The recommendation of the newly appointed auditors of Paramount Projects Limited ushered in an unexpected dilemma for Sachin Menon, its Chief Financial Officer. The auditors recommended a switch from its existing output-based policy to an input-based policy for measuring the Percentage of Completion of Paramount's construction projects. Accepting the auditors' recommendation appeared a technical exercise that would not impact the company's cash flows or business prospects, hence the bank financing. However, the bank indicated that the accounting change would jeopardize the financing available to Paramount because of the decline in the qualifying assets to support the bank loans. Should Menon recommend going against the recommendation of the auditors that Paramount's board had recently appointed? While the new auditors' rationale for the recommendation to change accounting policy was sound, Paramount's existing policy also complied with accounting principles and was acceptable to the earlier auditors. Should Menon accept the recommendation to change accounting policy even if that entailed higher interest costs? Which accounting policy was conceptually sounder? How would different stakeholders respond to a voluntary change in the accounting policy? How would the change in accounting policy affect Paramount's systems and employee behavior? Menon had to present his final recommendation to the audit committee in its forthcoming meeting. This multidisciplinary case provides an experiential learning opportunity for students to understand that accounting policy decisions often affect other business functions. The case is appropriate for an MBA course in accounting in sessions on accounting policy, revenue recognition, earnings management, or flexibility in financial reporting. It can also be used in undergraduate accounting courses and executive training programs to illustrate the holistic nature of management decisions.
This case raises contemporary issues pertaining to strategy and leadership. It helps to demonstrate that (a) sound economic rationale is a necessary but not sufficient condition to make a business strategy effective, and (b) successful implementation of a strategy is contingent on it being driven by a responsible and ethical leader. The case helps students to understand limitations of the pay-for-performance system, and appreciate negative impact of unethical business decisions. Established in 1852, Wells Fargo had earned a storied reputation for integrity and principled performance. The cornerstone of the Bank's business strategy was "cross-sell", a strategy that augmented Wells Fargo's performance and that of its stock. To implement the strategy, Wells Fargo's management instituted an incentive system that awarded significant bonuses to employees for opening customer accounts, and reprimanded employees who did not meet "quotas" of the number and types of accounts. The obsession of top management with "cross-sell" obscured the vision of the Bank to give unconditional primacy to serving customers' interests. The Bank was fined $185 million for opening over two million unauthorized checking and credit card accounts between 2011 and 2015. The Board had failed to monitor the actions of its senior management. In the aftermath of the debacle, Stumpf resigned from the CEO and Chairman of the Board positions at Wells Fargo. His successor, Tim Sloan, had the unenviable task to restore reputation of the Bank by making changes to its strategy, structure and systems. Using a holistic analysis of the episode from the perspective of corporate strategy, responsible leadership, corporate governance, business ethics and organizational culture, the case provides a platform to discuss challenges that Tim Sloan faced to set the stagecoach of Wells Fargo to start thundering again.
This case series provides a platform to discuss a broad range of interconnected issues relating to corporate governance, ethical reasoning and giving voice to values in a real-world decision-making context. An independent director (Neil Shah) on the board of directors of National Petroleum Corporation (NPC) is approached by a bidder, Western India Ports Limited (WIPL). Through an unwarranted last minute change in the bidding process, WIPL's bid for handling of Naphtha for NPC's upcoming refinery has been rejected. Neil learns from WIPL that its competitor, Bharat Ports Limited (BPL), may have bribed an NPC official to create a situation that would disqualify WIPL's bid. As a result, only one bidder (BPL) is left in the fray. Neil questions the process followed by NPC, without disclosing that an executive from WIPL had met him about the change in the process. Neil's questioning corrects the situation. WIPL is not only able to participate in the bid, but even wins the NPC contract. However, Neil's joy of righting the wrong is short-lived. A few months after the episode, and after stepping down from the board, Neil learns that the NPC official who had attempted to disqualify WIPL had been recruited by WIPL after his retirement from NPC. Soon after discovering this, Neil himself is approached by WIPL with a proposal to transfer 5000 shares from their holding to Neil, without any payment, as a mark of their gratitude to him. Should Neil accept the gift? Would that be akin to accepting bribe? Should Neil be disturbed by the knowledge that the concerned NPC executive had joined WIPL after retirement from NPC?
Supplement to case NA0409. This case series provides a platform to discuss a broad range of interconnected issues relating to corporate governance, ethical reasoning and giving voice to values in a real-world decision-making context. An independent director (Neil Shah) on the board of directors of National Petroleum Corporation (NPC) is approached by a bidder, Western India Ports Limited (WIPL). Through an unwarranted last minute change in the bidding process, WIPL's bid for handling of Naphtha for NPC's upcoming refinery has been rejected. Neil learns from WIPL that its competitor, Bharat Ports Limited (BPL), may have bribed an NPC official to create a situation that would disqualify WIPL's bid. As a result, only one bidder (BPL) is left in the fray. Neil questions the process followed by NPC, without disclosing that an executive from WIPL had met him about the change in the process. Neil's questioning corrects the situation. WIPL is not only able to participate in the bid, but even wins the NPC contract. However, Neil's joy of righting the wrong is short-lived. A few months after the episode, and after stepping down from the board, Neil learns that the NPC official who had attempted to disqualify WIPL had been recruited by WIPL after his retirement from NPC. Soon after discovering this, Neil himself is approached by WIPL with a proposal to transfer 5000 shares from their holding to Neil, without any payment, as a mark of their gratitude to him. Should Neil accept the gift? Would that be akin to accepting bribe? Should Neil be disturbed by the knowledge that the concerned NPC executive had joined WIPL after retirement from NPC?
Supplement to case NA0409. This case series provides a platform to discuss a broad range of interconnected issues relating to corporate governance, ethical reasoning and giving voice to values in a real-world decision-making context. An independent director (Neil Shah) on the board of directors of National Petroleum Corporation (NPC) is approached by a bidder, Western India Ports Limited (WIPL). Through an unwarranted last minute change in the bidding process, WIPL's bid for handling of Naphtha for NPC's upcoming refinery has been rejected. Neil learns from WIPL that its competitor, Bharat Ports Limited (BPL), may have bribed an NPC official to create a situation that would disqualify WIPL's bid. As a result, only one bidder (BPL) is left in the fray. Neil questions the process followed by NPC, without disclosing that an executive from WIPL had met him about the change in the process. Neil's questioning corrects the situation. WIPL is not only able to participate in the bid, but even wins the NPC contract. However, Neil's joy of righting the wrong is short-lived. A few months after the episode, and after stepping down from the board, Neil learns that the NPC official who had attempted to disqualify WIPL had been recruited by WIPL after his retirement from NPC. Soon after discovering this, Neil himself is approached by WIPL with a proposal to transfer 5000 shares from their holding to Neil, without any payment, as a mark of their gratitude to him. Should Neil accept the gift? Would that be akin to accepting bribe? Should Neil be disturbed by the knowledge that the concerned NPC executive had joined WIPL after retirement from NPC?