It is common practice in America for companies to take out corporate-owned life insurance policies on their leaders and senior management, so that the company can offset the cost of replacing them if they die. However, some companies have begun to extend this practice to their low-level employees, which have become known as “dead peasant” policies. Although profitable for the business, it is often the case that the families of these low-level employees are not aware that this step has been taken and the practice has been outlawed in some states. Is this practice ethical for all employees? Or just top corporate leaders?

Case

Insuring the lives of top executives is common practice in corporate America. The death of a CEO or CFO can put the future of the company at risk; replacing these individuals can be costly. Large companies often take out life insurance policies, called corporate-owned life insurance (COLI) polices, on their leaders to help offset these expenses. Some firms extend their COLI policies to cover low-level employees. These policies, sometimes referred to as “dead peasant” or “dead janitor” insurance, are taken out on rank-and-file workers like convenience store clerks, electrical linemen, and cake decorators. The company pays the premiums and receives the death benefits when the employee dies. Often, workers and their surviving family members do not know that these policies exist, prompting one attorney to call these policies corporate America's “dirty little secret” (Mason, 2002). In a case featured in the film Capitalism: A Love Story, the widow of an Amegy bank project manager discovered that the bank had received a US$3.8 million payout after her husband's death. Her husband's salary, before the bank fired him, was US$70,000. (She later sued Amegy and settled for an undisclosed sum.) In another instance, Wal-Mart collected US$381,000 after the death of an employee but didn't reveal that fact to his spouse. Dead peasant policies can be profitable. The lump sum paid to the company is tax free, and in the past, the cost of the premiums could also be written off. Press reports name Proctor & Gamble, AT&T, Walt Disney, Portland General Electric, and Nestlé as corporations carrying COLI policies on low-level workers. At one time, as many as one quarter of the Fortune 500 purchased such policies, covering as many as 5–6 million workers. However, fewer companies took out such insurance after the tax laws were tightened. Wal-Mart says it discontinued its program when the tax law changed and after it lost several lawsuits. Nonetheless, policies purchased earlier may still be in place at a number of firms. Rules on dead peasant policies vary between states. Some jurisdictions outlaw this type of insurance, requiring that companies demonstrate that they have an “insurable interest” (would suffer significant loss of income) in the individual covered by the policy. Others require that employees give their consent before such insurance can be put in force. Corporations defend their use of dead peasant policies by claiming that the insurance helps defray the expenses of providing benefits for executives and of providing health insurance for employees and retirees. Critics scoff at this explanation, noting that insurance payout monies are generally mingled with general revenue. They point out that taking out such policies without the knowledge or consent of employees is disrespectful and treats workers as resources, not as human beings. Such insurance also sets up a potentially deadly conflict of interest. Employers, who are in charge of safety, now have a financial stake in the early death of employees. As one surviving spouse asked, “What incentive is there for a safe work environment if companies can do this?” (Roesler, 2003).

Discussion Questions

1.Do you think it is ethical to insure top corporate leaders? What criteria should be used in determining who should be covered?

2.Would you agree to a company-owned insurance policy on your life if it was required for employment?

3.What would Immanuel Kant say about dead peasant policies?

4.Are dead peasant policies unjust?

5.Do you think that employers have a conflict of interest if they hold life insurance policies on their employees? Why or why not?

6.Are dead peasant policies ethical if (a) workers are notified of their existence; (b) if the proceeds go towards supporting employee benefits?

7.Would you support a total ban on dead peasant policies? Why or why not?

Bad News Message Assignment

Bad news messages can follow a different pattern than good news letters: the indirect approach. In all of our writing, we are trying to create goodwill between our readers, ourselves, and our organization. This means that one of the primary goals of a bad news message is to ensure that the reader continues to think well of us. We can write a bad news message in a way that maximizes the chances that this will happen.

Sometimes people like to hear the bad news first. However, in many situations this approach will not help us achieve our purpose. In these cases we need to use a less direct approach.

Using the techniques you’ve learned in class, write a bad news email addressing the bad news scenario below. Use email format at the header:

From:

To:

Cc:

Subject:

Attached:

Bad News Scenario

You are the Participant Services Manager for Encore Events, an event planning and management company that is producing your city’s largest marathon, half-marathon, and 5K races on April 1 this year. A portion of the proceeds will go to your local chapter of Ronald McDonald House Charities. To participate, runners pay $99, $80, and $45, respectively. In addition to the charity donation, these fees cover costs such as advertising, insurance, permits, security, water, promotional materials, goodie bags, etc. While participants can register for the races at any time, including the day of the event, refunds are not granted after February 15 for any reason—a rule that runners must acknowledge before submitting their entries. This helps you to budget and avoid the problematic nature of adjusting credit card charges or handling cash for anyone who wants a refund. Today (February 25), you received a letter from Lucila Muñoz, who paid her registration fee on November 6. However, she broke her ankle on November 27. She thought she would be healed in time to participate, but she hasn’t had time to do the rehabilitation and training needed to participate in the event. She is asking that her card be credited for $45. You are a runner, and you empathize with her. However, Ms. Muñoz should have requested the refund before the deadline. Besides, you think it’s a little tacky that she would want a refund on a partial charitable donation (for which she received a receipt that can be used to claim a tax deduction).

1. Consider a US company that imports German goods. What effect will a sudden depreciation of the dollar relative to the euro have on the P/E ratio of the U.S. company? Discuss the effect both the possibilities—the company being able to completely pass through the dollar depreciation to its customers and the company being unable to completely pass through the dollar depreciation to its customers. (5 points)

QUESTION 1:

Researchers claim that women speak significantly more words per day than men. One estimate is that a woman uses about 20,000 words per day while a man uses about 7,000. To investigate such claims, one study used a special device to record the conversations of male and female university students over a four- day period. From these recordings, the daily word count of the 20 men in the study was determined. Here are their daily word counts:

What value we should remove from observation for applying t procedures?

A 90% confidence interval (±±10) for the mean number of words per day of men at this university is from  to  words.

Is there evidence at the 10% level that the mean number of words per day of men at this university differs from 9000?

QUESTION 2:

Cola makers test new recipes for loss of sweetness during storage. Trained tasters rate the sweetness before and after storage. Here are the sweetness losses ( sweetness before storage minus sweetness after storage) found by 10 tasters for one new cola recipe:

Take the data from these 10 carefully trained tasters as an SRS from a large population of all trained tasters.

Is there evidence at the 5% level that the cola lost sweetness? If the cola has not lost sweetness, the ratings after should be the same as before it was stored.

The test statisic is t =  (±±0.001)

Assume that Pomo Limited, a US based firm, expects to receive S$800,000 in one year. The existing spot rate of the Singapore dollar is US$0.74. The one-year forward rate of the Singapore dollar is US$0.76. Pomo created a probability distribution for the future spot rate in one year as follows:

Future Spot | Rate Probability

US$0.75 | 20%

US$0.77 | 50%

US$0.81 | 30%

Assume that one-year put options on Singapore dollars are available, with an exercise price of US$0.77 and a premium of US$0.04 per unit. One-year call options on Singapore dollars are available with an exercise price of US$0.74 and a premium of U$0.03 per unit. Assume the following money market rates:

U.S. | Singapore

Deposit rate: 9% | 6%

Borrowing rate: 10% | 7%

Given this information, determine whether a forward hedge, money market hedge, or a currency options hedge would be most appropriate. Then compare the most appropriate hedge to an unhedged strategy, and decide whether Pomo Limited should hedge its receivables position.

a. Calculate the forward contract hedge.

b. Calculate the money market hedge.

c. Calculate the option hedge.

d. Briefly discuss the optimal hedge against the no hedge position of the company.

e. Discuss whether the multi-national corporation (MNC) like Pomo Limited will risk be over-hedged its position to the extent affect the company's financial position.

Indicate whether the following statements are TRUE or FALSE and explain your answer fully, but succinctly. Without an adequate explanation, you will get no credit.

a)An efficient outcome is desirable because it allows us to make Pareto improvements.

b)Unlike a consumer, a firm does not face a budget constraint.

c)If the wage rate increases, then those who work have a stronger incentive to supply labor.

In 1-2 sentences each, answer the following questions:

4. What is the controversial way that respect for autonomy may be applied to issues of
organ allocation, and what is one problem with this application? Explain.
5. What is the core idea of the “fair innings” argument and who does it tell us to prioritize?
6. What does it mean for a treatment option to be considered “futile care”? Provide one
example.

Before you started applying for university, a job recruiter offered you a full-time cashier position at a department store earning an after-tax salary of $21,000 per year. However, you turn down this offer and attend your first year of university. The additional monetary cost of university to you, including tuition, supplies, and additional housing expenses, is $32,000.

In 2010, Ticketmaster found out the hard way that the
entertainment industry is not, in fact, as recession-proof as
it was once widely believed to be. Th e company, which sells
tickets for live music, sports, and cultural events, and which
represents a signifi cant chunk of parent company’s Live
Nation Entertainment’s business, saw a drop in ticket sales
that year of a disconcerting 15 percent. Th en there was the
mounting negative press, including artist boycotts, the vitriol
of thousands of vocal customers, and a number of major
venues refusing to do business with Ticketmaster.
Yet 2012 has been more friendly to the company—under

the leadership of former musician and Stanford MBA-
educated CEO Nathan Hubbard, who took over in 2010

when Ticketmaster merged with Live Nation, the country’s
largest concert promoter. Th ird-quarter earnings were
strong, with just under $2 billion in revenue, a 10 percent
boost from the same period last year, driven largely by Live
Nation’s ticketing and sponsorship divisions. Ticketmaster
was largely responsible as well, thanks to the sale of 36 million
tickets worth $2.1 billion, generating $82.1 million in adjusted
operating income, which translates to an increase of
51 percent for the year.
Th at’s because Hubbard knows how to listen, and read the
writing on the wall, “If we don’t disrupt ourselves, someone
else will,” he said, “I’m not worried about other ticketing
companies. Th e Googles and Apples of the world are our
competition.”
Some of the steps he took to achieve this included to
the creation of LiveAnalytics, a team charged with mining
the information (and related opportunities) surrounding
200 million customers and the 26 million monthly site visitors,
a gold mine that he thought was being ignored. Moreover
Hubbard redirected the company from being an infamously
opaque, rigid and infl exible transaction machine for ticket
sales to a more transparent, fan-centered e-commerce
company, one that listens to the wants and needs of customers
and responds accordingly. A few of the new innovations rolled
out in recent years to achieve this include an interactive venue
map that allows customers to choose their seats (instead of
Ticketmaster selecting the “best available”) and the ability to
buy tickets on iTunes.
Hubbard eliminated certain highly unpopular service
fees, like the $2.50 fee for printing one’s own tickets, which
he announced in the inaugural Ticketmaster blog he created.

Much to the delight of event goers—and the simultaneous
chagrin of promoters and venue owners, who feared that the
move would deter sales—other eff orts toward transparency

included announcing fees on Ticketmaster’s fi rst transaction-
dedicated page, instead of surprising customers with them at

the end, while consolidating others. “I had clients say, ‘What
are you doing? We’ve been doing it this way for 35 years,’”
Hubbard recalled, “I told them, ‘You sound like the record
labels.’”
Social media is an integral part of listening, and of course,
“sharing.” Ticketmaster alerts on Facebook shows friends of
purchasers who is going to what show. An app is in the works
that will even show them where their concertgoing friends
will be seated. Not that it’s all roses for Ticketmaster—yet.
Growth and change always involve, well, growing pains,
and while goodwill for the company is building, it will take
some time to shed the unfortunate reputation of being the
company that “everyone loves to hate.” Ticketmaster made
embarrassing headlines in the fi rst month of 2013 after
prematurely announcing the sale of the president’s Inaugural
Ball and selling out a day early as a result, disappointing
thousands. But as the biggest online seller of tickets for
everything from golf tournaments to operas to theater to
rock concerts, and with Hubbard’s more customer-friendly
focus, Ticketmaster should have plenty of opportunity to
repent their mistakes.

Question:

1. Identify the problems that Ticketmaster was facing, using cause and effect analysis. What were the Symptomatic Effects? What were the Underlying Causes?

2. What process(es) did Nathan Hubbard use to Generate Alternatives? What alternatives were available to Mr. Hubbard? What types of Uncertainty did he experience?

In 2010, Ticketmaster found out the hard way that the
entertainment industry is not, in fact, as recession-proof as
it was once widely believed to be. Th e company, which sells
tickets for live music, sports, and cultural events, and which
represents a signifi cant chunk of parent company’s Live
Nation Entertainment’s business, saw a drop in ticket sales
that year of a disconcerting 15 percent. Th en there was the
mounting negative press, including artist boycotts, the vitriol
of thousands of vocal customers, and a number of major
venues refusing to do business with Ticketmaster.
Yet 2012 has been more friendly to the company—under

the leadership of former musician and Stanford MBA-
educated CEO Nathan Hubbard, who took over in 2010

when Ticketmaster merged with Live Nation, the country’s
largest concert promoter. Th ird-quarter earnings were
strong, with just under $2 billion in revenue, a 10 percent
boost from the same period last year, driven largely by Live
Nation’s ticketing and sponsorship divisions. Ticketmaster
was largely responsible as well, thanks to the sale of 36 million
tickets worth $2.1 billion, generating $82.1 million in adjusted
operating income, which translates to an increase of
51 percent for the year.
Th at’s because Hubbard knows how to listen, and read the
writing on the wall, “If we don’t disrupt ourselves, someone
else will,” he said, “I’m not worried about other ticketing
companies. Th e Googles and Apples of the world are our
competition.”
Some of the steps he took to achieve this included to
the creation of LiveAnalytics, a team charged with mining
the information (and related opportunities) surrounding
200 million customers and the 26 million monthly site visitors,
a gold mine that he thought was being ignored. Moreover
Hubbard redirected the company from being an infamously
opaque, rigid and infl exible transaction machine for ticket
sales to a more transparent, fan-centered e-commerce
company, one that listens to the wants and needs of customers
and responds accordingly. A few of the new innovations rolled
out in recent years to achieve this include an interactive venue
map that allows customers to choose their seats (instead of
Ticketmaster selecting the “best available”) and the ability to
buy tickets on iTunes.
Hubbard eliminated certain highly unpopular service
fees, like the $2.50 fee for printing one’s own tickets, which
he announced in the inaugural Ticketmaster blog he created.

Much to the delight of event goers—and the simultaneous
chagrin of promoters and venue owners, who feared that the
move would deter sales—other eff orts toward transparency

included announcing fees on Ticketmaster’s fi rst transaction-
dedicated page, instead of surprising customers with them at

the end, while consolidating others. “I had clients say, ‘What
are you doing? We’ve been doing it this way for 35 years,’”
Hubbard recalled, “I told them, ‘You sound like the record
labels.’”
Social media is an integral part of listening, and of course,
“sharing.” Ticketmaster alerts on Facebook shows friends of
purchasers who is going to what show. An app is in the works
that will even show them where their concertgoing friends
will be seated. Not that it’s all roses for Ticketmaster—yet.
Growth and change always involve, well, growing pains,
and while goodwill for the company is building, it will take
some time to shed the unfortunate reputation of being the
company that “everyone loves to hate.” Ticketmaster made
embarrassing headlines in the fi rst month of 2013 after
prematurely announcing the sale of the president’s Inaugural
Ball and selling out a day early as a result, disappointing
thousands. But as the biggest online seller of tickets for
everything from golf tournaments to operas to theater to
rock concerts, and with Hubbard’s more customer-friendly
focus, Ticketmaster should have plenty of opportunity to
repent their mistakes.

Questions

How did Mr. Hubbard select his most desirable alternative? Describe which type of Decision Making he used, and explain your findings.

Were the recent decisions that Mr. Hubbard made effective, according to the concepts in Chapter 7 – Decision Making? Explain your response.