Accountability of Ex-HP CEO in Conflict of Interest Charges:

How could a CEO and chairperson of the board of directors of a major company resign in disgrace over a personal relationship with a contractor that led to a sexual harassment charge and involved a conflict of interest, a violation of the code of ethics? It happened to Mark Hurd on August 6, 2010. Hurd was the former CEO for HewlettPackard (HP) for five years and also served as the chair of the board of directors for four years. On departure from HP, Hurd said he had not lived up to his own standards regarding trust, respect, and integrity.

The board of directors of HP began an investigation of Hurd in response to a sexual harassment complaint by Jodie Fisher, a former contractor, who retained lawyer Gloria Allred to represent her. While HP did not find that the facts supported the complaint, they did reveal behavior that the board would not tolerate. Subsequent to Hurd’s resignation, a severance package was negotiated granting Hurd $12.2 million, COBRA benefits, and stock options, for a total package of somewhere between $40 and $50 million.

In a letter to employees of HP on August 6, interim CEO Cathie Lesjak outlined where Hurd violated the “Standards of Business Conduct” and the reasons for his departure. Lesjak wrote that Hurd “failed to maintain accurate expense reports, and misused company assets.” She indicated that each was a violation of the standards and “together they demonstrated a profound lack of judgment that significantly undermined Mark’s credibility and his ability to effectively lead HP.” The letter reminded employees that everyone was expected to adhere strictly to the standards in all business dealings and relationships and senior executives should set the highest standards for professional and personal conduct.

The woman who brought forward the sexual harassment complaint was a “marketing consultant” who was hired by HP for certain projects, but she was never an employee of HP. During the investigation, inaccurately documented expenses were found that were claimed to have been paid to the consultant for her services. Falsifying the use of company funds violated the HP Standards of Business Conduct.

As for the sexual harassment claim, Allred alleged in the letter that Hurd harassed Fisher at meetings and dinners over a several year period during which time Fisher experienced a number of unwelcome sexual advances from Hurd including kissing and grabbing. Fisher said that this continual sexual harassment made her uncertain about her employment status.

In August 2013, HP and former CEO, Mark Hurd, won dismissal of a lawsuit that challenged the computer maker’s public commitment to ethics at a time when Hurd was allegedly engaging in sexual harassment.

HP did not violate securities laws despite making statements such as a commitment to be “open, honest, and direct in all our dealings” because such statements were too vague and general, U.S. District Judge Jon Tigar in San Francisco wrote.

As a result, shareholders led by a New York City union pension fund could not pursue fraud claims over Hurd’s alleged violations of HP’s standards of business conduct, the judge ruled.

“Adoption of the plaintiff’s argument (would) render every code of ethics materially misleading whenever an executive commits an ethical violation following a scandal,” Tigar wrote.

Shareholders led by the Cement & Concrete Workers District Council Pension Fund of Flushing, New York, claimed in their lawsuit that the share price had been fraudulently inflated because of Hurd’s alleged activities.

They also claimed that HP’s statements about its rules of conduct implied that Hurd was in compliance, and that Hurd ignored his duty to disclose violations.

At most, Tigar said, such statements “constitute puffery—if the market was even aware of them.”

Tigar also said Hurd’s alleged desire to keep his dealings with Fisher secret did not by itself give rise to a fraud claim.

“Nothing suggests that Hurd thought that he could mislead investors with the statements the court finds were immaterial,” the judge wrote.

Questions:

1. When he was CEO, Hurd wrote in the Standards of Business Conduct at HP that “We want to be a company known for its ethical leadership….” His message in the preface continued: “Let us commit together, as individuals and as a company, to build trust in everything we do by living our values and conducting business consistent with the high ethical standards embodied within our SBC.”

What is the role of trust in business? How does trust relate to stakeholder interests? How does trust engender ethical leadership? Evaluate Mark Hurd’s actions in this case from an ethical and professional perspective.

2. Despite hundreds of pages of policies, codes of ethics, organizational values, and carefully defined work environments and company culture, lapses in workplace ethics occur every day. Explain why you think these lapses occur and what steps might be taken by an organization to ensure that its top executives live up to values it espouses.

3. Leo Apotheker, the former CEO of HP who succeeded Mark Hurd, resigned in September 2011, after just 11 months on the job—but he left with a $13.2 million severance package. Hurd left with a package between $40 million and $50 million. Do you think executives who resign from their positions or are fired because of unethical actions should be forced to give back some of those amounts to the shareholders to make them whole? Why or why not?

On January 1, 2019, Halstead, Inc., purchased 71,000 shares of Sedgwick Company common stock for $1,485,000, giving Halstead 25 percent ownership and the ability to apply significant influence over Sedgwick. Any excess of cost over book value acquired was attributed solely to goodwill.

Sedgwick reports net income and dividends as follows. These amounts are assumed to have occurred evenly throughout these years. Dividends are declared and paid in the same period.

On July 1, 2021, Halstead sells 11,360 shares of this investment for $27 per share, thus reducing its interest from 25 to 21 percent, but maintaining its significant influence.

Determine the amounts that would appear on Halstead’s 2021 income statement relating to its ownership and partial sale of its investment in Sedgwick’s common stock. (Round your intermediate calculations to the nearest whole number.)

As total income accrual (no unearned gains):

As gains on sales of shares:

For the company APPLE

1. Choose a firm that is currently in the S&P 500. Choose one that you trust or that operates in an industry you are interested in. Who is the CEO (Executive Leader)?
   1. THE EXECUTIVE – Research the CEO of the firm and describe their background and any relevant information about this person that is available (e.g., traits, behaviors, motivations, or any important things they have accomplished).
   2. THE FIRM – Where are the firm’s headquarters located? What is the stock price & market capitalization at the time you write this? How many employees does the organization employ? What do they produce or what services do they provide? Does your organization have CEO duality?

Case 2
In early 2019, PT X acquired share ownership of 2 entities, namely PT Y and PT Z with
the following information:
• PT X acquired a 30% stake in PT Y, where previously PT X owned 40% of PT Y. Based on the analysis conducted by PT X, the additional 30% share ownership resulted PT X has control over PT Y.
• PT X acquired a 20% stake in PT Z, previously PT X owned 60% of PT Z. Based on the analysis conducted by PT X, on the initial ownership of 60% of PT Z's shares, PT X owns control of PT Z. With the additional 20% ownership of the shares, PT X has permanent ownership
has control over PT Z.
Towards the end of 2020, PT X sold part of its ownership to the two companies, with the following information:
• PT X sold 15% of its ownership in PT Y's shares. Based on the analysis conducted by PT X, the sale did not cause PT X to lose control of PT Y.
• PT X sold 40% of its ownership in PT Z's shares. Based on the analysis conducted by PT X, the sale caused PT X to lose control of PT Z.
Describe the accounting treatment for PT X for its ownership of PT Y and PT Z when:
1. Acquisition of additional shares in early 2019.
2. Sale of partial ownership towards the end of 2020.

1.) On March 1, 2020, Jefferson Company purchased factory equipment with an invoice price of $90,000. Other costs incurred were freight costs, $2,100; installation wiring and foundation, $2,200; material and labor costs in testing equipment, $700; oil lubricants and supplies to be used with equipment during the life of the asset, $500; fire insurance policy covering equipment for three years, $1,400. The equipment is estimated to have a $5,000 salvage value at the end of its 8-year useful service life.

(A) Find the Cost of the Equipment.

2.) On March 1, 2020, Soprano Co. purchased factory equipment with an invoice price of $90,000. The equipment is estimated to have a $5,000 salvage value at the end of its 8-year useful service life.

(B) What is depreciation for 2020 using the double-declining balance method? _______________

What is the book value? ___________ Show all work.

3.) On March 1, 2020, Jefferson Company purchased factory equipment with an invoice price of $90,000. The equipment is estimated to have a $5,000 salvage value at the end of its 8-year useful service life. Using your calculations from Question #2, calculate depreciation using the double-declining balance method for:

2021 Depreciation _______________________                                     

2021 Book Value ________________________                                      

4.) Ronald Company purchased equipment on May 1, 2020, for $90,000. It is estimated that the equipment will have a $5,000 salvage value at the end of its 5-year useful life. It is also estimated that the equipment will produce 100,000 units over its 5-year life. Show all Calculations:

(1) The company uses straight-line depreciation. ___________________

What is depreciation for 2020? ___________________                                      

What is the Accumulated Depreciation in the year 2022? __________________                                  

5.) Ronald Company purchased equipment on May 1, 2020, for $90,000. It is estimated that the equipment will have a $5,000 salvage value at the end of its 5-year useful life. It is also estimated that the equipment will produce 100,000 units over its 5-year life.

The company uses the units-of-activity depreciation method. If 16,000 units are produced in 2020 and 24,000 units are produced in 2021, answer the following; show all work.

2020 Depreciation __________________                                  

2021 Depreciation __________________                                  

12/31/2021 Book Value ____________________                        

6.) Ronald Company purchased equipment on May 1, 2020 for $90,000. It is estimated that the equipment will have a $5,000 salvage value at the end of its 5-year useful life. It is also estimated that the equipment will produce 100,000 units over its 5-year life. The company uses the double declining balance method of depreciation; answer the following:

2020 Depreciation ______________

2021 Depreciation ______________

2021 Accumulated Depreciation ________

Worley Company buys surgical supplies from a variety of manufacturers and then resells and delivers these supplies to hundreds of hospitals. Worley sets its prices for all hospitals by marking up its cost of goods sold to those hospitals by 9%. For example, if a hospital buys supplies from Worley that cost Worley $100 to buy from manufacturers, Worley would charge the hospital $109 to purchase these supplies.

For years, Worley believed that the 9% markup covered its selling and administrative expenses and provided a reasonable profit. However, in the face of declining profits, Worley decided to implement an activity-based costing system to help improve its understanding of customer profitability. The company broke its selling and administrative expenses into five activities as shown:

Worley gathered the data below for two of the many hospitals that it serves—University and Memorial (each hospital purchased medical supplies that had cost Worley $40,000 to buy from manufacturers):

Required:

1. Compute the total revenue that Worley would receive from University and Memorial.

2. Compute the activity rate for each activity cost pool. (Round your answers to 2 decimal places.)

3. Compute the total activity costs that would be assigned to University and Memorial.

4. Compute Worley’s customer margin for University and Memorial. (Hint: Do not overlook the $40,000 cost of goods sold that Worley incurred serving each hospital.) (Loss amounts should be indicated with a minus sign. Round your intermediate calculations to 2 decimal places. Round your final answers to the nearest whole number.)

What counts towards the US GDP? If you have a Japanese company in the US, selling cars worth $100B to Americans ($75B production cost and $25B payed back as dividends to Japan), what effect does this have on the US GDP? Also, if there is a company which causes environmental damages in the US of $10B. Will this also affect the US GDP?

Advise Linkitin Pty Ltd on sources of finance

Linkitin Pty Ltd is a new company with an interesting new service that shows great potential. However, the company needs more long-term finance to grow. Its founder, Chodar, is an expert in his area but he knows very little about business. He is currently the only shareholder of the company and has no family or friends that could provide further financing.

You have been asked to explain sources of long-term financing. You have decided to keep it simple and explain the difference between debt and equity and provide an example of each that would apply to a start-up business such as Linkitin.

Barcelona Restaurant Group is always trying to attract and retain only those employees who reinforce its service-oriented culture and provide top-quality customer service. The manager being interviewed in the video is constantly recruiting and hiring new employees and letting low performers and poor fits go. He also tries to provide job candidates with a realistic description of the company’s expectations to ensure that they know what they would be getting into if they took a job with the company.

Task: Read the “Barcelona” case below and then consider the following questions.

>> It's funny, when I got hired I had to define the philosophy. I figured the more I say it and the more I preach it and the more people I hire and tell that to, eventually that would happen. And I think we're getting there three years later. Human resources is one of the most important things we do in our business. You can't train people to be enthusiastic, nice, fun, great people. We have to hire that. And this is a transient business. So, people are constantly moving. So, the minute you stop looking you're actually sliding backwards. So, we're always hiring. And we're always firing. My name is Scott. I'm the COO for Barcelona Restaurant Group. I think in the three years I've worked here only one or two managers out of quite a few have quit. However, we've turned over probably 60 to 70% of management in the past three years. And that is because we were not afraid to let people go. We demand a certain level of quality. And we're continuously raising the bar on what our expectations are. And the other thing is this is a high burnout business. People burn out. Somebody who was great a year ago may not be great this year. You guys are famous for friendly service. I mean this is how you built the business. This is how you guys went from a losing restaurant to a restaurant that is making money that's in the game with everybody else. And I'm getting some signs. They did not feel welcome by D.J. They love Barcelona, but they said it just didn't feel like Barcelona to them.

>> That's what they perceived it to be. That is what it was. I'm not, I'm not denying that from any standpoint. I just saw him hustling and doing a really good --

>> Well, let's put it another way. D.J. can be good. Right now he's not. So, Yeah, so have somebody else there or make him real good, real fast.

>> If you think it's somebody who's got, you know, who has got the ability, happy in the kitchen, then you owe it to them to spend a night, two nights, three nights glued to them. Figure it out.

>> So, we got to just double our efforts. Does everybody have a Craigslist ad in right now for servers?

>> I need bussers. I just hired servers. I need bussers.

>> OK. We're always hiring. We're always, keep the ads running. That's our philosophy. We're always bringing in. We're always calling out the bottom 20%. There's always somebody better out there than our worst servers. I have an interview every day. I interview people every single day. You guys should be too. That's how you get better. You hire your way out of your problems because we can train people all day, but we can't find happy people with good attitudes. We can't train that into people. Either they are or they aren't. Human resources is the biggest thing we do. And I really think for any company that is involved in customer service it is the most important thing you can do is have the right people in front of your customers. You don't have to have the greatest resume in the world to make it into the interview. I'll have as many as four to six interviews a day. They last 20 minutes. I don't take a long interview. I don't take a long interview because I don't believe I get anything out of the actual conversation. I've hired too many people that I thought were amazing in an interview, and they ended up being a dud and vice versa. I do more talking than they do quite often in the interview because I am trying to just kind of get across the philosophy, who we are, what we're going to do, and I've got the spiel pretty well nailed now. But my process is a three-stage process. Interview them. Send them out on a shop. I send prospective management, whether I like them or not, even if I know I'm not going to hire them I still send them on the shop. And I give them $100 allowance and tell them to go out to the restaurants, one or two of the restaurants if possible and eat a few tapas, sit down, have a couple drinks, and write me an essay. It lets me see what is important to them within the restaurant because I think we, as professionals, in this industry cannot just go to a restaurant and not pay attention to what's going on whether, it drives my wife crazy, but I see everything. And I have to make a conscious choice not to get annoyed by it. So, I try to tap into that with our candidates. I also get a sense of their level of education, of their intelligence, of their ability to complete a task. There's a lot of other ancillary things that come out of that process, how long it takes them to do it, whether it's two weeks later, whether it's the next day, how excited they are. And I think they get something out of it too because sometimes these candidates come in blind. They don't know our restaurant group or, you know, they might be from New York. They might be from somewhere else, and they're driving in for the interview. So, this introduces them to the brand. So, they're learning about us at the same time. If it's a good shop, it doesn't have to be a great shop, if it's a good shop I'll go to the Stage 3, which is I want you to pretend like you've worked for us for six months, and I want to see who you are. I want to see you commanding the floor, making friends with the guests, talking to the staff. I want to see who you would be for me. If they do a good job on that, at that point we start talking about a job.

>> Would you pass your own test? Would you hire you?

>> That's a good question. I think I would. Well, I don't know. I don't know if I would have the floor presence that I demand out of my managers. I am not sure that I would be a great floor manager for Barcelona.

1. (a) How does the Barcelona Restaurant Group focus on fit?

     (b) What types of fit does Barcelona try to optimize when hiring?

2. (a) How does sending managerial candidates on a $100 “Shop” serve as an RJP?

     (b) Explain why you think this would or would not be effective in helping job candidates assess their fit with the Barcelona Restaurant Group.

3. (a) Besides the “Shop,” how else does Barcelona try to maximize employee fit?

     (b) What other suggestions do you have for the company to improve new hires’ fit with the job and organization?