Chapter 3. Homework.

MLittle
Ethics At Work.
Questions:
a. Approaching ethics from a utilitarian framework, discuss whether or not the
management of Sunbeam was unethical in issuing financial statements that
improperly timed Sunbeams revenue recognition.
Utilitarianism the right action ethically is the action that maximizes the good.
Under this framework, yes, the management of Sunbeam was unethical in issuing
financial statements that over-recognized revenue. The only good they were doing
was for their own benefit. They didnt take into consideration the overall good of
the stockholders, the employees and other stakeholders of the company. The
utilitarian approach wouldve been to properly disclose the channel stuffing
practices and admit to lower sales of the previous year. Being honest might not
have increased stock price, but it wouldve let stockholders and the markets know
that the road to recovery might be longer than expected. It also wouldve given
shareholders the opportunity to properly assess what they wanted to do with their
investment in the company; either wait through the cost cutting activities or to get
out while they could. Instead, the stockholders suffered when everything crashed
under them.
Identify the major stakeholders in this case.
The major stakeholders in this case were the shareholders who werent aware of the
channel stuffing and bad reserve practices. Another major stakeholder was Morgan
Stanley who worked on the debt offering for Sunbeam and the debt holders who
ultimately purchased it. Other major stockholders were the employees left in the
company who were trying, in vain, to keep the company afloat even after losing
of its resources as well as those employees families. The list really goes on and
on, from those initially downsized to the general public who relied in their trust of a
major household goods provider. Also on the list were the external auditors as well
as the reputation of the management and internal auditor of Sunbeam who knew of
the practices, but were bullied into not speaking against them. Finally, we can also
add the analysts who continually upgraded the stock and their reputations for not
looking into the financial reporting and press releases as much as they probably
should have.
(Refer to Chapter 2, Ethics at Work, for a description of the utilitarian framework)

b. Do you believe that trading a companys stock with the knowledge that the
companys earnings are overstated is unethical?
Absolutely. The justice approach ensures that all stakeholders involved are treated
fairly. In this regard, there was a whole subset of shareholders who are holding the
stock and deciding the futures of their investment based on the presented financial
statements. On the other hand, the leadership, who was preparing the financial
statements and knowing the revenues were over-stated, had an unfair advantage to
knowing the truth of the situation. Therefore, there was not fair treatment for all
stakeholders of the company. Explain why or why not within the context of the
justice approach to ethical decision making. (Refer to Chapter 2 for a description of
the justice approach.)