Gordon Massie calls you into his ofce on Friday afternoon and asks you to prepare an internal memo which will be sent to AIG's outside auditors, Price, Waterhouse. The purpose of this memo, according to Gordon, should be to convince these \"pesky auditors" that AIG's holdings in the bonds of XY Z Company should not be written down in value but should be carried on AIG's balance sheet at $20,000,000, or AIG's original cost. The fact is that you are terribly worried about XYZ's deteriorating nancial condition and you have been sharing your concerns with Gordon for over a year. You are aware that XY Z is probably going to miss its next interest payment and the bonds, which had been trading at $60, will probably soon be trading in the $30's. Gordon has been refusing to sell the bonds because he has not wanted to show the loss and jeopardize his yearend bonus. When you object to Gordon's request he tersely explains to you that \"if the auditors make us take a writedown on XYZ there will be no net income for our department this year and your bonus will be a big, fat goose egg! Damn it! I want that memo on my desk Monday morning and Iwant those auditors to believe your story\". Gordon then goes on to add, \"you don't want to lose your job over this, do you?\" It is Sunday morning and you are trying to decide how you will respond to Gordon's request for a memo on XYZ for the auditors. The telephone rings and it is Gordon. He is speaking in a much more conciliatory tone. \"Look, I am sorry for my outburst on Friday. That was wrong of me. But please understand that I simply want to defer the XY Z problem to our next scal year (two months away). Yes, I take full responsibility for not dealing with this problem sooner. But I promise you we will fully face up to the XY Z problem immediately in our new scal year. Thanks for your understanding and support. I won't forget this come raises and bonuses.\" Question A: What is your initial reaction to Mr. Massie's request? Question B: What are your ethical, moral, and legal obligations in this situation? Question C: If you comply with Mr. Massie's request, how have you now crossed a legal line? Question D: What, if anything, do you produce for Gordon on Monday morning? Thoughts: How would you feel if Gordon sent you an email asking you to write this memo? How might you rationalize your decision to write the memo? Effect of the corporate culture? What if others knew about the possibility of losing their bonuses if you did not write the memo? What if you had a sick child and needed insurance
