Case 1
Joan, who is a massage therapist graduate, incorporated a massage type business with one of her minor children as the shareholder. Michelle, who is also her best friend, is a regular client of which Joan had rendered massage services each month. Michelle paid Joan’s professional service thru her insurance benefits from her company. Michelle felt that she wants one more massage service and, this time, she used the insurance benefits of her son, Jake, and her son’s name as though the client of Joan. Joan issued a receipt in the name of Jake.
Issues:
Case 2
ENR Inc is a public energy company. Aside from energy business, the company is involved in trading of derivatives markets. Its annual revenue was $100 billion dollars, and it has 10,000 more employees. It is normal for a large company to have a stringent code of ethical standards. Good ethical standards reflect the reputation of the company as responsible corporate entity. For six consecutive years, the company was named by the Fortune Magazine as one of the most innovative companies. AH LLP is an independent auditing firm and one of the top five auditing firms. AH LLP is the auditing firm of ENR Inc as well as consultant. The firm maintain a good professional relationship and even beyond, because they considered it a valuable client, as it delivers huge professional fees in audit and consultation services in tax matters. Losing them, would certainly does affect the revenue of the firm and bonuses enjoyed by few executive officers. The auditing firm also acted as internal auditor of ERN Inc. The head of auditing team, who conducted an annual audit of ERN Inc, was offered one week vacation together with his family and all expenses were paid by the company. The auditing firm conspired with the executive officers of company to manipulate the outcome of the audit and in order to make it appear that it made a huge profit from its operation. The executive officers abused their power and privileges, manipulated information, engaged in inconsistent treatment of internal and external constituencies, put their own interests above those of their employees and the public, and failed to exercise proper oversight or shoulder responsibility for ethical failings that resulted in the sudden drop of its stock price from $100.00 to $0.26 cents.
Issues: Discuss and identify issues on corporate social responsibilities (CSR) and ethics.
Case3
Jack, a stockbroker, was an inexperienced in tax. He has sought the advice of an independent designated tax professional to advise him on tax planning and tax shelter that he needs. Simon, who is a designated accountant who specialized in those areas, advised Jack to invest in a number of multiple unit residential building (MURBs), a real estate investment project as tax shelter, by the conventional wisdom, were safe and conservative. When the value of MURBs fell during a decline in the real estate market, Jack lost heavily in his investment. Though the advice was perfectly sound at the time it was given, but unknown to Jack, Simon was also acting as adviser for developers in restructuring the MURBs and did not disclose that fact to Jack.
Questions: In the context of breach of contract, is Jack liable for the loss of investment? In the context of breach of fiduciary duty, is Jack liable as well? Please state your reason.
Case 4
Mr. Hunt, who has just retired, set up an investment account with Ms. Jane, an investment specialist, of TD Evergreen. Prior to his retirement, he is a Vice President of a large footwear manufacturer. His knowledge on investment is average and the investment account he had set is non-discretionary meaning no trade will be completed without Mr. Hunt express approval. Further, a non-discretionary account is one in which the investor decides on what trades to make. With Mr. Hunt’s approval, Ms. Jane sold 2,500 shares which was half of his 5,000 shares to BCE. By the time Mr. Hunt learned of the disposition of shares of stock, the stock market price went up. Mr. Hunt sued TD Evergreen for the lost of profit due breach of contract and breach of fiduciary duty.
Questions: In the context of breach of contract, is TD evergreen liable for the lost profit? In the context of breach of fiduciary duty, is TD Evergreen liable? Please state your reason.
Case 5
The majority shareholders of the ABC Corporation wanted to sell its main assets. The directors called a meeting of shareholders of which the shareholders passed resolution instructing the board of directors to go ahead with the sale, despite opposition from minority shareholders. The power of the directors emanates from shareholders who elected them.
Question: Are the directors always bound to carry out the instructions from the shareholders? Please state your reason.
In the contemporary business landscape, intricate legal, ethical, and fiduciary challenges often arise, testing the boundaries of corporate governance and responsible conduct. Through the examination of five diverse cases, this essay delves into the multifaceted scenarios that confront businesses, individuals, and professionals, shedding light on the intricate interplay between regulations, ethics, and fiduciary responsibilities.
The incorporation of a minor as a shareholder introduces a confluence of legal intricacies and protective measures. While laws vary, minors generally lack contractual capacity, potentially necessitating trust arrangements until they reach the age of majority. This safeguards their interests and prevents potential exploitation.
In parallel, ethical concerns arise when insurance benefits meant for a family member are utilized under a different name. This scenario not only raises ethical red flags but also treads into fraudulent territory, potentially leading to legal consequences. Joan’s professional conduct and Michelle’s actions are under scrutiny, emphasizing the importance of transparency, honesty, and adherence to both legal and ethical standards.
The evolution of corporate entities underscores the intrinsic link between CSR, ethics, and enduring success. ENR Inc’s remarkable innovation journey contrasts starkly with its ethical lapses, highlighting the duality of corporate behavior. Despite accolades, the manipulation of audit outcomes reveals a glaring breach of ethical conduct. The intertwining of CSR and ethics underscores that a company’s reputation and viability hinge upon genuine commitment to responsible practices that resonate with stakeholders.
Jack’s investment setback underscores the nuances of contractual obligations and fiduciary duties. Contractual liability hinges on the terms of engagement and the foreseeability of advice’s efficacy. Simon’s undisclosed conflict of interest, however, breaches his fiduciary duty. His role as both advisor and consultant compromises the trust Jack placed in his expertise, potentially warranting legal accountability.
Mr. Hunt’s case exemplifies the intricate dance between breach of contract and fiduciary responsibilities. TD Evergreen’s non-discretionary account mandates client approval for trades, rendering the breach of contract apparent if the sale occurred without Mr. Hunt’s consent. The breach of fiduciary duty gains prominence through Ms. Jane’s role. Her failure to act in Mr. Hunt’s best interest challenges the ethical essence of investment advising, potentially giving rise to legal ramifications.
The dynamic between directors and shareholders surfaces the complexities of decision-making in corporations. While directors are elected to steward shareholders’ interests, their fiduciary duty extends beyond mere obedience to instructions. Directors must uphold the broader welfare of the company, exercising prudent judgment and ethical considerations even when faced with divergent shareholder mandates.
In a complex world where legal, ethical, and fiduciary principles often intersect and conflict, thoughtful analysis and principled action are paramount. These cases illuminate the imperative for individuals, professionals, and businesses to navigate these realms judiciously, fostering an environment of integrity, compliance, and sustainable success. As the business landscape evolves, embracing these ideals remains a cornerstone for ethical and legal viability.
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