Question

1. According to the chapter, who in a company is most prone to engaging in unethical practices? What are the implications for companies?

2.Why do ethics and integrity matter in a company? How can a company best ensure highly ethical practices?

3. Review recent news releases about Avon. Does the company seem to have recovered from its ethical problems?

Read this Case Study, "Would Claims of Ethical Wrongoing by a Company Impact Your Buying the Firm's Products?"

Headquartered in New York City, avon products is the world’s largest direct-seller firm, and by far the largest direct seller of cosmetics and beauty-related items. Avon is the fifth-largest cosmetics and fragrancefirm in the world. the company receives sales from catalogs and online, but the vast majority of its sales come from about six million independent sales representatives in 110 countries. Since 1892, avon has empowered women to be their own boss and become leaders in communities and business. avon is struggling to recover from poor management and global bribery investigations. Specifically, law firm Zamansky LLc is investigating avon’s employee personal savings account plan (the “plan”) for potential violations of the federal employee retirement income Security act (“eriSa”). this federal act imposes fiduciary duties to prudently manage and invest plan assets. according to the claim, avon allegedly violated eriSa guidelines by its continued offering of company stock during a pending federal investigation for violations of the Foreign corrupt practices act (“Fcpa”). Between 2010 and 2015, avon’s stock price fell from over $40 per share to below $10 per year. the collapse in stock price relates to the Fcpa investigation by the U.S. Department of Justice and Securities and exchange commission that makes it illegal for U.S. companies operating in foreign countries to pay bribes or kickbacks. Separate shareholder lawsuits have alleged that avon engaged in Systemic Fcpa violations, and misrepresented its revenues from various foreign countries. one lawsuit alleges that avon made numerous misrepresentations about the extent, reach, and costs of the investigations against the company. according to Zamansky, avon employees who purchased and held company stock through the plan since 2010 suffered substantial losses to their retirement savings. Zamansky says Fcpa investigation and shareholder lawsuits raise serious issues over the prudent monitoring and oversight of the plan by avon under ERISA.

Answer 1

1) As per the case study, it is more probable for subsidiaries of the parent company who are operating in other domiciles and country to engage in questionable and unethical practices. This in turn may have very serious ramifications for the parent company as this might result in violation of the FCPA act and consequently law suits may be filed against the company which might lead to expensive settlement.

2) The ethical practices and integrity is required in a company to ensure long term sustainable growth. Also in order to discharge the fiduciary responsibility towards the shareholders, ethical conduct is absolutely essential. To ensure ethical conduct, a company culture promoting the same should be developed. Moreover all possible conflicts of interests should be removed from business operations in order to maintain ethical conduct.

3) As per recent news reports, Avon continues to be a global leader in the cosmetic space. Also it's financial performance has shown an uptrend. Thus it appears that the impact of the scandal has subsided