus Efficiency
o Quality care versus inexpensive care or faster care (the latter due to staff
shortages, for example)
o Staff issues that could compromise care, for example:
 staffing levels (e.g., shortages);
 burnout; post-traumatic stress disorder
 staff compensation
 violence and harassment in the workplace, especially because of power
hierarchies
• Access to health care
o hospital personnel as gatekeepers (including access to limited resources, which

might be organs or blood or medical procedures)
• Access to information (honesty; transparency; privacy)
How to Address Ethical Problems
Table 5.14 in Chapter 5 outlines how to develop and maintain an ethical corporate culture. By
stating a set of values and a mission, and developing a supportive ethical corporate culture that
employees must review, ascribe to, and be trained in, the likelihood increases that clearer,
decisions can be made when staff are faced with ethical dilemmas. With clearer procedures and
reporting, fewer crises may arise. Understanding stakeholders and their issues and expectations
can reduce conflict.
3. Should WGH introduce a crisis management process? If so, what should its objective be? How could
that best be achieved?

P a g e | 15
Yes! Its objective should be to prevent crises, if possible, by anticipating and planning for risks--
internal and external--that could affect the hospital. Crisis management should stem from risk
analysis and management, and understanding stakeholders--their issues and expectations and
how those might impact the hospital and vice versa--is a place to start. Developing and
maintaining an ethical corporate culture can reduce the number of issues that develop into
crises, and management must include an ethical reaction to the crisis. The source of externally
driven crises—for example, a new pandemic—may not be controllable, but management of the
crisis would include:
• Anticipation and planning

• Assignment of responsibility
• Responsible flow of information to the public and to hospital employees

• Ethical reaction through the ongoing nurturing of an ethical corporate culture
• Consideration of ethical risk (this might include human resources policies and
compensation, work hours and employee safety)
Because crisis management stems from good risk management, see Table 5.4 in Chapter 5,
which outlines areas of corporate risk management (e.g., governance and objectives; areas of
impact (e.g., reputation; assets, revenues, costs; performance; stakeholders); sources of risk
(e.g., environmental, strategic, operational, informational); specific hazards; degree of control
over the risk; and documentation).
4. Why should WGH introduce a protected whistleblower program? Who should administer it, what
factors would make it successful, and how should it report?
A protected whistleblower program is necessary, especially in a hospital setting, where power

hierarchies—and, therefore, the risk of intimidation—exist. Medical and financial improprieties
are possible in a hospital setting (see ethical problems in Question 2). In fact, the “cone of
silence” practice of medical staff means that problems may never be reported without a
protected whistleblower program.
The program should be administered by an ethics officer (or more than one) so that medical and
monetary issues can be confidentially reported. It would include whistleblower protection and
possibly an obligation to report and more than one avenue for reporting (e.g., website, hotline,
etc.). The ethics officer would report to a sub-committee of the board, for example, an audit
committee and a medical-oriented committee, neither of which would have management
present. WGH seems to have many (too many?) advisory committees, so the latter might be a
Quality of Care Committee.
Other key factors—to eventually make whistleblowing a last resort—would include a code of
conduct with associated training and sign-off; effective internal controls; effective risk and crisis

P a g e | 16
management programs; and an ethical corporate culture; a fair hearing process so that
whistleblowers do report; a board review of ethical concerns so that remedial actions can be
taken.
5. Are there any other governance issues that Kelly should consider?
Should the Vice-Chair automatically become the Chair in two years’ time, or should a chair be
recruited, nominated and voted for by shareholders (for a for-profit hospital) or stakeholders
(including government funders for a non-profit hospital)?
Should the committees of the board be restructured so that directors can properly fulfill their
roles? (See Table 5.1 in Chapter 5).
Should the hospital board have some duties that for-profit boards would not have? (For
example, community liaison, fundraising?)
Would non-profit boards have adequate budget to support their compensation and roles? (e.g.,
financial oversight; quality of care; developing and maintaining an ethical corporate culture…)
6. Should Kelly accept the nomination as Vice-Chair?
Table 5.1 in Chapter 5 outlines the roles of directors, of which the Chair is one.
Independent directors or an independent Chair should not be employees of the hospital. The
Chair (and in this case, the Vice-Chair who succeeds the Chair) needs leadership skills to steer
the corporation and guide its building of an ethical corporate culture (and the CEO must play a
conspicuous role here, too). They will lead the rest of the directors and will put together the
subcommittees. They will be responsible for independent actions and must have clear
knowledge of their responsibilities. They will have top-level accountability and will need to
manage a budget for the work they do. They must monitor and oversee the corporation and the
board must hire the CEO and set her/his compensation. They require experience, because good
intentions will not limit their liability.
Although Kelly no longer works as an employee of the hospital, she has close ties there.* She
“had been a nurse before leaving to raise her family, and now enjoyed participating on the
Board to make the healthcare provided by Wolfson General (WGH) as good as possible for her
community,” so she seems to be a very good candidate as a director to represent the local
community. She seems to have limited budgetary and governance experience, but she
recognizes that both need improvement at her hospital. With the experience she gains as a
community liaison director, and with increased governance and financial training, she may one
day be eligible to apply to be Vice-Chair or Chair of one of the boards of neighbouring hospitals.
She should not accept the nomination as Vice Chair of this hospital at this time unless there is no
better option available.

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* Kelly has many friendship ties that may cloud her judgement even if they may not be
challenged as creating potential and/or apparent conflicts of interest. She will be lonely at the
top, and she needs to get buy-in from everyone to act with integrity and to leave behind
personal biases or favor. If she were eligible to serve as Vice Chair in the future, and if she can
leverage her friendships to generate loyal personnel to help promulgate the code and values
and what they stand for, she may consider the Vice-Chair position. But she needs to “walk the
talk” and to recognize that she can’t do personal favours for those same friends.
Useful Articles, Links, and Videos
American Hospital Association’s Center for Healthcare Governance.

http://www.americangovernance.com/
Der Bedrosian, Jeanette (Summer 2015). "Nursing is hard. Unaddressed ethical issues make it even
harder." Johns Hopkins Magazine, http://hub.jhu.edu/magazine/2015/summer/nursing-ethics-
and-burnout/ (accessed November 4, 2016).

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2. Siemens’ Bribery Scandal (Chapter 5, pages 295-297)
This case focuses on the ethical governance implications of bribery to obtain or maintain business
opportunities. Several recent worldwide initiatives have recently been mounted to change the rampant
regime of bribery that has existed for centuries. In 1998, 34 countries signed the Organization for
Economic Cooperation and Development's "Convention on Combating Bribery of Foreign Public Officials
in International Business Transactions," requiring the signing countries to implement laws like the U.S.
Foreign Corrupt Practices Act prohibiting bribery of foreign officials to gain a business advantage. In
2004, more than 140 countries signed the UN's "Convention against Corruption," requiring member
states to return assets obtained through corruption to the country from which they were obtained.
In the U.S., the Foreign Corrupt Practices Act (FCPA) enacted in 1977 prohibits directors, officers,
employees and agents of U.S. companies, as well as foreign companies with securities registered with
the SEC, from making payments to foreign officials to obtain or retain business.
It would be useful to explore bribery with the class, particularly the forms it can take and the history
noted above. The discussion can move on to the governance issues behind the questions posed at the
end of the case.
There are several interesting questions related to bribery that help to start the discussion, for example:
• What is the purpose of a bribe?

• What forms can a bribe take?
• What is the difference between a bribe and other types of discretionary payments made to
facilitate business in a given country?
• How can a company’s internal control system detect bribes?
• What should a company do when an employee is discovered bribing other company’s employee
or a government official; and
• How can a company react in a timely fashion to changes in stakeholders’ expectations about
what are acceptable or ethical business practices?
1. The senior executives at Siemens’ spent most of their working environment that condoned bribery
outside Germany but not inside. However, they failed to take notice of the changes that
Transparency International – championed by a German who was embarrassed by the double
standard of his countrymen – was proposing, and that ultimately resulted in a new worldwide anti-
bribery regime. Why did they ignore the change?

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There are several potential reasons why Siemens’ executives ignored the changes in public
expectations about bribery:
• Wrong-headed incentives, pushing executives to obtain more contracts but disregarding

or even encouraging unethical methods required to win contract bids;
• Lack of financial reporting transparency, including secret discretionary spending
accounts or unidentified transactions without proper authorization;
• Lack of recognition of anti-bribery environmental changes;
• Considering bribery ethical just because it was not illegal at the time, or because
everyone was doing it;
• Lack of ethical corporate values against bribery;
• Weak governance/control environment, no sanctions, no encouragement for ethical
behavior and deficient ethics programs.
2. If you were Löscher, the new CEO, how would you show the employees and external stakeholders
that you actually have a zero tolerance policy concerning corruption?
The new CEO could make a public statement regarding the company’s views on bribery and
should establish policies and procedures aiming to prevent and detect this practice. There are a
number of possible controls that may help to detect and prevent bribery, for example:
• Board members and senior executives should verify that the company has an effective
anti-bribery program that includes identification and training of employees and agents
who interact with foreign officials;
• The company should have a reporting mechanism for violations, with sanctions, and an
effective whistle-blower program;
• Management could require an ethics audit of contract bids by the company’s internal
auditors; and,
• The company should keep strict control of discretionary spending accounts.
Schubert, Siri & Christian Miller (February 13, 2009). “At Siemens, Bribery Was Just a Line Item.”
Frontline, http://www.pbs.org/frontlineworld/stories/bribe/2009/02/at-siemens-bribery-was-
just-a-line-item.html
Nicholson, Chris (December 2, 2009). “Siemens to Collect Damages from Former Chiefs in Bribery
Scandal.” New York Times,
http://www.nytimes.com/2009/12/03/business/global/03siemens.html
Jameson, Angela (November 16, 2007). “Siemens bribes reached around world.” Sunday Times,
http://business.timesonline.co.uk/tol/business/industry_sectors/engineering/article2881841.ec
e

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Cases on Ethical Leadership
3. Salary Equity at Gravity Payments (Chapter 5, pages 297-298)
This case explains how the founder and CEO of the company raised the minimum wage for all employees
to $70,000 and the positive and negative reactions to his arbitrary decision.
I begin by asking the students to identify factors that should influence salary levels. Normally they
mention: education and training; work experience; level of responsibility; past performance; number of
people who report to you; and industry (investment bankers are paid more than grade school teachers).
I then ask the students to think about the following three questions (taken Nash 1981):
1. What is your intention in paying the employee?

2. How does your intention compare with the likely results?
3. What is the symbolic potential if compensation is misunderstood?
As we take up the case, we constantly refer back to these three questions.
Stakeholder analysis involves understanding who a corporation’s stakeholders are—including employees

and competitors and understanding their issues and expectations. In this case, the salary announcement
that the CEO expected would be received happily by all gets surprising reactions because of what looks,
initially, like unilateral decision making and a lack of stakeholder analysis.
1. Do you think that Dan Price’s decision to raise the minimum salary to $70,000 represented ethical
leadership?
Dan seems to have characteristics of an ethical leader, which, from Chapter 5, include integrity,
trustworthiness, honesty, sincerity, and forthrightness. He shows compassion and that a
company's purpose is not solely about profit. Indeed, in 2016, the company’s mission says, “Our
mission is to change the way business is done by putting purpose and people above profit,”
(Gravity Payments 2016) so Dan seems to be “walking the talk.”
He seems to be "doing the right thing, [have] concern for people, [and have] personal morality."
Another factor for ethical leadership is "being open and approachable for discussion of
concerns," (Ch. 5), and we’re not told if Dan Price is open to discussion, though he seems to
have other characteristics of an ethical leader by "holding to desired values; being objective and
fair; exhibiting concern for society; following reasonable ethical decision rules." (Ch. 5)

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One criticism is that although Dan Price’s motives were noble, he acted unilaterally without
input from other stakeholders. If we look at hypernorm values—those which are very widely
held—we could say that Price acted with honesty, and he believed he acted with utmost
fairness. And he acted in keeping with his own value set—with integrity. But despite his good
intentions, some stakeholders, for example, employees and customers may feel that Dan did
not act with respect, because he did not consult with them. Dan may have acted predictably for
him, but given the financial services industry he is in, some stakeholders—competitors -- would
say he did not act predictably for the industry. He showed compassion for lower-paid
employees, but might have failed to realize that the motivation to work well and with effort
might be different for different people and different for different types of jobs, so some people
might actually feel resentment or a lack of fairness in his action. Also, the contribution made to
the welfare of the company, and/or to society may differ – so paying equally may not be
regarded as being fair.
Initially, business critics might say that personally secure, wealthy, career-fulfilled, successful
Dan failed to realize that his actions reflect his own security and, perhaps, ego, guilt or boredom,
and that the action was attention-grabbing marketing. In order to overcome cynicism--especially
because he was proposing a disruptive action -- one not expected and certainly very different
from the norm—one might expect that he really would want buy-in from his stakeholders—
clients in particular, who might wonder if their rates would rise to pay for the salary changes.
However, in this case, Dan was proposing something radically different in the industry, so he
may have wanted to be purposely provocative to competitors in order to show that corporate
responsibility can still be profitable.
2. Do you think that Price should have arbitrarily increased the minimum salary to $70,000?
Initially, no. A company survives, thrives, or dies because of its many stakeholders. By acting
unilaterally, Dan ignored all others and acted as a friendly dictator. Had he identified his
stakeholders and analyzed their expectations of the company, he may have acted differently. Or
would he?
Employees - People develop beliefs often stem from values learned through people at home or
work—for example, by rules or motivational systems at work. Beliefs motivate people to act.
(Ch. 5) So, surprisingly, not all employees may have welcomed the $70,000 minimum salary.
For example, employees in information technology (IT), financial and legal services, as examples,
have industry-based expectations that the training required of their jobs, the importance of
their work—for example, in keeping computer systems running or in recruiting and maintaining
clients or in generating revenue for the company, or in contract law--will result in big salaries or
bonuses. Giving lower-paid employees $70K per year might reduce motivation for professional
employees to work hard—or, more likely, increase resentment that employees with lesser
training, responsibility or stress, will have higher-than-average salaries for their job class. The
case tells us that two employees in this group did quit.

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Lower paid employees may initially rejoice at receiving $70,000 per year, but might wonder
what is expected of them to receive it. For example, are they expected to work a great deal of
overtime? Will the heretofore casual corporate culture change? (See also Question #4 and
employee motivation.)
From Chapter 5 (p. 252): “The identification, assessment, and ranking of stakeholder interests
should help develop a comprehensive set of values for an organization. In the face of competing
value systems for the motivation of personnel, corporations should consider which set of values
most aligns with those of their shareholders, and of their most important stakeholders—those
that can most influence their largest consumer and capital markets, and their ability to achieve
their strategic objectives.”
So after some consideration, Dan may have believed that his most important stakeholders were
his employees (“Take care of your team, and they’ll take care of your clients” (Gravity Payments
2016)) and the independent business owner clients to whom he provides credit-card services:
something that other companies say but do not demonstrate. He may have also believed that he
would get only negative reactions from other stakeholders—namely competitors. Because his
minimum salary concept was so radical—but so good in intention—and because his company is
not publicly held, he could do something radical, disruptive, be an example to other
corporations, and gain free marketing through media attention.
One can infer that Dan was purposely radical from a video (Gravity Payments [n.d.]) posted on
the website in which he says,
“The company operates on one principle: we never want to make ‘screw-you money’ like
the rest of the financial services industry …. Our industry has a culture and a set of rules that
everyone pretty much plays by…and I think the idea of the industry is: ‘Don’t rock the
boat…We’re all going to get rich.’ And…why would you challenge that?”
Well, Dan Price did, and his company is still successfully operating in 2016.
3. Should he have increased everyone’s salary, even those who were earning more than $70,000?
Those earning more--who didn't get more -- may, unfortunately, wonder why they need work
hard or take more stress...if they could do a lesser job and make the same. Price's actions were
noble, but not everyone will think the same way. When people are consulted or included in the
process of decision making, they may feel ownership or involvement with the decision.
From Chapter 5 (p. 252): “People make things happen, so it is essential that their motivations
are aligned with stakeholder expectations, which can only be reliably accomplished only by
ensuring that the values underlying corporate motivational elements (i.e., elements (i.e.,
corporate culture, codes, policies, etc.) are similarly aligned.” For some -- particularly higher-
paid employees not seeing raises -- the increase of some salaries may have been demotivating.
Dan Price may have actually expected this, and may have selected for employees with a sense of

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corporate responsibility by allowing them to leave and by attracting new employees with the
same beliefs. His actions may have changed the corporate culture positively, despite some
“cons” identified in Question #4. (See also Question #2.)
4. Do you think that this plan will motivate the Gravity employees to work harder?
The motivation to work well and with effort might be different for different people and different
for different types of jobs.
Low-pay employees: Because leaving a clerk’s job at that salary would be difficult, employees
who would otherwise undertake training for more and more challenging jobs may not do so,
because their Gravity salary would be unrealistic at other companies. In the short term, these
employees might feel very loyal and work hard in order to feel as though they deserve the high
salary. Or, they might feel no need to work hard when their salaries are so large and, in the long
term, $70,000 might act as golden handcuffs that prevent self-realization. In the long term, the
latter might be detrimental for the company, because as people lose interest in their work, but
stay with Gravity because of pay, they may focus on petty things that lessen the happiness and
efficiency of the workplace. Outside stakeholders who understand behavioural psychology
might also agree, and worry about the long-term and the rates they pay for Gravity’s services.
Has Dan factored in a way of dealing with employees who under-perform?
Professional employees: Employees in information technology (IT), financial and legal services,
as examples, have industry-based expectations that the training required of their jobs and the
importance of their work—for example, in keeping computer systems running or in recruiting
and maintaining clients or in generating revenue for the company, or in contract law-- will result
in bigger salaries or bonuses. Motivation for these employees might be competition or status. So
with Price giving everyone $70K per year, they might feel resentment that employees with
lesser training, responsibility or stress, earn too much. We know from the case that two
employees in this group left the company. If more leave, Dan’s plan may weaken the company’s
ability to compete or deliver on its mandate.
Dan Price: Financially secure, Dan has a driven personality type and will look for challenges that
are not monetary. His behaviour might suggest that he has achieved great success and that he is
looking for other motivators and ways to “give back.” Customers and employees might worry
that he losing interest in his company and might sell it to move on to other ventures. Others
might believe the move to be pure marketing; others, socialism at work. (Newman 2015)
5. Should Price have consulted with his customers and his employees before he made the decision to
increase the minimum salary to $70,000?
Consultations lessen surprise--and often people like stability, not surprise. Consultation would
help in thinking out all aspects of the plan--like how to reward or reprimand employees; how
employees feel about the change; how customers feel; finding out whether the changes will
result in rate increases, and finding out what some unexpected consequences might be and how

P a g e | 24
to measure expected benefits. In the future, will the right fit of people be hired into the
company, or will a different person than expected apply? Will morale be positively or negatively
affected? Will he be able to track and measure changes in productivity, morale, revenue, etc.?
(For reviews by current or former employees of Gravity Payments, see the Glassdoor website
(Glassdoor 2016). Most reviews are very positive, with a recurring negative being, ironically,
media attention.)
Glassdoor. Gravity Payments Reviews. 2016. , at https://www.glassdoor.ca/Reviews/Gravity-Payments-

Reviews-E697633.htm?countryRedirect=true . (accessed November 14, 2016).
Gravity Payments. [About]: Unique & Innovative Company Culture. 2016.

https://gravitypayments.com/about/ (accessed November 14, 2016).
—. About. 2016. https://gravitypayments.com/about/ (accessed November 14, 2016).
—. "CEO Dan Price: How Gravity Payments is Different [Video]." Gravity Payments. [n.d.].
https://gravitypayments.com/ (accessed November 14, 2016).
Nash, Laura (November 1981). “Ethics without the sermon.” Harvard Business Review.
Newman, Jonathan (August 12, 2015). "How Did Gravity’s $70K Minimum Wage Work Out?" Four States
News, https://fourstatesnews.us/2015/08/12/how-did-gravitys-70k-minimum-wage-work-out/
(accessed November 17, 2016).

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4. Merck and River Blindness (Chapter 5, pages 298-299)
This case concerns a company that follows its values and provides a life-enhancing drug for free to those
who cannot afford the drug.
I begin the discussion by talking about organizational values. For the MBA students, I ask them to think
about the values of the firms where they’ve been employed. How did they learn these values? Were
they written down anywhere? How important is it for a firm to have a set of values?
Then we take up the questions.
Often, at the end of the discussion, students comment that they like this case because it is the opposite
of most of the cases we discuss. Almost all the cases involve bad situations, i.e., ethical lapses. The
students like this case because it is so positive.
This case shows that positive results—and goodwill—can result from doing good and acting in
accordance with stated corporate values. Rather than shelve a drug that otherwise had little commercial
value--since those who needed it could not afford it--Merck entered into a partnership with the World
Bank, many African countries, and non-governmental developmental organisations (NGDOs) to cure
river blindness. While Merck may have shrewdly limited its own risk and financial expenditure, it created
a partnership for drug donation that benefits millions of people and is held up as a model for others to
emulate.
1. Pharmaceutical companies have to spend millions of dollars and years of research to find just one
successful drug. Merck spent time and money developing and then distributing Mectizan for free. Is
it possible for Merck to justify, to its shareholders, making a sizable investment in a product and
incurring ongoing costs in the distribution of that product when the product generates no revenue
for the company?
The donation generates reputational good will for the corporation and the price of that good
will, it could be argued, is probably much less than the marketing campaign for other drugs in
the company’s stable. (Hanson 2015) The company shows ethical leadership, as well as a
strategic acknowledgement of stakeholders other than shareholders in keeping with the
company’s values and George Merck’s 1950 comment that “Medicine is for the people...profits
follow.” (Merck & Co., Inc. [USA] [n.d.])
Because of the program, the company has “greatly benefited from being seen as a 'good
corporate citizen’” and has seen “enhanced employee satisfaction” and, in addition, “The U.S.

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tax benefits that Merck has received on account of the Mectizan Donation Program have
substantially reduced the net financial cost of the program to the company.” (Coyne and Berk
[2002], 16)
In Merck’s case, the donation keeps on giving…back to Merck as continued publicity over the
program... From Merck (2016): In 1994, then-President Jimmy Carter and former Merck
Chairman Dr. Roy Vagelos announced a new World Bank grant program to expand the Mectizan
program; in 1995, Merck unveiled a bronze statue of a boy leading a blind old man that
symbolizes the fight against river blindness, and the World Bank announced a new 12-year
program to fight river blindness using Mectizan; in 1999, Merck and the Gates Foundation each
gave $56.5M and joined with Botswana to form the African Comprehensive HIV/AIDS
Partnerships (ACHAP); in 2012, the Mectizan Donation Program was 25 years old; and as the
case states, in 2015, Dr. William Campbell was awarded the Nobel Prize in Medicine for his work
in discovering ivermectins while working for Merck & Co.
In case anyone is cynical about the Mectizan donation program, it has “…become a paradigm for
successful public-private partnership in the international health arena.” (Coyne and Berk [2002],
26)
And, to prevent unwanted or substandard donations, the World Health Organization, together
with pharmaceutical companies, and non-governmental developmental organisations (NGDOs),
developed core principles of donation that require that product donations (Coyne and Berk
[2002]):
• are of maximum benefit to the recipient

• respect the wishes and authority of the recipient
• strictly avoid any double standards in quality
• are based on effective communication between the donor and the recipient.”
Even so, there have been criticisms of the program, for example (Coyne and Berk [2002], 20):
• whether the US government should have allowed the tax deductions given to Merck
• whether Merck or other drug companies would be pressured to provide similar
donations (although this is considered to have a net positive benefit)
• whether drug companies would reduce R&D on tropical drugs if they might expect no
revenue from them. Limited R&D may be true, but other sources of funding (e.g., the
Gates Foundation) may stimulate more.
2. Did Merck have an ethical obligation to develop and distribute Mectizan for free?
While it may have had no legal obligation to distribute the drug for free, the program was in
keeping with Merck’s values, and George Merck’s 1950 comment that “Medicine is for the
people...profits follow.” (Merck & Co., Inc. [USA] [n.d.]). If shareholders and other stakeholders
(such as employees) at the time also believed in those values, then Merck may not have felt

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resistance from those stakeholders; indeed, good acts may have been expected. Because of its
value statements, Merck would have a self-imposed ethical obligation to provide medicine,
although with the strategical intention that profits (not necessarily from that program) would
follow. With tax breaks offsetting the cost of the program and Merck just providing the drug, but
not the costs or logistics of administering it, doing good became very good for the company.
3. Do you think that Roy Vagelos, Merck’s CEO and chairman, demonstrated ethical leadership? What
value did it have/create?
Yes! Ethical leadership was demonstrated and showed that the company’s stated values were
not just words people wanted to hear, but truly had intention and impact. Even if the company
never intended the program to last as long as it has, benefits were likely realized at its start. As
stated in the answer to Question #1, the company “greatly benefited from being seen as a 'good
corporate citizen’” and has seen “enhanced employee satisfaction” and, in addition, “The U.S.
tax benefits that Merck has received on account of the Mectizan Donation Program have
substantially reduced the net financial cost of the program to the company.” (Coyne and Berk
[2002], 16)
4. Based on the river blindness example, how would you describe the organizational culture of Merck
in the 1980s?
The organizational culture would seem to have been values-based and someone had
responsibility for meeting with the World Bank to at least discuss philanthropy and, perhaps,
with U.S. federal tax officials to discuss the possibility of tax breaks. Notably, Merck donated
Mectizan, rather than just supplying it at a reduced rate. It was this act that made the program
exceptionally successful from the point of view of NGDOs who might otherwise have been
unable to afford the drug or have been able to distribute it as broadly.
“A number of organizational and health-related arrangements, made to suit or reassure

Merck…also contributed importantly to the success of the program.” For example, the choice of
who would receive the drug deliveries and distribution were not its responsibilities. In addition,
“…a system of monitoring adverse effects served to preserve Merck's reputation and limit its
risks.” (Coyne and Berk [2002], 22)
Finally, “… market and financial features of the program…served to prevent any loss of business
for Merck and to minimize or even offset entirely its net expenditures for the program. The
human drug distribution did not interfere with Merck's existing or future markets for the well-
established veterinary form of the drug. There was also little prospect of a future commercial
market for the human form of the drug, as Merck had already discovered at the
beginning...Finally, whatever Merck's real manufacturing, administration, and shipping costs
were and are, it has taken advantage of U.S. tax deductions to minimize its net costs.” (Coyne
and Berk [2002], 22)

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So the corporate culture of Merck in the 1980s was such that someone realized that some
benefits could come from a drug that otherwise had little commercial value on the African
continent, since those who needed it there could not afford it. Rather than shelve the drug,
Merck entered into a partnership that limited its risk and financial expenditure while benefitting
millions of people and creating a template for private/public partnerships in delivering
healthcare.
Coyne, Philip E., and David W. Berk [2002]. The Mectizan (Ivermectin) Donation Program for
Riverblindness as a Paradigm for Pharmaceutical Donation Programs 31570. [Washington, DC]:
[World Bank].
Hanson, Karmen (July 1, 2015). "Marketing and Direct-to-Consumer Advertising (DTCA) of

Pharmaceuticals." NSCL: National Conference of State Legislatures,
http://www.ncsl.org/research/health/marketing-and-advertising-of-pharmaceuticals.aspx
Merck & Co., Inc. [USA]. "Our Values and Standards: The Basis of Our Success [Code of Conduct Edition
III]." View Our Code of Conduct (Our Values and Standards). [n.d.].
http://www.msd.com/about/how-we-operate/code-of-conduct/pdfs/OVS_v2_EN-US-CA.pdf
Merck. Our History [Timeline]. 2016. https://www.merck.com/about/our-history/home.html (accessed

November 4, 2016).

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5. Lululemon’s Questionable Leadership (Chapter 5, pages 299-300)
This case describes what happened to the founder and the CEO after they made several gaffs and the
company unintentionally manufactured transparent yoga pants.
I begin by asking how many students wear Lululemon clothing and why they like Lululemon products.
Normally, people talk about: the quality and durability of the products; the fact that they look good; that
they’re fashionable; and that they’re comfortable. Then we talk about the importance to the firm of
delivering quality products. This makes the discussion more personal because most of the students have
Lululemon clothing.
Then I ask the students to define some of the responsibilities of the CEO of an organization. Normally,
they talk about developing and executing strategy; overseeing the firm’s financial and operational
performance; supervising employees and building a culture; managing risks. This help to set the stage
for addressing CEO responsibilities when there are product failures.
Inflammatory statements by both former owner and Chair Chuck Wilson and CEO Christine Day
contributed to Lululemon Athletica’s negative press in 2013. After a company becomes publicly traded,
the entrepreneurial founder often finds it difficult to adapt to greater challenges of management and/or
accountability, and ends up by leaving. Lululemon is an example of a company that outgrew its founder,
but the founder wouldn’t leave – resulting in poor corporate governance because of the former owner’s
lingering control over the board, voting plurality, and staggered board tenure, which contributed to poor
risk management, including poor crisis management and ethical and reputational risk management. The
company is also an example of a “first”: the first to make attractive clothes to sweat in. It had/has a cult
following, and sold a lifestyle, not just a brand – a characteristic that early competitors lacked. It was
also a company that expanded incredibly rapidly, a factor in its operational issues.
1. Do you think that the executives at Lululemon demonstrated ethical leadership? Could it have been
improved?
Chip Wilson became a liability—a reputational risk – to his own company, because it outgrew his
vision, and his management ability. The company became a feel-good illusion, and cult fashion
and yoga place for women. It came to have a “you can do it and look great!” aura, but Chip
Wilson may not have understood that. Lululemon is a perfect example of a company that had
outgrown its founder-owner. By blaming women’s bodies for the Luon pants problem, Chip
Wilson was throwing darts at the illusion*—the bubble that made store “guests” feel special
about the clothing. His comments did not live up to hypernorms: they did not show integrity

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(living up to the company’s perceived values and celebration of health and wellness and feeling
better about self), compassion (for all customers and their feelings), responsibility to his retail
employees who very much believed in the values aura, his ambassadors, et al.
[*“Competitors were slow to catch on to the fact that Lulu wasn’t selling workout clothes so
much as they were selling membership to a club with a very appealing uniform.” (Nelson 2011)]
Christine Day increased the number of stores and increased stock value gain 250% year-over-
year from 2008 to 2011 (Taylor 2011) before she resigned in 2013, so was in the bad books with
loyal Lululemon followers who believed in the company’s manifesto (lululemon athletica 2011):
a series of pithy slogans written over its shopping bags, one of which is, “Friends are more
important than money.” Christine seemed to be all about making money. And expanding too
quickly resulted in a number of operations issues, including colour dye bleeding from pink and
red clothing in 2012; transparent pants and pilling and seam problems in 2013; and also
intentional product scarcity to increase demand in 2011. (Bhasin 2013)
In 2013, Day blamed the transparent pants on the company’s supplier (who claimed the pants
were made to specification approved by the company) (Strauss 2013a), and sounded dismissive
and lacking responsibility to customers by saying, in effect, that transparency wasn’t seen as a
problem until a wearer bent over. (Strauss 2013b) Day seems to ignore the fact that Lululemon
had “… [earned] fans not just for its high-end athletic wear but also for its commitment to yoga’s
high-minded principles” (Lee 2014) and those fans would expect higher quality control. Blogger
“Lululemon Addict” said of Day, “’Day has ruined everything special about Lululemon. The bullet
proof quality, the fit, the femininity, the lululemoness of the product…She is a one-trick pony
who grew the company through expansion.’” (Business Insider 2013)
So Day’s actions did not live up to the hypernorms of fairness or responsibility, since she
incorrectly blamed manufacturers for the problem; nor compassion, since she didn’t apologize
for causing embarrassment to wearers of the transparent pants; nor predictability, since
customers will doubt the quality of Lululemon clothing and the CEO’s veracity.
2. Does a CEO have an ethical responsibility to step down as CEO when there is a production and
marketing disaster that requires a product recall?
Theoretically speaking, a CEO would not, ethically, need to step down if problems were handled
differently than those at Lululemon. The CEO needs to accept responsibility for the problem and
apologize to those affected and commit to fixing the problems. The CEO, as a leader, must
reflect the values of the company and guide its corporate culture. In the case of Lululemon,
however, CEO Day does, ethically, need to step down because she did not act ethically (see
Question #1) and did not do those things.
3. Does the chair of the board of directors have an ethical responsibility to step down as chair of the
board when there is a production and marketing disaster that requires a product recall?

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Theoretically speaking, a Chair would not, ethically, need to step down if problems were
handled differently than those at Lululemon. But in the case of Lululemon, the Chair is part of
the problem, and was a reputation risk and did damage to the Lululemon brand. The Chair
needs to accept responsibility for the corporate culture and ethics of a corporation, and must
reflect those. In the case of Lululemon, however, Chair Chuck Wilson does need to step down
because he did not act ethically (see Question #1); he does not understand or relate to how
customers view the company; he does not take responsibility for his disparaging comments, nor
apologize to customers, and his feeble apology to employees. (Petri 2013)
4. Does the board of directors have an ethical responsibility to reprimand the chair of the board if the
chair makes controversial statements and comments to the press?
Yes! One of the responsibilities of a board is to imbed hypernorms in the corporate values
system (Chapter 5) and to guide corporation into develop and maintain an ethical corporate
culture (Chapter 5). It is the responsibility of the board to manage risk, including ethical and
reputation risk, and the CEO and Chair at Lululemon both represented reputation and ethical
risks. Usually, the board can hire a CEO and Chair; so reprimanding and firing them are also
responsibilities. At Lululemon, however, in June 2014, Chair Wilson held nearly 27% of the
company shares, and threatened to use that stake to oppose the election of two directors. (Lee
2014) This imbalance in shareholder power may have contributed to Lululemon problems,
because it raised obstacles to achieving an independent board able to control Wilson. Ironically,
Wilson said he lacked confidence in the board, a PR gaff hours before a shareholder meeting
(Friesner 2014).
Bhasin, Kim (June 10, 2013). "Christine Day Steps Down as Lululemon CEO." Huffington Post,
http://www.huffingtonpost.com/2013/06/10/christine-day-steps-down-lululemon-
ceo_n_3417495.html (accessed November 7, 2016).
Business Insider. "Lululemon Athletica Inc. CEO Christine Day should be fired, fans say." (March 20,
2013). Financial Post, http://business.financialpost.com/business-insider/lululemon-see-
through-pants-recall-ceo (accessed November 7, 2016).
Friesner, Zach (June 26, 2014). "It's Time to Look at Lululemon's Corporate Governance Policies." Motley
Fool, http://www.fool.com/investing/general/2014/06/26/it-is-time-to-look-at-lululemons-
corporate-governa.aspx (accessed November 7, 2016).
Lee, Adrian (July 11, 2014). "Lululemon boardroom fight part of a corporate culture war: Lululemon isn’t
the only company being accused of selling out its principles for short-term gain." Maclean's,
http://www.macleans.ca/economy/business/lululemon-a-growing-culture-war/ (accessed
November 7, 2016).

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lululemon athletica. Lululemon manifesto. 2011. http://static.lululemon.com/about/manifesto (accessed

November 7, 2016).
Nelson, Jacqueline (April 29, 2011). "Loco for Lulu." Canadian Business,
http://www.canadianbusiness.com/lifestyle/loco-for-lulu/ (accessed November 7, 2016).
Petri, Alexandra (November 12, 2013). "How not to apologize, with Chip Wilson of Lululemon."
Washington Post, https://www.washingtonpost.com/blogs/compost/wp/2013/11/12/how-not-
to-apologize-with-chip-wilson-of-lululemon/ (accessed November 7, 2016). [Imbedded video of
Wilson's apology.]
Strauss, Marina (March 19, 2013a). "Supplier of too-sheer yoga pants insists it stuck to Lululemon
design." Globe and Mail, http://www.theglobeandmail.com/globe-investor/supplier-of-too-
sheer-yoga-pants-insists-it-stuck-to-lululemon-design/article9948948/ (accessed November 7,
2016).
— (March 21, 2013b). "Lululemon backs off supplier blame." Globe and Mail,
http://www.theglobeandmail.com/globe-investor/lululemon-backs-off-supplier-
blame/article10053046/ (accessed November 7, 2016).
Taylor, Timothy (November 24, 2011). "CEO of the Year: Christine Day of Lululemon." Globe and Mail,
http://www.theglobeandmail.com/report-on-business/rob-magazine/ceo-of-the-year-christine-
day-of-lululemon/article4252293/ (accessed November 7, 2016).

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Cases on Bribery
6. SNC-Lavalin Missing Funds Topples CEO & Triggers Investigation (Chapter 5,

pages 300-302)
The SNC-Lavalin case illuminates the challenges of doing business in many foreign jurisdictions where
bribery is the normal practice and many businesses and businesspeople have come to believe that they
cannot operate successfully in those jurisdictions without bribing directly or through agents, foreign
officials, and many other individuals with influence. Sadly they forget or minimize the bigger picture of:
loss of reputation in other jurisdictions, legal prosecution, financial consequences, jail, loss of job, and
the diminishment of opportunities to garner business in the future. Perhaps they are unaware of the
changing view on the legitimacy of bribery, and the new statutory and enforcement regimes that are
coming into place.
This case also gives the opportunity for students to understand: (1) the roles expected of executives, the
board of directors, and (2) the purpose and function of company policies, and potential shortfalls of
circumvention and the omission of key operational considerations such as the duty to report
wrongdoing to an effectively placed and mandated representative of the board. Obviously, SNC-Lavalin
did not have an ethical tone at the top.
To get the class thinking about bribery, and to make the subject relevant, I ask if anyone has seen or
heard of a case of bribery, and we discuss several of those so that they understand the issues: can
business be done without bribes, what is a facilitating payment, are bribes good, etc. I then have a
member of class introduce the case details, and then we work through the case questions. These
questions provide a platform to discuss what the new legislative and enforcement framework is, and
why and how it should be proactively dealt with.
1. From a governance perspective, what can the Board of Directors do to make sure that the
company’s policies and procedure are adequate to ensure ethical and legal conduct by its
employees?
While the Independent Review (see case) concluded that the company’s codes had provisions
identifying bribery as bad, there was no requirement to report bribery to an official who could
investigate and whose role included informing the board of directors. The existence of these
weaknesses should have been picked up by a periodic review commissioned by the board at an
earlier date. However, the board seemed unaware that there was a shift from considering

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bribery unethical to making it illegal, and that the hardening of concern against bribery would
make consideration of old cases of bribery prosecutable retroactively. A periodic review of
policies by outside experts would have identified this trend in concern, and would have
recommended the institution of a proper reporting and investigation system, reporting to either
the Audit Committee of the Board, or the Governance Committee on an ongoing basis. As part
of the system, there should be a system of ethics code training which should have introduced
the values of the company, and which should have been supported and reinforced by the CEO
and senior executives. It is the responsibility of the board to ensure that the anti-bribery policy
of the company is up-to-date and effective as part of their risk management responsibility. The
company policy should indicate that consultation is required when an action might be
considered unethical or illegal.
In addition to the institution of strong policies, the board should ensure that internal audit or
some other group is mandated to endure that the policy is being followed, and that problems
are being followed up, brought to the attention of the board, and punished.
2. Mr. Aissa and Mr. Duhaime were not demonstrating strong ethical leadership. What can a firm do to
improve its ethical tone at the top?
A company should screen senior employees for their ethical values as indicated from
penetrating questions, reactions to scenarios posed, and reference checks, not only as to their
own actions but also with respect to their support for reporting and whistleblowing. Internal
audit should report instances to the board where senior executives are not supporting the
company policy, and an assessment of ethical performance should be an important component
of remuneration and promotion decisions.
3. Is it appropriate for a company to do business in a country with an oppressive regime? Why and
why not?
It depends upon whether the company’s activities can be conducted in an ethical manner, and
whether the support given to the citizenry as a whole outweighs the favourable impact on the
oppressive regime. At some stage, it may be ethically responsible to withdraw services from the
country if to do so would serve a greater purpose. This was the considered the case during
apartheid in South Africa. However, some companies remained in South Africa to do good
according to the Sullivan Principles (downloadable at
http://www1.umn.edu/humanrts/links/sullivanprinciples.html). The board of directors of a
company doing business with a repressive regime must reconsider their involvement on a
continuing basis in order to assure it is responsible.

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4. If the decision is made to do business in a country with an oppressive regime, what limitations that
should be put in place by the company to guide its employees against unethical involvement?
There should be an effective statement of policy, plus clear guidelines and rules where
necessary. A training session should be undertaken. In any case of uncertainty, a consultation
regime should be mandated where employees would have to consult an advisor for direction.
To minimize risk taking, actions should be judged by what would be acceptable in the most
rigorous jurisdiction the company faces or intends to face in customer or capital markets in the
future.
Update on charges
The Fifth Estate (April 3, 2013). “Mission Improbable—Preview [video].” CBC,

http://www.youtube.com/watch?v=maYrZc1yVzY&feature=youtu.be
Preview of the CBC-TV’s Fifth Estate documentary described in the CBC Media Centre press
release, (below), which aired April 5, 2013.
For a synopsis of the documentary and link to the video, see CBC Media Centre (April 4, 2013).
“On CBC News’ The Fifth Estate: SNC Lavalin’s Gadhafi Connection and One Woman [Cyndy
Vanier] Caught In The Middle.” http://www.cbc.ca/mediacentre/press-release/on-cbc-news-
the-fifth-estate-snc-lavalins-gadhafi-connection-and-one-woman-
Nagel, Edward (January 2014). “Taking a bite out of corruption, one bribe at a time.” Chartered
Professional Accountants of Canada (CPA): Conversations about Forensic Accounting, accessed
at http://www.cica.ca/focus-on-practice-areas/forensic-accounting/conversations-about-
forensic-accounting/entries/item77750.aspx on September 23, 2014.
Though not directly related to SNC-Lavalin, the article discusses the first conviction under
legislation under which SNC-Lavalin has been scrutinized. The author of the article discusses
“…one of the big stories from 2013-at least from the perspective of forensic and investigative
accounting…the first trial and conviction that occurred under the Canadian Corruption of
Foreign Public Officials Act (“CFPOA”). The case which is known as R. v. Karigar 2013 ONSC
5199, involved Mr. Nazir Karigar, who in his capacity as an agent for an Ottawa-based
technology company, Cryptometrics Canada, was convicted of conspiring to bribe foreign public
officials at Air India and India’s Minister of Civil Aviation.”

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7. Rio Tinto’s Bribes in China (Chapter 5, pages 302-304)
Bribery cases often involve a company making illegal payments to government officials in order to land
lucrative contracts. Sometimes, however, bribery can be between two or more companies, as it was the
case involving Rio Tinto, the Anglo-Australian mineral company, and several Chinese steel companies.
Rio Tinto executives received bribes from Chinese steel manufacturers in exchange from giving these
steel manufacturers preferential business treatment. Moreover, the same Rio Tinto executives bribed
Chinese officials to receive confidential information that led their company to increase the price of iron
ore sold to Chinese steelmakers.
There are several questions related to bribery between companies that may help to start the class
discussion, for example: is a bribe between companies the same as a bribe given to a government
official, would a bribe given to other company just be “part of doing business, and how is a bribe
different from a gift. Finally, it is useful to discuss the importance and benefits of a strong ethical culture
to deter unethical behavior.
1. The culture of giving and receiving payments is ingrained in China. On the other hand accepting and
paying bribes is a violation of Rio Tinto’s code of conduct. When does a payment stop being a gift
and turn into a bribe?
It is sometimes difficult to determine whether a gift is really a bribe. The following questions
should help to separate gifts from bribes.
• Is it nominal or substantial?
• What is the intended purpose?

• What are the circumstances?
• Is the person who receives the payment in a position of sensitivity?

• What is the accepted practice?
• What is the firm/company policy?

• Is it legal?
Several of these questions address the issue of whether or not a gift has an intention to “unduly
influence” or “obligate” the recipient to reciprocate by giving preferential treatment to the
giver.

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Similarly, Rio Tinto’s Code of Conduct, a document named “The Way We Work” (Rio Tinto 2009),
states that:
“There are several questions that we should ask ourselves when confronted with a business
decision:
• Is it legal?
• Are my actions consistent with The Way We Work and associated Rio Tinto
policies and standards?
• Will there be any direct or indirect negative consequences for Rio Tinto?
• What would my family, friends or neighbours think of my actions?
• Would I prefer to keep this secret?
• Would I want my actions reported on the front page of the newspaper?
If you do not feel comfortable with any of the answers, then the best response is not to do
it.”
Moreover, the company’s Code of Conduct explicitly prohibits bribery:
“Rio Tinto prohibits bribery and corruption in all forms, whether direct or indirect. We do
not offer, promise, give, demand or accept any undue advantage, whether directly or
indirectly, to or from:
• a public official;
• a political candidate, party or party official;
• a community leader or other person in a position of public trust; or
• any private sector employee (including a person who directs or works for a
private sector enterprise in any capacity.”
Finally, the company’s policy on gifts and entertainment is:
“Gifts and entertainment given and received as a reward or encouragement for preferential
treatment are not allowed.
In certain circumstances, the giving and receiving of modest gifts and entertainment is
perfectly acceptable. A business meal, for example, can provide a relaxed way of exchanging
information. Nonetheless, depending on their size, frequency, and the circumstances in
which they are given, they may constitute bribes, political payments or undue influence.
The key test we must apply is whether gifts or entertainment could be intended, or even be
reasonably interpreted, as a reward or encouragement for a favour or preferential
treatment. If the answer is yes, they are prohibited under Rio Tinto policy. Exchanges of gifts

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and entertainment, including the payment of travel expenses, must be in accordance with
Rio Tinto’s Business integrity standard.”
2. The smaller Chinese steel companies bribed the Rio Tinto executives because of Rio Tinto’s policy of
only dealing with large state-run steel companies. Can a business policy, such as giving priority to
only one set of firms, be unethical? Is Rio Tinto ethically responsible for the bribes that were given
to its employees because of its policy?
A business policy to give preferential treatment to some clients is not necessarily unethical.
Nevertheless, the company should think about whether the policy encourages its employees to
behave ethically or to behave unethically. Rio Tinto is responsible not only for having a policy on
bribing and a code of conduct, but also for having a comprehensive internal control system. As
stated in the OECD recommendations for internal controls, ethics and compliance with anti-
bribery regulations (OECD 2010):
“Effective internal controls, ethics, and compliance programmes or measures for preventing
and detecting foreign bribery should be developed on the basis of a risk assessment
addressing the individual circumstances of a company, in particular the foreign bribery risks
facing the company (such as its geographical and industrial sector of operation). Such
circumstances and risks should be regularly monitored, re-assessed, and adapted as
necessary to ensure the continued effectiveness of the company’s internal controls, ethics,
and compliance programme or measures.”
The company has to be aware that China’s two-tiered system for purchasing iron ore may
encourage corruption. While big steel mills are allowed to negotiate long-term fixed price
contracts, most small and medium-size steel mills are supposed to buy from the spot market,
the more volatile open market. The system creates arbitrage opportunities, allowing big steel
mills with fixed contracts to buy far more supplies than they need and then profitably sell excess
supplies to smaller mills on the black market.
3. Why were these bribes prosecuted?
It is not entirely clear why these bribes were prosecuted. Several Australian officials criticized
the detention of the Rio Tinto employees and suggested that Beijing was retaliating against Rio
Tinto for calling off a $19.5 billion deal that would have given a Chinese state-owned company,
called Chinalco, a large stake in the mining giant.
On the other side, the Chinese government argued it was an isolated case of espionage that
seriously harmed the country’s economic security and interests.

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4. What lessons should be taken from these convictions:
a. For foreign governments?
Foreign governments should warn their companies and citizens of the business conditions in
China, encourage them to behave ethically, and to strengthen their internal controls when
dealing with Chinese companies.
b. For corporations trading in and with China?
Companies trading in and with China should be careful and strengthen their internal controls.
Moreover, these companies have to be aware that businesses operate in China under strict
control of the government and that political events may influence the way business have to be
conducted there. The Rio Tinto case happened shortly after Google decided to pull its search
engine out of China. Both cases highlight several issues that foreign companies have to consider
when doing business in China.
In addition, companies have to be aware that it might be hard to fight against the Chinese
government in court. Rio Tinto’s employees were prosecuted largely in closed-door proceedings.
The trials appeared to favor the prosecution and deny the defendants due process.
c. For individual employees?
Employees should be aware that even when they appear to be acting in the best interest of their
companies, they may be acting unethically and illegally. If they obtain business opportunities
through bribes, then they can face the direct consequences of their actions, without the support
of their companies. Initially, Rio Tinto stated that the allegations of bribery of officials at Chinese
steel mills were wholly without foundation; however, later on the company blamed the
employees and denied any corporate responsibility for the bribes.
d. For possible investors in China?
Investors in China have to be aware of the potential ethical and reputational issues involved in
doing business there. These include: dealing with state-controlled entities, corruption, limited
civil rights, etc.
5. Should Rio Tinto have been charged?
The bribes were given over a number of years from 2003 to 2009. It is hard to believe that the
bribes, and particularly the ones paid by Rio Tinto employees, were totally unknown to the
company.
Although this case might serve as a warning for the company, it seems that the company should
also have been punished in this case. Moreover, the company failed to have adequate internal
controls to prevent the bribes.

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OECD (2010). Good Practice Guidance on Internal Controls, Ethics, and Compliance.
http://www.oecd.org/dataoecd/5/51/44884389.pdf
From the cover: “This Good Practice Guidance was adopted by the OECD Council as an integral
part of the Recommendation of the Council for Further Combating Bribery of Foreign Public
Officials in International Business Transactions of 26 November 2009.”
Rio Tinto (2009). The way we work. Our global code of business conduct.
http://www.riotinto.com/documents/The_way_we_work.pdf

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8. Daimler Settles U.S. Bribery Case for $185 Million (Chapter 5, pages 304-306)
This is a good case to discuss the implications from bribery, the need for an ethical culture within a
company, the role of whistleblowers in raising red flags about bribery, and the prospect of bribery
charges arising from U.S. and U.K. legislation even though the bribery occurred in other jurisdictions. A
company employee, David Bazzetta learned in July 2001 at a corporate audit executive committee
meeting in Stuttgart Germany, that DaimlerChrysler had secret bank accounts to bribe foreign
government officials. As a result, he filed a whistleblower complaint under the U.S. Foreign Corrupt
Practices Act (FCPA) that ultimately led to a multi-year investigation of surprising scope and U.S. charges
against a company headquartered in Germany, for bribes made to foreign officials around the world.
I start this case asking students how a bribe can be detected by a company or by the government.
Arguably, detecting bribes could be difficult in a large company such as DaimlerChrysler, with worldwide
operations, a large number of bank accounts and a complex financial reporting system. In these
circumstances, the best possible control is a strong ethics program, discouraging employees to act
unethically and giving whistleblowers the means to report these actions within the company. Moreover,
the U.S. government incentives to report bribes within the FCPA constitute a strong incentive to report
bribery activity outside the U.S.
This case also represents a good example of a change in perceptions about bribery, and in the real legal
consequences that now can flow from it. This case can foster the discussion about the measures that a
company should take to timely react to changes in stakeholders’ expectations about acceptable or
ethical business practices.
1. Apparently Daimler executives were not concerned enough with personal sanctions to change the
company’s bribery practices to comply with German and U.S. statutes. How can these attitudes be
changed?
Daimler executives have to be made aware of the potential consequences of giving a bribe. The
U.S. FCPA (q.v.) includes the following sanctions for bribing a foreign official:
“CRIMINAL: The following criminal penalties may be imposed for violations of the FCPA's
anti-bribery provisions: corporations and other business entities are subject to a fine of up
to $2,000,000; officers, directors, stockholders, employees, and agents are subject to a fine
of up to $100,000 and imprisonment for up to five years. Moreover, under the Alternative
Fines Act, these fines may be actually quite higher -- the actual fine may be up to twice the
benefit that the defendant sought to obtain by making the corrupt payment. You should

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also be aware that fines imposed on individuals may not be paid by their employer or
principal.
CIVIL: The Attorney General or the SEC, as appropriate, may bring a civil action for a fine of
up to $10,000 against any firm as well as any officer, director, employee, or agent of a firm,
or stockholder acting on behalf of the firm, who violates the anti-bribery provisions. In
addition, in an SEC enforcement action, the court may impose an additional fine not to
exceed the greater of (i) the gross amount of the pecuniary gain to the defendant as a result
of the violation, or (ii) a specified dollar limitation. The specified dollar limitations are based
on the egregiousness of the violation, ranging from $5,000 to $100,000 for a natural person
and $50,000 to $500,000 for any other person [i.e. a corporation].
The Attorney General or the SEC, as appropriate, may also bring a civil action to enjoin any
act or practice of a firm whenever it appears that the firm (or an officer, director, employee,
agent, or stockholder acting on behalf of the firm) is in violation (or about to be) of the anti-
bribery provisions.
OTHER GOVERNMENTAL ACTION: Under guidelines issued by the Office of Management and
Budget, a person or firm found in violation of the FCPA may be barred from doing business
with the Federal government. Indictment alone can lead to suspension of the right to do
business with the government. The President has directed that no executive agency shall
allow any party to participate in any procurement or non-procurement activity if any agency
has debarred, suspended, or otherwise excluded that party from participation in a
procurement or non-procurement activity.”
2. What internal controls could have been usefully introduced to prevent bribery at Daimler?
The OECD (OECD 2010) has published a document listing 12 recommendations for internal
controls, ethics and compliance with anti-bribery regulations, including:
1. Strong, explicit and visible support and commitment from senior management to the
company's internal controls, ethics and compliance programs or measures for
preventing and detecting foreign bribery;
2. A clearly articulated and visible corporate policy prohibiting foreign bribery;
3. Compliance with this prohibition and the related internal controls, ethics, and
compliance programs or measures is the duty of individuals at all levels of the company;
4. Oversight of ethics and compliance programs or measures regarding foreign bribery,
including the authority to report matters directly to independent monitoring bodies
such as internal audit committees of boards of directors or of supervisory boards, is the
duty of one or more senior corporate officers, with an adequate level of autonomy from
management, resources, and authority;

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5. Ethics and compliance programs or measures designed to prevent and detect foreign
bribery, applicable to all directors, officers, and employees, and applicable to all entities
over which a company has effective control, including subsidiaries on the following
areas:
• gifts;
• hospitality, entertainment and expenses;
• customer travel;
• political contributions;
• charitable donations and sponsorships;
• facilitation payments; and

• solicitation and extortion;
6. Ethics and compliance programs or measures designed to prevent and detect foreign
bribery applicable, where appropriate and subject to contractual arrangements, to third
parties such as agents and other intermediaries, consultants, representatives,
distributors, contractors and suppliers, consortia, and joint venture partners
(hereinafter “business partners”), including the following essential elements:
• Properly documented risk-based due diligence pertaining to the hiring, as well
as the appropriate and regular oversight of business partners;
• Informing business partners of the company’s commitment to abiding by laws

on the prohibitions against foreign bribery, and of the company’s ethics and
compliance program or measures for preventing and detecting such bribery;
and,
• Seeking a reciprocal commitment from business partners;
7. A system of financial and accounting procedures, including a system of internal controls,

reasonably designed to ensure the maintenance of fair and accurate books, records, and
accounts, to ensure that they cannot be used for the purpose of foreign bribery or
hiding such bribery;
8. Measures designed to ensure periodic communication, and documented training for all
levels of the company, on the company’s ethics and compliance program or measures
regarding foreign bribery, as well as, where appropriate, for subsidiaries;
9. Appropriate measures to encourage and provide positive support for the observance of
ethics and compliance programs or measures against foreign bribery, at all levels of the
company;

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10. Appropriate disciplinary procedures to address, among other things, violations, at all
levels of the company, of laws against foreign bribery, and the company’s ethics and
compliance program or measures regarding foreign bribery;
11. Effective measures for:
• Providing guidance and advice to directors, officers, employees, and, where

appropriate, business partners, on complying with the company's ethics and
compliance program or measures, including when they need urgent advice on
difficult situations in foreign jurisdictions;
• Internal and where possible confidential reporting by, and protection of, directors,
officers, employees, and, where appropriate, business partners, not willing to
violate professional standards or ethics under instructions or pressure from
hierarchical superiors, as well as for directors, officers, employees, and, where
appropriate, business partners, willing to report breaches of the law or professional
standards or ethics occurring within the company, in good faith and on reasonable
grounds; and
• Undertaking appropriate action in response to such reports;

12. Periodic reviews of the ethics and compliance programs or measures, designed to
evaluate and improve their effectiveness in preventing and detecting foreign bribery,
taking into account relevant developments in the field, and evolving international and
industry standards.
3. What should Dieter Zetsche do to ensure the highest compliance standards?
The change of a company’s culture is a long process that takes time and a strong commitment
by top management to promote and enforce high ethical standards. It is important to make sure
employees at all levels of the company know that bribes and other similar unethical actions will
not be tolerated. The recommendations outlined in the answer to the previous question may be
a good way to start developing a strong compliance program. Whatever steps Mr. Zetsche takes,
he must speak out actively in support of the anti-bribery policy and its enforcement – in other
words he must provide strong ethical leadership – or his employees will not take notice of the
new policies.
4. Whistleblowers on FCPA matters are eligible for up to 25% of the settlement and/or fine that results
depending on a hearing by a tribunal on the import of their evidence (see Chapter 1, page 15 for a
discussion of this). How much of the $91.4 million restitution payment would you award David
Bazzetta if you could make the decision? Provide your reasons for the choice you advocate.
Whistleblowers providing “original information” leading to a successful enforcement action

resulting in monetary sanctions exceeding $1,000,000 may be paid between 10 and 30 percent
of any money the government collects as a result of the provided information. In this case, if the

P a g e | 45
evidence provided by Mr. Bazzetta becomes central to the prosecution of this case, he deserves
the maximum possible award.
5. Did David Bazzetta do what was expected of him as a professional accountant?
A professional accountant has the responsibility to not be associated with misleading or false
information. Mr. Bazzetta acted ethically in this case; however, it is debatable whether he
should have gone public right away or he should have reported this matter within the company
first. Mr. Bazzetta could have attempted to reach the Board of Directors before filing a
complaint with the U.S. Department of Justice. It may have been a reasonable judgment on his
part that, at the time, his internal report would have been ignored, or that he might have been
discriminated against or prosecuted.
OECD (2011). Bribery in International Business.

http://www.oecd.org/document/13/0,3746,en_2649_34855_39884109_1_1_1_1,00.html
U.S. Department of Justice. Foreign Corrupt Practices Act of 1977 (15 U.S.C. §§ 78dd-1, et seq.)
http://www.justice.gov/criminal/fraud/fcpa/docs/fcpa-english.pdf
OECD (2010). Good Practice Guidance on Internal Controls, Ethics, and Compliance.
http://www.oecd.org/dataoecd/5/51/44884389.pdf
U.S. Department of Justice (2011). Lay-Persons’ Guide to FCPA.

http://www.justice.gov/criminal/fraud/fcpa/docs/lay-persons-guide.pdf

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“I never catch cold, thank you,” said. Miss Methvyn. Mr. Guildford
fancied she spoke stiffly, and was annoyed with himself for the
suggestion. “That is not a bit of your business,” he imagined her
manner to imply. But her next words reassured him. “Perhaps it is
not wise to stand still so long,” she said, and she set off walking
round the little garden.
There was an opening at the other side in the shrubs and trees
that surrounded the enclosure of flower-beds. Here Miss Methvyn
paused. “By daylight there is such a pretty view from here,” she said.
“You can see Haverstock village, and the church, and the little river.
Even now you can see it gleaming—over there to the right, over
there where the railway bridge crosses it.”
“Ah! yes, I see. Do you think that the railway spoils the landscape,
Miss Methvyn?”
“I don’t know. I never thought about it,” she said. “It has always
been there. Charlie used to be so fond of watching for the white
feathers of steam coming into sight and disappearing again. He liked
the railway, because he had a notion that any day, if he ran to
Haverstock, he could get to his mother at once. The fancy cheered
him when he first came to live here, and she went away. I have
never cared to see the trains go by lately.”
As she spoke a shrill whistle sounded in the distance. Cicely
turned and began to retrace her steps.
“Associations must sometimes be terrible things,” said Mr.
Guildford gently.
Something in his voice encouraged Cicely to say more. “There is
a still more painful feeling that I have never heard described,” she
said. “I have often wondered if other people have felt it. The sound of
that railway whistle put it into my mind, and the speaking of Charlie’s
fancy about it. What I mean is a sort of hatred of everything tangible
—material rather. It came over me dreadfully after he died. It seemed
to me that even the material things he had loved now separated me
from him. Just as he, in his innocence, loved the railway, because he
thought it would take him to his mother, so I could not endure to see
it, because I felt that it—that nothing material could take me to him or
bring him back to me. Everything, except memory, seemed to
separate me further from him. I have had this feeling twice; yes, I
think, twice in my life,” she repeated. “Did you ever feel it, or is it only
a womanish feeling?”
Mr. Guildford had listened to her with some surprise, but still with
attention and a wish to follow her meaning.
“I think I understand you,” he said thoughtfully. “It seems to me
your feeling must somewhere have affinity with what I—like every
student of practical science—realise incessantly; the utter
insurmountability of the barrier between matter and spirit. It sounds
very commonplace, but it is the puzzle. We are so hedged in, in
every direction the old hitting one’s head against the wall. And the
only thing to be done is to turn round and work one’s hardest inside
the limits.”
“Yes,” said Cicely. “Yes. I understand.” Then she was silent for a
minute or two. “I suppose,” she said at last, “I suppose if we could
put our feelings into words, we should always find some one who
shared them.”
“I suppose so,” he said. “Not that I have ever felt your special kind
of revolt against our prison bars, Miss Methvyn. I have never been
separated by death from any one that I cared very much about.”
“You have been very happy then,” she said.
“I don’t know. There are two ways of putting it. Perhaps the truth
is that I have never had any one to care enough for, for separation to
be or seem terrible,” he answered, in a tone not very easy to
interpret.
They were close to the window again. Geneviève’s music had
ceased, and glancing up, Cicely saw her cousin standing inside the
glass door looking out.
“Mr. Guildford,” she said hastily, “will you just come to the end of
the walk again for a moment. I have wanted to ask you something all
this evening, and I thought you might be annoyed at it. I want to
know what you think about my father. I cannot tell you why I ask you
—there—there is something that depends upon it. And I know you
are very clever. You must not think me very strange. I am so at a
loss,” she hurried on with what she had to say, in evident fear of Mr.
Guildford interrupting her with some cold expression of disapproval
or annoyance; for she could see that he looked grave and perplexed.
“What do you mean exactly, Miss Methvyn?” he said formally. “Do
you want to know if I think Colonel Methvyn in a critical state, or
what?”
He thought her inquiry uncalled for and hardly delicate. He felt
surprised, and a little disappointed. She was her father’s heiress;
Colonel Methvyn had told him so. Could it be—surely not—that she
was eager to claim her inheritance, making plans contingent on her
speedy succession?
“Yes,” she replied, “that is partly what I want to know. I also want
to know if any vexation—being thwarted about anything on which he
had set his heart, for instance, could do him harm.”
“Most assuredly it would,” he said somewhat sternly, “the very
gravest harm. It is very early for me to give an opinion,” he went on,
feeling anxious to avoid saying much. “I never saw Colonel Methvyn
till to-day, but I have seen similar cases. I should say he may live as
he is for many years, provided his mind is kept at ease, and that he
is not thwarted or exposed to vexation. The effect of any great
shock, of course, I could not predict.”
“Thank you,” she said very gently, almost humbly, “you have told
me what I wanted to know.”
Why did she want to know? he asked himself. She stood still for a
minute or two, as if thinking of what he had said. The moonlight fell
full on her fair face, and as she looked up with her clear honest eyes,
his heart smote him for even his passing misgiving that her motives,
her reasons, could be but of the purest and best.
“She is not a commonplace girl,” he thought, “and she won’t be a
commonplace woman; but she is too self-reliant for one so young.”
It was almost with a feeling of relief, or what he imagined to be
such, that he turned to Geneviève, who had opened the glass door
and stood waiting for them.
“How charming it is!” she said; “but, my cousin, my aunt fears lest
you should take cold.”
“I am coming in now, mother,” Cicely said as they came within
hearing, “do come here for a moment and look at the beautiful
moonlight.”
Mrs. Methvyn rose from her seat by the table, and joined the little
group at the window.
“Yes,” she said, “it is lovely, but it is rather cold.” She shivered as
she spoke, and retired to the fire. The others were following her,
when suddenly a whistle was heard, not a railway whistle this time. It
sounded at some little distance away, down among the shrubberies.
Cicely stopped, and seemed to listen.
“What was that? It surely can’t be” The whistle was repeated. “Go
in, Geneviève,” she said, “I shall be back directly.”
And almost before her cousin and Mr. Guildford saw what she
was doing, she had started off and was lost to sight among the
bushes.
Geneviève and Mr. Guildford looked at each other in surprise.
Then Geneviève came into the library again and spoke to her aunt.
“My cousin has gone out again, aunt,” she said; “shall we leave
the door open till she returns?”
“Cicely gone out again!” exclaimed Mrs. Methvyn. “How very
foolish! Do you see her Mr. Guildford?” she asked, for the young
man was still standing by the window.
“No, I don’t,” he replied; “Miss Methvyn ran off so quickly. We had
better shut the door in the meantime, however.”
He came inside and closed it. Mrs. Methvyn looked annoyed and
uneasy.
“I can’t understand what Cicely is thinking of,” she said.
“There was a—what do you call—siffle, siffle—a fistle—wistle?”
said Geneviève, “down in the garden, and then Cicely ran.”
“What do you mean, my dear?” said Mrs. Methvyn with slight
impatience. “Do you know, Mr. Guildford?”
He was half annoyed and half amused.
“It is just as Miss Casalis says,” he replied. “We heard a whistle at
some little distance, and Miss Methvyn ran off at once.”
“Was it a peculiar whistle, like two short notes and then a long
one?” inquired Mrs. Methvyn more composedly.
“Yes,” said Mr. Guildford; “I heard it twice; it was just that.”
“Then the Fawcetts must have returned,” exclaimed Cicely’s
mother. “How surprised every one will be! They intended to stay
abroad till July.”
“The Fawcetts!” repeated Geneviève impulsively.
“Yes, of course,” said Mrs. Methvyn, “the Fawcetts—our nearest
neighbours Colonel Methvyn’s cousins. Mr. Fawcett has been in the
habit of coming here at all hours since he was a boy, and there is a
short cut through the fields that saves a couple of miles,” she went
on, in a sort of generally explanatory way; “it comes out at the little
gate in the laurel-walk. By the bye, I wonder if Cicely has the key. We
generally keep it locked, for a good many tramps come round by the
Ash Lane, and Trev—Mr. Fawcett, always whistles, on the chance of
our hearing him, before coming round the other way by the lodge.”
“Cicely had a key to-day,” said Geneviève. “We went through the
little gate when we were out, and my cousin unlocked it.”
“Ah! that is all right, then; she often carries it in her pocket,”
replied Mrs. Methvyn.
She went to the glass door, and opening it, stood listening as if for
approaching voices. Geneviève sat down by the table and began idly
turning over some photographs. Mr. Guildford stood at a little
distance, wishing the carriage would come round that he might go.
From time to time, however, he could not help glancing at the face
bent over the photograph book. In profile it was hardly so perfect as
when in full view; still it was very lovely—every feature so clear, and
yet rounded, the long black eyelashes sweeping the delicately tinted
cheek, the expression so innocently wistful.
“I doubt if that little southern flower will take kindly to this soil,”
thought Mr. Guildford.
Just then Geneviève happened to look up, and catching sight of
the young man’s eyes fixed upon her, blushed vividly. Pitying her
discomfort, and annoyed with himself for being the cause of it, he
hastily made some remark about the pictures she was looking at,
thinking to himself as he did so of the shallowness of the popular
notion that French girls were more artificial, less unsophisticated and
retiring, than English maidens. Geneviève was on the point of
replying to his observation, when the door opened.
“The carriage for Mr. Guildford,” said the footman.
Mr. Guildford turned to Mrs. Methvyn, and was beginning to say
good-bye, when voices were heard outside—cheerful voices they
sounded as they came nearer—Miss Methvyn’s and another, a
deeper, fuller toned voice, and in a moment their owners appeared at
the glass door.
“Mother,” said Cicely, and to Mr. Guildford her tone sounded bright
and eager, “mother, here is Trevor, are you not astonished? Did you
think me insane when I ran off in such a hurry?” she went on
laughingly.
“We only arrived this afternoon,” said the gentleman, “two months
before we were expected. You can fancy what a comfortable
reception we had at Lingthurst. My mother and Miss Winter ended by
discovering they had lost all their luggage, that is to say, only twenty-
nine boxes turned up, and there was such a to-do that I came off.”
“It was very good of you, dear Trevor,” said Mrs. Methvyn. “It is so
nice to see you again. But why have you come home so soon?
Nothing wrong, I hope?
“Everything wrong,” said the young man laughing. But as he came
into the room he caught sight of Mr. Guildford, and, further off,
Geneviève seated by the table, but with her face turned away from
the others. “You are not alone,” he said hastily, his tone changing a
little. The change of tone, slight as it was, was enough to make Mr.
Guildford wish that his goodbyes had been completed before the
appearance of the new-comers, but almost ere he could realise the
wish Miss Methvyn had come forward.
“It was very rude of me to run away in such a hurry, Mr. Guildford,”
she said gently, “but I did not like to keep my cousin Mr. Fawcett
waiting. I was afraid he would think we had not heard him.”
“I was just about going round by the lodge when I heard your
tardy footsteps, Miss Cicely,” said Mr. Fawcett. “I had whistled till I
was tired and was thinking of trying a verse or two of Come into the
garden, Maud, for I am very tired indeed of being here at the gate
alone.”
“It would not have been at all appropriate,” said Cicely, a very
slight shadow of annoyance creeping over her face. Then there
came a little pause, which Mr. Guildford took advantage of to finish
his good-nights this time without interruption. He carried away with
him no very distinct impression of the new-comer, only that he was
tall and fair and good-looking, and that his voice was soft and
pleasant.
“She said he was her cousin,” Mr. Guildford repeated to himself.
“Ah! well, I am not likely ever to know more of her, but I almost think
she is the sort of woman one might come to make a friend of.”
CHAPTER VI.
“LE JEUNE MILORD.”
“He is as sober a man as most of the young nobility. His fortune is great. In
sense he neither abounds nor is wanting; and that class of men, take my word for
it, are the best qualified of all others to make good husbands to women of superior
talents. They know just enough to admire in her what they have not in
themselves.”
Sir Charles Grandison.
HE was tall and fair and very good-looking. He had pleasant

somewhat sleepy blue eyes, and a pleasant somewhat sleepy
manner. Take him as a whole he was a favourable specimen of the
upper class young Englishman of a certain type, prosperous,
amiable, well-principled according to his lights, very fairly satisfied
with things as he found them, little disposed by nature or education
to dive below the surface.
In the little bustle of Mr. Guildford’s leave-taking, the figure of the
girl sitting quietly by the table had almost escaped Mr. Fawcett’s
notice. But Geneviève had risen to say good-bye to the doctor, and
before she sat down again Mrs. Methvyn addressed her.
“Geneviève, my dear, don’t stay over there all alone. By the bye I
must introduce a new cousin to you. Not exactly a cousin certainly,
but as you both call me aunt, it seems something like it. This is Mr.
Fawcett, Geneviève, and this, Trevor, is my little niece—niece ‘à la
mode de Bretagne,’ as your mother says, Geneviève—Geneviève
Casalis who has come to us all the way from Hivèritz. You must have
been near there not long ago, Trevor. I think your mother,” but she
stopped short in her sentence, startled by a sudden expression of
surprise from the young man.
“By Jove,” he exclaimed, but recovering himself almost
immediately, “I beg your pardon, aunt,” he went on, “I was so
astonished at seeing Miss Casalis again. I had no idea—”
Geneviève had come forward when her aunt first spoke to her,
and when Mrs. Methvyn had gone on to introduce the so-called
cousins, Mr. Fawcett had naturally turned towards the young lady,
obtaining thus for the first time a full view of her face, her lovely
blushing face, with timid up-looking eyes; the face that not many
weeks ago had rested white and unconscious on his shoulder, which
he had often vaguely wondered if he should ever see again. This
very evening, as he had stood waiting by the gate, something had
recalled to his mind the accident at Hivèritz, and he had thought to
himself that he would tell Cicely about it and try to describe to her the
girl’s beautiful face.
“If she could see her, she would want to paint her I am sure,” he
thought. “She would make such a stunning gipsy, or Italian peasant
girl, or something like that. I wish Cicely could see her. She is so
ready to admire pretty girls. I never knew any woman like her for
that. Even my mother and Miss Winter began criticising that lovely
girl. My mother said she had no manners—poor little soul! she was
frightened out of her wits—and Miss Winter found fault with her
dress.”
And within ten minutes of his standing at the gate, and thinking
over the adventure of Hivèritz, behold the heroine of it standing
before him in the flesh! It was enough to excuse a pretty forcible
expression of astonishment.
Mrs. Methvyn looked bewildered in the extreme.
“Do you mean that you and Geneviève have met before?” she
inquired. “You never told us so, Geneviève?”
“Perhaps she did not know Trevor’s name,” suggested Cicely,
fancying that Geneviève looked shy and embarrassed.
“I knew it was Fawcett,” said Geneviève, “but I knew not but that
here in England there are many Fawcetts.”
“Of course,” said Mr. Fawcett eagerly. “Of course. I only wonder
you remember the name at all.” He could not have explained why,
but he certainly was rather pleased than the reverse to find that
Mademoiselle Casalis had not talked about their former meeting.
“When was it you met Mr. Fawcett before? On your way through
France?” inquired Mrs. Methvyn of Geneviève.
“Oh! no, dear aunt. It was while I was still at the home. Before I
knew that I should come to England at all,” the girl replied simply
enough. And then she told about the accident, how kind “Miladi
Fawcett” had been, how thankful “maman” had felt that it had done
her no harm—all in her pretty, broken English, stopping here and
there for a word, or glancing up appealingly with a “how do you say
so and so?”—all just as it had happened; Mr. Fawcett now and then
joining in with some observation; reserving only to herself her
mother’s recollection of the English family’s name and speculation as
to whether the Fawcetts of her youth and those of Geneviève’s
adventure could be the same. For the mention of this would
assuredly have led to a repetition of the question, “Why did you not
tell us about it before?” a question that Geneviève was not prepared
to answer, for the simple reason that she could not really exactly say
why she had not done so. It would have been only natural, girlishly
natural, to have inquired of her aunt or cousin if among their
neighbours were any family corresponding to her description, but
though natural to most girls, to Geneviève anything so frank and
straightforward was the reverse. To her the question, “Why should I
not tell?” less frequently presented itself than the reverse, “Why
should I?”
Perhaps the only definite reason she could have given for her
reserve, was one she might certainly be excused for keeping to
herself—a foolish, vague, half-romantic, half calculating anticipation
of the effect and possible result of her sudden appearance before old
Mathurine’s ‘jeune milord,’ the hero of the girl’s latest day-dream.
So she told her little adventure simply and prettily, with here and
there a timid blush, and a suspicion of tears in her eyes as she
recalled her mother’s thankfulness, the anxiety and terror of ‘cette
bonne Mathurine.’
“It is quite a curious coincidence,” said Mrs. Methvyn with interest.
“I must take you to see Lady Frederica some day soon Geneviève.
She will be pleased to meet you again. In any case she would be
glad to see you, for she remembers your mother. In one of her letters
to me she said so, and was sorry I had not given her Madame
Casalis’s address in case of your passing through Hivèritz, Trevor. It
was too late then, for you had already been there.”
“Yes, what a pity,” exclaimed Mr. Fawcett. “I remember my mother
saying something about it when we were in Switzerland. She could
not remember where Madame Casalis lived. We little thought we had
already made her daughter’s acquaintance.”
“Did you not hear Geneviève’s name?” inquired Cicely.
Trevor looked a little bit annoyed—he hardly liked to own that
while the young lady had remembered his, hers had completely
escaped his memory.
“We did hear it, we must have heard it,” he said. “I think Miss
Casalis mentioned it when I was telling our courier where the
coachman was to drive to. But, I suppose it was the stupidity of my
English ears—I did not catch it clearly.”
Geneviève smiled sweetly, as if in condonation of the offence, but
in her heart she was wishing, oh! so earnestly, that she had not
prevented “Miladi Fawcett” from accompanying her home to the Rue
de la Croix blanche, that Sunday evening, to see her safely in her
mother’s care. What would it have mattered that the house was
small and shabby, and that Madame Casalis herself had to open the
door, if, as would almost surely have been the case, the familiar
name of Fawcett had caught her mother’s ears, and led to a mutual
recognition! What pleasant results might not have followed!
Geneviève felt exceedingly provoked with herself, and Mrs. Methvyn,
unconsciously, added to her vexation.
What a pity,” she too exclaimed. “If Caroline and Lady Frederica
had met, it would probably have been arranged for Geneviève to
have travelled some part of the way here with your party, Trevor, for I
know Madame Casalis was very anxious at that time to hear of a
suitable escort. And you would have seen something of Paris, my
dear, as you wished so much,” she added, turning to Geneviève,
“instead of having to hurry through with Monsieur
Rouet.”—“Geneviève came under the care of a pasteur who had to
attend some meeting in London,” she went on to explain to Mr.
Fawcett.
“And had to travel second-class all the way, and saw nothing of
Paris,” added Geneviève in her own mind (though not for worlds
would she have said it aloud), feeling too disgusted with herself even
to smile. Her one day in Paris had been a Sunday, which the
Reverend Joseph Rouet, faithful to his charge, had caused her to
spend among the Protestant brethren at Passy, attending two
services in a stuffy meeting-house,—Geneviève, whose soul had
long ago soared far beyond the homeliness of the Casalis’ narrow
little circle at Hivèritz, whose imagination had pictured drives in the
Bois de Boulogne, shopping in the Boulevards, nay (‘comble de
bonheur,’ hardly to be thought of but with bated breath), even a visit
to the theatre itself, as blissful possibilities of a few days in Paris!
“It was really a chapter of cross-purposes,” continued Mrs.
Methvyn. “I wonder your mother did not remember the name
Fawcett, when you told her of your accident, Geneviève?”
“Perhaps I did not rightly pronounce it,” said the girl. “And mamma
was much occupied in her thoughts just then, I remember.”
She happened to catch Cicely’s eye as she spoke, and blushed
vividly. A slight look of perplexity crossed Miss Methvyn’s face.
“I hope Geneviève is not afraid of me,” she thought to herself.
“What was there to make her look so uncomfortable just now! I am
so anxious to be kind to her and win her confidence, but I fear I
seem cold and distant to her, poor girl!”
But no more was said on the subject of Geneviève’s former
meeting with the Fawcetts.
“Shall I come to see your mother to-morrow, Trevor?” said Mrs.
Methvyn as she was bidding Mr. Fawcett good night. “Or will she be
busy?”
“She will probably be rather in a state of mind if the missing boxes
haven’t turned up,” said the young man. “I’ll look in some time to-
morrow and tell you. I have to drive to the village to call on the new
clergyman, and I may as well come round this way.”
“Oh! then the new clergyman has come,” said Cicely. “I am very
glad. I don’t like driving to Haverstock Church half as well as going to
Lingthurst. The walk through the woods is so pretty, Geneviève,” she
added; “I almost think it is what I like best about our Sundays here.”
“Cicely, my dear!” said her mother in a somewhat similar tone to
that in which Mrs. Crichton had reproved her brother for the avowed
reason of his predilection for church.
Cicely smiled. “Well, mother dear,” she said coaxingly, “the walk to
church was really more edifying than what we heard when we got
there, in the old days. I am so glad Sir Thomas is getting a new
organ,” she went on. “We hear Mr.—I don’t think I have heard h is
name—is a zealous reformer.”
“Tremendous,” said Mr. Fawcett. “I don’t think my father had any
idea what he was bringing upon us when he gave the living to Mr.
Hayle.”
“Mr. Hayle, oh! that’s his name, is it? But I thought he was not
coming for two months,” said Miss Methvyn.
“So thought everybody except Mr. Hayle,” replied Mr. Fawcett.
“There was some mistake about it, and it turned out he had made all
his plans for coming at once; that was one of the things that made us
come home sooner. But I must be going. Good night, aunt. I shall be
sure to look in to-morrow.”
That night when the two girls went upstairs to their rooms, Cicely
accompanied Geneviève into hers. She stood for a moment by the
dressing-table idly playing with some pretty little toilet ornaments that
stood upon it. They were unusually pretty little trifles, and belonged
to a set which had been given to her by an old lady who was a
connoisseur in such things, and Cicely had placed them in her
cousin’s room to please her eye on first arriving. The sight of the little
ornament seemed to remind her of what she had to say, or perhaps
to encourage her to say it.
“Geneviève,” she began, and her blue eyes looked earnest and
thoughtful, “I want to say something to you. I am afraid I seem cold
to you, and it would grieve me if you thought I felt so. I am not
naturally very demonstrative, and since my father has been so ill, I
have had to learn to be even more quiet and calm in manner. And
being the only one at home, I have had to do what I could to help my
parents, and I fear it has given me a sort of decided, managing
manner that may strike you disagreeably. I want to ask you not to be
afraid to tell me if I ever seem either cold or hard. You don’t know me
yet; you can’t trust me all of a sudden; I should not wish it. But when
you know me better, I hope you will believe that I don’t feel cold and
indifferent, and that I am very anxious, dear, to make you happy.”
Considering that the burden of the speech was herself and her
own feelings, it was an unusually long one for Cicely. But the simple
words betrayed no egotism; the kind, true eyes expressed their
owner’s real feelings. Impressionable Geneviève threw her arms
round her cousin’s neck.
“I do trust you, dear Cécile,” she exclaimed impetuously. “I love
you and trust you, and I think you so good and so wise. I wish I were
good like you, but I am not. I am foolish and discontent, and at home
I did not help the mother and think for her, as you do for my aunt.
Teach me to be like you, dear Cécile; let me trust you and give you
all my confidence.”
Cicely smiled. It was no sudden friend ship she was asking of her
cousin, no romantic compact of girlish devotion which she was
proposing—such things were little in her way. But she would not for
worlds have chilled Geneviève’s affectionate impulse, so she
submitted with apparent satisfaction to a kiss on each cheek, and
kissed her again in return, saying as she did so, “Good night, dear
Geneviève, and thank you. Now you must ring for Parker and go to
bed. It is rather late and you look tired.”
Coming along the passage after leaving Geneviève, Miss
Methvyn met her mother.
“I was looking for you, dear,” said Mrs. Methvyn. “It is late, but
your father is very comfortable to-night. He is still reading the
papers.”
They were close to the door of Cicely’s little sitting-room. They
went in and stood in silence for a minute by the mantelpiece. All
looked the same as on the night little Charlie died; the birds were all
asleep, the flowers looked fresh and cared for, the Skye terrier lay on
the hearthrug. Cicely sighed as she looked round, for her glance fell
on an object she had not yet had the heart to dislodge from its
accustomed place—a toy horse, Charlie’s favourite steed, stalled in
one corner, which he had called his stable.
But the sigh was quickly stifled. “What did you want me for,
mother?” she said.
“I was thinking, Cicely,” began Mrs. Methvyn, “that it would now be
well to tell Geneviève of your engagement—don’t you think so? It is
different now that Trevor is here again. It may seem strange to her
afterwards not to have been told of it.”
Cicely hesitated. “I would much rather she were not told of it just
yet,” she said. “She is so young, and I want so much to make her
feel quite at ease with me. Besides,” she went on, “you know,
mother, what we were saying this afternoon—my engagement is
rather an indefinite one; it is not as if I were going to be married
soon.”
“But if your father sets his heart upon it—the Fawcetts have
always wished to hasten the marriage, you know, Cicely dear—it
may not be a very long engagement after all,” said Mrs. Methvyn.
“I hope papa won’t set his heart upon it,” said Cicely with a faint
smile. But she did not oppose the suggestion as vehemently as a
few hours before.
“Then, you don’t object to my telling Geneviève?” asked her
mother.
“Of course not, if you think it best,” said Cicely. “I wish, however,
you would not tell her quite yet. Wait a few days. I think she is
beginning to feel more at home with me. She will not be surprised at
seeing Trevor often here; she knows they are our cousins.”
“Very well,” said Mrs. Methvyn.
Geneviève’s last thought that night before she went to sleep was
of Mr. Fawcett. To her girlish fancy the coincidence of their meeting
again was suggestive of all manner of speculations.
“How I wish Mathurine knew of it,” she said to herself; “how
delighted she would be! She thought him so handsome and
distinguished. So he certainly is, and his manners are so agreeable,
not at all like those of most Englishmen, cold and gloomy” (forgetting
her extremely limited experience of Mr. Fawcett’s countrymen). “And
then how rich they must be! Ah, how I should have enjoyed travelling
with them! No doubt they had a courier, an appartement au premier
—everything of the best.”
And another idea entered her silly little head. How delightful would
be a wedding journey to Paris with such a hero—rich, amiable, living
but to gratify her wishes! Such things had come to pass, thought
Geneviève; such good fortune had been the lot of portionless girls
far inferior to herself in personal attractions. She did not fear her
cousin Cicely as a rival; the idea never even occurred to her. She
liked Cicely, and was very well pleased to make a friend of her, but in
some respects she could hardly help looking down upon her a little.
“She is so good and wise,” thought Geneviève, “but so slow and
quiet. English girls never seem half awake. And her dress; bah! if I
had all the money she has to spend upon it, would I be content to
wear such plain things? She might make herself look twice as well if
she liked.”
Such was the maiden meditation, such the “fancy free” of the
pasteur’s daughter, who had been brought up in the seclusion and
simplicity of a French Protestant household, sheltered, as her
parents fondly thought, from every breath of worldliness or ambition.
Mr. Fawcett made his appearance again about luncheon-time the
next day. Cicely was alone in the morning room when he came in.
“I’ve been to see the new man,” he said, establishing himself on a
comfortable low chair and looking ready for a cousinly chat. “I’m
hardly fit to come in here, Cicely; I’m covered with dust.”
He looked dubiously at his boots as he spoke, and began
switching them lightly with his riding-whip.”
“Never mind,” said Miss Methvyn; “only please don’t send the dust
on to me.” She spoke laughingly; but her tone sobered into gravity as
she went on, “Black dresses catch dust so easily.”
“I beg your pardon,” he said. Then he looked up from his boots
and fixed his pleasant, good-tempered blue eyes on his cousin. She
was sitting at a little table near him,—writing, in point of fact making
up accounts. She had stopped when Mr. Fawcett first came in, but
had not altogether withdrawn her attention from the papers. before
her; and now in the intervals of his remarks, she ran her eye up and
down the neat little columns of figures, and jotted down the results of
her calculations.
“What are you so busy about, Cicely?” said Mr. Fawcett after a
little pause.
Miss Methvyn stopped to put down a figure before she spoke. “It’s
Saturday,” she replied laconically, glancing up for a moment, and
then putting down another.
“I didn’t say it wasn’t,” replied her cousin. “What about it?”
His tone was perfectly good-natured. Something in it struck
Cicely’s sense of the ludicrous. She threw down her pen and began
to laugh.
“You’re very long suffering, Trevor,” she said, “and I’m very rude.
On Saturdays I have always to go over all the accounts; the bailiff’s,
the gardener’s, and all—and make a sort of summary of them for
papa. I generally do them upstairs in my own room, but Geneviève
was working at something up there this morning, so I brought them
down here.”
“It isn’t proper work for you. Your father should get a regular
agent,” said Mr. Fawcett.
“No he shouldn’t,” said Cicely; but the tone and manner disarmed
the abruptness of her speech. She glanced at her cousin with an
expression of half-playful defiance. He smiled.
There was a likeness of feature and complexion between these
two—a material resemblance, which seemed, in a sense, to render
more visible the underlying dissimilarity. Both pairs of blue eyes were
calm and gentle; but those of the young man told of repose from the
absence of conflicting elements; those of the girl, of the quiet of
restrained power. There was decision in both faces; in Trevor’s it
was that of a straightforward, healthy, uncultivated, not acutely
sensitive nature; in Cicely’s it was the firmness of an organisation
strong to resist where the necessity of resistance should be the
result of conviction, but at the same time exquisitely keen to suffer. A
glance at the man told you pretty correctly the extent of his mental
capacity. He was no fool, but there was small promise of further
intellectual development; such as he was, he was likely to remain;
but it took more than many glances to estimate justly the reserve of
power and depths of feeling hidden below the stillness of Cicely
Methvyn’s young face.
Something in the girl’s manner told Mr. Fawcett that the occasion
would not be an auspicious one for entering upon a subject he had
come half prepared to discuss. So he said nothing for a minute or
two, and Cicely went on with her accounts. As Mr. Fawcett watched
her, a slight expression of dissatisfaction crept over his face.
“Cicely,” he said.
“Well,” said Cicely, without looking up this time.
“You’re not going to wear that deep mourning much longer, are
you?”
Cicely’s face lost its brightness. There was a slight constraint in
her tone as she answered.
“It is not very deep mourning,” she said, glancing at her gown.
“There is no crape on my dress. I dislike very deep, elaborate
mourning.”
“If it was handsomer of its kind, perhaps it would be more
becoming,” said Mr. Fawcett agreeably. “As it is, Cicely, I can’t say I
think it so. You are too colourless for that sort of dull-looking dress. It
might suit some people—your cousin, for instance; I dare say if we
saw her in a plain black dress like yours, we should think she
couldn’t wear anything that would suit her as well. She is so brilliant,”
he added reflectively.
“Yes,” said Cicely. “I dare say we should. But then, Trevor, I
strongly suspect we should think so whatever Geneviève wore. She
is so very lovely. But as for me, Trevor, you know I wasn’t thinking of
whether it would suit me or not when I got this dress.”
Her coloured deepened a little as she spoke, and the words
sounded almost reproachful.
“Of course not. I know that,” said Mr. Fawcett hastily. “Of course,
Cicely, you know I didn’t mean to speak unfeelingly. How curious it is
about your cousin by the bye,” he went on, as if anxious to change
the subject, “about our having knocked her down at Hivèritz, I mean.”
“Yes, it was very curious,” said Cicely. “But you knew a cousin
was coming to stay with us, Trevor; I mentioned it in several of my
letters.”
“Oh! yes. I knew a Miss Casalis was coming,” said Trevor, “but
somehow I didn’t fancy she would be that sort of a cousin.”
“What sort did you expect?” asked Miss Methvyn.

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Business and Professional Ethics for

Directors Executives Accountants 8th

Cengage Learning, Boston, MA, 2018

Chapter 5 – Corporate Ethical Governance &

Chapter Questions and Case Solutions

In addition, historically companies have been classified as “for-profit,” “not-for-profit,” or “non-

Business & Professional Ethics for Directors, Executives & Accountants, 8e

3. What is the role of a board of directors from an ethical governance standpoint?

An employee’s self-interest, should be satisfied first, if satisfying the employer would be

Business & Professional Ethics for Directors, Executives & Accountants, 8e

8. How can a company control and manage conflicts of interest?

Business & Professional Ethics for Directors, Executives & Accountants, 8e

10. What is the most important contribution of a corporate code of conduct?

Principles are susceptible to interpretation to give guidance on complex or newly emerging

Business & Professional Ethics for Directors, Executives & Accountants, 8e

Business & Professional Ethics for Directors, Executives & Accountants, 8e

• the inclusion of negative performance or results

• review and attestation by an independent reviewer/auditor/committee

• comparison with benchmarks now available for similar companies

• comparison with ethically screened companies or inclusion in ethically screened investor

Business & Professional Ethics for Directors, Executives & Accountants, 8e

Business & Professional Ethics for Directors, Executives & Accountants, 8e

Cases on Ethical Corporate Culture

1. Hospital Governance Challenges (for Chapter 5)

ETHICS CASE Hospital Governance Challenges

Business & Professional Ethics for Directors, Executives & Accountants, 8e

o Luxury trips to Napa, of the patients and hospitals involved, and

Business & Professional Ethics for Directors, Executives & Accountants, 8e

any organized review and discussion of

Kelly has asked you to give her advice

1. What major governance problems

1. Hospital Governance Challenges (Case above)

Business & Professional Ethics for Directors, Executives & Accountants, 8e

Discussion of ethical issues

Major governance problems

Kelly has a board of directors whose members have…

o inappropriate recruiting methods (e.g., the current Chair—“her dear friend”--

o no internal financial controls and reporting to the board (equivalent of an audit

o no whistleblowing channel and reporting system (to address accounting and

• limited time for hospital matters

Kelly would have a hospital with…

o a moribund mission statement and code of conduct: no review in many years,

o unknown culture: want a culture of integrity, but neighbouring hospitals seem

o no whistleblowing mechanism to help support a culture of integrity

o no stakeholder analysis or risk assessment and management

Useful reference: (Der Bedrosian 2015)

Business & Professional Ethics for Directors, Executives & Accountants, 8e

o providing care without prejudice or judgement (even to a suspected criminal or

• Quality versus Efficiency

• Access to health care

o hospital personnel as gatekeepers (including access to limited resources, which

• Access to information (honesty; transparency; privacy)

How to Address Ethical Problems

Business & Professional Ethics for Directors, Executives & Accountants, 8e

• Anticipation and planning

• Responsible flow of information to the public and to hospital employees

A protected whistleblower program is necessary, especially in a hospital setting, where power

Business & Professional Ethics for Directors, Executives & Accountants, 8e

6. Should Kelly accept the nomination as Vice-Chair?

Business & Professional Ethics for Directors, Executives & Accountants, 8e

Useful Articles, Links, and Videos

American Hospital Association’s Center for Healthcare Governance.

Business & Professional Ethics for Directors, Executives & Accountants, 8e