This week, you will answer some questions about code of conduct violations. Assume that you are a member of the board of directors of a public company listed on the New York Stock Exchange. The company has an ethics hotline operated by an independent third party on which employees and others can anonymously report claims of violations of the company's code of business conduct and ethics. The board of directors is informed that the company received information via its ethics hotline that James Smith, the company's chairman and CEO, had paid more than $12 million over the past 15 years to four different women in exchange for the women's silence about affairs with him. According to the hotline reports: All four women were employees of the company at the time of their relationship with Mr. Smith. Some (and maybe all) of the women suffered adverse job consequences (demotions, etc.) after their relationship with Mr. Smith ended. Mr. Smith may have used his own money for the payments and not company funds. Behavior of this sort is a violation of the company's code of business conduct and ethics. Mr. Smith remains on the job as CEO of the company and remains the chairman of the board of directors. Mr. Smith and his family control the majority of the voting power for the company. The Smiths own Class B shares that have 10 votes per share. The shares traded on the NYSE are Class A shares, each of which has one vote. The Class A shares and the Class B shares vote together on all matters voted on by shareholders, so the Smiths have more votes than all of the other shareholders combined. Questions: 1. What questions will you ask and what information will you request? 2. What actions, if any, should the board take? 3. Does it matter if Mr. Smith used his own money for the payments and not company funds? 2 4. Does the fact that Mr. Smith and his family control the majority of voting power for the company affect the board's options on how to deal with this situation? If so, how? 5. What is the board's oversight role for violations of the company's compliance policies? Please explain your answer fully, using information supporting your response from the course reading material or any other source you deem appropriate.