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THIS WEEK'S ARTICLES
Africa Makes Strides in Corporate Accounting, Governance
Fiat Chrysler CEO to Be Deposed in Jeep Fuel-Tank Fire Lawsuit
E-Cigarette Use by Teens Rising
Citigroup, J.P. Morgan Take Brunt of Currencies Settlement

Africa Makes Strides in Corporate Accounting, Governance
by: Kimberly S. Johnson
Nov 17, 2014
Click here to view the full article on WSJ.com

TOPICS: Africa, Business Ethics, Corporate Governance

SUMMARY: Two weeks ago, the chief executive of the Nigerian Stock Exchange launched a corporate-governance rating system that puts the exchange's 190 major companies-including Unilever Nigeria PLC, Total Nigeria PLC and Oando PLC-through a rigorous assessment. The ratings system requires listed companies to answer questions about their business ethics, internal and external audit and control, transparency and disclosure. Each board member must take a test to measure his awareness of a director's fiduciary duty. Regulators, investors, suppliers and employees also are interviewed. "Nigeria has made a big statement that we want to be in the forefront of good corporate-governance practices," Mr. Onyema said. Sub-Saharan Africa has long lagged behind the developed world in corporate-governance practices, but political and economic stability in countries like Ghana, Kenya and Rwanda have had a halo effect on the region. Over the past five years, more Africa's companies have adopted International Financial Reporting Standards to help draw global investors. Investment returns across the broader continent averaged 13% in 2012, according to consulting firm McKinsey & Co. And the International Monetary Fund expects economic growth in sub-Saharan Africa alone to reach 5.5% this year, up from last year's 4.9%. The risks, however, continue to make headlines. The Ebola outbreak in Liberia, Guinea and Sierra Leone and a recent military takeover in Burkina Faso may make some potential investors skittish. And, despite a growing acceptance of anticorruption measures and international reporting standards, companies sometimes lack the accounting resources to meet stricter financial guidelines. For investors, a major challenge is that the majority of the region's companies are small or midsize, closely held and family-run. Most have never had an outside investor or applied for a bank loan.

CLASSROOM APPLICATION: Companies in Sub-Sahara Africa are trying to improve their corporate governance systems and accounting practices to attract foreign investors. The chief executive of the Nigerian Stock Exchange released a corporate-governance rating system that ranks companies according to criteria such as transparency, external audit and control, and business ethics. Board members must also show they are aware of their fiduciary duties. This is important because the business practices of many African companies are different from those of other countries. Many companies are family-owned and do not have a single set way of accounting. However, if this corporate governance system helps to improve controls and corporate governance in African businesses, it is likely to lead to both improved business operations and better relationships with foreign investors.

QUESTIONS: 
1. (Introductory) Why did the chief executive of the Nigerian Stock Exchange feel the need to develop a corporate-governance rating system for Sub-Sahara African business?

2. (Advanced) What are some of the risks that foreign investors face when investing in Sub-Sahara African countries?

3. (Advanced) What are some ways that both Sub-Sahara African companies and foreign investors can mitigate these risks?

Reviewed By: OC Ferrell, University of New Mexico


Fiat Chrysler CEO to Be Deposed in Jeep Fuel-Tank Fire Lawsuit
by: Christina Rogers
Nov 15, 2014
Click here to view the full article on WSJ.com

TOPICS: Business Ethics, CEO, Chrysler, NHTSA

SUMMARY: A judge has ordered Sergio Marchionne , chief executive of Fiat Chrysler Automobiles NV, to give a deposition in a Georgia lawsuit involving a 4-year-old boy killed in a Jeep fuel-tank fire. In a court filing, Judge J. Kevin Chason of the Superior Court of Decatur County, Ga., denied Fiat Chrysler's request to exclude its CEO from out-of-court testimony. He ordered the company to make Mr. Marchionne available for a videotaped, under-oath deposition. The victim's family filed the civil suit two years ago after he died while sitting in the rear seat of a 1999 Jeep Grand Cherokee. According to the lawsuit, the Jeep was struck from behind and the fuel tank ruptured, igniting the gasoline and engulfing the back of the car in flames. In June 2013, the top U.S. auto-safety regulator, the National Highway Traffic Safety Administration, asked Fiat Chrysler to recall 2.7 million Jeeps, saying the models designed with gas tanks mounted behind the rear axle posed an outsize risk of catching fire when hit from behind. The agency has linked the Jeeps to at least 51 deaths resulting from fiery rear-end crashes. The car maker initially refused the request, but later agreed to recall a smaller pool of 1.56 million older-model Jeeps, while maintaining the SUVs were safe and not defective. Fiat Chrysler has asked dealers to inspect the recalled Jeeps and, if needed, install a trailer hitch on the back to better protect the fuel tanks in low-speed rear-end crashes.

CLASSROOM APPLICATION: Sergio Marchionne, CEO of Fiat Chrysler, has been ordered by a judge to give a deposition despite the company's attempts to exclude its CEO from out-of-court testimony. The lawsuit involves a four-year-old boy who was killed when the family's Jeep was struck from behind and the fuel tank ruptured, causing the Jeep to catch fire. The NHTSA wanted Chrysler to recall 2.7 million Jeeps, claiming that the location of the gas tanks on the rear axles pose an excessive risk to catching on fire when struck from behind. If it is deemed that these Jeeps were excessively risky or defective, then the question will be whether anyone in the company knew about these risks before the accidents took place.

QUESTIONS: 
1. (Introductory) Why do you think the judge is ordering Mr. Marchionne to give an out-of-court testimony?

2. (Advanced) What were the potential design flaws in Chrysler's Jeeps?

3. (Advanced) Do you think the NHTSA's suggestion to Chrysler to recall 2.7 million Jeeps was correct, or were they potentially overstepping their bounds?

Reviewed By: OC Ferrell, University of New Mexico


E-Cigarette Use by Teens Rising
by: Tripp Mickle
Nov 13, 2014
Click here to view the full article on WSJ.com

TOPICS: e-cigarettes, Business Ethics, FDA

SUMMARY: A new government study indicates a sharp rise in the use of electronic cigarettes by adolescents, a trend officials at the Centers for Disease Control said they found alarming due to the possible adverse effects of nicotine on the developing brain. The percentage of high-school students who said they had used an e-cigarette within the last 30 days jumped to 4.5% in a 2013 CDC survey, up from 2.8% in 2012. The rate among middle-school students was flat at 1.1%. The percentage of high-school students who had ever tried e-cigs for the first time rose to nearly 12% from 10%. Among middle-school students it rose to 3% from 2.7%. By contrast, cigarette and cigar use among the age groups declined slightly, according to the study. Overall tobacco use among youth was roughly flat compared with last year at around 23% for high-school students and 6.5% for middle school students. The findings published come as the U.S. Food and Drug Administration works to finalize rules that would possibly ban sales of the devices, which turn nicotine-laced liquid into vapor, to anyone under 18. In April, the agency proposed the first federal regulations on e-cigarettes, one of which is to ban sales. It is in the process of reviewing public comments before finalizing the rules. The FDA didn't propose banning Internet sales, limiting flavors or restricting ads. Though e-cigarettes deliver nicotine, which is addictive, most researchers say they are less harmful than traditional cigarettes because they don't release toxins through combustion like traditional cigarettes. E-cigarette advocates say vapor devices, whose U.S. sales are estimated to reach $2.5 billion this year, help smokers quit traditional cigarettes. But public-health officials remain concerned about the effect e-cigarettes could have on youth.

CLASSROOM APPLICATION: There appear to be tradeoffs in the growing use of electronic cigarettes. On the one hand, e-cigarette use is growing among high schoolers. About 4.5% of high schoolers have used e-cigarettes in the past 30 days, compared to 2.8% in 2012. This is alarming to health officials because nicotine is not only addictive but could have adverse effects on the brain. On the other hand, cigarette and cigar use among teenagers has declined slightly. It is also believed that e-cigarettes may be less harmful than traditional cigarettes because they do not release toxins through combustion. The FDA must carefully consider whether e-cigarette use should be banned among those under the age of 18.

QUESTIONS: 
1. (Introductory) Why are health officials worried about the growing popularity of e-cigarettes?

2. (Advanced) Should e-cigarettes involve less regulation if they are less dangerous than regular cigarettes?

3. (Advanced) Why do you think e-cigarettes appeal to the teen market?

Reviewed By: OC Ferrell, University of New Mexico


Citigroup, J.P. Morgan Take Brunt of Currencies Settlement
by: Chiara Albanese, David Enrich and Katie Martin
Nov 12, 2014
Click here to view the full article on WSJ.com

TOPICS: manipulation, Business Ethics, Citigroup, J.P. Morgan Chase

SUMMARY: Citigroup Inc. and J.P. Morgan Chase & Co. agreed to pay more than $1 billion each to resolve allegations that they tried for years to manipulate the foreign-currency market, the biggest fines wrung from a group of six banks by regulators in the U.S., U.K. and Switzerland. Settlements on Wednesday with banks on both sides of the Atlantic were expected after long investigations, but Barclays PLC surprised investors by pulling out of late-stage negotiations with U.S. and U.K. officials at the last minute. In another unexpected turn, the U.K.'s Financial Conduct Authority told Deutsche Bank AG that it was no longer under investigation by the agency. The pacts, totaling about $4.3 billion, indicate that the banks were engaged in activities designed to boost their profits by moving one of the world's largest and most interconnected markets, sometimes at the expense of clients. Some bank employees blew the whistle on the behavior years ago, but the misconduct persisted until 2013, after banks were punished for trying to manipulate other financial benchmarks. Improprieties in the $5.3-trillion-a-day foreign-exchange market have the potential to touch broad swaths of the public. Every time companies or individuals do business in a foreign currency, they are subject to the whims of a market that regulators said has been rife with misconduct by a group of bank traders. In addition to tarnishing the reputation of the banking industry, the episode reflects poorly on the Bank of England. The central bank on Wednesday released documents showing a senior official, Martin Mallett, knew about attempted currencies manipulation for years but failed to stop it. Mr. Mallett, who was fired Tuesday, had close ties to some of the foreign-exchange traders who were involved in what regulators and the banks describe as misconduct. The settlements are the latest in a series of financial penalties against banks. Globally, lenders have racked up more than $200 billion in penalties in recent years stemming from investigations into misconduct such as interest-rate manipulation, sanctions violations and improperly selling a variety of financial products.

CLASSROOM APPLICATION: The banking industry is in the news again for misconduct. This time Citigroup and J.P. Morgan Chase paid over $1 billion to settle allegations from the United States, United Kingdom, and Switzerland that they had tried for years to manipulate the foreign-currency market. The foreign-exchange market is valued at $5.3 trillion a day, and any manipulations can have profound effects on the market and consumers. It is believed individuals at these banks purposefully manipulated the markets to benefit the banks at the expense of the market. Allegedly, higher-up officials at these banks knew about the manipulation but failed to take action. This culture of complacency allowed the scandal to continue unabated for years. Other banks being investigated for manipulation of foreign-currency markets include UBS, HSBC, and RBS.

QUESTIONS: 
1. (Introductory) Why is the manipulation of the foreign-currency market such a serious offense?

2. (Advanced) How did complacent managers contribute to the misconduct of foreign-currency manipulation?

3. (Advanced) Why do you think it took regulators so long to take action, even though whistleblowers from the banks had blown the whistle on the misconduct years ago?

Reviewed By: OC Ferrell, University of New Mexico


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