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THIS WEEK'S ARTICLES
Hackers Target Users of Infidelity Website Ashley Madison
Fed Lifts Capital Requirements for Banks
Toshiba CEO Resigns After Accounting Scandal
Takata Air-Bag Probe Points to Leaky Seals

Hackers Target Users of Infidelity Website Ashley Madison
by: DANNY YADRON
Jul 20, 2015
Click here to view the full article on WSJ.com

TOPICS: Ashley Madison, Business Ethics, hackers

SUMMARY: The lesson from the latest cyberhack of personal data: Arranging marital infidelity online carries all the risks of its real-world counterpart. The parent company of Ashley Madison, a dating site aimed at those looking for extramarital affairs, confirmed on Monday that its systems were hacked by an intruder threatening to release the real names and personal preferences of the site's millions of users unless it shuts down. The hackers said they obtained account holders' names, addresses and other personal information. On its website, Ashley Madison claims more than 37 million "anonymous members," though it is unclear how many of those are active, individual users. Although the intruders, who refer to themselves as "Impact Team," released the identities of some purported Ashley Madison users Sunday night, no new data was released Monday and the site remained operational. "We apologize for this unprovoked and criminal intrusion into our customers' information," Toronto-based Avid Life Media Inc. said in a statement. "At this time, we have been able to secure our sites and close the unauthorized access points." Avid Life said it forced file-sharing sites to take down samples of the stolen data. However, the company declined to discuss what data the hackers still have. Avid Life, which runs several other niche dating sites, has said in recent months it is considering going public. A spokesman said that remains an option "irrespective of today's news." Ashley Madison's home page made no mention of the breach, but instead touted a "trusted security award" and that Ashley Madison is a "100% discreet service."

CLASSROOM APPLICATION: Ashley Madison is a website that promotes marital infidelity. Their tagline is "Life is Short. Have an Affair." So far nearly 37 million have visited the site, and many have used the site, providing personal data that is supposedly converted to an email address to mask one's identity. Now hackers have penetrated the site and demanded the site be shut down or they'll release the names of those individuals who have been using the site. While many consider the use of such a website as reprehensible, this data breach recognizes that personally identifiable information is difficult to protect.

QUESTIONS: 
1. (Introductory) If the motives of the hackers were to shut down the Ashley Madison site, was it okay for them to penetrate the site and gather the names of those involved with the site?

2. (Advanced) Will the hacking of the Ashley Madison site prevent potential users from providing their personal information in the future?

3. (Advanced) Do you think the public who considers the Ashley Madison site as highly unethical will support the hackers in trying to close it down?

Reviewed By: OC Ferrell, University of New Mexico


Fed Lifts Capital Requirements for Banks
by: RYAN TRACY, VICTORIA MCGRANE and JUSTIN BAER
Jul 20, 2015
Click here to view the full article on WSJ.com

TOPICS: Banking Industry, Business Ethics, Federal Reserve, J.P. Morgan Chase

SUMMARY: The Federal Reserve sent a message to the largest U.S. financial firms: Staying big is going to cost you. The Fed's warning, articulated in a pair of rules it finalized Monday, is among the central bank's starkest postcrisis regulatory moves pressing Wall Street banks to reconsider their size and appetite for risk. The Fed completed one rule stating that the eight largest banks in the country should maintain an additional layer of capital to protect against losses, its plainest effort yet to encourage them to shrink. At the same time, it offered a reprieve to General Electric Co.'s finance unit from more-intensive regulation, after the company promised to cut its assets by more than half. The moves reinforce the central mandate of the Dodd-Frank financial overhaul law signed by President Barack Obama five years ago. Regulators have pushed big banks to expand their capital buffers to better absorb losses, reduce their reliance on volatile forms of funding, improve their risk management and cut back on risky assets. So-called stress tests measure banks' resilience each year and can restrict shareholder payouts at firms that don't pass. For Wall Street banks and their investors, the emerging regime presents a series of choices: specifically whether to pay the cost of new regulation, which will fall to the bottom line, or change their business models by shedding businesses or withdrawing from certain markets, such as owning commodities. The Fed "clearly intends the very largest U.S. banks to buckle under this new capital regime, restructuring quickly and dramatically," said Karen Petrou, a managing partner at Federal Financial Analytics, a policy-analysis firm.

CLASSROOM APPLICATION: The Federal Reserve is requiring additional capital for the nation's eight largest banks. J.P. Morgan received the highest capital requirements increase of the group. The Federal Reserve is sending the message to the largest U.S. financial firms that they should act smaller. Additional capital is being required to try to protect the public against losses. The bottom line is this will increase the cost of large banks' operations. These types of restrictions may have unintended consequences of volatility in financial markets and preventing some people from getting loans.

QUESTIONS: 
1. (Introductory) Is it fair to ask big banks to provide additional capital just because they are large and associated with the recent financial crisis?

2. (Advanced) Should government regulators take into account all stakeholders, including investors, small businesses, and individuals who want low cost financial services?

3. (Advanced) Will increasing capital reserves in banks prevent a future financial crisis?

Reviewed By: OC Ferrell, University of New Mexico


Toshiba CEO Resigns After Accounting Scandal
by: TAKASHI MOCHIZUKI
Jul 21, 2015
Click here to view the full article on WSJ.com

TOPICS: Accounting fraud, Business Ethics, CEO, Corporate Culture, Toshiba

SUMMARY: Toshiba Corp. Chief Executive Hisao Tanaka resigned Tuesday, a day after an outside investigation said he and other current and former executives bore responsibility for an accounting scandal in which the Japanese industrial and electronics company overstated profit by more than $1.2 billion over seven years. In an effort to move on from what an independent panel described as a "systemic" problem, Toshiba announced a sweeping reorganization of its corporate leadership, in which eight of 16 board members are stepping down. This includes Mr. Tanaka, who has been chief executive since 2013, and his predecessor, Norio Sasaki, who has been serving as vice chairman. Also Tuesday, Mr. Sasaki resigned from a panel that advises Prime Minister Shinzo Abe regarding economic policy. "I deeply apologize to all stakeholders for causing these problems," Mr. Tanaka said at a news conference, though he said he hadn't been aware of any inappropriate accounting. "This has resulted in the largest damage ever to our corporate image." Toshiba said its chairman, Masashi Muromachi, would serve as interim chief executive, and that more board-member changes will be announced by the end of the month. "I'm totally disappointed because it could damage investor confidence in the Japanese market," said Deputy Prime Minister Taro Aso, who oversees the finance ministry and the securities watchdog. Prime Minister Abe's government has been pushing for greater transparency at Japanese companies to attract more foreign investment. In a 300-page report published Tuesday, the independent panel hired by the company to investigate the matter said the three most recent chief executives played active roles in inflating Toshiba's operating profit by 151.8 billion ($1.22 billion) since 2008.

CLASSROOM APPLICATION: Toshiba's CEO resigned after an investigation said that he was partially responsible for accounting scandals in which the company overstated its profits. For a long period of time, a systemic problem existed in Toshiba where pressure was placed on managers to inflate earnings. This has resulted in possibly having Toshiba's operating profit inflated by as much as $1.22 billion since 2008. Management seems to be responsible for placing pressure before the end of a fiscal quarter to get division heads to cook the books. Some of the methods used to inflate earnings was to attempt to move future sales into the current quarter, which is also called channel stuffing.

QUESTIONS: 
1. (Introductory) Should the CEO be held responsible for the accounting scandal at Toshiba?

2. (Advanced) What can be said about the ethical culture of Toshiba with so many managers participating in inflating earnings?

3. (Advanced) How can the pressures of quarterly earnings be minimized to prevent companies from engaging in misconduct in order to make the numbers for a particular quarter?

Reviewed By: OC Ferrell, University of New Mexico


Takata Air-Bag Probe Points to Leaky Seals
by: YOKO KUBOTA
Jul 16, 2015
Click here to view the full article on WSJ.com

TOPICS: Business Ethics, product safety, Recalls, Toyota

SUMMARY: Air bag explosions like the one at an auto scrapyard here last November that employees said sounded like a TV Western shootout are helping shed light on a yearslong mystery into what's turning minor auto crashes into fatal accidents. Investigators, who found the car's windshield shattered by the blast, collected pieces of sharp metal sprayed inside the vehicle. Analysis of these parts and others collected through recalls have guided them toward some of the likely causes: air and moisture is somehow penetrating the Takata Corp. air bag inflater seals, and turning in certain instances what are ordinarily mild explosives used to inflate air bags inside into violent bombs. Among potential causes under study, say people familiar with the probe, is a washing fluid that could have led airtight seals come loose in passenger-side inflaters like the one in the Toyota Motor Corp. hatchback at the junkyard in Gifu, in central Japan. In certain driver-side air bags, investigators also are focusing on potential damage to an O-ring seal. Recalls of Takata air bags have become the biggest in U.S. automotive history, now targeting some 32 million vehicles. Takata air bags exploding with excessive force are linked to eight deaths, all involving driver-side bags, and more than 100 injuries. Honda Motor Co. on July 9 recalled an additional 4.5 million vehicles, including some made as recently as 2011. One contributing factor to the problem has long been known. Takata, unlike other major air bag makers, uses a chemical called ammonium nitrate among others in the propellant pellets inside inflaters. If exposed to moisture, the particles with ammonium nitrate can cluster and burn too quickly, emit gas with too much force and blow up the entire canister, Takata and outside experts have said. The recently identified leakage problems, by letting moisture inside inflaters, would represent a second contributing factor. The difficulty of finding all the paths for moisture leakage-and the obscurity of those studied so far-helps explain why the investigation into the Takata problem has dragged on. To some experts it suggests that the complete picture may impossible to draw. "I know there may not be a single root cause, and we may in fact never know the root cause," Mark Rosekind, the top U.S. traffic safety official, said in June. Mr. Rosekind raised the example of Boeing Co.'s 787 Dreamliner, which was grounded for months in 2013 after lithium-ion batteries overheated and failed. No root cause was ultimately identified, but regulators and Boeing say subsequent fixes eliminated fire hazards and the plane is flying today.

CLASSROOM APPLICATION: Investigations into deadly explosions of Takata airbags has found that air and moisture penetrated chemical inflators, causing airbags to explode, resulting in injuries and deaths to drivers. While there was no intent involved, poor quality control allowed for millions of defective airbags to be inserted in cars. Moisture leakage is a contributing factor in the explosions that occurred in the airbags. When the safety of the public is the major concern, companies have the responsibility to do expensive testing and react promptly when there is evidence of a major safety issue.

QUESTIONS: 
1. (Introductory) How would you feel if you received a recall notice that you had to take the time to go into the dealer and have your airbag replaced because of defective parts?

2. (Advanced) Should companies such as Toyota and Honda bear any responsibility for using defective Takata airbags in their cars?

3. (Advanced) How can product safety issues such as defective airbags be identified earlier before people are injured?

Reviewed By: OC Ferrell, University of New Mexico


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