final concept quiz part 2 Flashcards
(48 cards)
1
Q
Consumer vulnerability
A
Person has an impaired ability to make informed consent to the market exchange
- Vulnerable consumer: doesn’t have intellectual capacities, psychological ability, experience/maturity to make informed customer judgements (i.e. children, impaired adults)
2
Q
Dependence Effect
A
- Invented by John Kenneth Galbraith
- First: creating wants — advertising is changing the “law” of supply and demand; demand turns out to be a function of supply
- Second: advertising/marketing creates irrational and trivial consumer wants, distorts entire economy
- Finally: creating customer wants, advertising and other marketing practices violate consumer autonomy.
3
Q
Unethical Advertising
A
- Worst form of manipulation is when vulnerable people are targeted for abuse
- Marketing practices that identify populations to be easily influenced and manipulated are ethically questionable
- Sales and marketing that appeal to fear, anxiety, other irrational motivations are ethically improper
4
Q
Ethical Issues in Advertising
A
- Principle-based/justice tradition in ethics has the strongest objections to manipulation
5
Q
Ethical Issues in Marketing
A
- Is exchange “voluntary”?
Real alternative choices may not be available
Anxiety and stress in some purchasing situations
Price-fixing, monopolies, price gouging etc.
Targeted vulnerable customers - Is consent to exchange really “informed”?
Lack of info
Deception or complicated information - Are people truly benefited?
Impulse buying, affluenza, consumerism
Injuries, unsafe products
“Contrived” wants - Competing values
Justice (example, redlining mortgages)
Market failures (external)
6
Q
Supply Chain Responsibility
A
- Doctrine of respondent superior: holds employer responsible for actions of their employees when performing ordinary duties
-Most ethical rationale for business’s responsibility for the actions of its suppliers stems from two condiitons:
1. Suppliers often act at the direction of businesses they supply
2. Businesses often exercise significant influence over the actions of their suppliers
7
Q
Volkswagen Ads Case + Spectrum Ads Case (L24)
A
- Volkswagen: claimed their “diesel” vehicles were environmentally clean (a lie)
- Spectrum: promised something for free (cellular data?) but under extreme conditions that were stated in very small fine print, misleading
8
Q
Strict Product Liability
A
One party (producer) follows all the rules in making the product, but harm was still caused to the user. The producer is still held responsible for the harm.
— Mostly applies to defective products
— Ex: company sells a blender, it explodes and hurts a customer. Company is still liable, even if they ran all safety tests beforehand.
9
Q
Reasonable Person standad
A
- Uses product in an expected way
- Proper decision making
- Product STILL defects
Then, strict product liability says producer is responsible.
10
Q
Implied Warranty
A
- Producer/company takes the blame
- In selling a product, a business implicitly assures it is suitable for its purpose
- Shifts the burden of proof from consumer to producer
- Many businesses will issue a disclaimer of liability or offer an expressed and limited warranty
11
Q
Caveat Emptor
A
- Buyer/individual takes the blame
Latin for “let the buyer beware” - Assumes that every purchase involves the informed consent of the buyer, and therefore, it is ethically legitimate
- Business’s only legal and ethical responsibility is to provide good/service at an agreed- upon price
- Places ethical constraints on the seller not to coerce, defraud, deceive buyers
12
Q
Product Safety
A
Business has an ethical responsibility to design, manufacture, promote its products in ways that avoid causing harm to customers
13
Q
Contract law
A
Two people agree to something, consensually, through contract or written documentation
- Breach of contract: one party doesn’t do what they promised, contract is broken
14
Q
Tort Law
A
Punishment for negligence
- One party does something careless, another party gets hurt
- ex: water spill in a store, customer slips
15
Q
Ethical Framework for Marketing (+ objections)
A
- Person must freely consent to the transaction
The more consumers need a product, the less free they are to choose and the more protection they deserve within the marketplace. - Consent must be not only voluntary, but also informed
Customers may not fully understand what they are purchasing (many products and services are complicated) - Decide if other values are affected
Primary social values of fairness, justice, health and safety are some values that can be jeopardized by some marketing practices
16
Q
Market ethical exchange
A
Market exchange is ethical only if it involves:
- Respect for autonomy
- Mutual benefit
- Voluntary transaction
- Informed Consent
Conditional because benefits may not always occur, and other values might conflict
17
Q
Counterarguments to ethicality of marketing (1): Voluntary exchange
A
- Alternatives may not be available
- Anxiety/stress in purchasing situations
- Price fixing, monopolies, price gouging
-Targeted/vulnerable customers
18
Q
Counterarguments to ethicality of marketing (2): Is consent to exchange really “informed”?
A
- Lack of info
- Deception
- Complicated information
19
Q
Counterarguments to ethicality of marketing (3): are people truly benefited?
A
- Impulse buying, overconsumption
- Unsafe products
-“Contrived” values
20
Q
Counterarguments to ethicality of marketing (4): competing values
A
- Justice
- Market failures (externalities)
21
Q
A
22
Q
SOX act key functions
A
- Corporate accountability: CEOs/CFOs must certify financial statements; criminal liability for false reporting
- Improved financial reporting: internal controls required; effectiveness must be tested and reported
- Oversight & auditor independence: PCAOB (Public Company Accounting Oversight Board) created to regulate auditors; limits on non-audit services
- Transparency: timely disclosures on insider trading, risks, etc.
- Anti-Fraud Measures: harsh penalties for destroying/falsifying records; whistleblower protections
23
Q
Elements of an Internal Control structure
A
- Control environment: tone or culture of the firm such as integrity, ethical values, competence, philosophy, operating style.
- Risk assessment: risks that may hinder achievement of corporate objectives; management can prevent, detect, manage risks, resolve ethical dilemmas based on firm’s mission/culture/tolerance for risk.
- Control activities: policies/procedures that support control environment
- Information and communications: fair and truthful transmission of information
- Ongoing monitoring: assessment capabilities to uncover vulnerabilities
24
Q
3 Clear Duties of Board Members / Fiduciary Responsibility
A
- Duty of care
- Duty of good faith
- Duty of loyalty
25
Duty of Care
Exercise of reasonable care by ensuring executives carry out responsibilities and comply with the law
26
Duty of Good Faith
Obedience, faithfulness to the org's mission
27
Duty of loyalty
Faithfulness from board members by giving undivided allegiance when making decisions affecting the organization
- Conflicts of interest are always to be resolved in favor of the organization, not the individual
28
Accounting Rules and Orgs.
- AICPA: American Institute of Certified Public Accountants publishes professional rules
- GAAP is an example of one rule
- Code of Professional Conduct
29
Causes for Conflicts of Interest in Accounting
- Executive compensation structure
- Short-term executive greed vs. long-term shareholder wealth
- Lack of shareholder activism
- Lack of independence/expertise of audit committees
- Conflicts between services offered by public accounting firms (auditing and consulting)
- Financial relationship between public accounting firms and their audit clients
30
Goldman Sachs Case
- Malaysian gov't fund: 1MDB, GS helped them raise $6.5 billion by underwriting 3 bond offerings
- GS made $600 million in fees from the deal (abnormally high amount)
- Worked closely with Jho Low (businessman NOT part of the fund) and others
- Jho Low and others embezzled $4.5 billion from the fund
- GS knowingly worked with 3rd parties despite red flags
- High fees/bankers encouraged bankers to close deals faster
-Lack of oversight in conducting due diligence
31
32
What is insider trading
- People who hold private inside information about a company that could impact the value of the stock. They use this information to benefit from buying or selling the stock
- "Private information": anything not yet released to the public
- SEC has treated detection and prosecution of insider trading violations as one of its enforcement priorities
33
Chris Collins Case
- Ex NY Congressman , participated in insider trading
- On the board of Innate Immunotherapeutics, learned a drug had just failed. Told his son before the info was made public -- insider trading
- His son and ppl close to he family sold their shares before the stock fell 92%
34
What is executive compensation meant to do?
- Provide an incentive for executive performance
- Serve as rewards for accomplishments
However:
- In many cases there is no correlation between compensation and performance
- Diminishing rate of returns on incentives beyond a certain level
35
Disincentives that compensation packages and reliance on stock options provide:
- Executives have incentive to focus on short-term stock price rather than long-term corporate interests
- Excessive compensation can cause variety of conflicts of interest
36
Share buybacks
- Company buys back its own shares from the market to boost EPS and stock price
PROBLEM: companies prioritize buybacks over raising wages, or investing in company improvements
BENEFICIARIES: execs, CEOs, shareholders
HARMED: low-wage workers (no pay increase)
37
All the Queen's Horses
Rita Crundwell, the Dixon, IL comptroller, embezzled $53 million from 1991–2012 by creating a secret bank account and using fake invoices for city projects; she was arrested by the FBI and sentenced to 19 years, 7 months in prison.
The fraud was uncovered by Kathe Swanson, deputy treasurer, who discreetly investigated with the mayor and the FBI after noticing suspicious deposits; Crundwell had everyone fooled with her lavish lifestyle funded by stolen funds.
Major failures included lack of separation of duties, ineffective auditing by Clifton, and unchecked financial control by one person, leading to the largest municipal fraud case in U.S. history.
38
Four Ps of Marketing
1. Product: what, how, why, under what condition is something produced?
2. Price: what price is acceptable, reasonable, fair?
3. Promotion: how can the product be promoted to support, enhance, maintain sales?
4. Placement: when, where, under what condition should the product be placed in the marketplace?
39
Tobacco Case (L24)
- Marketed tobacco and cigarettes by making doctors advertise cigarettes
- Celebrities also paid to promote cigs
- Then a report came out cigarettes were causing cancer
- Big tobacco companies began deceptive rebranding to maintain profits
40
Tobacco Targeting Youth
What strategies did Juul use to target teens to purchase vaping products?
— Marketing Juuls as "cleaner" alternative to cigs to appeal to younger generation, offering appealing flavors
— Not being explicit about the harms caused by vaping
— Targeting vulnerable populations (teens)
41
Stealth/undercover marketing
We're subjected to commercial activity without knowing it
- Intentional effort to hide the marketing element of the interaction
42
Buzz marketing
When people (i.e. online influencers) are paid to generate "buzz" around a new product by using it and discussing it online
43
Committee of Sponsoring Organizations
Private sector initiative established in 1985 with intent of improving financial reporting
44
Board should hold .... with respect to implementation of ethics within the firm
A: "reasonable oversight"
- Adequate resources, levels of authority, direct access to the board
45
Ethical duties of board members
- Who does the board represent
- Who are its primary stakeholders
- How can the board prevent unethical but legal practices from persisting
46
Causes for Conflicts of Interest in Accounting
- Financial relationship between public accounting firms and their audit clients
- Conflicts between services offered (auditing vs. consulting)
- Lack of self-independence/expertise of audit committees
- Lack of shareholder activism
- Short-term executive greed vs. long-term shareholder wealth
- Executive compensation structure
47
Enron review
48
