Course: Business Law, Ethics and Social Responsibility
Case Study:
The Good Credit Reference
Topic: Insider
Information/Trading
Involved Parties:
Kathy Ryan, a
credit officer at Diversified Consolidated Corporation (DCC), had heard rumors
that North Manufacturing was in deep trouble. She is responsible for credits to
North of approximately $1 million. North always pays on time and is current on
outstanding payables to DCC. North, in fact, uses DCC as a credit reference
with other suppliers. Nevertheless, Kathy decided a visit to North was in
order.
Kathy Ryan and
Scott Bradley, North’s treasurer, had developed a good working relationship and
went to lunch during Kathy’s visit. After several drinks, Scott Bradley said:
“Kathy, we’re fried. I have to tell you, our financial statements aren’t
fraudulent, but they don’t paint the full picture. Not only are we not doing
well, but we’ve been talking to bankruptcy attorneys. If things don’t turn
around soon, we may file before the end of next quarter. We plan to continue
paying DCC promptly because we need all the trade credit we can get. In fact,
supplier credit is giving us a chance to come back. Without it, we’d be under
right now; with it, we might just squeak by. Frankly, if there is any way you
can encourage your competition to supply us--do it. I’ve told Purchasing to
place a large order with Basic Products instead of DCC. If Basic gives us
credit, we can pay DCC in full before we file. If we make it through this, DCC
will get our business back, but I don’t want your career to suffer because of
our problems now.”
Kathy was shaken
by Scott’s comments. She knew that if North’s credit went bad she would lose
her annual bonus--25 percent of her compensation--and probably any chance for
promotion. At worst, she could be fired. Shortly after her visit with Scott
Bradley, she received a call from her friend in the Credit Department at Basic
Products, Mike Walnnan. Suppliers often share credit information on common
customers, so it was not surprising that Mike called. DCC’s policy is to
provide what they refer to as the “prompt payment history” for the customer.
This includes recent high credit balances, any past-due balance, and how
promptly customer payments had been received.
After Kathy
provided North’s prompt payment history--which in fact had been good--Mike was
enthusiastic. “I'm glad to hear that,” he said. “We just got a huge order to
supply them through the end of the year. There are a lot of rumors floating
around, but if you’re getting paid promptly on that much, I guess it's OK.”
Kathy broke in at that moment. "Can you hold the line, Mike? There’s
someone at my door.” She put Mike on hold, her mind racing. She could suggest
that Mike look into other public information sources or contact other suppliers
about credit histories with North. That would be within acceptable company
practice and almost certainly would send up a red flag for Mike. But who else
could supply enough credit to North for DCC to get its money out?
She couldn’t keep
Mike on hold forever, she pressed the flashing button on her telephone-- “Mike?…”
What should Kathy say?
______________________________
Use the
Instructions for Case Analyses (attached) to craft a response to this case, articulating
the main issues and ethical dilemma. Review the assessment criteria below
before you begin writing.
Submit a written
paper which is 2-3-pages in length exclusive of title and reference pages and that is
double-spaced. You should cite relevant
resources in APA format.
Papers will be
assessed using the following criteria. The Written assignment:
o Utilitarian
Perspective,
o
the
Rights Perspective,
o and the Justice Perspective
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