Kathy Ryan, is a credit officer at Diversified Consolidated Corporation (DCC) and has a working relationship with Scott Bradley, the Treasurer for North Manufacturing (NM) and Mike Walman who works for Basic Products (BP). It is evident from the case that North Manufacturing is a mutual customer to DCC and Basic Products. Following the close relationship between Scott and Kathy, she disclosed some confidential financial information of NM with Kathy, which is not public. BP is now doing a new supply for NM following their financials since they are still owing DCC.
Mike wants to know from Kathy about NM credit history. In this paper we shall examine or analyze the likely ways Kathy can and cannot tell Mike about North Manufacturing.
Insider information is a non-public fact concerning the plans or the state of a publicly traded company that could give a financial benefit when used to buy or sell shares of that or another firm’s securities (Kenton, 2018).
In the context of our case study, knowing about a company’s significant, confidential corporate developments, such as the release of a new product or service, payment history or unaudited financial statement could provide an unfair advantage if the information is not public, that is, if only a few people know about the developments. Insider information is typically gained by someone who is working within or close to a listed company. We shall begin the analysis with the Relevant Facts in the case;
First, Kathy Ryan was the Trade Credit Officer in DCC, and statutorily responsible for credits to NM to the value of million.
Kathy visited NM to ascertain the health of her client and to make sure NM would not have issues paying the credit to DCC. Secondly, Scott Bradley was the Treasurer in NM and following his cordial working relationship with Kathy decided to share an important financial information on NM. Scott admitted that financial statements of NM are not fraudulent but they do not reflect the true condition of NM as the company is on bankruptcy discussions with the attorneys and may finally file for bankruptcy. Lastly, Scott tried to pacify Kathy, by letting her know of NM’s commitment to offset its credit loans to DCC if another alternate supplier – Basic Products, who will supply them on credit pending when the recover financially. On the order hand, Mike Walman the Credit Manager in BP and the company was the new supplier to North Manufacturing. While both Mike and Kathy enjoyed industry relation, Mike decided to find out if NM’s financials are in a good shape to make payment for supplies.
When Mike called Kathy, he asked if NM’s financials were good enough to make a business decision and if her company DCC were getting prompt payments from NM. Kathy was reluctant in her answers and really uncertain because of the recent problem NM was facing. Kathy could just have decided to frankly tell Mike that NM has been making constant payments to DCC even if she had a prior information from an insider, Scott. More so, she could also decide to mention the recent development to Mike to help BP make good decisions. Although, Kathy new NM is considering to go to the bankruptcy attorney and they feel that going to Basic Products is there only opportunity to change everything. Insider information always influences the market in all sense. 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 (Kenton, 2018). However, Kathy’s challenge is, having known the true state of NM that it is not ethical for her to disclose the bad financial situation of NM to Mike since this is not a public information. Perhaps if Kathy goes ahead to disclose NM’s dilemma to Mike and Scott or NM gets to know, to NM it is unethical and Kathy can be sued. With regards to Mike, getting such an inside information from a friend may seem ethical. Some stakeholders may or may not view having privileged information of a company’s dilemma as unethical or disingenuous. It’s normal for rumors to start when such occurs. While some may exploit this confidential information for financial gain others might feel employees or friends have the right to know that a seismic change is in the works (Hill, 2017).
The stakeholders in this good credit reference case will include Kathy, managers, employees, customers and shareholders of DCC. For the North Manufacturing company, Scott, her managers, employees, customers and shareholders. Lastly, Mike and the Basic Product company managers, employees, customers and shareholders. Everyone is affected one way or the other, for example, if NM goes out of business, this means Scott will lose his job along with other employees. Kathy will lose her bonus if she is not sacked. Her company DCC will lose customers which will affect everyone associated with DCC. More so, BP could lose credibility and customers too and BP employees will be affected due to the loss.
Every party in this case needs to work with an accurate information to protect the best interest of its company. For example, If I were Kathy, I would just tell Mike to verify directly from NM and that business is good for both companies. If I were Mike, I would expect Kathy being my friend to tell me what she knows about NM, and if I were Scott, I would expect Kathy to help me out, so she will just tell BP that NM pays DCC on time every time. However, as Mike awaits a reply on the phone, Kathy needs to make a decision, whether or not to she would divulge the inside information she obtained from her work friend Scott, Treasurer to NM. In addition, Mike is Kathy’s friend too and works for BP. He needs to make a thorough investigation and to find out if NM good financial condition. of NM before BP gets into business with NM. and Mike had heard about NM’s financial trouble. This is similar to the Sears, an iconic American brand. We see that 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). Hence, we see the analysis of the alternatives as follows;
Kathy can decide to provide the information she has to Mike as a friend, since the insider information she has about NM is not yet made public but Scott has trusted Kathy with the secret. I feel it is unethical to tell Mike what she knows about NM. Another reason could be that she is not sure if Scott gave an accurate information (true state of things) or she was simply trying to buy her sympathy as an excuse for which NM has not paid off their debts. It is important to note that despite the relationship between Kathy and Mike, both DCC and BP are still close competitors, and any information Kathy gives may affect DCC’s future business deals with NM if all things being equal.
=Secondly, Kathy can decide to play a neutral role between both friends and professional affiliates – Scott and Mike. She can simply tell Mike that she doesn’t know about the current situation of NM’s financials and that he could request that from the company. Even, if she has to mention NMs dilemma, Kathy should speculate it as a rumor and maintain her position that business is still smooth for both NM and DCC as they always pay off on time, and she can tell Mike to verify NM’s financials directly. In this way she will be neutral. Kathy response will be ethical such that she won’t give any insider information to Mike neither will she keep Mike from verifying the NM financials.
The first ethics to consider in the alternative will be based on Kathy just answering Mike’s questions without disclosing any other information that she got from Scott since it’s not available in the public domain. This is not an insider information, so to her it is ethical. The second idea is that Kathy can also decide to disclose the information she got from Scott to Mike since they have a good working relationship, and we assume that Scott shared the information with Kathy based on good faith and Kathy shared the information with Mike on a good faith too. This information is unverifiable and unavailable in the public domain and could cause a lot of issues for the three companies. In addition, it is possible that Scott was just trying to get some sympathy from Kathy, so she aids him, as Scott was transferring NM’s business from DCC to BP. So, it is only wise for Kathy that she consults her superior at DCC to act or she shares what she feels is ethical to her interpretation to answer Mike’s questions and would benefit her company. In utilitarian ethics (McGee, 2007) an insider information could be considered ethical if the effect gives the highest gain for the greatest number of stakeholders (Mill, 1993). However, it is not always simple, or even possible, to determine gains and losses, as they cannot always be measured (Rothbard, 2004). By its nature, the corporate world is vulnerable to individual and corporate actions that diverge from commonly accepted business standards or ethics. Norms and behaviours often exist within organizations that conflict with individual ethics or corporate values. As such, it could be argued in some cases sharing insider information is open to ethical interpretation.
For the second alternatives we will apply “rights” perspective and it’s of the view that Kathy encourages Mike to directly request for NM’s financial statements available in the public domain or from the company. In the case, that Mike needs to know NM’s financial condition, Kathy is not obliged to furnish him with the insider information that she got from Scott. And sharing such information is unprofessional or unethical. But as a friend, she can encourage Mike that they can be extra cautious buy verifying NM’s financial statements. I think this alternative is most ethical since Kathy does not want Mike to suffer a loss and the same time she is acting professionally. If Mike takes Kathy’s advice and discovers any problem with NM’s statements, then BP can decide not to continue with the supply. This may still make NM go bankrupt, but this will be the right thing to do. If I were Kathy, I would do the right thing by discussing this at management level, the company’s decision will decide our actions and if it is an ethical consideration or not.
The only practical constraint in the case is that Kathy already has an insider information shared by Scott and this is not expected to be shared with anyone. Now that Mike has called Kathy to verify his concerns, rumors and the true condition of the credit line of NM, it was difficult for Kathy to disclose that information. Besides this, there shouldn’t be an issue for Kathy to check NM’s financials available in public domain, as long as her words do not indicate any issue to Mike. Although it is not unethical, but she will be breaking Scott’s trust, and if NM goes bankrupt because BP does not go ahead with the deal, then Kathy might lose her bonus or job.
My recommendation to Kathy is to tell Mike about DCC and HM’s prompt payment history of which Kathy has provided and Mike was enthusiastic. Kathy can also admit to Mike that she also heard the rumors about NM too but she should advice Mike that it is better to check the Financials of NM directly from the company or public records. Kathy’s choice of words should be pleasant so as not to raise any suspicion. She just has to be neutral – without breaking neither Scotts nor Mikes trust. This case clearly demonstrate how insider information can negatively impact the economy; bring damage to individuals and businesses, and most importantly, influence the market overall.