Pamela McDonald, Vice President of Operations for Murray Manufacturing, Inc., wa
ID: 2455075 • Letter: P
Question
Pamela McDonald, Vice President of Operations for Murray Manufacturing, Inc., was having lunch with Roger Branch, manager of the company’s Telecommunications Division. Over the past six months, Pamela and Roger had developed a romantic relationship and were making plans for marriage. To keep company gossip at a minimum, Pamela and Roger had kept the relationship very quiet, and no one in the company was aware of it. The topic of the luncheon conversation centered on a decision concerning the company’s Telecommunications Division that Larry Johnson, president of the company, was about to make.
Pamela: “Roger, in our last executive meeting, we were told that an outside company has offered to supply all of our communications needs throughout the company. They have quoted a price they said would hold for the next three years. They even offered to enter into a contractual agreement with us.”
Roger: “This is news to me. Is the price a threat to my area? Can they really sell us everything we need cheaper than we can supply it for ourselves? And why wasn’t I informed about this matter? I should have some input. This burns me. I think I should give Larry a call this afternoon and lodge a strong complaint.”
Pamela: “Calm down, Roger. The last thing I want you to do is call Larry. Larry made us all promise to keep this whole deal quiet until a decision had been made. He did not want you involved because he wanted to make an unbiased decision. You know that the company is struggling somewhat, and they are looking for ways to save money.”
Roger: “Yeah, but at my expense? And at the expense of my division’s workers? At my age, I doubt that I could find a job that pays as well and has the same benefits. How much of a threat is this offer?
Pamela: “Jack Lacy, my assistant controller, prepared an analysis while I was on vacation. It showed that your division is cheaper than buying, but not by much. Larry has asked me to review the findings and submit a final recommendation for next Wednesday’s meeting. The trouble is, I’ve reviewed Jack’s analysis and it’s faulty. He overlooked some incremental fixed costs associated with your division. Once we include these avoidable fixed costs in the analysis, the NPV of buying our telecomm needs over continuing to operate your division is $300,000. Included in this calculation are significant yearly savings.”
Roger: “If Larry hears that, my division’s gone. Pam, you can’t let this happen. I’m three years away from having a vested retirement. And my workers – they have home mortgages, kids in college, families to support. No, it’s not right. Pam, just tell him that your assistant’s analysis is on target. He’ll never know the difference.”
Pamela: “Roger, what you’re suggesting doesn’t sound right either. Would it be ethical for me to fail to disclose this information?
Roger: “Ethical? Do you think its right to lay off employees that have been loyal, faithful workers simply to fatten the pockets of the owners of this company? The large shareholders already are so rich that they don’t know what to do with their money. I think that it’s even more unethical to penalize me and my workers. Why should we have to bear the consequences of some bad marketing decisions? Anyway, the effects of those decisions are about gone, and the company should be back to normal within a year or so.”
Pamela: “You may be right. Perhaps the well-being of you and your workers is more important than saving $300,000 for the shareholders.”
Identify the dilemma. What exactly is the decision that must be made? (In your answer, please feel free to show your knowledge of management accounting and/or what you have learned this semester!)
Identify the primary stakeholders and consider their viewpoints. Who has a stake in Pamela’s decision? How would they view the consequences of Pamela’s choice?
Analyze the alternatives and consequences (there are more alternatives than just “do it” or “don’t do it”). Clarify the main alternatives available to Pamela and predict how each alternative would affect the primary stakeholders.
Choose an action. What would you do if you were Pamela? Why? Clearly indicate your choice for an appropriate action. Your choice should reflect consideration of the risks and benefits of the action.
Explanation / Answer
Answer: Pamela should not have told Roger about the deliberations concerning the power department because this
is confidential information. She had been explicitly told to keep the details quiet but deliberately
informed the head of the unit affected by the potential decision. (Standard II: 1) Her revelation may be
interpreted as actively or passively subverting the attainment of the organization’s legitimate and ethical
objectives.
The romantic relationship between Pamela and Roger sets up a conflict of interest for this particular
decision, and Pamela should have withdrawn from any active role in it. (Standard III: 1) However, she
should definitely provide the information she currently has about the cost of eliminating the power
department. To not do so would be active subversion of the organization’s legitimate and ethical
objectives. Moreover, she has the obligation to communicate information fairly and to disclose all
relevant information that could reasonably be expected to influence an intended user’s understanding. In
addition, however, Pamela should discuss the qualitative effects of eliminating the power department.
The effects on workers, community relations, reliability of external service, and any ethical
commitments the company may have to its workers should all enter into the decision.
If I were Pamela, I would communicate the short-term quantitative effects and express my concerns about the qualitative factors. I might also project what the costs of operating internally would be for the next five years and
compare that with estimates of the costs of external acquisition.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.