- •Part I. Unit 8 business ethics and social responsibility
- •Ethics and business
- •2) Match the terms with their definitions.
- •Ethics and Social Responsibility of Business
- •Ethical issues in management
- •Vocabulary tasks
- •Ethics in Contemporary Management
- •Improving ethical performance
- •Ways of Improving Ethical Performance
- •Solving ethical dilemmas
- •Approaches to Ethical Decision Making
- •Round table session
- •Part II. Unit 8 business ethics and social responsibility
- •Vocabulary Development
- •Investigate the idea of social responsibility and business ethics
- •Verbs to speak out
- •Analysis and discussion
- •1. An Ethics Test
- •Being Ethical
- •National Minorities’ Employment in Different Sectors of Economy, %
- •Problem 1. Insider trading.
- •Problem 2. Career crisis?
- •Contemporary Ethics: The e. F Hutton Case
- •Writing
- •1. Abstract writing
- •Ethics: the Most Fundamental Principle of Accounting
- •2. Essay writing
Contemporary Ethics: The e. F Hutton Case
On May 2, 1985, Wall Street was shocked to learn that E. F. Hutton and Company, the fifth largest U.S. brokerage house, had pleaded guilty to 2,000 counts of mail and wire fraud. Hutton agreed to pay fines of $2 million, cover the cost of the government’s investigation, and make restitution to the banks it defrauded. Hutton admitted to systematically overdrawing its accounts at 400 banks and obtaining the short-term use of as much as $10 billion without paying interest. Hutton avoided a lengthy trial by pleading guilty. However, the extensive publicity damaged the excellent reputation of the company. Shortly after the guilty plea, Hutton began losing some of its clients.
In addition to criminal charges, a civil complaint was filed against Hutton over procedures the Justice Department believed were illegal and commonly used in other companies as well. Clearly this was a warning to other companies that drawing checks against uncollected funds without written agreement would not be tolerated by the Justice Department.
The Justice Department did not name any individuals in the charges, although prosecutors said as many as 25 Hutton employees were involved. The government reportedly decided not to prosecute individuals because it would lead to lengthy litigation and because it was a «corporate scheme» rather than a group of individual criminals operating together.
E. F. Hutton hired former Attorney General Griffin Bell to do an investigation of the cash-management practices of the company. However, Bell’s report was criticized by many outsiders. The report seemed to add to the confusion of who in management was responsible for the scheme. Hutton’s branch managers were encouraged by top management to increase the earnings from cash management in the branch offices. Those who were able to do so were praised. However, at the time of the investigations, top management implied that the branch managers were acting without the knowledge of senior management. Internal documents revealed that senior managers, including Hutton’s president, George Ball, may have known about the large overdrafts. However, Bell’s report found that Ball could not be held responsible because he was not in control of cash management and did nothing illegal. Accountants Arthur Andersen and Company had earlier reviewed Hutton’s cash-management system and had asked for a written opinion regarding the legality of the system. Their request was denied by the company’s attorney, who insisted the operations were legal.
Many people questioned whether the Justice Department was right in charging only Hutton and not individuals. Assistant U.S. Attorney Albert Murray, who conducted the lengthy investigation for the Justice Department, said, ‘It was extremely difficult to prove people at headquarters knew about this, because branch and regional people had a lot of discretion about how to run their operations.’ Also, he said he did not want a situation where ‘a few people would be blamed for practices that were the product of a companywide philosophy.’ Some Justice officials believe that corporate employees shouldn’t be charged with crimes if they don’t personally profit from them. Others believe that this will send the message that the Justice Department is willing to bargain with those who commit serious corporate crime. Harvard University Law Professor Lloyd Weiner stated ‘There is a pattern of not looking as critically at this stuff when it’s done by people in three-piece suits and fancy ties.’
The Hutton case indicates that society is as concerned with ethics as it is with strict legalities and corporate executives must be held to the highest standards of responsibility.
Issues for discussion
1) Justice Department officials agreed to charge only Hutton—not any of its employees—with crimes. Do you agree with this decision or do you believe individual employees should be held accountable for their actions? Explain your answer. What message does this send to employees at Hutton and at other companies?
2) Do you agree that Ball should not be held responsible because he did not control cash management or supervise audit controls? Explain your answer.
3) When the accountants’ request for a legal opinion was refused, what could they have done?
4) Ball said that the Bell report showed that he did not know of any illegal activities. Does this mean there were no unethical activities? What is the difference?
5) What are some voluntary actions E. F. Hutton could take to become a more socially responsible company?