Kathy Ryan, a credit officer at Diversified Consolidated Corporation (DCC), had heard rumors that North Manufacturing was in deep trouble. She is responsible for credits to North of approximately $1 million. North always pays on time and is current on outstanding payables to DCC. North, in fact, uses DCC as a credit reference with other suppliers. Nevertheless, Kathy decided a visit to North was in order. Kathy Ryan and Scott Bradley, Norths treasurer, had developed a good working relationship and went to lunch during Kathys visit. After several drinks, Scott Bradley said: Kathy, were fried. I have to tell you, our financial statements arent fraudulent, but they dont paint the full picture. Not only are we not doing well, but weve been talking to bankruptcy attorneys. If things dont turn around soon, we may file before the end of next quarter. We plan to continue paying DCC promptly because we need all the trade credit we can get. In fact, supplier credit is giving us a chance to come back. Without it, wed be under right now; with it, we might just squeak by. Frankly, if there is any way you can encourage your competition to supply us--do it? Ive told Purchasing to place a large order with Basic Products instead of DCC. If Basic gives us credit, we can pay DCC in full before we file. If we make it through this, DCC will get our business back, but I dont want your career to suffer because of our problems now. Kathy was shaken by Scotts comments. She knew that if Norths credits went bad she would lose her annual bonus--25 percent of her compensation--and probably any chance for promotion. At worst, she could be fired. Shortly after her visit with Scott Bradley, she received a call from her friend in the Credit Department at Basic Products, Mike Walnnan. Suppliers often share credit information on common customers, so it was not surprising that Mike called. DCCs policy is to provide what they refer to as the prompt payment history for the customer. This includes recent high credit balances, any past-due balance, and how promptly customer payments had been received. After Kathy provided Norths prompt payment history--which in fact had been good--Mike was enthusiastic. I'm glad to hear that, he said. We just got a huge order to supply them through the end of the year. There are a lot of rumors floating around, but if youre getting paid promptly on that much, I guess it's OK. Kathy broke in at that moment. "Can you hold the line, Mike? Theres someone at my door. She put Mike on hold, her mind racing. She could suggest that Mike look into other public information sources or contact other suppliers about credit histories with North. That would be within acceptable company practice and almost certainly would send up a red flag for Mike. But who else could supply enough credit to North for DCC to get its money out? She couldnt keep Mike on hold forever, she pressed the flashing button on her telephone-- Mike? North Manufacturing has a good credit history with DCC and uses the firm as a credit reference. North currently owes DCC al million. Scott Bradley, Norths treasurer, has confided in Kathy Ryan, a credit officer at DCC that he believes North is in imminent danger of failing. Scott also tells Kathy that if Basic Products will give them credit for a large order, DCCs million-dollar credit will be paid before North files for bankruptcy. Basic Products credit manager, Mike Walulan, calls Kathy to ask about DCCs credit experience with North. After Kathy provides the prompt payment history, Mike has a misleading impression of Norths credit quality. Kathy could probably cause Mike to have greater concern without compromising company credit information policy. If Basic Products does not provide credit to North, Kathys salary and position may suffer. She may even lose her job 1. If Kathy attempts to alter Mikes initial reaction to Norths prompt payment history, will she betray Scott Bradleys confidence? 2. If Kathy only provides the prompt payment history to Mike, without any signal of potential danger, will she have been honest? 3. In warning Mike about the situation at North, would Kathy breach a duty to the employees and stockholders of her company, DCC? 4. What duty (if any) does Kathy have to North Manufacturing and Basic Products? 5. What Are the Possible Alternatives? 6. Which alternative would provide the greatest net benefit? For example, if Kathy finishes her conversation with Mike without further discussing the North credits, what are the benefits to North, DCC, and Basic? What are the costs, and who bears them? 7. How would costs and benefits be measured? How would the benefit of being honest or the cost of revealing confidential information be valued? 8. Does Scott Bradley have a right to expect that Kathy will treat his revelation as private information? If so, would suggesting that Mike seek further credit data violate Scotts rights? 9. When stockholders and employees stand to lose as a result of divulging information outside that prescribed in company policy, should they expect that Kathy will keep it private? Would merely hinting at broader problems at North infringe upon this right? 10. Does Mike Walman have a right to expect that Kathy will provide accurate information about Norths credit situation? Would simply reciting the credit history satisfy any duty to Mike, given Kathys knowledge of Norths situation? 11. Kathys friendship with Mike may be compromised if she elects not to give any signal of Norths impending financial trouble. 12. Kathys reputation and career may suffer if North files for bankruptcy and DCC holds $1 million intrade credits for which she is responsible Which of Kathys potential actions leads to the fairest distribution of benefits and costs? 13. Kathy has insider information which she may be legally restricted from divulging Yes, I'm here, Mike answers after being on hold. What do you tell him if you are Kathy Ryan?