Kathy Ryan works for DCC and is a friend to Scott Bradley who works for North Manufacturing and Mike Walman who works for Basic Products. North is a common customer to DCC and Basic. Scott shared some important financial information with Kathy, which is not public. Mike wants to know from Kathy about North. We will explore what Kathy can and cannot tell Mike about North.
Relevant Facts –
Kathy Ryan was a Trade Credit Officer in Diversified Consolidated Corporation, she was responsible for credits to “North Manufacturing” of approximately $1 million. Kathy wanted to make sure DCC would be able to pay her company back.
Scott Bradley was a Treasurer in North Manufacturing and he had developed a good working relationship with Kathy Ryan. He shared the information of “North Manufacturing’s” financial difficulty with Kathy. He informed that financial statements of the company are not fraudulent but they do not paint the correct picture as they are thinking about going to bankruptcy attorneys. And Scott said that they intend to pay DCC if Basic Products supplies them on credit. And he says, this was one opportunity for “North Manufacturing” to make a comeback.
Mike Walman was a Credit Managers in Basic Products and the company wanted to do business with North Manufacturing. While North was a common customer to Basic and DCC, Mike and Kathy were friends. Basic Products wanted to check if North’s financials are a good shape to make payment.
Ethical Issues –
When Mike called Kathy and asked if North’s financials are ok and if they are making regular payments to DCC, Kathy had a dilemma. Although Kathy could honestly tell Mike that North was making regular payments to DCC but she had inside information that Scott shared with Kathy. According to Investopedia, “Insider information is a non-public fact regarding the plans or conditions of a publicly traded company that could provide a financial advantage in a securities market.(Investopedia , n.d.). Kathy came to know from Scott that North’s financials are not as good as the financial statements show, and they are considering to go to the bankruptcy attorney. Moreover, North is going to Basic Products, so they can get products on credit and they can pay back DCC, and this is North’s only chance to turn things around. Kathy had this dilemma that she knew all these from Scott but since this is not public information it was not ethical for her to share these with Mike and warn him about the bad financial situation of North.
Immediate stakeholders are DCC and Kathy, North and Scott and Mike and his employer Basic. These companies are stakeholders along with their other customers, leadership, employees, and shareholders are also stakeholders. If North goes out of business that means Scott loses his job along with other stakeholders of North, Kathy loses her bonus if not job and DCC loses a customer which would impact somewhat everyone associated with DCC. And Basic would lose a customer too and Mike and others in Basic will be impacted due to the loss.
Possible Alternatives –
While Mike waits on phone Kathy has to make a decision, whether or not to she would divulge the inside information she obtained from her work friend Scott who happened to work for a customer “North”. Mike is Kathy’s friend too and works for a peer company “Basic” Since Mike and his employer Basic is getting into business with North and Mike had heard about North’s financial trouble, it is important for Mike to find out if North has a good financial condition. We see the similar concerns over an iconic American brand Sears. The suppliers are really concerned over Sears financial health, and they are concerned that sears will go bankrupt and they would not get paid (Peterson, 2016). Given this situation –
Option 1 – Kathy can just provide whatever public information she has to Mike. Because the insider information she has about North is not publicly available and Scott has trusted Kathy with the secret, it is not ethical either way to tell what she knows about North. And moreover, Scott might not have given the correct information to Kathy, because he wanted her sympathy her help. Because Basic is DCC’s competitor, and when Basic is getting North’s business, DCC is losing it, so maybe Scott wanted help from Kathy, and this is how he tried to get help from Kathy.
Option 2 – Kathy can be a good friend to both Mike and Scott and tell Mike that she heard the rumors about North too. But then North always pays off DCC on time and she can tell Mike to verify North’s financials which is available publicly. This was Kathy won’t do anything unethical such as divulging insider information to Mike or she won’t totally keep Mike in dark and give him and his company to find out potential problems in North’s financial statements.
Ethics of Alternatives –
Option 1 when Kathy just answers Mike’s questions and does not disclose any other information that she got from Scott works as the information Scott gave Kathy is not public, so this is insider information. And Scott and Kathy had a good working relationship, Scott shared the information with Kathy based on good faith. Moreover, since this information was not publicly available, this was not verified either. There was a possibility that Scott was just trying to get some sympathy from Kathy, so she helps him out, as Scott was moving North’s business from DCC to Basic. So, it is only wise for Kathy that she does not share with Mike what she learned from Scott, but answer Mike’s questions.
Option 2 is where we apply “rights” perspective and it makes a suggestion that Kathy provides a suggestion to Mike to go over North’s financial statements available in the public domain. Since Mike already expressed his concern over rumors about Norths financial condition. Kathy has some insider information that she got from Scott but sharing that is not professional or ethical. But as a friend, she can suggest to Mike that they can be extra cautious and verify North’s financial statements. This is ethical since Kathy does not want Mike to suffer a loss and if Mike takes Kathy’s suggestion and goes over the financials of North, and finds out any problem, then Basic will avoid some bad situation, which might not be a good thing for North. But this will be the right thing. Since Mike gave the call to Kathy, he being a stakeholder has the right to find out what Kathy can legally tell him.
If I were Kathy, I would do the right thing in this case, although if North goes bankrupt DCC loses the money and Kathy might lose her bonus or job but if Kathy does not give the information to Mike, the same thing can happen to Mike and Mike’s company.
If I were Mike, I would expect Kathy being my friend will tell me what she knows about North.
If I were Scott, I would expect Kathy to help me out, so she will just tell Basic that North pays DCC on time every time. And nothing about North’s financial trouble.
The only practical constraint Kathy had was that the information Scott shared with Kathy was insider information, and Kathy could not act or share it with anyone. Hence when Mike Called Kathy and told her that why he was worried about North, Kathy could not tell him what she heard from Scott.
Otherwise, Kathy should not have a problem to tell Mike to check the financials of North, which are already available in public domain, as long as her words do not indicate any red flag to Mike. Even if it does it is not unethical, but she will be breaking Scott’s trust, and if North goes bankrupt because Basic does not go ahead with the deal, then Kathy might lose bonus or job or both. But, Kathy should not stop because of that.
Recommended Action –
My recommendation to Kathy would be after answering to Mike’s questions, telling him that she heard the rumors too and tell Mike that it is better to check the Financials of North, just to be on safe side. But, the wording should be soft enough not to raise any red flag. She does not need to break Scotts or Mikes trust. Moreover, if what she says raises a red flag to Mike, and if Basic decides not to do business with North, North can go out of business, assumed that Scott told Kathy the complete truth, and if that happens, no one wins, DCC loses a customer, Kathy loses bonus or job.
Retrieved on 7/18/2018. Retrieved from https://www.investopedia.com/terms/i/insiderinformation.asp
Peterson, H(Nov,2016). Sears suppliers fear the company is going bankrupt. Retrieved from http://www.businessinsider.com/sears-suppliers-fear-the-company-is-going-bankrupt-2016-11