Learning Activity #1: The Pressure To Overstate Stock Valuation

Consumer Electronics Industry In Korea
11/09/2019
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11/09/2019

Learning Activity #1: The Pressure To Overstate Stock Valuation

Learning Activity #1: The Pressure to Overstate Stock Valuation

You have been the Chief Financial Officer (CFO) for a large manufacturing company for 15 years. The

Company’s yearend is March 31 and you are finishing the year end accounts.

You have recently been advised by the Chief Operating Officer (COO) of a significant level of slow

moving stock. The stock in question is now more than nine months old and would normally have been

written down some months previously.

The shareholders are trying to sell the Company and the Chief Executive Officer (CEO), who is also the

majority shareholder, has told you that it is not necessary to write down the stock in the year end

accounts. You are sure that the CEO wants the financial statements to carry an inflated stock valuation

because he has found a prospective buyer for the Company. The CEO has mentioned to you that if the

proposed deal is successful, all employees will keep their jobs and you will receive a substantial pay

increase.

What are the ethical implications of this scenario and how would you resolve them? Are there any ethical

theories that might support your answer?

 

Learning Activity #2: Corporate Social Responsibility: What’s the Big Deal?

One of the most contentious debates among scholars has centered on the proper role for a corporation in

the pursuit of its business. In large measure the debate has crystallized around two points of view. On the

one hand, some believe that a corporation’s chief responsibility role is to make and maximize profit. This

belief has often been referred to as the Friedman Approach in homage to the economist, Milton

Friedman.  Friedman espoused the view that as long as a corporation stayed within the rules, its only

responsibility was to return the maximum profit to its shareholders. On the other hand, other scholars

have asserted that the social responsibility for a corporation extends beyond just making a profit and

includes a responsibility to act in a manner that promotes and supports the welfare of society at large.

What do you think about this so called “Shareholder vs. Stakeholder” debate? Do you have any personal

experiences where you have observed the effects of this debate in terms of corporate actions? On which

side of the argument do you come down on and why?

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