College of Business Administration

Seminar in Business Ethics and Social Institutions

Case Discussion Questions for July 29, 2003:

1. Give some examples of how Phar-Mor employees involved in the fraud violated the typical contractual obligations that employees have to their employer.

2. List some potential ethical dilemmas that the executives of Phar-Mor must have raised in their own minds when first approached to participate in the company malfeasance. Why do you think so many employees at Phar-Mor made the ethical decision to participate in illegal activities?

3. In what ways did Phar-Mor violate employee’s rights by engaging in a massive fraud that eventually led the company to bankruptcy? See the section titled “Employee Rights in the Workplace” on page 223, in Business Ethics, A Stakeholder and Issues Management Approach, 3rd Edition, by Joseph W. Weiss.

4. Michael (Mickey) Monus, one of the co-founders of Phar-Mor and the mastermind behind much of the malfeasance in the corporate scandal, made the following statement in 1995 when he was sentenced to 20 years in prison and fined $1 million:
“In the 10 years I was at Phar-Mor, Phar-Mor grew to 300 stores in some 35 states and 20,000 employees. The important thing is not the numbers to me... but the employees - all those dedicated, loyal, and highly motivated people. I want them to know the sorrow and regret that I have. The sorrow and regret will live with me for the rest of my life.”
Do you think Monus was truly sorry about his actions or sorry because he was caught and given jail time? Given the numerous, similar scandals within the last few years in the corporate world, do you think it is possible for employers to communicate a message of high ethical standards to employees (including the executives) to get them to think more about the consequences of their ethical decisions? How?

5. Should there be more and/or tighter government regulations or laws that create an enforceable responsibility and liability for corporate executives in certain business actions?

6. A December 1992 Wall Street Journal article cited the rise in inventory fraud as one of the biggest single reasons for the proliferation of accounting scandals. What makes the intentional misstatement of inventory difficult to detect? How was Phar-Mor successful in fooling C&L for several years with overstated inventory? To help prevent or detect the overstatement of inventory, what are some audit procedures that could be effectively employed?

7. The Phar-Mor case is one of many in which auditors have been held accountable for certifying faulty financial statements. Why do you believe that auditors are obligated to disclose improper financial statements? And in the cases where they do not, how much responsibility do they hold for their actions?
In a general sense, what do you think is the ethical responsibility to a company of contractors, consultants, and others who work for a company but are not direct employees?

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