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Ethics Case: Brixton surgical Devices

Brixton Surgical Devices, a public company with sales of over $900,000,000, is one of the world's largest producers of surgical clamps, saws, screws, and stents. Its business involves production of both stock items and custom pieces for doctors at research hospitals. At the end of the third quarter of 2011, it became clear to Ed Walters, chief operating officer, and Robin Smith, chief financial officer, that the company would not make the aggressive annual earnings target specified by the board of directors. In consequence, Ed and Robin would not receive bonuses, which historically had averaged about 35% of their base compensation. The two devised the following strategy. "Here's what we'll do." suggested Ed. "We've never offered our customers a discount. Let's change that right now. We'll offer a 25% discount on all orders placed in October and November for delivery in December of 2011." "That will certainly boost fourth-quarter sales" said Robin."But you know, it won't really increase total sales. It'll just transfer some sales from the first quarter of 2012 to the fourth quarter of 2011. Of course, 2011 is where we need earnings to hit our bonus target. Hey, Ive got another idea. We can also jack up production of our stock items in the fourth quarter.With our high-priced production equipment, we've got a ton of overhead. But the more we produce, the more overhead we can bury in inventory. With lower unit costs and higher sales, profit will go way up. Let's get going on execution. I've got to get the marketing people working the promotion, and you've got to update the production schedule. This could end up being our best year ever in terms of bonuses!"

Are the proposed actions of Ed and Robin ethical? What is the likely effect of their actions on shareholder value?

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Ethics Case: Brixton surgical Devices
Case
Brixton Surgical Devices, a public company with sales of over $900,000,000, is one of the worl's largest producers of surgical clamps, saws, screws, and stents. Its business involves production of both stock items and custom pieces for doctors at research hospitals. At the end of the third quarter of 2011, it became clear to Ed Walters, chief operating officer, and Robin Smith, chief financial officer, that the company would not make the aggressive annual earnings target specified by the board of directors. In consequence, Ed and Robin would not receive bonuses, which historically had averaged about 35% of their base compensation. The two devised the following strategy. "Here's what we'll do." suggested Ed. "We've never offered our customers a ...

Solution Summary

Each of the three action plans proposed by Ed and Robin are critiqued in detail (from ethics standpoint as well as from the shareholder value perspective).

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