Chapter 3, Problem 71C

Suspicious Acquisition of Data, Ethical Issues

Bill Lewis, manager of the Thomas Electronics Division, called a meeting with his controller, Brindon Peterson, and his marketing manager, Patty Fritz. The following is a transcript of the conversation that took place during the meeting:

Bill: Brindon, the variable costing system that you developed has proved to be a big plus for our division. Our success in winning bids has increased, and as a result our revenues have increased by 25%. However, if we intend to meet this year’s profit targets, we are going to need something extra—am I right, Patty?

Patty: Absolutely. While we have been able to win more bids, we still are losing too many, particularly to our major competitor, Kilborn Electronics. If we knew more about their bidding strategy, we could be more successful at competing with them.

Brindon: Would knowing their variable costs help?

Patty: Certainly. It would give me their minimum price. With that knowledge, I’m sure that we could find a way to beat them on several jobs, particularly on those jobs where we are at least as efficient. It would also help us to identify where we are not cost competitive. With this information, we might be able to find ways to increase our efficiency.

Brindon: Well, I have good news. I’ve been talking with Carl Penobscot, Kilborn’s assistant controller. Carl doesn’t feel appreciated by Kilborn and wants to make a change. He could easily fit into our team here. Plus, Carl has been preparing for a job switch by quietly copying Kilborn’s accounting files and records. He’s already given me some data that reveal bids that Kilborn made on several jobs. If we can come to a satisfactory agreement with Carl, he’ll bring the rest of the information with him. We’ll easily be able to figure out Kilborn’s prospective bids and find ways to beat them. Besides, I could use another accountant on my staff. Bill, would you authorize my immediate hiring of Carl with a favorable compensation package?

Bill: I know that you need more staff, Brindon, but is this the right thing to do? It sounds like Carl is stealing those files, and surely Kilborn considers this information confidential. I have real ethical and legal concerns about this. Why don’t we meet with Laurie, our attorney, and determine any legal problems?

Required:

1. 1. Is Carl’s behavior ethical? What would Kilborn think?
2. 2. Is Bill correct in supposing that there are ethical and/or legal problems involved with the hiring of Carl? (Reread the section on corporate codes of conduct in Chapter 1.) What would you do if you were Bill? Explain.