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The Controller of One Division of a Large Diversified Firm

question 52

Essay

The controller of one division of a large diversified firm is compensated by salary plus bonus. The bonus is a significant part of total compensation, and is based directly on the profits of the division. Thus, the controller has an incentive to find ways to increase profits, including the delay of discretionary expenses such as research and development, delay of maintenance and repair of manufacturing equipment, and delay of sales promotions.
Required:
Is finding ways to increase profits as described above unethical? Why or why not? Who is to blame, if anyone?


Definitions:

Commercial Paper

An unsecured, short-term debt instrument issued by corporations, typically used for financing immediate needs.

Payment

The transfer of money, goods, or services as compensation or fulfillment of an obligation.

Demand Instrument

A type of draft that allows the payee to demand payment at any time from a holder.

Payee

The individual or entity to whom a payment is to be made or who will receive the payment.

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