The Good Credit Reference

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 must tell you, our financial statements are not fraudulent, but they do not paint the full picture. Not only are we not doing well, but we have been talking to bankruptcy attorneys. If things do not 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, we would 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. I have 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?

Questions 1. Describe the Ethical Issues. 2. Identify the Primary stakeholders? 3. What actions should be taken to avoid ethical breaches? 4. Which two ethical approaches can be applied? 5. What is the most important idea you have learned?