Business Ethics, Bus 3333: Community Organizing Rural Nebraska case.(Instructor's Note)

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CASE DESCRIPTION

This case focuses on the business ethics topic of corporate governance in a nonprofit organization with issues involving conflicts of interest, organizational politics, and lack of internal controls. Secondary issues focus on accounting problems associated with accounting controls of the organization. The case has a difficulty level appropriate for an undergraduate junior level Business Ethics or Accounting course. It is designed to be taught in one to two class periods with the requirement of three to six hours of outside preparation by students.

CASE SYNOPSIS

Unlike Dragnet, the detective show, more than the names of the innocent have been altered in this case based on facts, people, and events from a real nonprofit organization. The facts and events came to light when the organization's respective state auditors issued findings from a compliance audit. While nonprofit organizations may receive funds for promoting social welfare as in this case, the ethical and business issues are common to ethical dilemmas, business structure and related business issues for all business organization forms.

INSTRUCTORS' NOTES

Recommendations for Teaching Approaches

The three questions included with the case are very general in nature to allow the instructor flexibility in teaching the case. Suggested teaching approaches include assigning teams to evaluate an aspect of the case, setting up team competitions to find multiple issues, asking student to prepare a SWOT analysis of the ethical issues, using the case as a summative learning tool for a business ethics class, and using case for an essay final exam.

The instructor may choose to focus on actions of individuals, on organizational issues, on general and internal controls, or on accounting issues. Student teams could assume the role of consultants or specialists and provide a report or list of recommendations to management on one or more kinds of issues.

POSSIBLE SOLUTIONS

The following solutions represent some of the key issues involved in the case. Other solutions to the case may be possible as well.

Issues with corporate governance

Conflicts of interest policy

Jefferson, the Executive Director of CORN appointed five members to the CORN Board.

Solution:

   President or CEO should be involved in the board member recruitment
   process but the selection should not be under his or her control.

   President's appointees also serve as the Executive Committee which
   possesses the powers to change charters, negotiate loans, approve
   purchases, fire or hire, and to approve bonuses.

Solution:

   No subgroup should possess the power of the full board. Either
   there is a violation of the organization's incorporating documents
   or there are flaws in those documents. The former is more likely
   given the governmental oversight of this organization.

   The full Board of Directors manages the organization and has the
   legal and ethical obligations to do so.

   The organization should adopt a formal code of conduct or ethics
   that detail conflict of interest policies and procedures as they
   apply to senior management, officers, and the board.

Organizational failure:

Organizational failure occurs by Jefferson appointing the members to the Executive Committee.

Solution:

   More restrictions should be placed on the Executive Committee in
   terms of defining the committee's authority.

   Organizational failure also occurred because the Board of Directors
   responsibilities were not clearly followed to implement financial
   oversight.

Solution:

   The Board should meet on a regular basis and thoroughly review a
   complete set of the organization's financial statements.

Subjective conflicts of interest

   Jefferson appointed James Whitecloud and others to the Corn Board
   of Directors and the Executive Committee. … 

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