Question

Financial Accounting: Question about Business Ethics

Maurice Stokes was one of the best classmates of Roy Russell while he studied his MBA in the USA. Maurice grew up in Addis Ababa, the capital of Ethiopia. Ethiopia’s GDP per capita ranked 187 out of 191 countries due to adverse geopolitics and civil wars in the past. Maurice is talented and hard working. He went through his bachelor degree in Ethiopia and luckily won a scholarship to study an MBA in the USA. Right after he got his MBA degree, Maurice joined AB&T, the world’s biggest mobile phone service provider, as a management trainee. After 5 years’ working in the USA, Maurice was assigned to work as the Vice President in Addis Ababa, where AB&T’s African headquarter is located, to oversee all African operations.

After his MBA graduation, Roy Russell joined his father’s family business– a medium size mobile phone service provider in Hong Kong. Three years later, AB&T acquired Roy’s family business and retained all existing staff. Roy then became an employee of AB&T and he was happy to work for a multinational company with good reputation. After 3 years’ working as financial controller in AB&T’s Singapore office, Roy was offered an opportunity for promotion to work as chief financial officer (CFO) in its African headquarter in Addis Ababa. Eager to get more international exposure, Roy said yes to this offer. This is how Roy came to a reunion with Maurice.

AB&T provides its senior employees in Addis Ababa with a monthly housing allowance of up to $2,500. Compared with the US standard, most of the housing in Addis Ababa is of low quality, and in many regions the law and order are bad. By giving a generous allowance, AB&T aims to ensure that its senior employees live in areas that are safe, convenient and comfortable to ensure that senior executives can have good rest, that they live in a district that is appropriate to the company’s reputation. For housing allowance claim, senior executives need to hand in their monthly receipts for reimbursement. Every month Maurice submits a bill of $2,500 from his landlord to the finance office for re-imbursement. Roy suggested paying a visit Maurice’s house for a few times. However, every time Maurice rejected this suggestion, claiming that he had never entertained any coworkers at home so that his family members would not be distributed. Roy considered this understandable and so did not insist.

After working for six months in Addis Ababa, Roy had a business dinner with a supplier. The supplier mentioned that Maurice was a neighbor in a district called Winter Town. Winter Town is a district quite far from AT&T’s African office and is well-known for its high crime rate in Addis Ababa. Roy was surprised to hear that, as Maurice told him that he lived in Spring Town, a district that many foreign ambassadors lived and a lot more expensive than Winter Town. Through some connection, Roy verified that what the supplier said was true.

Roy decided to confront Maurice about the housing allowance issue. Maurice at first denied but later admitted that his apartment was in Winter Town and the rent was less than $2,500. He defended his action by saying that “Every AB&T senior executive gets $2,500 a month. If I live in an economically way, why should I be penalized? I just receive the same as others”. As a reply, Roy stressed that “It is AB&T objective to let senior employees to live in a safe place and have good rest for the challenging duties during office hours. Besides, the districts that the company’s senior executives live in represent the image of the company. Moreover, the company’s housing allowance policy is reimbursement on an actual basis, i.e. the amount of monthly claim should be the same as the rental value of the apartment and not to allow staff to make a profit. As the regional CFO, I have to maintain my professional standing”. When Roy challenged Maurice for using falsified rental receipts for disbursement claims, Maurice admitted but replied that this is a common and well-accepted practice in Ethiopia.

Later in the discussion, Maurice tried to convince Roy regarding his housing allowance claim practice. Maurice explained his situation that “You may not understand my situation. I have to save every dollar to pay school fees for my ten nephews and nieces. I got my family members’ great support to finish my education. I owe it to my brothers and sisters to give their children the same chance to study as I did. My parents can never understand why I live in a big apartment instead of helping their grandchildren. I am just doing what I should do. The company has no extra expense to reimburse me $2,500 housing allowance per the monthly receipt I submit. As my old classmate and my best friend, please pretend you know nothing and pay me $2,500 housing allowance as before. As a person grown up in Ethiopia, I know all business practice here and have good connection in this country. I know many senior executives in the government tax department and that will be helpful to your work here. I will fully support you to do an excellent job to save some tax for the benefit of our company. You will be compliment by your boss for paying a lower tax than other companies here”.

Roy does not want to lose his friendship with Maurice and he believes it will make his working life easier if he can make use of Maurice’s connection in Africa. Roy is not sure what should be his next step.

Required

1. Identify the ethical issue, if any, involved in this case?                                
2. Who are the stakeholders in this situation? How are they affected? (Hins: state all stakeholder)   
3. What are Roy’s alternatives? (Hins: state at least 3)
4. What course of action will you suggest Roy Russell to take and justify your suggestion? (Hins: reply the alternative in Q3)

Answer 1

1. Ethical issue:

The firm pays the senior staff $2,500 to make sure that they live in safe, secure, and healthy conditions so that senior staff of the company is able to rest comfortably and work in a district that is suitable for the reputation of the organization.

As a senior employee, Maurice, however, lives in a low budget apartment located in the dangerous area of a district far away from the African AB&T office. It is we-known for the high crime rate. Maurice stayed in the apartment at a small rate, which was less than $2500 but Maurice's bill was submitted to the company for $2500.

2. Stakeholders involved and how it affects them:

Roy Russell, Maurice Stokes, and the company AB & T of Addis Ababa are the Stakeholders in this situation.

According to him, it is necessary for Maurice to save the money to carry out his nephew's and nephew's education, so he submits a total lodging bill of $2,500 for the reimbursement even though, in reality, his lodging bill does not amount for full reimbursement.

As the chief financial officer, Roy Russell has the dilemma of not permitting Maurice Stokes to operate in Africa, taking into account the relationship between Maurice and Africa, or Maurice Stokes to be guided by taking ethical matters into account.

The conduct of Maurice of living in a danger zone which is far away from AB&T's office will adversely affect the reputation of the company's brand image.

3. Roy Russel's Alternatives:

Roy has two alternatives:

a. He should not accept the conduct of Maurice because of the ethical issue.

b. He can accept the conduct of Maurice by taking into consideration the connection Maurice has in Africa and retain the friendship.

4. The recommended course of action and justification:

Roy Russel should not accept the conduct of Maurice because of the underlying ethical issue and request Maurice to submit the actual bills or inform the management about the actual situation. The conduct of Maurice Stokes affects the company's reputation and while Roy supports Maurice's actions, in the future the company will become aware of Maurice's actions then Maurice and Roy will be sued because they have completely ruined the company's reputation. This may result in the termination of their jobs. To prevent this from happening, it is wise to advise Maurice to stop his conduct or report the same to the management.