The Ethical Temperature in Articview Mary Benninger had sought out her old friend, Tom Chu, to discuss her employment si
Posted: Wed May 04, 2022 7:20 am
The Ethical Temperature in Articview
Mary Benninger had sought out her old friend, Tom Chu, to
discuss her employment situation. Mary and Tom had both graduated
in 1985 from Mackenzie King University, and then studied together
to attain their CMA designations in 1988. Soon thereafter, Tom was
promoted quickly within his division of a large multi-national auto
supply company, and now held the position of
vice-president/controller. Mary, on the other hand, had temporarily
removed herself from full-time employment in 1990 to raise her
young daughter. She kept herself up-to-date professionally and
handled the occasional short-term consulting assignment. Six months
ago, Mary had re-entered the workforce, her return accelerated by
the fact that her husband, Frank, had been stricken by a
debilitating illness.
It had surprised Mary somewhat that she was able to land a
position quickly as controller and office manager for Hewsen
Chemical Inc., a small, privately-held producer of specialty
chemicals used in testing labs and other manufacturing firms.
Hewsen was a relatively new and growing company with innovative
ideas, and Mary was pleased and excited to have had the good
fortune to join its management team. Today, however, meeting with
her CMA colleague and trusted friend, Mary was troubled.
"I don’t know what to do, Tom. I thought I was taking on an
ideal position, an emerging company, with flexible working hours,
decent pay and a good benefits package to help with Frank’s medical
expenses. But the situation sure turned sour quickly. I really
don’t know who to talk to. In fact, Tom, I’m not sure that I should
be talking to you."
"Nonsense," said Tom, "You know you can count on me after all
we’ve been through together. Tell me what’s going on."
"Well," said Mary, "Initially, things were going very well for
Hewsen Chemical. None of the larger companies were interested in
the small niche market that Hewsen had carved out. Sales grew
rapidly and, because of our success, Dusque, the big integrated
chemical conglomerate, set up a subsidiary to compete with us.
Since then, we’ve taken a real hit in sales and profits. Our
business is down 30 per cent, and the new plant that we built in
Brampton three years ago is operating at 50 per cent of
capacity."
"That’s certainly not good news," said Tom, "Have you got your
expenditures under control?"
"I gather we were never very good at cost control and internal
controls were virtually non-existent. When we were growing so
quickly, sales were more important than costs. When things got
tough, they dismissed my predecessor and hired me. They told me
that I could have free rein to implement whatever I thought was
necessary. And boy, are some changes ever necessary! Our senior
staff really don’t know the difference between personal and
corporate spending, and I think our sales and marketing expenses
are double what they should be. It will be a challenge to sort that
out, but I’m pretty sure I can get this under control. The really
big problem that has me worried is our northern development
grant."
"I don’t know a lot about government grant programs," cautioned
Tom, "but tell me more."
"When business fell off, Brian Hewsen, our president, attended a
seminar on how to get government grants. He discovered that a
matching program was available for firms to establish northern
manufacturing facilities. So, Brian and our V.P. of operations
submitted a grant proposal for us to manufacture chemicals in
Arcticview, a remote village with about 2500 people, where the
mines have been phasing out. The proposal was simply an adaptation
of an earlier unsuccessful grant application for our Brampton
operations. The government must have been real anxious for someone
to locate in Arcticview, because the new proposal was accepted in a
wink this time. Moreover, both levels of government have provided
matching funds of $750,000,a total of one and a half million in
government money. They also guaranteed a bank loan for us of
$750,000, and we used the loan proceeds as our contribution."
"Well, that sounds great, Mary. What’s the problem?"
"After the funds were provided, we rented a temporary facility
in Arcticview and we hired a few staff there to maintain the
building. However, we told the Ministry of Northern Development
that the new equipment needed to be tested and the manufacturing
process needed to be developed further. So the equipment was
delivered to our Brampton facility. The equipment is currently
being used there to streamline our manufacturing of a new line of
chemicals that should allow us to regain much of the market share
we lost to Dusque. The problem is that the grant requires us to use
the funds in Arcticview."
Tom jumped in, "But will anybody check on how the funds are
really being used?"
"That’s what I’m worried about, Tom. At the present time, one of
my tasks is to ensure that optimistic reports are sent about how
the development work is coming. In the short run, I could handle
this because there was a real need to shake down this new
equipment. The supplier had suggested two months, but we have
already been ‘testing’ the equipment for six months in Brampton,
and Brian is hoping that we can continue to ‘test’ it for a full
year."
"Well, after the year, they’ll simply move the equipment up to
Arcticview and your problems will be over!"
"No, Tom, that’s when my problems will really start. You see,
there is absolutely no way that we can turn a profit up in
Arcticview. We would have to transport all the raw materials up
there, and then ship the finished product back here. Dusque will
soon be competing in our new line of chemicals and, even though
they don’t have our advanced technology as yet, they will be able
to beat us on cost because of the transportation factor."
"I see. Then you’ll have to shut down operations and return the
funds?"
Mary’s reply was terse. "We can’t. If we shut down operations
here, we don’t have enough funds to repay the loan and, apart from
Dusque, I doubt we could find a buyer for the equipment. Besides,
we would be operating below break-even on the balance of our
operations."
"Wow! Major problems. Does management have any ideas on how to
work things out?"
"Well, the size of this new equipment is quite portable as only
small quantities of the chemicals are produced in each batch. Brian
would like to ship the equipment to Arcticview for a startup phase,
and temporarily move workers up there from the Brampton plant,
while the government publicity photos are being taken. After a
discreet period of time, he’ll return the equipment to Brampton,
and bring the workers back down. We’ll continue to ‘produce’
chemicals in Arcticview with a few local workers, but the real
operations will be here in Brampton. The grant contract states that
the company is obligated to produce in Arcticview for a minimum of
three years. So, Brian figures that if we can last for two years
past the testing period, we will be able to keep the equipment and
keep the company viable."
"But surely some government audits are necessary, Mary. What
will you do then?"
"Believe it or not, Tom, the only audited statements the
government requires are our financial statements from our external
auditors. Brian figures that the auditors aren’t particularly
concerned about where we manufacture but, to give the impression of
a high level of activity in Arcticview during the audit, he’ll
temporarily ship some people and equipment up there. Our auditors
don’t really know the technical aspects of our business and, as
long as we can document all the equipment, labour and inventory,
we’ll probably be okay with them. One of the things I could do as
well, is to bill as much of our supplies as possible to the
Arcticview plant and minimize the amount billed through to
Brampton. Some of our labour costs down here might even be billed
through to Arcticview when you consider that a few of our Brampton
workers will, in effect, serve as consultants to the northern
facility."
"Brian and our V.P. of operations will have to submit an annual
written report on how the grant is being used, but for my part, all
I have to do is contribute a brief statement on the ‘testing and
setup’ along with the financials. I’m hoping that I won’t even have
to see their finished report!"
"Gee, Mary, I can see why you’ve got a bit of a worry here," Tom
injected.
Mary continued, "Brian and the other senior managers tell me not
to worry. They say that everybody does this for tax reasons. They
also figure that nobody could really operate a manufacturing
facility in Arcticview anyway, because suppliers and markets are
just too far away. They speculate that training costs alone up
there could blow our grant budgets and, you know, I agree with them
that the government just wants to wave the flag a little bit for
votes. Besides, we are giving a few local people employment as
custodians of the northern plant, and we are managing to keep
Hewsen Chemical afloat during this tough time. Brian is also
particularly miffed that Dusque got a major government supply
contract away from us, and argues that this government grant merely
puts us back on a level playing field."
"Tom, I’m really bewildered here. On the one hand, as I think
about it, the financial statements will be perfectly accurate and
consistent with previous years, so I don’t believe that anyone
could nail me on an ethics question there. But I did sign a very
restrictive employment contract (see insert) that states that I
can’t talk to anyone. I’ve violated it already by talking to you,
and of course Frank. And I’d surely be violating it, and perhaps my
professional code of ethics, if I talked with the government.
Heaven knows that Frank and I need the money and Hewson’s health
care package, and there are 60 other employees in Brampton that
need their jobs too. I’m having difficulty sleeping at night, but
Frank keeps telling me to simply ignore the issue and do what I’m
told. In all other aspects, this could be a great job and, if we
pull this off, Brian says he’ll cut me in for equity participation.
If I quit, it won’t be easy to get another job and you can be sure
that Brian would not be helpful in getting me placed."
The Employee expressly covenants and agrees that he/she will
not, at any time during or after his/her employment with the
Company:
a) reveal, divulge or make known to any person, firm or
corporation, the contents of any formula, chemical compound,
product or other substance owned or developed by the Company; or
the method, process or manner of manufacturing, compounding or
preparing any such formulae, compounds, products or substances; or
sell, exchange or give away, or otherwise dispose of any formula,
compound, product or substance now or hereafter owned by the
Company, whether the same shall or may have been originated,
discovered or invented by the Employee or otherwise;
b) reveal, divulge or make known to any person, firm or
corporation, any secret or confidential information whatsoever, in
connection with the Company or its business; or anything connected
therewith; or the name of any other information pertaining to its
customers or suppliers;
c) solicit, interfere with or endeavour to entice away from the
Company, any customer or supplier or any other person, firm or
corporation having dealings with the Company; or interfere with or
entice away any other officer or employee of the Company.
Question: If you were Mary, what would you do?
Mary Benninger had sought out her old friend, Tom Chu, to
discuss her employment situation. Mary and Tom had both graduated
in 1985 from Mackenzie King University, and then studied together
to attain their CMA designations in 1988. Soon thereafter, Tom was
promoted quickly within his division of a large multi-national auto
supply company, and now held the position of
vice-president/controller. Mary, on the other hand, had temporarily
removed herself from full-time employment in 1990 to raise her
young daughter. She kept herself up-to-date professionally and
handled the occasional short-term consulting assignment. Six months
ago, Mary had re-entered the workforce, her return accelerated by
the fact that her husband, Frank, had been stricken by a
debilitating illness.
It had surprised Mary somewhat that she was able to land a
position quickly as controller and office manager for Hewsen
Chemical Inc., a small, privately-held producer of specialty
chemicals used in testing labs and other manufacturing firms.
Hewsen was a relatively new and growing company with innovative
ideas, and Mary was pleased and excited to have had the good
fortune to join its management team. Today, however, meeting with
her CMA colleague and trusted friend, Mary was troubled.
"I don’t know what to do, Tom. I thought I was taking on an
ideal position, an emerging company, with flexible working hours,
decent pay and a good benefits package to help with Frank’s medical
expenses. But the situation sure turned sour quickly. I really
don’t know who to talk to. In fact, Tom, I’m not sure that I should
be talking to you."
"Nonsense," said Tom, "You know you can count on me after all
we’ve been through together. Tell me what’s going on."
"Well," said Mary, "Initially, things were going very well for
Hewsen Chemical. None of the larger companies were interested in
the small niche market that Hewsen had carved out. Sales grew
rapidly and, because of our success, Dusque, the big integrated
chemical conglomerate, set up a subsidiary to compete with us.
Since then, we’ve taken a real hit in sales and profits. Our
business is down 30 per cent, and the new plant that we built in
Brampton three years ago is operating at 50 per cent of
capacity."
"That’s certainly not good news," said Tom, "Have you got your
expenditures under control?"
"I gather we were never very good at cost control and internal
controls were virtually non-existent. When we were growing so
quickly, sales were more important than costs. When things got
tough, they dismissed my predecessor and hired me. They told me
that I could have free rein to implement whatever I thought was
necessary. And boy, are some changes ever necessary! Our senior
staff really don’t know the difference between personal and
corporate spending, and I think our sales and marketing expenses
are double what they should be. It will be a challenge to sort that
out, but I’m pretty sure I can get this under control. The really
big problem that has me worried is our northern development
grant."
"I don’t know a lot about government grant programs," cautioned
Tom, "but tell me more."
"When business fell off, Brian Hewsen, our president, attended a
seminar on how to get government grants. He discovered that a
matching program was available for firms to establish northern
manufacturing facilities. So, Brian and our V.P. of operations
submitted a grant proposal for us to manufacture chemicals in
Arcticview, a remote village with about 2500 people, where the
mines have been phasing out. The proposal was simply an adaptation
of an earlier unsuccessful grant application for our Brampton
operations. The government must have been real anxious for someone
to locate in Arcticview, because the new proposal was accepted in a
wink this time. Moreover, both levels of government have provided
matching funds of $750,000,a total of one and a half million in
government money. They also guaranteed a bank loan for us of
$750,000, and we used the loan proceeds as our contribution."
"Well, that sounds great, Mary. What’s the problem?"
"After the funds were provided, we rented a temporary facility
in Arcticview and we hired a few staff there to maintain the
building. However, we told the Ministry of Northern Development
that the new equipment needed to be tested and the manufacturing
process needed to be developed further. So the equipment was
delivered to our Brampton facility. The equipment is currently
being used there to streamline our manufacturing of a new line of
chemicals that should allow us to regain much of the market share
we lost to Dusque. The problem is that the grant requires us to use
the funds in Arcticview."
Tom jumped in, "But will anybody check on how the funds are
really being used?"
"That’s what I’m worried about, Tom. At the present time, one of
my tasks is to ensure that optimistic reports are sent about how
the development work is coming. In the short run, I could handle
this because there was a real need to shake down this new
equipment. The supplier had suggested two months, but we have
already been ‘testing’ the equipment for six months in Brampton,
and Brian is hoping that we can continue to ‘test’ it for a full
year."
"Well, after the year, they’ll simply move the equipment up to
Arcticview and your problems will be over!"
"No, Tom, that’s when my problems will really start. You see,
there is absolutely no way that we can turn a profit up in
Arcticview. We would have to transport all the raw materials up
there, and then ship the finished product back here. Dusque will
soon be competing in our new line of chemicals and, even though
they don’t have our advanced technology as yet, they will be able
to beat us on cost because of the transportation factor."
"I see. Then you’ll have to shut down operations and return the
funds?"
Mary’s reply was terse. "We can’t. If we shut down operations
here, we don’t have enough funds to repay the loan and, apart from
Dusque, I doubt we could find a buyer for the equipment. Besides,
we would be operating below break-even on the balance of our
operations."
"Wow! Major problems. Does management have any ideas on how to
work things out?"
"Well, the size of this new equipment is quite portable as only
small quantities of the chemicals are produced in each batch. Brian
would like to ship the equipment to Arcticview for a startup phase,
and temporarily move workers up there from the Brampton plant,
while the government publicity photos are being taken. After a
discreet period of time, he’ll return the equipment to Brampton,
and bring the workers back down. We’ll continue to ‘produce’
chemicals in Arcticview with a few local workers, but the real
operations will be here in Brampton. The grant contract states that
the company is obligated to produce in Arcticview for a minimum of
three years. So, Brian figures that if we can last for two years
past the testing period, we will be able to keep the equipment and
keep the company viable."
"But surely some government audits are necessary, Mary. What
will you do then?"
"Believe it or not, Tom, the only audited statements the
government requires are our financial statements from our external
auditors. Brian figures that the auditors aren’t particularly
concerned about where we manufacture but, to give the impression of
a high level of activity in Arcticview during the audit, he’ll
temporarily ship some people and equipment up there. Our auditors
don’t really know the technical aspects of our business and, as
long as we can document all the equipment, labour and inventory,
we’ll probably be okay with them. One of the things I could do as
well, is to bill as much of our supplies as possible to the
Arcticview plant and minimize the amount billed through to
Brampton. Some of our labour costs down here might even be billed
through to Arcticview when you consider that a few of our Brampton
workers will, in effect, serve as consultants to the northern
facility."
"Brian and our V.P. of operations will have to submit an annual
written report on how the grant is being used, but for my part, all
I have to do is contribute a brief statement on the ‘testing and
setup’ along with the financials. I’m hoping that I won’t even have
to see their finished report!"
"Gee, Mary, I can see why you’ve got a bit of a worry here," Tom
injected.
Mary continued, "Brian and the other senior managers tell me not
to worry. They say that everybody does this for tax reasons. They
also figure that nobody could really operate a manufacturing
facility in Arcticview anyway, because suppliers and markets are
just too far away. They speculate that training costs alone up
there could blow our grant budgets and, you know, I agree with them
that the government just wants to wave the flag a little bit for
votes. Besides, we are giving a few local people employment as
custodians of the northern plant, and we are managing to keep
Hewsen Chemical afloat during this tough time. Brian is also
particularly miffed that Dusque got a major government supply
contract away from us, and argues that this government grant merely
puts us back on a level playing field."
"Tom, I’m really bewildered here. On the one hand, as I think
about it, the financial statements will be perfectly accurate and
consistent with previous years, so I don’t believe that anyone
could nail me on an ethics question there. But I did sign a very
restrictive employment contract (see insert) that states that I
can’t talk to anyone. I’ve violated it already by talking to you,
and of course Frank. And I’d surely be violating it, and perhaps my
professional code of ethics, if I talked with the government.
Heaven knows that Frank and I need the money and Hewson’s health
care package, and there are 60 other employees in Brampton that
need their jobs too. I’m having difficulty sleeping at night, but
Frank keeps telling me to simply ignore the issue and do what I’m
told. In all other aspects, this could be a great job and, if we
pull this off, Brian says he’ll cut me in for equity participation.
If I quit, it won’t be easy to get another job and you can be sure
that Brian would not be helpful in getting me placed."
The Employee expressly covenants and agrees that he/she will
not, at any time during or after his/her employment with the
Company:
a) reveal, divulge or make known to any person, firm or
corporation, the contents of any formula, chemical compound,
product or other substance owned or developed by the Company; or
the method, process or manner of manufacturing, compounding or
preparing any such formulae, compounds, products or substances; or
sell, exchange or give away, or otherwise dispose of any formula,
compound, product or substance now or hereafter owned by the
Company, whether the same shall or may have been originated,
discovered or invented by the Employee or otherwise;
b) reveal, divulge or make known to any person, firm or
corporation, any secret or confidential information whatsoever, in
connection with the Company or its business; or anything connected
therewith; or the name of any other information pertaining to its
customers or suppliers;
c) solicit, interfere with or endeavour to entice away from the
Company, any customer or supplier or any other person, firm or
corporation having dealings with the Company; or interfere with or
entice away any other officer or employee of the Company.
Question: If you were Mary, what would you do?