course material

1. (Mt) – Joliet Junior College Wk 4 Ship Breaking and Super Recycling
ITEM 1: Read Chapter 4-Ethics and Social Responsibility and take Quiz 4 by Thursday
Chapter 4-Ethics and Social Responsibility, key points are: 1. Ethics is a set of moral
principles or values that define right and wrong for a person or group, and forms the basis
for behavior in organizations. Behavior or actions of an employee or group of employees
may not be illegal, but can be unethical. There are not laws that cover all actions or activities
that are considered unethical. 2. To encourage ethical behavior in organizations, the U.S.
government has established guidelines (U.S. Sentencing Commission Guidelines for
Organizations), that outline what organizations should do to help insure that employees act
in ethical ways when working. If companies follow the guidelines, the penalties for
unethical behavior are reduced. The CEO of a company is responsible for setting the
example and polices for ethical behavior in the organization. If the leader exhibits unethical
behavior, the odds are that employees will do so as well. 3. To help individuals and
organizations evaluate whether a planned action is ethical or unethical, a set of Principles of
Ethical Decision Making can be applied to the action. The Seven (7) Principles of Ethical
Decision Making include: looking at long-term selfinterest; religious injunction; government
requirements; individual rights; personal virtue; distributive justice; and utilitarian
benefits. Applying these principles can provide an objective framework to determine if an
action is ethical or unethical. 4. Managers can assure that employees behave ethically by:
hiring ethical people; having a defined Code of Ethics; training employees in ethics; and
providing an ethical climate for all employees. There are certain tests and interview
questions that can be used to help determine whether a job candidate has high ethical
standards; background and reference checking can also be beneficial in determining if a job
candidate will act ethically. 5. Organizations are Socially Responsible to a variety of
stakeholders (those who have an interest in the success of the organization), including
stockholders, employees, customers, suppliers, local community; and governments. Major
business decisions need to include an evaluation on the impact on each of these groups to
assure that each of their interests are considered, and that there is some balance in decision
making. Too often executive management of companies focus too much on stockholder
interests in growth and increased profitability at the expense of other stakeholders such as
employees, suppliers, and the communities they operate in. Maximizing profits for
shareholders (the primary goal of most publically held companies in the U.S. should be done
within the context of long-term benefits and will full consideration of other stakeholder
interests. Enlightened leaders who hold a long-term view, and hold the interest of the

2. stakeholders above their own self-interest are the best leaders to work for. They are 1|Page
often hard to find in the U.S. where we over-reward corporate executives for short-term
financial results. ITEM 2: Review the videos on Social Responsibility to gain a better
understanding of these topics and to help you with the Discussion Board:
https://www.youtube.com/watch?v=xoE8XlcDUI8 Social Responsibility
https://www.youtube.com/watch?v=ZwFyASop8nc Ethics Case (case of unethical
management behavior) https://www.youtube.com/watch?v=L-rR99EaEFg Ethical
Principles ITEM 3: Biz Café-Complete the first 8 Live Rounds of the Biz Café Simulation by
the end of the week. Review the Instructions for Biz Café Assignment posted on Blackboard
under the Course Materials tab, so that you are fully aware of the requirements for the
paper that will be written after you complete all of the Live Rounds. Also review the Student
Manual for Biz Café that is posted on the Biz Café website so that you are familiar with all
the aspects of how the software and simulation works to avoid mistakes before you begin
the Live Rounds. ITEM 4: Week 4 Discussion Board- Ethics Case Read the following
situation: Robert is a sales person that sells educational multimedia products. When he
reaches $1,000,000 in sales he will receive a $10,000 bonus. Robert wants to use the bonus
as a down payment on a home for his wife and two children who are now living in a small
two -bedroom apartment. Nearing the end of the accounting period, Robert is $1,000 short
of his goal. An inner city school, where the students currently have to share textbooks,
would like to be able to purchase some of Robert’s products to help provide their students
with better learning opportunities, but does not have any funds. Robert is considering
giving the school $1,000 to purchase the products from him, so he can reach his sales goals
and get the $10,000 bonus. Analysis: Evaluate the above ethical dilemma by applying each
of the Ethical Decision Making Principles below (as defined in detail in our textbook-
Chapter 4), explaining how each one would be applied to the dilemma and what the
resultant decision would be for each one and why. Principles of Ethical Decision Making •
Principle of long-term self- interest (is it in the best interest of those affected) 2|Page •
Principle of personal virtue (is it honest and truthful) • Principle of religious injunctions
(does it harm the sense of community) • Principle of government requirements (is it the
law) • Principle of utilitarian benefits (does it server the greater good of society) • Principle
of individual rights (does it infringe on rights of others) • Principle of distributive justice
(does it harm the least fortunate) Consider: • • • The stakeholders impacted by the decision
(all those who are affected) How the decision will affect stakeholders by applying the
Ethical Decision Making Criteria. Based on the facts presented, and your analysis, would
Robert’s decision to give the money to the school and require them to buy the educational
materials fr om him be ethical? Why or Why not? What ethical decision-making principles
apply to support your conclusion? What decision would you make if you were Robert and
why? If you were Robert’s manager what would you want Robert to do and why? Post your
analysis on Blackboard as your initial post. Comment on three other student’s posts and
state if you agree or disagree with each and your reasons why. Final Post: After you have
reviewed and commented on three student’s posts, complete a final post that restates your
position on the issue and explain how your thinking changed, or if it did not why it did not.
Also, identify what you may have learned from the other students. Discussion Board is due

3. no later than Friday by midnight. LATE ASSIGNMENTS ARE NOT ACCEPTED ITEM 5: Post to
your Weekly Learning Journal Week 4 Entry by end of week. ITEM 6: Ethics Case Paper-
Payless Shoes. Review the Ethics Case and begin research as it is due to be completed by
Tuesday September 17, 2019. See detailed case and instructions on Blackboard under the
Course Materials tab. ITEM 6: Bonus Discussion Board is due by Friday, September 27,
2019. See details under Course Materials tab in Blackboard. 3|Page 4|Page PRINCIPLES OF
MANGEMENT-FALL 2019 ETHICS CASE ANALYSIS-BREAKING SHIPS The following case
represents a common business situation where company management and shareholder
interests can conflict with other stakeholders and ethical principles. Read the case
thoroughly several times to assure that you fully understand the situation in all its aspects
and the options presented and tradeoffs presented by the company. The details for the
analysis paper are at the end of the case details. To Break Ships or Not to Break Ships By
Paul R. Goodchild, CPA, and Ryan Peterson, CMA July 1, 2018 SHIP BREAKING IS A
MULTIMILLION-DOLLAR INDUSTRY. A large percentage of operations are in emerging
countries, such as Pakistan, fueled by the high demand for the recycled metals in those
countries. Emerging countries have low wages, and both safety regulations and employee
protections are minimal or nonexistent. In addition, the hazardous and toxic materials
represent a danger to employees long after they finish working in the yards. Regulations are
rarely enforced because the recycled metals drive the local economy. Nonetheless, when
Don Welch, a CMA ® (Certified Management Accountant), was hired to be the CEO of the
Ship-Breaking Company (SBC) in 1985, he didn’t anticipate that in the fourth quarter of
2017 a major industrial accident at the company’s contracted Pakistani ship-breaking
operation would kill 19 and seriously injure more than 50 employees. 1|P age Welch asked
CFO Alicia Gaines to help navigate the company out of this challenging period. Like Welch,
Gaines also is a member of IMA® (Institute of Management Accountants) and a CMA. Welch
put Gaines in charge of investigating the accident and the possible alternatives available to
the company. In investigating the Pakistani operation, Gaines was shocked by the systemic
safety failures and the continuing dangers to the employees. Welch had to make a decision
quickly, and it would determine the fate of the organization and his legacy. THE COMPANY’S
HISTORY SBC was formed in the United States during the early 1870s to recycle ships
decommissioned after the Civil War. It continued dismantling and recycling ships used in
military and mercantile operations through the Industrial Revolution. SBC slowly grew to
be the top ship-breaking company in the U.S. Eventually, it went public with little fanfare in
1957. The business operated profitably until the 1980s, when companies in emerging
countries cut into its mercantile ship-breaking business. Employees in emerging countries
were willing to work for less than $2 per day, compared to $30 per day in the U.S. SBC
operations also met strict safety standards required by U.S. law, which made the operation
more costly. In addition, the U.S. entered a period of reduced military activity, and the
expected revamping of military vessels would occur slowly over the next two decades. The
combination of global competition and a reduction in U.S. military activity seriously hurt
SBC’s operating profits. SBC slowly began to burn through the cash reserves it had
previously built up during its many years of prosperity. In 1985, faced with mounting
operating losses, the board of directors appointed Welch to the position of CEO and

4. chairperson of the board. In the summer of 1988, Welch expanded SBC’s business beyond
breaking ships to include recycling of all types of metal and contracted with a ship-breaking
operation in Pakistan to compete in the global mercantile ship-breaking business. As part of
the turnaround, the company name was changed to the Ship Breaking and Super Recycling
Company (SBSRC). After two decades of success, SBSRC posted net losses from 2013
through 2015, but the shipbreaking operation in Pakistan remained profitable and kept the
company afloat. To avoid bankruptcy, Welch decided to discontinue some less-profitable
recycling activities, which resulted in a small net profit in 2016. During 2016 and 2017, the
ship-breaking operation represented 65% of SBSRC’s revenues and 85% of pretax profits,
and the 2018 budget reflected continued operations (see Table 1A and 1B). But the accident
threatened that plan. 2|P age 3|P age DON WELCH Welch is a hard-nosed businessperson
with powerful political connections who acts quickly when faced with problems or
uncertainty. After his hiring, he quickly initiated a lobbying department that resulted in SBC
receiving several new contracts from the U.S. Navy to dismantle and recycle
decommissioned warships. Welch turned around the mercantile ship-breaking operation by
outsourcing all nonmilitary contracts to a contractor in Pakistan. In another major move, he
initiated and then later abandoned a metal recycling business in the U.S. Welch’s quick and
decisive decision making helped SBSRC weather downturns in the military ship-breaking
operation and the eventual fall in scrap-metal prices. He and the shareholders were largely
pleased with the results throughout his tenure. Welch’s decisions meant that SBSRC was
profitable, paid dividends to shareholders, and compensated top executives, including
Welch, with large stock bonuses. He relied on the goodwill he earned to weather net losses
from 2013 to 2015. Now faced with an unprecedented challenge, he knew he had to act
swiftly. 4|P age ALICIA GAINES In early 2016, Welch hired Gaines to help manage SBSRC’s
financial business. Welch wanted to focus on the operations, but he knew that after losses
from 2013 to 2015, the company would need a skilled professional to manage the
company’s cash flows. Gaines brought two decades of experience at a top multinational
conglomerate, where she relied on her expertise as a financial professional to become the
vice president of Finance for Aerospace Systems. After some recruiting from Welch and the
offer of a significant stock compensation package, Gaines agreed to become CFO of SBSRC.
She effectively managed the financial challenges throughout 2016, including the divestment
of the recycling business. In doing so, she became someone Welch relied on heavily in his
decision-making process. THE ACCIDENT AND INVESTIGATION Early in the fourth quarter
of 2017, Gaines was reading The Wall Street Journal when she came across an article titled
“Explosion at Pakistan Boat-Breaking Yard Kills More Than 10 People.” Gaines recognized
this was the same ship-breaking yard SBSRC used. She rushed to see Welch, and the
following conversation took place. Gaines: Don, have you seen the news? Welch: No, but
while I was in a meeting, my phone was ringing off the hook. Jonathan told me I have 20
messages, and three are from board members. What happened? Gaines: There was an
accident in the ship-breaking yard in Pakistan where we have our ships recycled.
Preliminary reports say more than 10 are dead and up to a hundred could be injured.
Welch: Izad [Bukhari] assured me years ago that hazardous conditions were “not a risk for
his employees.” It’s clear that something changed. We need to get out in front of this. Can

5. you make it a priority to do an investigation and report to me by the end of the week?
Gaines: Yes. To her dismay, Gaines’s research revealed 19 people died in the accident and
more than 50 others were severely injured when a welding torch ignited fuel vapors within
a ship’s hull, causing an explosion and fire. Gaines further discovered that safety conditions
in ship-breaking operations in emerging countries overall were dismal. Workers died in
explosions, were crushed by falling metal, suffocated, fell to their deaths, or were cut in half
by snapping cables under great tension. Gaines met with Welch, where she relayed that
information and more. Gaines: There were 19 deaths, and more than 50 others were
severely injured. I found that there are systemic and serious safety risks at Izad’s operation;
the employees have been lucky to avoid a major accident until now. On average, one
employee is killed and 10 employees are seriously injured for every two ships recycled in
emerging countries. These deaths and injuries are in addition to any unreported accidents
and long-term diseases caused by toxic materials. My 5|P age figures show we help Izad
employ 4,000 workers. These workers face the risk of serious injury or death every day.
Welch: I’m concerned about our employees and their safety; I’m also mindful that each one
of those ships nets us about $10 million in profit. I am not sure what to do. Let me contact
Izad, legal, and the board. I will get back to you in a few weeks. Gaines: Don, I think we need
to look at this issue from every angle. Throughout my career, it’s been important to me to
work through issues objectively. We have a responsibility to SBSRC, but we should disclose
this research and a complete picture to the board. Welch: I agree. My reputation is
inextricably tied to this company and the culture and working environment we create for
our employees. I dedicated three decades of my life to SBSRC, and I don’t want SBSRC
mentioned in the same sentence as Enron. After the conversation, Welch promised himself,
“When I leave SBSRC, other CEOs will be inspired by my leadership. We will follow the laws
and do what is right for the shareholders and employees.” THE AVAILABLE ALTERNATIVES
During the next month, Welch met with SBSRC’s legal team, discussed the issue with Izad
Bukhari, owner and president of the Pakistani ship-breaking operation, and met with the
board of directors. Together with Gaines, he worked to develop alternatives for SBSRC to
navigate the accident. The board agreed to follow Welch’s recommendation among the
three alternatives presented to them: • Do nothing and continue the ship-breaking
operations in Pakistan, • Continue the operation in Pakistan after signing an agreement with
Bukhari requiring improved safety conditions, or • Sell the contracts for the ship-breaking
operation to Chinese investors and restructure operations. Welch sat in his office on a
Saturday looking out his window. He lamented that none of the choices was ideal. He felt
sick over everything that happened and that all he’d worked for was changing beyond his
control. He worried that he wouldn’t be able to live up to the promise he made to himself
earlier about doing what’s right for the shareholders and employees. 1. DO NOTHING and
continue the ship-breaking operation in Pakistan. SBSRC’s legal counsel reviewed the
incident, case law, and international law. After their review, they advised Welch that there
was little to no risk to SBSRC. The contracts with Bukhari and the legal environment in
Pakistan protected SBSRC from legal liability. 6|P age They also found that other ship-
breaking businesses and contractors that experienced similar accidents were able to avoid
long-term negative consequences. In those instances, the negative press faded by the next

6. quarter, and management was no longer answering questions about safety concerns during
public appearances. Welch knew that fourth-quarter earnings were shaping up to be good.
If SBSRC didn’t have to implement changes, then its after-tax earnings per share would
exceed analysts’ expectations by $0.05 per share. 2. CONTINUE THE OPERATION IN
PAKISTAN AFTER SIGNING AN AGREEMENT WITH BUKHARI REQUIRING IMPROVED
SAFETY CONDITIONS. Welch knew ship breaking was dangerous, but he trusted Bukhari to
protect his employees. They had been doing business together for decades. Bukhari took
over the business about the same time Welch became CEO. But the information in Gaines’s
report made him rethink his relationship with Bukhari. He wondered whether he let his
friendship interfere in their business relationship. Welch had no idea that conditions in the
Pakistani ship-breaking yards were as bad as in other emerging countries. Given his
relationship, Welch felt he should travel to Pakistan to speak with Bukhari personally. After
meeting with legal, he boarded a plane for Pakistan and met with Bukhari the next day.
Welch: I wanted to make it out here as quickly as possible. I am sorry that so many
employees were injured and killed. Bukhari: Thank you for coming. I appreciate your kind
thoughts and your flying here so quickly. It has been too long, my friend. Welch: Tomorrow
will mark two weeks since the accident took place. How are the injured workers and the
families of those that were lost? Bukhari: It has been difficult, but things are returning to
normal. My employees are highly compensated and are good providers for their families.
Welch: What safety measures are you implementing to prevent similar accidents? Bukhari:
My employees are safe, and this accident occurred because those employees were careless.
It’s unfortunate, but bad employees will hurt themselves. There isn’t much more I can do.
Safety harnesses and hooks may prevent falls, but most of the safety measures in your
country make their workers less safe and slow them down. How can one escape fire or
falling metal if they’re locked in place? The employees need to be able to move and work
quickly. Otherwise, I won’t be able to run a profitable business. Welch: I understand costs
will increase. We’re in tough times, but I want the employees to be safe. I need you to certify
that new safety measures are in place and that they’ll continue going forward. Bukhari: Of
course, my friend, new safety measures will be put in place. Have your planning team
contact me. Now let us put this unfortunate incident behind us and share a meal and drink.
7|P age In the past when Welch discussed safety with him, Bukhari proudly reported that
the shipbreaking operation was safe. Bukhari touted, “My business is the safest in all of
Pakistan. I am following all applicable safety laws, but I could not afford to compete if I have
to implement safety standards like those in the U.S.” Welch felt uneasy about Bukhari’s
quick agreement. He knew SBSRC had little leverage over Bukhari. Bukhari’s ship-breaking
operation has grown since the 1980s and employs almost 40,000 workers. SBSRC’s
business represented less than 10% of Bukhari’s total revenues. 3. SELL THE CONTRACTS
for the ship-breaking operation to Chinese investors and restructure operations. When
Welch returned from the trip to Pakistan, Jonathan (his executive assistant) had an
important message waiting from Wendi Pemberton, the longest-tenured nonexecutive
member of the board. Welch and Gaines arranged to meet with Pemberton. At the meeting,
Pemberton brought news of an offer to purchase SBSRC’s ship-breaking operation for $1.2
billion from a group of investors in China. If accepted, the sale would be effective on January

7. 1, 2018. The sale would exchange $400 million of contracts-in-process and contracts worth
$800 million extending five years into the future. The ship-breaking operation would be
moved as quickly as possible from Pakistan to China. Welch felt better about the ship-
breaking operation in China. The Chinese companies paid their employees twice as much as
Pakistani workers and had better equipment, which would result in much safer conditions
for workers. Few Chinese ship-breaking employees were injured or died on the job. Gaines
noticed Welch’s hesitation during the discussion with Pemberton and arranged to meet
with him the next morning. Gaines: This seems like great news, but I’m not sure you see it
that way. Welch: If we sell, we would need to restructure. I did the preliminary calculations,
and it would likely mean 6,000 layoffs, which includes all of the Pakistani employees and
2,000 in the U.S. Gaines: Wouldn’t that put our business at risk? Welch: No, the restructuring
plan I’ve been working on since you brought the accident to my attention sets us on a path
to profitability. Unfortunately, it would mean SBSRC would exit the ship-breaking industry
after 130 years. I’ll get the restructuring plan to you this afternoon. I’ve scheduled two
meetings next week with our auditors and the board. (See Figure 1.) 8|P age After the
meetings, the auditors insisted that the restructuring plan might not create profits going
forward, and Gaines created financial statements that reflected their worries that SBSRC
wouldn’t remain a going concern. This made the decision more difficult. Welch knew that
employees who were working in the ship-breaking operation risked death and serious
injury only because the pay is the most they could earn. Jobs for low-skilled workers in that
region of Pakistan are difficult to come by, leaving many families without basic necessities.
That hardship would be compounded by the layoffs at home. He knows many of the
employees stateside personally, and telling them they were no longer part of the SBSRC
family would be difficult (see Tables 2A and 2B). 9|P age 10 | P a g e . Paul R. Goodchild, CPA,
Ph.D., is an assistant professor of accountancy at the University of Central Missouri and a
member of IMA’s Kansas City Chapter. He can be reached at goodchild@ucmo.edu. Ryan
Peterson, CMA, Ph.D, is an assistant professor of accountancy at the University of Central
Missouri and a member of IMA’s Kansas City Chapter. He can be reached at
rkpeterson@ucmo.edu. 11 | P a g e ANALYSIS Prepare a paper that analyzes the following
alternatives and the additional questions: The Three Alternatives are: 1. DO NOTHING and
continue the ship-breaking operations in Pakistan, 2. CONTINUE THE OPERATION in
Pakistan after signing an agreement with Bukhari requiring improved safety conditions, or
3. SELL THE CONTRACTS for the ship-breaking operation to Chinese investors and
restructure operations. 1. Using the Seven (7) Ethical Decision-making Principles (Long-
term Self-interest; Religious Injunction; Government Requirements; Individual Rights;
Personal Virtue; Distributive Justice; and Utilitarian Benefits), evaluate which ones might be
violated in each of the three alternatives, and explain how. In your analysis identify all of the
major stakeholders (i.e. company shareholders, Pakistani workers, U.S. workers, etc.) for
each of the three alternatives, and explain how they are affected.. What is each stakeholder
group’s loss or gain? See Chapter 4Ethics and Social Responsibility in MGMT 10 (Williams)
2. What are Welch’s responsibilities as the CEO and chairperson of the board of SBSRC? Is
there a conflict between his responsibilities as CEO and ethics and the common good?
Explain. 3. Based on your analysis of the above questions, which alternative you would

8. select if you were Welch. Explain why and how it affects various stakeholders and the
tradeoffs? 4. How would you monitor the operations to assure when your recommendation
is implemented, that the impact of your decision is monitored to assure that the expected
results and stakeholder interests are fully considered and met? Prepare a 5-7 page paper in
APA format addressing the above questions. Follow all the Guidelines for Written
Assignments for this course (posted on Blackboard). Paper should include the following: A
Title Page; an Abstract page; an Introduction (purpose of paper, Case Background, and
Analysis Method); Sections for the analysis including one section for each of the 3
alternatives; one section for Question 2 (Welch’s responsibilities as CEO); one section for
Question 3 (decision); one section 4 (monitoring); one section for Summary and
Conclusions; and a Reference page. Use centered Headings for each of the sections of the
paper. Paper must following all APA writing style formatting. See Course Guidelines for all
requirements for written assignments. 12 | P a g e Paper will be graded on: Completeness
and accuracy of content and analysis, grammar, and formatting. Specifically, grading rubric
will be based on: How completely and accurately the facts of the case are identified and
used in the analysis; how completely and accurately the ethical issues are identified; how
completely and accurately the stakeholders are identified and how they are affected by each
of the three (3) options; how well the ethical decision making model (7 Principles of Ethical
Decision Making) is explained and applied to each of the decision options; how well the
Decision Making Principles are weighed in terms or relative importance in each of the three
(3) options; how the final decision is defended in terms of being the best given the facts and
analysis of the options and the various stakeholder interests; and how complete and
effective the monitoring program is to help assure that the impact of the final
recommendation (decision) is as planned. C Vogus Arkansas State University College of
Business 8/2019 13 | P a g e 14 | P a g e PRINCIPLES OF MANGEMENT-FALL 2019 ETHICS
CASE ANALYSIS-BREAKING SHIPS The following case represents a common business
situation where company management and shareholder interests can conflict with other
stakeholders and ethical principles. Read the case thoroughly several times to assure that
you fully understand the situation in all its aspects and the options presented and tradeoffs
presented by the company. The details for the analysis paper are at the end of the case
details. To Break Ships or Not to Break Ships By Paul R. Goodchild, CPA, and Ryan Peterson,
CMA July 1, 2018 SHIP BREAKING IS A MULTIMILLION-DOLLAR INDUSTRY. A large
percentage of operations are in emerging countries, such as Pakistan, fueled by the high
demand for the recycled metals in those countries. Emerging countries have low wages, and
both safety regulations and employee protections are minimal or nonexistent. In addition,
the hazardous and toxic materials represent a danger to employees long after they finish
working in the yards. Regulations are rarely enforced because the recycled metals drive the
local economy. Nonetheless, when Don Welch, a CMA ® (Certified Management
Accountant), was hired to be the CEO of the Ship-Breaking Company (SBC) in 1985, he
didn’t anticipate that in the fourth quarter of 2017 a major industrial accident at the
company’s contracted Pakistani ship-breaking operation would kill 19 and seriously injure
more than 50 employees. 1|P age Welch asked CFO Alicia Gaines to help navigate the
company out of this challenging period. Like Welch, Gaines also is a member of IMA®

9. (Institute of Management Accountants) and a CMA. Welch put Gaines in charge of
investigating the accident and the possible alternatives available to the company. In
investigating the Pakistani operation, Gaines was shocked by the systemic safety failures
and the continuing dangers to the employees. Welch had to make a decision quickly, and it
would determine the fate of the organization and his legacy. THE COMPANY’S HISTORY SBC
was formed in the United States during the early 1870s to recycle ships decommissioned
after the Civil War. It continued dismantling and recycling ships used in military and
mercantile operations through the Industrial Revolution. SBC slowly grew to be the top
ship-breaking company in the U.S. Eventually, it went public with little fanfare in 1957. The
business operated profitably until the 1980s, when companies in emerging countries cut
into its mercantile ship-breaking business. Employees in emerging countries were willing to
work for less than $2 per day, compared to $30 per day in the U.S. SBC operations also met
strict safety standards required by U.S. law, which made the operation more costly. In
addition, the U.S. entered a period of reduced military activity, and the expected revamping
of military vessels would occur slowly over the next two decades. The combination of global
competition and a reduction in U.S. military activity seriously hurt SBC’s operating profits.
SBC slowly began to burn through the cash reserves it had previously built up during its
many years of prosperity. In 1985, faced with mounting operating losses, the board of
directors appointed Welch to the position of CEO and chairperson of the board. In the
summer of 1988, Welch expanded SBC’s business beyond breaking ships to include
recycling of all types of metal and contracted with a ship-breaking operation in Pakistan to
compete in the global mercantile ship-breaking business. As part of the turnaround, the
company name was changed to the Ship Breaking and Super Recycling Company (SBSRC).
After two decades of success, SBSRC posted net losses from 2013 through 2015, but the
shipbreaking operation in Pakistan remained profitable and kept the company afloat. To
avoid bankruptcy, Welch decided to discontinue some less-profitable recycling activities,
which resulted in a small net profit in 2016. During 2016 and 2017, the ship-breaking
operation represented 65% of SBSRC’s revenues and 85% of pretax profits, and the 2018
budget reflected continued operations (see Table 1A and 1B). But the accident threatened
that plan. 2|P age 3|P age DON WELCH Welch is a hard-nosed businessperson with powerful
political connections who acts quickly when faced with problems or uncertainty. After his
hiring, he quickly initiated a lobbying department that resulted in SBC receiving several
new contracts from the U.S. Navy to dismantle and recycle decommissioned warships.
Welch turned around the mercantile ship-breaking operation by outsourcing all nonmilitary
contracts to a contractor in Pakistan. In another major move, he initiated and then later
abandoned a metal recycling business in the U.S. Welch’s quick and decisive decision
making helped SBSRC weather downturns in the military ship-breaking operation and the
eventual fall in scrap-metal prices. He and the shareholders were largely pleased with the
results throughout his tenure. Welch’s decisions meant that SBSRC was profitable, paid
dividends to shareholders, and compensated top executives, including Welch, with large
stock bonuses. He relied on the goodwill he earned to weather net losses from 2013 to
2015. Now faced with an unprecedented challenge, he knew he had to act swiftly. 4|P age
ALICIA GAINES In early 2016, Welch hired Gaines to help manage SBSRC’s financial

10. business. Welch wanted to focus on the operations, but he knew that after losses from 2013
to 2015, the company would need a skilled professional to manage the company’s cash
flows. Gaines brought two decades of experience at a top multinational conglomerate,
where she relied on her expertise as a financial professional to become the vice president of
Finance for Aerospace Systems. After some recruiting from Welch and the offer of a
significant stock compensation package, Gaines agreed to become CFO of SBSRC. She
effectively managed the financial challenges throughout 2016, including the divestment of
the recycling business. In doing so, she became someone Welch relied on heavily in his
decision-making process. THE ACCIDENT AND INVESTIGATION Early in the fourth quarter
of 2017, Gaines was reading The Wall Street Journal when she came across an article titled
“Explosion at Pakistan Boat-Breaking Yard Kills More Than 10 People.” Gaines recognized
this was the same ship-breaking yard SBSRC used. She rushed to see Welch, and the
following conversation took place. Gaines: Don, have you seen the news? Welch: No, but
while I was in a meeting, my phone was ringing off the hook. Jonathan told me I have 20
messages, and three are from board members. What happened? Gaines: There was an
accident in the ship-breaking yard in Pakistan where we have our ships recycled.
Preliminary reports say more than 10 are dead and up to a hundred could be injured.
Welch: Izad [Bukhari] assured me years ago that hazardous conditions were “not a risk for
his employees.” It’s clear that something changed. We need to get out in front of this. Can
you make it a priority to do an investigation and report to me by the end of the week?
Gaines: Yes. To her dismay, Gaines’s research revealed 19 people died in the accident and
more than 50 others were severely injured when a welding torch ignited fuel vapors within
a ship’s hull, causing an explosion and fire. Gaines further discovered that safety conditions
in ship-breaking operations in emerging countries overall were dismal. Workers died in
explosions, were crushed by falling metal, suffocated, fell to their deaths, or were cut in half
by snapping cables under great tension. Gaines met with Welch, where she relayed that
information and more. Gaines: There were 19 deaths, and more than 50 others were
severely injured. I found that there are systemic and serious safety risks at Izad’s operation;
the employees have been lucky to avoid a major accident until now. On average, one
employee is killed and 10 employees are seriously injured for every two ships recycled in
emerging countries. These deaths and injuries are in addition to any unreported accidents
and long-term diseases caused by toxic materials. My 5|P age figures show we help Izad
employ 4,000 workers. These workers face the risk of serious injury or death every day.
Welch: I’m concerned about our employees and their safety; I’m also mindful that each one
of those ships nets us about $10 million in profit. I am not sure what to do. Let me contact
Izad, legal, and the board. I will get back to you in a few weeks. Gaines: Don, I think we need
to look at this issue from every angle. Throughout my career, it’s been important to me to
work through issues objectively. We have a responsibility to SBSRC, but we should disclose
this research and a complete picture to the board. Welch: I agree. My reputation is
inextricably tied to this company and the culture and working environment we create for
our employees. I dedicated three decades of my life to SBSRC, and I don’t want SBSRC
mentioned in the same sentence as Enron. After the conversation, Welch promised himself,
“When I leave SBSRC, other CEOs will be inspired by my leadership. We will follow the laws

11. and do what is right for the shareholders and employees.” THE AVAILABLE ALTERNATIVES
During the next month, Welch met with SBSRC’s legal team, discussed the issue with Izad
Bukhari, owner and president of the Pakistani ship-breaking operation, and met with the
board of directors. Together with Gaines, he worked to develop alternatives for SBSRC to
navigate the accident. The board agreed to follow Welch’s recommendation among the
three alternatives presented to them: • Do nothing and continue the ship-breaking
operations in Pakistan, • Continue the operation in Pakistan after signing an agreement with
Bukhari requiring improved safety conditions, or • Sell the contracts for the ship-breaking
operation to Chinese investors and restructure operations. Welch sat in his office on a
Saturday looking out his window. He lamented that none of the choices was ideal. He felt
sick over everything that happened and that all he’d worked for was changing beyond his
control. He worried that he wouldn’t be able to live up to the promise he made to himself
earlier about doing what’s right for the shareholders and employees. 1. DO NOTHING and
continue the ship-breaking operation in Pakistan. SBSRC’s legal counsel reviewed the
incident, case law, and international law. After their review, they advised Welch that there
was little to no risk to SBSRC. The contracts with Bukhari and the legal environment in
Pakistan protected SBSRC from legal liability. 6|P age They also found that other ship-
breaking businesses and contractors that experienced similar accidents were able to avoid
long-term negative consequences. In those instances, the negative press faded by the next
quarter, and management was no longer answering questions about safety concerns during
public appearances. Welch knew that fourth-quarter earnings were shaping up to be good.
If SBSRC didn’t have to implement changes, then its after-tax earnings per share would
exceed analysts’ expectations by $0.05 per share. 2. CONTINUE THE OPERATION IN
PAKISTAN AFTER SIGNING AN AGREEMENT WITH BUKHARI REQUIRING IMPROVED
SAFETY CONDITIONS. Welch knew ship breaking was dangerous, but he trusted Bukhari to
protect his employees. They had been doing business together for decades. Bukhari took
over the business about the same time Welch became CEO. But the information in Gaines’s
report made him rethink his relationship with Bukhari. He wondered whether he let his
friendship interfere in their business relationship. Welch had no idea that conditions in the
Pakistani ship-breaking yards were as bad as in other emerging countries. Given his
relationship, Welch felt he should travel to Pakistan to speak with Bukhari personally. After
meeting with legal, he boarded a plane for Pakistan and met with Bukhari the next day.
Welch: I wanted to make it out here as quickly as possible. I am sorry that so many
employees were injured and killed. Bukhari: Thank you for coming. I appreciate your kind
thoughts and your flying here so quickly. It has been too long, my friend. Welch: Tomorrow
will mark two weeks since the accident took place. How are the injured workers and the
families of those that were lost? Bukhari: It has been difficult, but things are returning to
normal. My employees are highly compensated and are good providers for their families.
Welch: What safety measures are you implementing to prevent similar accidents? Bukhari:
My employees are safe, and this accident occurred because those employees were careless.
It’s unfortunate, but bad employees will hurt themselves. There isn’t much more I can do.
Safety harnesses and hooks may prevent falls, but most of the safety measures in your
country make their workers less safe and slow them down. How can one escape fire or

12. falling metal if they’re locked in place? The employees need to be able to move and work
quickly. Otherwise, I won’t be able to run a profitable business. Welch: I understand costs
will increase. We’re in tough times, but I want the employees to be safe. I need you to certify
that new safety measures are in place and that they’ll continue going forward. Bukhari: Of
course, my friend, new safety measures will be put in place. Have your planning team
contact me. Now let us put this unfortunate incident behind us and share a meal and drink.
7|P age In the past when Welch discussed safety with him, Bukhari proudly reported that
the shipbreaking operation was safe. Bukhari touted, “My business is the safest in all of
Pakistan. I am following all applicable safety laws, but I could not afford to compete if I have
to implement safety standards like those in the U.S.” Welch felt uneasy about Bukhari’s
quick agreement. He knew SBSRC had little leverage over Bukhari. Bukhari’s ship-breaking
operation has grown since the 1980s and employs almost 40,000 workers. SBSRC’s
business represented less than 10% of Bukhari’s total revenues. 3. SELL THE CONTRACTS
for the ship-breaking operation to Chinese investors and restructure operations. When
Welch returned from the trip to Pakistan, Jonathan (his executive assistant) had an
important message waiting from Wendi Pemberton, the longest-tenured nonexecutive
member of the board. Welch and Gaines arranged to meet with Pemberton. At the meeting,
Pemberton brought news of an offer to purchase SBSRC’s ship-breaking operation for $1.2
billion from a group of investors in China. If accepted, the sale would be effective on January
1, 2018. The sale would exchange $400 million of contracts-in-process and contracts worth
$800 million extending five years into the future. The ship-breaking operation would be
moved as quickly as possible from Pakistan to China. Welch felt better about the ship-
breaking operation in China. The Chinese companies paid their employees twice as much as
Pakistani workers and had better equipment, which would result in much safer conditions
for workers. Few Chinese ship-breaking employees were injured or died on the job. Gaines
noticed Welch’s hesitation during the discussion with Pemberton and arranged to meet
with him the next morning. Gaines: This seems like great news, but I’m not sure you see it
that way. Welch: If we sell, we would need to restructure. I did the preliminary calculations,
and it would likely mean 6,000 layoffs, which includes all of the Pakistani employees and
2,000 in the U.S. Gaines: Wouldn’t that put our business at risk? Welch: No, the restructuring
plan I’ve been working on since you brought the accident to my attention sets us on a path
to profitability. Unfortunately, it would mean SBSRC would exit the ship-breaking industry
after 130 years. I’ll get the restructuring plan to you this afternoon. I’ve scheduled two
meetings next week with our auditors and the board. (See Figure 1.) 8|P age After the
meetings, the auditors insisted that the restructuring plan might not create profits going
forward, and Gaines created financial statements that reflected their worries that SBSRC
wouldn’t remain a going concern. This made the decision more difficult. Welch knew that
employees who were working in the ship-breaking operation risked death and serious
injury only because the pay is the most they could earn. Jobs for low-skilled workers in that
region of Pakistan are difficult to come by, leaving many families without basic necessities.
That hardship would be compounded by the layoffs at home. He knows many of the
employees stateside personally, and telling them they were no longer part of the SBSRC
family would be difficult (see Tables 2A and 2B). 9|P age 10 | P a g e . Paul R. Goodchild, CPA,

13. Ph.D., is an assistant professor of accountancy at the University of Central Missouri and a
member of IMA’s Kansas City Chapter. He can be reached at goodchild@ucmo.edu. Ryan
Peterson, CMA, Ph.D, is an assistant professor of accountancy at the University of Central
Missouri and a member of IMA’s Kansas City Chapter. He can be reached at
rkpeterson@ucmo.edu. 11 | P a g e ANALYSIS Prepare a paper that analyzes the following
alternatives and the additional questions: The Three Alternatives are: 1. DO NOTHING and
continue the ship-breaking operations in Pakistan, 2. CONTINUE THE OPERATION in
Pakistan after signing an agreement with Bukhari requiring improved safety conditions, or
3. SELL THE CONTRACTS for the ship-breaking operation to Chinese investors and
restructure operations. 1. Using the Seven (7) Ethical Decision-making Principles (Long-
term Self-interest; Religious Injunction; Government Requirements; Individual Rights;
Personal Virtue; Distributive Justice; and Utilitarian Benefits), evaluate which ones might be
violated in each of the three alternatives, and explain how. In your analysis identify all of the
major stakeholders (i.e. company shareholders, Pakistani workers, U.S. workers, etc.) for
each of the three alternatives, and explain how they are affected.. What is each stakeholder
group’s loss or gain? See Chapter 4Ethics and Social Responsibility in MGMT 10 (Williams)
2. What are Welch’s responsibilities as the CEO and chairperson of the board of SBSRC? Is
there a conflict between his responsibilities as CEO and ethics and the common good?
Explain. 3. Based on your analysis of the above questions, which alternative you would
select if you were Welch. Explain why and how it affects various stakeholders and the
tradeoffs? 4. How would you monitor the operations to assure when your recommendation
is implemented, that the impact of your decision is monitored to assure that the expected
results and stakeholder interests are fully considered and met? Prepare a 5-7 page paper in
APA format addressing the above questions. Follow all the Guidelines for Written
Assignments for this course (posted on Blackboard). Paper should include the following: A
Title Page; an Abstract page; an Introduction (purpose of paper, Case Background, and
Analysis Method); Sections for the analysis including one section for each of the 3
alternatives; one section for Question 2 (Welch’s responsibilities as CEO); one section for
Question 3 (decision); one section 4 (monitoring); one section for Summary and
Conclusions; and a Reference page. Use centered Headings for each of the sections of the
paper. Paper must following all APA writing style formatting. See Course Guidelines for all
requirements for written assignments. 12 | P a g e Paper will be graded on: Completeness
and accuracy of content and analysis, grammar, and formatting. Specifically, grading rubric
will be based on: How completely and accurately the facts of the case are identified and
used in the analysis; how completely and accurately the ethical issues are identified; how
completely and accurately the stakeholders are identified and how they are affected by each
of the three (3) options; how well the ethical decision making model (7 Principles of Ethical
Decision Making) is explained and applied to each of the decision options; how well the
Decision Making Principles are weighed in terms or relative importance in each of the three
(3) options; how the final decision is defended in terms of being the best given the facts and
analysis of the options and the various stakeholder interests; and how complete and
effective the monitoring program is to help assure that the impact of the final

14. recommendation (decision) is as planned. C Vogus Arkansas State University College of
Business 8/2019 13 | P a g e 14 | P a g e