Human Resource Management
Ethical Dilemma: The Padding That Hurt
Sue Davenport, Human Resources Director, has a difficult situation on her hands. She had just learned from Robert Drew, the internal auditor, that an employee had reported to him possible expense account abuses by one of the companyâ€™s senior managers. Robert said that this employee had accompanied Dan Murphy, a senior vice-president, on many business trips. The employee said Murphy had some curious habits: When getting out of a taxi, he would ask for extra blank receipts, and in restaurants, he would often do the same.
Robert had followed up this tip. He examined Murphyâ€™s travel file and found numerous irregularities: multiple receipts from the same taxi companies for the same days, extremely expensive meals, duplicate meal receipts for the same days and other suspicious charges for several hundred dollars each billed to an unknown company. Robert estimated he could safely document a minimum of $30,000 worth of phony charges over the last three years.
When Robert told Sue Davenport what he had found, she said: â€œThe guy makes over half a million a year, and yet he evidently is hitting us for at least $10,000 a year in completely fake expenses.â€ Davenport added, â€œAnd if we know he is defrauding the company for $10,000 a year, then what is he up to that we donâ€™t know about?â€
The two executives decided they would completely document Murphyâ€™s abuses and notify the CEO. However, as internal auditor, Robert was concerned â€”and not without reason. â€œLook,â€ he said to Davenport, â€œMurphy outranks me. He and the CEO are very close friends. This will look like I am whistle blowing on a valuable company executive, and the CEO wonâ€™t be happy with me.â€ But Davenport explained to Robert that when it came to high-ranking executives, there was no such thing as an â€œimmaterialâ€ fraud. Davenport knew her duty: She had to report Murphyâ€™s conduct to the next highest level in the organizationâ€”in this case, the president and CEO and then disclose it to the audit committee.
THE BAD NEWS BEARS
The two executives met with the CEO, and Robertâ€™s intuition about his reaction was correct. After hearing the presentation, the CEO erupted: â€œMurphy makes millions for this company, and you people are in here claiming he is hitting us for pocket money. Donâ€™t you have anything better to do?â€ But, Davenport stuck to her guns. â€œI really hate that this has happened,â€ she said, â€œbut my duty is very clear. Murphy is an executive in this organization, and management fraud can have very serious consequences. Managers must set a proper example. If Murphy can cheat on his expenses and get away with it, then other people will try it, too. And if you discipline one employee and not another, the company opens itself to risk and legal liability. Furthermore, a person in Murphyâ€™s position controls millions of dollars in company assets. If he is dishonest about his expenses, what else is he dishonest about?â€
But the CEO wouldnâ€™t listen. â€œIâ€™m telling you,â€ he said, shaking his finger in the air, â€œdrop this now and leave him alone. Iâ€™ve known Murphy for over 10 years. I recommended hiring both of you .I can just as easily recommend that you should be replaced.â€ It was clear to Davenport the CEO was furious, so she felt it best to end the discussion for the time being.
By the next day, the CEO had relented. He called Davenport and said: â€œI have thought this over. I even talked to my wife about it last night. Of course you are doing the right thing. Iâ€™m sorry I acted the way I did; itâ€™s just that Murphy is such a valuable team member, and this thing is embarrassing for the company and me. Iâ€™ll go ahead and talk to the chairman of the audit committee. You can come with me.â€
They informed the audit committee and the board of directors of Murphyâ€™s â€œpettyâ€ thefts. Most members were upset that they had to involve themselves in what they saw as such an insignificant matter. It finally was decided that three audit committee members would speak directly to Murphy.
Murphyâ€™s attitude was cavalier toward the audit committee. He pointed out the many hundreds of nights he had logged away from home on the companyâ€™s behalf. He readily admitted submitting inflated and duplicate expense reports, but he said the reason was that he didnâ€™t keep track of all of the cash he spent on behalf of the company, and this was just a way of reimbursing himself. The audit committee backed down from any further confrontation with him.
A WAY OUT
To settle the matter, the audit committee chairman offered to strike a compromise with Davenport. Davenportâ€™s division would be merged with the new quality assurance division with enough additional staff to maintain control of personal expenditure of senior staff.
New internal controls would be implemented over executive travel and the company would send out an email to all employees informing them of the companyâ€™s ethics policies and code of conduct and also reminding them of expense account policies.
But then came the tough part of the compromise: The audit committee chairman told Davenport that it was in the companyâ€™s best interests to keep Murphy and thatâ€”notwithstanding Murphyâ€™s indiscretionsâ€”he was a valuable company asset. Furthermore, the board decided against punishing Murphy to make an example of him.
Davenport argued that not disciplining Murphy would send the wrong message. The chairman countered that Murphyâ€™s actions were not widely known and that morale would suffer more if he was disciplined than if the incident was glossed over. And Murphy had agreed to go forth and sin no more. In the end, Davenport gave in, after all, her responsibilities had now been expanded and her job was no longer under threat.
1. What are the ethical and other issues of this case?
2. What options does Sue Davenport have? Which would you suggest? Why?
3. Analyse your answers to question one and two in terms of the different theoretical approaches to ethical behaviour.
And write summary appendix:
1. FACTS: What do you think are the key facts in this case? i.e. the 'concrete' things that stand out to you about the case that might be relevant later. What do you know and what did you learn during your research? As you make multiple iterations of the PBL process, you will be generating a bank of concrete facts that you can use to articulate and justify your analysis.
2. IDEAS: When you think about these facts, based on your developing knowledge and experience, what ideas or personal theories come to mind? The idea is to try speculate about possible antecedents and consequences, causes and solutions and so on. This is meant to be a 'brainstorming' step to stimulate a research process.
3. LEARNING ISSUES: Based on your speculative ideas, what information is missing? What key learning issues are generated? In other words, you need to identify what you need to know or clarify before the issues can be resolved and a resolution can be reached. It is a kind of 'Gap Analysis'. So, it is a good idea to develop a set of research questions to guide the process in the next step. What are some of your unanswered research questions?
4. ACTION: Now that you have a set of research questions, you need to take steps to answer them. This means conducting some kind of research, which may involve consulting academic or industry journals, searching company websites, seeking out subject matter experts, locating newspaper articles, talking to colleagues and so on. So, based on the learning issues, where could/did you find this information? Make a list of buzz words that might be in the forefront of your mind as you conduct your research. As you conduct your research, make a note of the answers that you find, which are now the 'new facts' that you can add to your bank of facts.
(2500 Words, References are and appendixes not included)