Sheila Glow sells advertising for KBOL, a local radio station. She receives a small monthly salary plus a commission of 20% of all advertising contracts that she negotiates and that are billed by KBOL. KBOL conducts an informal credit review on all new clients,but relies extensively on the salesperson’s recommendations.

Because Sheila interviews the owner and chief financial officer (CFO) of all her new clients, she feels that her credit screening should be an adequate basis on which KBOL could reliably determine whether to accept or reject a potential client’s credit request.

One potential new client,Atlas Tile Company,has been experiencing financial difficulties and several letters to the editors from disgruntled customers have recently appeared in the local newspaper.Although Sheila knows that Atlas needs many new customers, her commissions have not been strong this month compared to prior months.

KBOL always has the right to reject Atlas’s credit application.Sheila knows that if the credit application contains favorable information, it is likely to be accepted. In the process of helping Atlas’ CFO complete the application, she suggests that City Bank’s rejection of Atlas’ loan application for $5,000 worth of working capital not be shown on the current application for KBOL’s credit. She reasons that Atlas needs her help,and it is not her job to collect the bills;it is only her job to sell radio advertising.

Required

a. What are the ethical ramifications of Sheila’s actions?

b. What are the likely business results of Sheila’s actions?

c. How does KBOL’s commission policy affect Sheila’s incentives?

d. How might the commission policy be changed to more closely align Sheila’s incentives with KBOL’s goals?

e. If the radio station’s managers find that Sheila helped falsify the credit report, what should they do? Why?