infusing business finance with ethical dilemmas by...

Infusing Business Finance with Ethical Dilemmas

By Susan Jacobson, Ph.D.

Associate Professor of Economics and Finance

Regis College

[email protected]

303 458-4385

mailto:[email protected]

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Abstract

Wall Street greed and business scandals prompt the criticism that business education lacks a critical ethical

component. This paper shares one response to this critique detailing a series of assignments requiring students in

a basic business finance class in at Regis College to write memos with solutions to ethical dilemmas related to the

course content. This paper also reports students‟ attitudes towards ethical decisions, their assessments of the

series of assignments, and data showing the impact of the assignments on their attitudes about making ethical

choices.

Students responded positively to the assignments, recommending overwhelmingly that I continue to assign ethics

memos. Their survey responses indicated the assignments increased their assessment of the value of class

discussion of ethical issues, heightened their ability to recognize the ethical solution to a dilemma, and helped

them realize that ethical challenges in business are resolved using the same standards they use to resolve personal

ethical dilemmas.

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Introduction

Making the right choices in the financial world can be difficult. Bernard Madoff‟s decisions were blatantly wrong.

But what ought a borrower to do when the value of her house falls below the balance on her loan? How should a

legislator vote when the issue of usury laws comes up? These ethical dilemmas don‟t have clear right and wrong

answers. They‟re tough.

Business educators, particularly those who teach finance and accounting, have been criticized for doing too little

to train students to make ethical decisions once they leave the classroom. Demanding content often takes higher

priority than addressing the business ethics. But Joel Podolny‟s (2009) comment in the Harvard Business Review,

“Fact is, so deep and widespread are the problems afflicting management educations that people have come to

believe that business schools are harmful to society, fostering self-interested, unethical and even illegal behavior

by their graduates” (p. 63) demands a response.

This paper discusses one response, sharing a series of exercises challenging students in a core business finance

class to write memos solving ethical dilemmas. It also reports whether these challenges changed students‟

attitudes about making ethical choices.

Literature

The accrediting body for business schools (AACSB) has required ethics education in the business curriculum for a

long time. In 2003, AACSB dedicated a special task force to review ethics content in courses; however, Nicholson

and DeMoss (2009) argue, “Despite recurring calls for ethical business education and inclusion of socially

responsible business practices, the status of these topics in business education has not undergone a significant

increase” (p. 213).

Nicholson and DeMoss (2009) investigate the perceptions of ethics education by those responsible for individual

business disciplines. They ask discipline coordinators how much ethics coverage there is in each of their specific

disciplines, how much there should be, and how important it is. They report the ratings for finance, when

compared to accounting, management and marketing, are the lowest on all three dimensions. This is not too

surprising. Boatwright (1998) wrote, “The field of financial ethics is barely formed” (p.1). And Cagle and Glasgo

(2008) report, “Articles discussing how to teach financial ethics are still uncommon (p. 77).

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Cagle and Glasgo (2008) add to the literature of teaching financial ethics with a study exploring whether discussion

of 12 textbook “ethics vignettes” in classes “would be an effective way to teach ethics” (p. 77). They contrast

both the method and the content: discussion which emphasizes involvement and reflection in contrast to the

passivity of more traditional lecture, and the qualitative data of ethical questions in contrast to calculations based

on theory. They measure the effectiveness of this experiment using pre- and post-vignette surveys of students‟

chosen solutions to 10 ethical dilemmas. Though the mean scores for choosing the ethical response rose for nine of

the 10 dilemmas, the differences were not statistically significant. Because the literature on the classroom

experiences changing ethical standards is mixed, this was not too surprising. The authors theorize that discussion,

though it involves more active-learning than lecture, is still not sufficiently engaging to change ethical standards.

May, Luth and Schwoerer (2009) find more encouraging results for students enrolled in a course exclusively

dedicated to ethical decision making. Comparing pre- and post-test data for students in the class versus students

in a control group, shows greater increases in ethical decision making skills among the students enrolled in the

ethical decision making course. Those in the class reported greater increases in moral efficacy (confidence in

dealing with ethical dilemmas in the right way), moral meaningfulness (valuing making the right choices), and

moral courage (willingness to act on moral principles).

This Study

This paper reports the results of an experiment that falls somewhere between the experiments in the Cagle and

Glasgo and the May, Luth and Schwoerer studies. This experiment goes beyond discussion of textbook vignettes by

asking the students to discuss current and course-content-related dilemmas and to communicate their resolutions

to the dilemmas in written memos. These modifications were intended to increase student engagement. However,

the memos were only one component (20% of the final grade) of a standard, required finance course, not an entire

course as in the May, Luth and Schwoerer study.

The students also wrote a final memo to me assessing the memo-writing experience, recounting which were the

most and which were the least useful assignments, and advising whether or not the assignments should be

continued. In addition they responded to pre- and post-memo surveys, which I use to infer whether these exercises

changed their attitudes toward ethical decision-making. The next section summarizes the memo assignments

(included in appendices I through VI beginning on page 14). The section following that reports students‟

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reflections in their final memos. The results of the pre / post survey are in the next section, and the final section

offers comments.

The Exercises

In finance classes many professors do not ask their students to consider tough ethical questions, but market

economies work better when people behave ethically. Without a moral conscience, government regulation alone

cannot create a level playing field. Because there is evidence that practice making hard choices makes it easier, I

asked the students in Business Finance in spring 2010 at Regis College to write six memos advising someone on the

“right” way to solve an ethical dilemma related to a current issue that had a connection to the content in the

finance core we were studying.

For all six memos, the students used readings posted on Santa Clara University‟s Markkula Center for Applied Ethics

(http://www.scu.edu/ethics/practicing/decision/framework.html) and the Arizona Character Education

Foundation (http://www.azcharacteredfoundation.org/ethical.html) websites to provide a substantive framework

to support the advice in their memos. The challenge was to repeatedly apply the principles of ethical decision-

making to specific finance problems. Each advised decision had to be explicitly backed by at least one of the “Five

Sources of Ethical Standards” (Utilitarian, Rights, Fairness or Justice, Common Good, and/or Virtue).

Because plagiarism is such a big problem and I wanted to set the tone for the semester, that was the subject of

the students‟ first memo assignment. (See Appendix I.) I also wanted the students to first apply the decision

making criteria in the readings on ethical decisions to something familiar. At Regis, a policy requiring all academic

integrity violations be reported to the dean‟s office took effect in fall 2009. In previous years, professors had

discretion to report or not report. The first memo asked the students, “Who needs to know?” Ideally, they were

asked, who should find out about academic integrity violations and why? In the final memo, where the students

assessed the semester‟s experience, four students wrote that this was the least valuable of the six memos. This

was the highest number of negative comments for any of the assignments. (Though asked, not all students

included most and least favorites in their final memo.) They opined that students understand the problem and

know plagiarism is wrong. On the other hand, two students commented that this was one of the best for providing

a “good introduction” and starting with a “relatable” topic that “tempts students everyday.”

http://www.scu.edu/ethics/practicing/decision/framework.html

http://www.azcharacteredfoundation.org/ethical.html

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The second memo asked the students to consider whether a borrower should default on a mortgage loan with a

balance in excess of the house‟s value. (See Appendix II.) This dilemma challenged students to think beyond the

“numbers” to consider what was “just,” what impact choices have on the “common good,” and what actions

promote “virtue.” It also raised awareness of the impacts of the financial crisis on individuals. Eight students

commented that this was one of the most valuable assignments – the highest number of positive comments from

those who made specific comments about specific assignments. One said it was the least valuable primarily

because s/he had discussed the topic in all of her/his classes.

The third assignment asked the students to write a memo to a legislator advising a vote for or against a bill to cap

interest rates charged by payday lenders. (See Appendix IV.) This assignment provoked heated debate along

ideological lines. Conservative students argued for a hands-off approach using a rights approach, while more

liberal students emphasized virtue and fairness approaches. This was also a popular assignment with five positive

and no negative comments.

The fourth assignment put the students in a hypothetical situation where they had insider information that they

could use for financial gain. Tangentially it highlighted the importance of bond ratings. The students were asked to

consider what they would do if they gained insider knowledge that Berkshire Hathaway was backing out of its

commitment to buy Burlington Northern Railroad. The reason for backing out was assumed to be because the need

to issue debt for the purchase resulted in a lower credit rating. (Berkshire Hathaway did finance the purchase with

debt and did get a credit downgrade. But they did not back out. The deal was completed between the time the

memo was assigned and its due date.) This memo had a clear answer because insider trading is illegal. But the

students found the assignment challenging because the first impulse was to use the information for personal gain.

“I saw a big difference between what was the easiest decision to make and what was the right decision to make …

it is really easy to be tempted to use insider information,” wrote one student. Eight students commented

positively about this assignment. None criticized it. This assignment also worked well because it provided the

background to repeatedly talk about insider trading using the example of the Galleon case as it developed

throughout the semester.

Memo number five again put the students in a hypothetical situation, this one related to capital budgeting. (See

Appendix V.) We talked about the problems of predicting cash flows, including objectivity, when it‟s your project.

This was the most “concocted‟ of the assignments, because I did not find an ideal fit between a current event and

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the ethical issues surrounding capital budgeting. I asked the students to consider what they would do if they

received information that a project they had justified with net present value analysis (selling E*Trade the

“milkahollic” commercial) might be a negative net present value project due to a significant negative cash flow

they hadn‟t considered (defending against Lindsay Lohan‟s suit). Eight students picked this assignment as a

favorite, though three were critical. Those who liked the assignment liked the creativity and the link to something

they could easily talk about with their colleagues. The students who did not like this assignment thought Lohan‟s

suit was ridiculous and found the role play too much of a stretch.

The sixth memo asked the students to consider whether MGM‟s decisions about capital structure implied anything

about the ethics of the company and hence about the attractiveness of investing in MGM. (See Appendix VI.) This

would have been the most complicated challenge from a financial perspective; however, I asked the students to

abstract away from the complexity and focus on the ethical dimension of the company‟s decisions about leverage.

I felt least comfortable with this assignment because of its narrow focus. Four students commented that it was a

favorite, noting that they had “never really thought about it.” One student thought taking an ethics approach

based on leverage was too narrow.

The seventh memo asked the students to evaluate the memo-writing experience. (See Appendix VII.) The next

section summarizes that data.

Students’ Evaluations of the Experience

In the final anonymous memo, addressed to me, the students evaluated the experience of doing memos, discussed

the pros and cons, and commented on the most and least valuable assignments. They also made a recommendation

to either continue this exercise for future business finance classes or to eliminate it.

The overwhelming majority of the students (20 of 25) advised me to continue to assign the ethics memos without

caveats. One honest student wrote:

“This is hard for me to tell you to continue since I despise writing papers. However these memos were a

big help in a few of my classes. … All in all I hated the memos as I was writing them, but I did realize they

were very beneficial to me.”

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Another student quoted a Chinese proverb: “Tell me and I‟ll forget; show me and I may remember; involve me and

I‟ll understand.”

Two students recommended memo-writing be continued, but the assignments not be graded. These students felt

that they had been punished for disagreeing with me about the resolution of some of the dilemmas. From my

perspective they failed to apply ethical decision-making tools to substantiate their decisions.

Three argued for elimination. They said it was not a good use of time primarily because ethics is covered in other

courses and finance content was more important.

“As business majors we have to take ethics anyway, also we have to do ethics projects in the Management

class as well. I feel like it might be overdone and unnecessary in this class. Of course it is good

information to know but I feel like it does not fit the objectives of this course.”

“… ethics is a topic that is already ingrained in our learning from other classes.”

“… my time could have been used more wisely in the understanding of finance.”

The students backed their strong recommendation to continue the exercises with substantive comments about

what they learned. Requiring them to use the readings on ethical decision making to justify their solutions to the

dilemmas made them think about why a decision is a good one or a bad one.

“I learned how to think critically about ethics, to really think about different reasons why something may

be ethical or unethical.”

“I saw a big difference between what was the easiest decision to make and what was the right decision to

make.”

Focusing on current, relevant issues and role playing also helped. For example, one student wrote:

“The ethical issues were on point with what was happening in the financial world around us. Putting

yourself in a place that allowed evaluation and consideration of decisions was a good exercise that I have

not encountered in any of my business classes this semester at Regis.”

Other students echoed this sentiment:

“They offered me the opportunity to think about the subject matter of the class in real world situations.

Through that exercise I was able to more deeply understand what I was learning and the direct

application of that knowledge…”

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“I did enjoy learning about the current events in the financial world. … no matter how many textbooks

you read that give generic information, there is no point in learning if you cannot apply it to our

surrounding world.”

Students also emphasized that these exercises heightened awareness because they illustrated how tough decisions

in the business world can be and how easy it is to make bad decisions.

“I think these kinds of assignments go a long ways. It is really easy to go with the flow around you in the

real world. There are many people to impress and money to be made. Without a moral ethical conscience

or compass, it is easy to see how so many people are lead [sic] astray.”

This heightened awareness translated into interaction and curiosity.

“I also would talk to a lot of people about these memos and the articles and [they] expanded their minds

on the situation.”

“Reading about the current issues helped me to become more interested in finance and even to research

some of the topics discussed.”

These exercises also helped students learn in a different way, to more completely understand financial issues and

to take a break from lecture on theory and calculations.

“I think they added diversity to the class and it was an alternative form of learning not only about ethical

decision making but they served as insight into other financial issues. … Otherwise I do not think I would

have fully understood the issue with people purposely defaulting on a mortgage or how insider trading

really works.”

At a skills level, students appreciated practicing writing memos – something many of them had never done despite

being juniors and seniors majoring in business.

“It was also very helpful to learn the proper format for a memo. In almost every job people use memos to

communicate with each other. I learned that memos are supposed to be very concise and to the point.”

“I learned how to write a memo and summarize my thoughts into a professional and well written

response.”

Overall, the students‟ final memos were positive and eloquent justifying the time and effort we all spent in the

endeavor.

Pre- / Post-Memo Survey Results

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The self-reported outcomes of memo-writing summarized in the previous section are encouraging. However, it‟s

also interesting to ask whether a more objective measure of attitudes reflects transformation. To do this the

students completed an IRB-approved survey in the second week of class and then repeated the survey in the last

week of class. The survey asked the students questions about what influences their decision-making. It also

measured their perceptions of the value of doing exercises like this in class and their perceived importance of

making ethical decisions.

Table 1, on page 12, reports the pre- and post-memo results. Each box reports the number of students on the top

row and the percent of students on the bottom row who chose this answer. The pre-memo numbers are on the left

hand side of the “/” and the post-memo numbers are on the right hand side. Thirty students responded to the

pre-memo survey, but only 24 responded to the post-memo survey.

Before comparing the pre and post responses, there are some interesting stories in the data. First, students at

Regis are serious about ethics. Large majorities report that making ethical choices is extremely important. All but

one response in both pre and post surveys indicated agreement or strong agreement with the statement, “Making

ethical choices at work is extremely important.” Interestingly, when the words “at work” are replaced with

“about my school work,” a total of five responses indicated indifference. Importantly, students say they are not

willing to violate personal codes of ethics if either a friend or a boss asks them to.

Interestingly, the students report that parents have a much bigger influence on their ethical choices than do their

friends and their educations. Ninety percent of the students agreed or strongly agreed that “My parents have a big

influence on the ethical choices I make.” But when the word “parents” is replaced with “friends,” that

percentage drops surprisingly to 46%. This result is also reflected in students‟ rankings of the importance of eight

factors (reading, personal experience, peers at school, teachers, peers at work, church / religion, parents, and

work experience) that influence their decision making. In the rankings, parents rank second just behind personal

experience, followed by religion and school peers. Reading ranks dead last, and teachers come in sixth.

Turning to the differences in responses at the beginning versus the end of the semester, there are some interesting

results. Following the experience, the percent of students who agreed or strongly agreed that discussing ethical

issues in class helps them make decisions both in their personal lives and at work rose. Interestingly, the increase

for personal decisions was larger and statistically significant at the 10% level using a variety of statistical tests.

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Also, the percent of students who agreed or strongly agreed with the statement, “It‟s easy to know what the

ethical choice is even if I don‟t choose it,” rose from 37% to 63% though the overall pattern of responses was not

statistically different. Finally, the percent of students who disagreed or strongly disagreed with the statement,

“Ethical dilemmas in business are decided using different standards than those used to make decisions about

personal ethical dilemmas,” rose and the difference was significant at the 10% level.

Comments and Reflections

In a complex world, it‟s important to give students the opportunity to think about questions that don‟t have

obvious answers and let them practice making difficult decisions using a rigorous framework. Too often we act in

haste without considering the consequences. The objective of these exercises was to help students slow down and

consider higher values and consequences.

The survey results are encouraging. They indicate students gained more appreciation for these kinds of classroom

exercises. More students saw that these exercises can help them make good decisions in their personal lives and at

work. Repeated practice using a rigorous framework to justify decisions helped them gain confidence in finding

ethical solutions. Though the dilemmas they were asked to solve were not easy, more students agreed after that

they knew what the ethical choice was. Finally, more students realized that the same ethical standards apply to

both personal and business decisions.

The students‟ comments in their final memos were also encouraging. They overwhelmingly advised I continue using

similar assignments. Nevertheless, there are some important considerations for making these exercises work. The

memo assignments must be related to issues that are current and relevant to the finance content of the class. This

is not always easy. I dedicated significant time and reflection to constructing the assignments, and, as illustrated

by the capital budgeting and the leverage assignments some required the students to go along with hypothetical

situations.

It‟s also necessary to devote class time to instruction on and discussion of the issues. The students need briefing on

what the issue is and why it is important. They also need time to discuss the resolutions they propose in their

memos to validate the time they spend doing them. And some discussion of memo format and construction also

helps them spend more out-of-class time on the issue rather than the mechanics.

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All of this means trading off time that could be used teaching more basic finance tools, methods and theories. My

experience with students indicates that retention of specific content is less than what we wish it were. Perhaps

that‟s rationalization. But if spending time thinking about and discussing ethical issues raises awareness and leads

to better-reasoned and more ethical decisions, it‟s a good trade-off. It‟s worth the effort.

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Table 1

Str

ongly

dis

agre

e

Dis

agre

e

Neit

her

agre

e n

or

dis

agre

e

Agre

e

Str

ongly

agre

e

#pre/ post

%pre/post

#pre/ post

%pre/post

#pre/ post

%pre/post

#pre/ post

%pre/post

#pre/ post

%pre/post

My parents have a big influence on the ethical choices I make.

0/0

0%/0%

2/0

7%/0%

1/2

3%/8%

13/14

43%/58%

14/8

47%/33%

Making ethical choices about my school work is extremely important.

0/0

0%/0%

0/0

0%/0%

3/2

10%/8%

15/14

50%/58%

12/8

40%/33%

Discussing ethical issues in classes helps me prepare to make ethical choices later in my personal life.

0/0

0%/0%

3/0

10%/0%

10/6

33%/25%

11/9

37%/38%

6/9

20%/38%

It‟s easy to know what the ethical choice is even if I don‟t choose it.

1/1

3%/4%

6/4

20%/17%

12/3

40%/13%

8/12

27%/50%

3/3

10%/13%

My friends have a big influence on the ethical choices I make.

0/1

0%/4%

10/4

33%/17%

6/8

20%/33%

13/9

43%/38%

1/2

3%/8%

Making ethical choices at work is extremely important.

0/0

0%/0%

0/0

0%/0%

0/1

0%/4%

16/10

53%/42%

14/13

47%/54%

My education has a big influence on the ethical choices I make.

0/0

0%/0%

1/1

3%/4%

8/4

27%/17%

12/10

40%/42%

7/8

23%/33%

Discussing ethical issues in classes helps prepare me to make ethical choices at work.

0/0

0%/0%

2/0

7%/4%

8/6

27%/25%

15/10

50%/42%

5/8

17%/33%

It‟s OK to violate my personal code of ethics if a good friend asks me to.

10/8

33%/33%

17/15

57%/63%

2/1

7%/4%

0/0

0%/0%

1/0

3%/0%

Making ethical choices about personal matters is extremely important.

0/0

0%/0%

0/0

0%/0%

1/1

3%/4%

18/17

60%/71%

11/6

37%/25%

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Ethical dilemmas in business are decided using different standards than those used to make decisions about personal ethical dilemmas.

2/2

7%/8%

7/12

23%/50%

9/5

30%/21%

12/4

40%/17%

0/1

0%/4%

Business majors (including accounting) make less ethical choices than students majoring in other disciplines.

8/9

27%/38%

12/9

40%/38%

10/3

33%/13%

0/2

0%/8%

0/1

0%/4%

It‟s OK to violate my personal code of ethics if a boss at work asks me to.

13/12

43%/50%

13/9

43%/38%

4/2

13%/8%

0/0

0%/0%

0/1

0%/4%

Regis‟ Jesuit affiliation positively influenced me to choose Regis.

2/1

7%/4%

5/3

17%/13%

12/9

40%/38%

8/7

27%/29%

3/4

10%/17%

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Appendix I

Finance – Jacobson Spring „10 Memo Assignment DUE: January 27, at 11 AM to “turnitin.com”

Read “Making Ethical Choices,” a reading posted on Prof Jacobson‟s site on INsite. Also read the articles on the

web referenced in your syllabus that explain how to write a memo. Here are the links.

www.cba.uni.edu/buscomm/Faculty/Memo.html

http://business.lovetoknow.com/wiki/Memo_Examples

Then, using the principles outlined in the reading and the format suggested by the memo article, write a one-page memo to the Dean of Students at Regis advising the dean on the dilemma presented below.

Plagiarism is a common problem. Read the information at this website: http://www.msd.k12.ny.us/district.cfm?subpage=359

In the last section, “Five Rules …,” point three says, “Determine who has to know.” Some universities have clear rules that the Dean of Students, or some other person in the Central

Administration, needs to know. This allows the school to track repeated violations. Should the student‟s advisor know also? Some schools leave the decision up to the professor. Who needs to know? Which is the right approach?

There is no right answer to this question. Your performance on this assignment depends on:

1. Explicitly applying the principles from the readings to answer this question. 2. Using the language of the readings, but carefully citing your sources. 3. Providing sound reasoning to support your decision. 4. Writing a coherent memo with a logical structure. 5. Using the memo format outlined in the website. 6. Citing your sources correctly. That means using in-text citations in the memo and including a second

sheet attached to your memo for “Works Cited.” Use these references if you are not SURE you know the proper format for APA citing. http://owl.english.purdue.edu/owl/resource/560/02/

http://owl.english.purdue.edu/owl/resource/560/05/

Using Turnitin.com Here is the link to turnitin: http://www.turnitin.com/static/pdf/tii_student_qs.pdf

To use this site you need a class id and a password. The class ID = 3053002 The enrollment password = jacfinsten

If you do not turn your paper in by 11 AM on January 27th, the site will not accept it. Please go to the site and make sure you can log in and use it before January 25th.

http://www.cba.uni.edu/buscomm/Faculty/Memo.html

http://business.lovetoknow.com/wiki/Memo_Examples

http://www.msd.k12.ny.us/district.cfm?subpage=359



http://www.turnitin.com/static/pdf/tii_student_qs.pdf

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Appendix II

Finance – Jacobson Spring „10 Ethics Memo Assignment #2 DUE: February 5, at 11 AM to “turnitin.com” Also, bring a hard copy to class.

Read “Debtor‟s Dilemma” posted on Prof Jacobson‟s site on INsite.

Using the principles for ethical decision making outlined in the readings for the first memo assignment and the

format suggested by the memo articles, write a one-page memo to a friend who is thinking about defaulting on

her/his mortgage. Assume the current amount owed is more than what the home is worth. Also assume that your

friend, with some sacrifice, is capable of making her/his mortgage payments. Advise your friend to either

continue making payments or to default on her/his mortgage loan.

Your performance on this assignment depends on:

1. Explicitly applying the principles from the readings on ethical decision making to advise your friend. 2. Using the language of the readings, but carefully citing your sources. 3. Providing sound reasoning to support your advice. 4. Writing a coherent memo with a logical structure. 5. Using the memo format outlined in the websites. 6. Citing your sources correctly using in-text citations in the memo and including a second sheet attached to

your memo for “Works Cited.” Use these references if you are not SURE you know the proper format for APA citing. http://owl.english.purdue.edu/owl/resource/560/02/




If you do not turn your paper in by 11 AM on February 3rd. the site will not accept it. Bring a hard copy to class.




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Appendix III

Finance – Jacobson Spring „10 Ethics Memo Assignment #3: Usury DUE: February 10, at 11 AM to “turnitin.com” Also, bring a hard copy to class.

Read “The Usury Question” posted on Prof Jacobson‟s site on INsite.

Explicitly apply the principles for ethical decision making outlined in the “Making Ethical Choices” readings to

write a one-page memo to a legislator who will be voting on a usury bill next week. The bill will cap interest rates

on consumer and mortgage loans at 10%. Is 10% a fair rate? Is anything higher unfair? If the bill passes will people

be shut out of the credit market because 10% is not high enough to cover the risk of lending to some borrowers? Is

that OK?

Should the legislator who represents you vote “yes” or “no”? Be sure to support your advice with logical reasoning

based on the specific application to this problem of standards that are appropriate for making an ethical decision.


Explicitly applying the ethics readings to this specific problem 25%

Using the readings for the specific assignment. 20%

Providing sound reasoning to support your decision. 20%

Using the memo format outlined in the website. 5%

Writing a coherent memo with a logical structure. 20%

Citing your sources correctly – in-text and works cited page 10%



If you do not turn your paper in by 11 AM on February 12th the site will not accept it. Bring a hard copy to class.


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Appendix IV

Finance – Jacobson Spring „10 Ethics Memo Assignment #4: Insider Trading DUE: February 24, at 11 AM to “turnitin.com” Also, bring a hard copy to class. This assignment challenges you to think about using inside information to make money in the stock

market. Here‟s some background news: “Berkshire agreed in November to purchase the 77% of Burlington it didn't

already own using a mix of cash and stock, which Mr. Buffett described at the time as an „all-in wager on the economic future of the United States.‟”

Taken from: http://online.wsj.com/article/SB10001424052748704320104575015042268115192.html?mod=crnews

Check out this website and see what happened to BNI‟s stock after Buffet announced the purchase. http://finance.yahoo.com/echarts?s=BNI#symbol=BNI;range=6m Read “Insider trading reading” posted on INsite. Now consider this dilemma: You are working for a hedge fund that owns shares of Burlington Northern. A friend from Regis meets you for lunch. This friend‟s parents live in the same neighborhood as Charlie Munger – Warren Buffet‟s right hand man. He tells you that over drinks last night Munger mentioned to his parents that Berkshire is thinking about backing out of the deal to buy Burlington because it cost Berkshire its AAA debt rating. Your friend thinks this is pretty important knowledge and asks for your advice about how to use it. Write him a memo that advises him what he should do with this information. In the memo use yourself as an example telling your friend how you are using the information. Support your advice using the principles from your ethics readings. Your performance on this assignment depends on:


Using the readings for the specific assignment. 10%


Writing a succinct, coherent memo with a logical structure. 30%




http://online.wsj.com/article/SB10001424052748704320104575015042268115192.html?mod=crnews

http://finance.yahoo.com/echarts?s=BNI#symbol=BNI;range=6m


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Appendix V Finance – Jacobson Spring „10 Ethics Memo Assignment #5: Capital Budgeting DUE: April 7 at 11 AM to “turnitin.com” Also, bring hard copy to class. If you don’t bring a hard copy to class, your grade will be one-third grade

lower. For example a “B” will become a “B-.” Here‟s the background for this assignment. Click on the following link and read the article. Also listen to the video. http://www.msnbc.msn.com/id/35780790/ A 30-second Super Bowl ad costs $2.6 million, and the average production cost is about $350,000. This is a big

investment. You work for an ad agency and spent three weeks before the Super Bowl working on E-Trade‟s ad with Lindsay the milkaholic. You sold it to E-Trade with a capital budgeting analysis proving to E-Trade that the additional revenues will justify the cost. They bought it. You were ecstatic. After E-Trade bought your ad, you were out having celebratory drinks with your buddy, a lawyer. He congratulated you, but warned that there‟s a good chance Lindsay Lohan will sue E-Trade if the ad runs. You know that if Lohan sues, it will be expensive for E-Trade, even if E-Trade wins. In fact, you‟re pretty sure that the expense of a lawsuit would make this ad a negative net present value project. Now what do you do? Do you talk to someone? Do you write a memo? Do you do nothing? Write a one-page essay outlining your course of action.




Writing a succinct, coherent essay on what you decide to do 30%


Bring hard copy to class. One-third grade deduction if Dr. Jacobson has to print out your memo from turnitin.



If you do not turn your paper in by 11 AM on April 7th the site will not accept it. Bring hard copy to class.

http://www.msnbc.msn.com/id/35780790/


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Appendix VI Finance – Jacobson Spring „10 Ethics Memo Assignment #6: Leverage DUE: April 14 at 11 AM to “turnitin.com” Also, bring hard copy to class. If you don’t bring a hard copy to class, your grade will be one-third grade

lower. For example a “B” will become a “B-.” Here‟s the background for this assignment. Read the article “MGM Mirage” posted on INsite. Clearly MGM has a high degree of financial leverage. The results of high leverage – risk and variability of

return – can be seen by comparing MGM‟s return on equity in 2007 and 2009. In 2007, MGM‟s ROE was 32%. In 2009, it was -33%.

The economy is improving and so may the fortunes of MGM Mirage which has the potential to earn very high returns as indicated by the 2007 ROE. A good friend is wondering whether it might be time to buy the stock. She asks you for advice. Stock prices are very hard to predict, so the choice about buying stock may include issues beyond basic stock valuation. For example, investors may consider ethical issues, for example the company‟s corporate culture and social responsibility. Write your friend a memo advising her whether she should or should not buy the stock focusing on ethics, particularly the ethics of the company‟s decisions about capital structure.



Explicitly using the reading assigned for this memo 20%


Writing a succinct, coherent memo to your friend with specific advice 20%


Bring hard copy to class. One-third grade deduction if Dr. Jacobson has to print out your memo from turnitin.



If you do not turn your paper in by 11 AM on April 14th the site will not accept it. Bring hard copy to class.


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Appendix VII Finance – Jacobson Spring „10 Ethics Memo Assignment #7: Reflection DUE: April 21 This memo asks you to reflect on the other six memos you have written. It will also be anonymous to insure candid reflection. If you hand it in, I will drop your lowest memo grade from the first six, and your grade will be the average of the better five. If you don‟t hand it in, this will be the dropped memo and your grade will be an average of the other six. You have written six memos challenging you to find ethical answers to problems. The topics of the six memos were: plagiarism, defaulting on a mortgage loan, capping interest rates, insider trading, capital budgeting (milkaholic), and financial leverage. Write a memo to me advising me to either continue these kinds of assignments or to use the time for other topics more closely related to financial analysis. Before you write, think about these questions:

What did you learn from doing these memos? Did these exercises help you think about other decisions from an ethical perspective? Which memos were more valuable, which were less valuable? Which memos challenged you to think about issues you otherwise would not have? Was the time devoted to doing and discussing the memos a good use of time or not? Why or why not?

Please bring a hard copy of your memo to class. Put it in memo format to me from you. When I collect the memos, I will cut off the “memo box” at the top. Then I will read them anonymously. Thanks for your help.

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Works Cited Cagle, J.A.B., Glasgo, P.W. (2008). Using Ethics Vignettes in Introductory Finance Classes: Impact on Ethical Perceptions of Undergraduate Business Students. Journal of Education for Business, 84, 76-83. May, D.R., Luth, M., Schwoerer, C.E. (2009). The Effects of Business Ehtics Education on Moral Efficacy, Moral Meaningfulness, and Moral courage: A Quasi-Experimental Study. Academy of Management Proceedings, 1-6. Nicholson, C.Y., DeMoss, M. (2009). Teaching Ethics and Social Responsibility: An Evaluation of Undergraduate Bussiness Education at the Discipline Level. Journal of Education for Business, 84, 213-218. Podolny, Joel M. (2009). The Buck Stops (and Starts) at Business School. Harvard Business Review; 87, 62-67.

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