Good People Seminar Scenario

Facilitators notes
Issues: Transparency, quality, risk, honesty and fair dealing all compromised. All principles in the CIMA
Code of Ethics would be affected.
Stakeholders: A wide range of stakeholders would be affected by the scenario: The employees, the
customers, the shareholders, the leadership, the regulators, and general public interest. It would also
have an impact on other firms in industry.
Learning points: Importance of trust, management values, reputation, environment that allows
speaking-up, and considering impact of short-term decisions/profit motives on long term success and
return.
Timing (20-30mins):

Intro & scenario

5 -10 minutes

Discussion & conclusion

15 -20 minutes

Background
C&MA is a leading consumer health and pharmaceutical company. It is known for strong financial return
and it trades as a very safe company because of significant brand recognition and trust in all key markets.
It is known to have a commitment to ethical practice, which has been clearly evidenced by company
leaders in the past. With change of corporate management style the company is on a strategic drive to
increase sales and market share in order to directly impact on shareholder return from all subsidiaries
and new ventures.
The risks outlined in this case study, of the subsidiary NMAC, mirror risks of the sale of any product
whether it is a bank driven to create high returns on its financial products and services in the short-term to
keep their perceived standing in the market, or a retail company relying on their supply chain to cut costs
in order to increase margins without considering potential risks such as reputation.
We look at a situation between two members of staff after they watch an online broadcast from
their CEO.

Facilitator:

To give us the highlights of our annual results and our success let us give a warm
welcome to our global CEO in his monthly message:

[We hear end of CEO online speech to staff]

CEO:

So as we have seen our results speak for themselves, and as your CEO I wish you all the very
best in continuing to achieve great results for our company, our customers and the public. Our
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heritage is peerless and we should all feel very proud. The foundation of all our past success and
future growth is formed by our core values. They must always drive our decisions and they must
never be sacrificed in the pursuit of business objectives. They are central to our business model,
and our ethics code is more than something that tells us what to do. It is a statement of our living
heritage that tells us who we are. We live our values.

[CEO walks off]

[Jo, looks up, and closes the laptop]

Al:

So Jo, summarise again - whats the story.

[Jo, picks up some papers and hands them to Al]

Jo:

Well, Al - heres the data. As you know the medicine doesnt dissolve properly this batch
includes one million units. Max blocked the distribution according to procedures. Ive run the
numbers - these are the costs of destroying the batch, the cost of late shipping and the new
production. Well be out by a few weeks but at least we wont have any risk to the wider business.
Its clear cut. Costs can be written off. Lucky we caught it before it was shipped.

Al:

Thanks Jo. (Flicks through the papers spreadsheets) Thats very comprehensive. (Flicks.
Pauses. Looks up) Jo, youve been the business team here - what 7, 8 years? You know we have
a different strategy now. As a new team we have a focus on our commercial success and stock
price. You want that right?

Jo:

Obviously. I know were a subsidiary, but as the old group CEO always said were going to
conduct business the right way or we exit. I know things have changed a bit, well to be frank,
weakened in our quality process to speed things. But you know the stance from corporate HQ
only today we had Sheldon on his webcast reiterate the importance of our values right across the
group. The importance of living them. That helps our success. Right?

Al:

Right. (Smirks) Jo, we need to succeed. Im sure Sheldon feels the values are important. Theyre
nice values. (Pauses, then smiles) But I bet you, what is more on his mind are our overall
numbers. The banking analysts are watching us having had such a successful year and we want
that to continue. Delivering sales. Thats what keeps our divisional president awake at night. How
we rank. How the market sees us. Finance must get that. (Pauses) Youre the one who ran the
numbers on the cost of our quality control, couple years back, correct? Just after I joined. (Jo
nods) So you know what quality does to the margin. Thats why we changed staffing in quality
audit. I dont need to tell you the financial benefits and flexibility of using contract workers.
Competitions fierce right now. And we need to fly high. Lets keep it that way.
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Jo:

But Al the risks...

Al:

(Firmly) Were done Jo, (Passes paper back) I want you to arrange for the quality guys to retest
the batch. And lets see how the average scores come out second time around. Im sure theyll be
better. Yes? You understand. And then see how the numbers come out. No red. (Stands up,
smiles and leaves stage)

[Jo sighs and opens his laptop and starts typing]

[Back to facilitator questions]

Discuss
[Split into groups, give them the Ethics Checklist to support the discussion, allow for a 5-10
minute discussion. Plenary Feedback 5 minutes]

Facilitator (questions to the group):

Imagine that you are Jo What is it that you are you facing?
What are the broader ethical issues?
From a management accountants view, what ethical principles are at risk and why?
What might be the consequences of either action destroying the batch or taking it to market?
What next steps would you take?

[Feedback from groups]

Facilitator (final summary):

-

Summarise key points and best steps according to ethics checklist.

Outline what happened in real case:

The scenario is a fictionalized account based on a real situation. In that case, huge cuts were made to
quality and short cuts made. Up to 30 different quality-compromised products continued to enter the
market for some years after the incident was first raised. The company allegedly was also engaged in a
stealth recall trying to buy-back product via third parties in order to cover up the issue.
Eventually, however, the substandard product came to light, the manufacturing plants in question were
impounded by the FDA (the U.S. food and drugs agency), investigations in to company malpractice were
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Copyright CIMA 2013

raised at Senate hearings and criminal charges were taken against the company. What may have been
seen as saving costs in the short-term ultimately cost the company an estimated US$800M, as well as
brand and reputational damage. Quality and compliance is now a clear strategic focus with related
investment both of these functions had previously suffered significant cuts.
It must be remembered that the majority of companies in the wider global group in question operated to
high ethical standards. No doubt the majority of staff were upstanding, committed individuals many
would have joined the firm and developed their careers on the basis of the firms values. It is a firm which
has flourished on the back of its perceived integrity. Something went wrong in some of its operations
which may be inevitable with a group of around 250 operating units in 60 markets. That is why embedding
a strong ethical and open culture is important.
We can easily make comparisons to many other scandals, the banking crisis, supply chain, media,
environmental, fraud all these have featured heavily in the media, and even destroyed companies, in
recent years. These too were down to failures in management and culture, such as pressure or threats
from supervisors or perceived necessity to succeed at all costs. Lacking objectivity and not factoring in
the longer term costs, regulatory requirements, reputational loss and the public interest can instead mean
failure.
This is the danger of short term decision making without applying an ethical framework: there are high
risks in too much concentration on the immediate bottom line, without thinking of the wider good and
longer term consequences, and the importance of creating an environment that encourages doing the
right thing, for long term results and success.
"The information I've seen during the course of our investigation raises questions about the integrity of the
company," he boomed. "It paints a picture of a company that is deceptive, dishonest, and has risked the health
of many of our children Quote from a Congressman on hearing related to the case.

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Copyright CIMA 2013

Fundamental Principles of the CIMA Code of Ethics*

100.5

A professional accountant shall comply with the following fundamental principles:

(a)

Integrity to be straightforward and honest in all professional and business relationships.

(b)

Objectivity to not allow bias, conflict of interest or undue influence of others to override professional
or business judgments.

(c)

Professional Competence and Due Care to maintain professional knowledge and skill at the level
required to ensure that a client or employer receives competent professional services based on current
developments in practice, legislation and techniques and act diligently and in accordance with
applicable technical and professional standards.

(d)

Confidentiality to respect the confidentiality of information acquired as a result of professional and

business relationships and, therefore, not disclose any such information to third parties without proper
and specific authority, unless there is a legal or professional right or duty to disclose, nor use the
information for the personal advantage of the professional accountant or third parties.

(e)

Professional Behavior to comply with relevant laws and regulations and avoid any action that
discredits the profession.

* The CIMA Code of Ethics is based on the IFAC (International Federation of Accountants) handbook of the code of
ethics for professional accountants, of the International Ethics Standards Board of Accountants (IESBA), published by
IFAC in April 2010 and is used with permission by IFAC.

Access more information and a video of the scenario at www.cimaglobal.com/ethics

Copyright CIMA 2013