MGMT 202 1st EditionExam 2 Study Guide-What’s so hard about right and wrong?-scenario: is it wrong for CEO’s to fly on private jets? -don’t have time to go through security every time when they fly all the time-would be wrong for a CEO to use shareholders’ equity to take family on vacation on the jet-Chrysler, GM, Ford CEO’s all take their own private jets from the same city to the same city-at the end of 2012, there was talk of taxes going up, so companies wanted to give out early dividends so shareholders could pay less taxes on their dividends – sounds good except CEO’s and upper managers are often large shareholders-point of both: need to think carefully before they do things; consider what the worst thing that could happen is?-Geico auto repair express – meet at their body shop and take a rental car when you get in an accident-should Rayburn be allowed to use this service? What if the auto repair shop treats him specially? What if he goes somewhere else? -again, consider “What is the worst that could happen?”-Rayburn did go, but told his boss first, had someone check and make sure he paid the same as a regular customer and didn’t get any perks or treatment that anyone else wouldn’t, had witnesses-Geico pays ESPN to advertise for them; ESPN offered Rayburn tickets to a huge sports game; should he go?-he went, because he has nothing to do with the Geico marketing department; tickets were worth $300 so he donated $300 to a charity and had proof-Buffett’s rule of thumb: “I want employees to ask themselves whether they are willing to have any contemplated act appear the next day on the front page of their local paper – to be read by their spouses, children, and friends – with the reporting done by an informed and critical reporter.”Ken Lay (governor of Texas) founded EnronOil scandal in 1987 – oil traders making bets on gas pricesEnron always made profitsPhony books, falsified bank records, divert company profits to personal accountsLay encouraged his traders to gamble more, didn’t discipline or fire them for the scandalsTraders gambled away the resources, Enron lied on books to save companyBorgette was the biggest money-maker for Enron (^)Jeff Skilling – new way to deliver energy; stock market for natural gas Mark-to-Market accounting – book potential future profits immediatelyPerformance review committee – employees rated on 1-10, terminating 15% of employees per yearStock prices kept going up and up, everyone was buying stockEnron mounted campaignPump and dump – top executives Built power plant in India, which couldn’t afford to pay for Multi-million dollar bonuses to executives with profits that didn’t existBought PGE; electrical companyNewly deregulated market in CaliforniaStock was rising but businesses were losing moneyEnron teamed with Blockbuster to provides movies on demand; selling bandwidth; flopped; Enron was running out of ways to bluffExecutives started selling their stock, stock plummeted Andy Fastow – Enron CFO$30 billion in debtStashed debt in Fastow’s companies so investors couldn’t see itLJM funds - $45 million for FastowFastow used Enron’s stock as collateral Meryll-Lynch bought 3 Nigerian power barges from Enron (barges had nothing to do with Meryll-Lynch)Enron exported energy out of California, then imported it back in to make moneyEnron teamed with power plants, told them to shut down power plants temporarily so price of electricity would skyrocket and Enron would profit$30 billion – cost for California from year-long energy crisisFederal energy Regulation Corporation – president was recommended by Ken Lay of Enron – FERC didn’t do anything about California energy crisisEnron stock kept dropping over summer, said there would be a big announcement soon, everyone thought Ken Lay was resigning, but it was Skilling, which was completely unexpectedLay took over as CEOArthur Anderson – Enron’s accounting firm – signed off on Enron’s false statements, shredded Enron’s filesSharon Watkins exposed Enron’s liesSEC investigated EnronFastow fired because of his partnership with LJN and other companiesPeople wanted to place all the blame on Fastow, but there were numerous others involvedEnron had a virtual bankrun4 months after Skilling’s resignation, Enron declared bankruptcy Shareholders lost everything; top executives made off with millions7 weeks after Enron declared bankruptcy, Cliff Baxter committed suicideFastow – testified against other Enron executives, $23 million fine, 10 years prisonShareholders sued Enron for $20 billionPhilosophy – study of thought and conductNormative philosophy – study of “proper” thought and conduct Morality – standards of behaviorEthics – systems of beliefYou will judge behavior as moral or immoral dependent on your ethical beliefsEthical relativism – trying to identify universal ethics/systems of beliefsOne example: people feel a desire and responsibility to improve the lives of others in their groupGolden Rule – in all sacred writings; sounds simple but isn’t easy to accomplishEnron movie – violated Golden RulePublic Disclosure – asking yourself if you would be ok with what you’re about to do being publicized Form of accountability to friends, family, significant others, etcKohlberg’s levels – people are missing the point if they’re only doing/not doing something because of the effects on themselves; they haven’t considered the Golden Rule and the right/wrong of the actionUniversal Test – if everyone else in the same exact situation I’m in did this thing I’m about to do, would it make the world a better place?Same people choose to ignore this because they think the rewards are worth the consequences,but most people with any sense of morals and ethics say they wouldn’t be able to live with themselvesClassic schools of thought:Egoism – similar to utilitarianism; directly related to libertarianism Ayn Rand (1905-1982): selfishness is a virtue (For the New Intellectual, 1971). People have a responsibility to tend to themselves first and foremost, because no one else can do it as well. Libertarianism: wants to preserve individual freedom (same as egoism)Egoism tied to market economyLimitations: -Not everyone is self-interested (parents, lovers)-What do you do in a situation where everyone is only interested in themselves? No one will ever be able to come to an agreement.Utilitarianism – actions deemed right or