FIN 444 Keiser Wk 4 Conflict

Week 4 Discussion Board Assignment

Ethical Dilemma –

When is A FREE Cruise not Free?

Veronica Singer was recently promoted to senior vice president and assistant to the CFO at
Colorado Alternative Products (CAP). In her new position, Veronica is responsible for managing
CAP’s working capital, which requires her to make decisions about which working capital
investment and financing policies the firm should follow. In a meeting with department heads a
couple of days ago, CAP’s CEO stated that he thought working capital management has been
handled poorly in the past, and he thinks substantial changes should be made in Veronica’s
department to improve its efficiency. Although he blamed her predecessor, the comments were
clearly directed at Veronica and the members of her department. As a result, Veronica felt that she
should evaluate the current working capital policy, and make any necessary changes.
Because she is fairly new to her position, Veronica thought it would be a good idea to meet with
others who are more experienced to see how they developed and are now managing their working
capital policies. One of the persons who offered Veronica some ideas is Archibald, a close friend of
hers who works at Fiduciary Responsibility Effectiveness Experts (FREE), which is a subsidiary of
the commercial bank that provides cash management services to CAP. Archibald suggested that
CAP consider outsourcing its working capital management functions to FREE. He explained that
FREE had recently developed a new software platform that provides the services Veronica needs to
improve the efficiency of CAP’s working capital management. Archibald also explained that
although cash management and working capital management services are offered through other
banks, the services that FREE offers are substantially superior to similar services from other
companies. Other than telling her that the annual cost was substantial, Archibald provided Veronica
with few details about FREE’s services. In reality, Veronica knows nothing about working capital
services banks offer, other than the information that Archibald provided her. But, because Archibald
is a friend and his description of FREE’s services was intriguing, she decided to investigate whether
it would be appropriate for CAP to outsource its working capital management.
When she arrived at work this morning, Veronica was told that she must “clean up” CAP’s
working capital position immediately. Unfortunately, Veronica hasn’t had a chance to collect more
information about the working capital management services offered by banks. Even so, she has a
“gut feeling” that it might be a good idea for CAP to outsource some of its working capital
management functions. As a result, Veronica called Archibald and asked him how she could learn
more about FREE’s services in a short time period. Archibald told her that FREE presents a
conference each year at which invited participants discuss various aspects of cash and working
capital management. The topics that are covered at the conference range from the basics of cash
management to more complex topics involving holistic working capital management. The
conference, which is scheduled for next week, seems to be exactly what Veronica needs to become
more informed about the advantages and disadvantages of outsourcing CAP’s working capital
management functions. As a result, she asked Archibald to provide her with specific information
about the conference, including the costs, specific session topics, and so forth.
One hour ago, Archibald called with details about the FREE conference. The seven-day
conference will be held aboard a luxury cruise ship as it sails to exotic ports throughout the
Mediterranean Sea. The sessions are scheduled during the time the ship is traveling from one port to
another, which generally takes four or five hours. When the ship is in port, the conference
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coordinator has arranged for conference participants to take tours, play golf and tennis, lounge at the
beach, and enjoy the local entertainment. The conference sounds great to Veronica because she can
work and relax at the same time. One thing bothers her, however—all of the costs, including
recreation, relaxation, and entertainment activities will be paid by FREE.
Veronica is convinced that she will get the information she needs at the FREE conference. But
she is concerned that attending the conference might be considered a conflict of interest, because
she knows that FREE representatives will try to convince her to use its services. She also knows
that Archibald will earn substantial commissions if CAP uses FREE’s service. And, she is aware
that Archibald needs the money, because his wife was recently laid off due to a downsizing at the
firm where she worked for 15 years. Further, Veronica is concerned that material/information she
receives at the conference will be one-sided (biased), favoring of the services offered by FREE .
If she is going to attend the conference, Veronica must register today. As a result, she needs to
make a decision quickly.

Discuss the following and be sure to document appropriate sources to support
your position:

 What is the ethical dilemma?

 Do you think that CAP should outsource some of its working capital services and why?

 Should Veronica take the FREE cruise?

 What would you do if you were Veronica? Why?

Recommended Reading:

Christopher Cooper, “Giuliani Firms Had Potential Conflict of Interest,” The Wall Street
Journal, May 7, 2007, p. A6.

Rebecca Thurlow, “Australia Regulator Faults Citi Officers in Landmark Case,” The Wall
Street Journal, April 11, 2007, p. C2.

Edward Siedle, “The Irrelevant SEC,”, November 27, 2006.
Steve Rosenbush, “Investment Banks Jockey for Position,”, June 30, 2006.

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