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THIS WEEK'S ARTICLES
Chairman Says HSBC Reputation Damaged by Swiss Unit Allegations
Abercrombie Faces Supreme Court Battle Over Headscarf Policy
Apple Is Ordered to Pay $532.9 Million in Patent Case
Tobacco Companies Agree to Settle Lawsuits in Florida Federal Courts

Chairman Says HSBC Reputation Damaged by Swiss Unit Allegations
by: Margot Patrick And Max Colchester
Feb 25, 2015
Click here to view the full article on WSJ.com

TOPICS: Business Ethics, HSBC, Tax Evasion

SUMMARY: HSBC Holdings PLC Chairman Douglas Flint told lawmakers Wednesday that HSBC "is suffering from horrible reputational damage" over alleged wrongdoing in its Swiss private bank, and blamed the unit's former management for a lack of oversight. Mr. Flint, appearing alongside HSBC Chief Executive Stuart Gulliver at Parliament's Treasury Committee, said client screening in the Swiss private bank had historically been "much more passive than it is required to be today," and that he and Mr. Gulliver are working hard to clean up the bank and improve its controls globally. Earlier in February, a cache of client information was made public via the media, describing ways HSBC's Swiss bank allegedly advised clients on avoiding paying taxes and listing clients who are on U.S. sanctions lists or were ousted in the Arab Spring. Swiss prosecutors raided HSBC's Swiss offices, adding to investigations in several countries including the U.S. since the client information was first handed to French tax authorities by a former HSBC employee in 2008. During a tense hearing, Messrs. Flint and Gulliver were repeatedly needled by committee members over the bank's failure to hold any one person accountable for the Swiss unit's activities. Mr. Flint joined HSBC in 1995 as group finance director and became chairman in 2010. Mr. Gulliver has worked for the bank since 1980 and became CEO in 2011. Mr. Gulliver said he personally apologizes for "the unacceptable events" that took place at the Swiss bank in the mid-2000s, but told lawmakers that even after being appointed to the unit's board in 2007 he had only a limited role. Mr. Flint said he takes his share of the responsibility, but that the people most to blame were the Swiss bank's local executives and client relationship managers.

CLASSROOM APPLICATION: The two top executives at the British bank HSBC report significant reputational damage for alleged wrongdoing in their Swiss private bank unit. They are admitting that a lack of oversight allowed the Swiss bank unit to advise clients on avoiding paying taxes. Many of the clients' names were made public by the mass media that also described how the Swiss bank allegedly helped people avoid paying taxes. Interestingly, the two top officers in the company have worked with the bank for many years. They claim to have only played a limited role and are not taking responsibility for the lack of oversight.

QUESTIONS: 
1. (Introductory) Should the Chairman of the HSBC board of directors and the Chief Executive Officer be held accountable and responsible for the reputation damage received for helping clients avoid taxes?

2. (Advanced) The CEO personally apologizes for the unacceptable events but claims the fault is the management of the Swiss bank and that he only had a limited role. Do you agree or disagree with his defense?

3. (Advanced) Even the personal tax affairs of the CEO are being questioned because he had a $5 million pound Swiss bank account that was funded through a Panamanian company. Does this create concern about the CEO's personal finances because he selected to use the Swiss bank account?

Reviewed By: OC Ferrell, University of New Mexico


Abercrombie Faces Supreme Court Battle Over Headscarf Policy
by: Jess Bravin
Feb 25, 2015
Click here to view the full article on WSJ.com

TOPICS: Abercrombie and Fitch, Business Ethics, Discrimination

SUMMARY: Abercrombie & Fitch Co. found itself decidedly out of fashion at the U.S. Supreme Court on Wednesday, where justices showed little tolerance for the retailer's rejection of a Muslim job applicant because she wore a headscarf. Abercrombie lawyer Shay Dvoretzky said a manager declined to hire Samantha Elauf, then 17 years old, at a Tulsa, Okla., store because the headscarf she wore to a job interview violated the company's "look policy," a dress code requiring staff to wear attire similar to what the store sells. While managers correctly believed Ms. Elauf was a Muslim, she didn't tell them her religion and its requirements, Mr. Dvoretzky said, so the company shouldn't be liable for discrimination. To do so, he said, "is asking employers to treat applicants differently based on stereotypes or assumption about whether something is likely a religious practice." Several justices, noting that Ms. Elauf wasn't informed of the dress code, suggested the interviewer, observing a potential religious issue, could have mentioned the rule.

CLASSROOM APPLICATION: The Supreme Court is hearing an argument over whether Abercrombie and Fitch can be sued for refusing to hire a Muslim job applicant who wore a head scarf. The applicant wore the head scarf to an interview but did not indicate it was for religious reasons. This is a classic case of alleged discrimination with the claim that applicants are treated differently based on stereotypes. Abercrombie and Fitch claims that the head scarf worn to the job interview violated the company's "look policy," a dress code requiring staff to wear attire similar to what the store sells.

QUESTIONS: 
1. (Introductory) During the interview, should Abercrombie and Fitch have engaged the applicant about the reason she wore a head scarf?

2. (Advanced) Did the company engage in stereotyping without accommodating an individual's religious needs?

3. (Advanced) Is there a tight rope to walk in trying to avoid stereotyping and asking about religious preferences versus selecting people who fit with the company's dress policy?

Reviewed By: OC Ferrell, University of New Mexico


Apple Is Ordered to Pay $532.9 Million in Patent Case
by: Angela Chen
Feb 25, 2015
Click here to view the full article on WSJ.com

TOPICS: Apple Inc, Business Ethics, Intellectual Property, Patent

SUMMARY: A Texas jury ordered Apple Inc. to pay $532.9 million after finding that the company's iTunes software infringed three patents of privately held Smartflash LLC. The Cupertino, Calif., tech giant vowed to appeal the verdict. Smartflash owns three patents related to data storage and payment management. The Tyler, Texas, company alleged that, in 2000, patent co-inventor Patrick Racz shared his ideas with Augustin Farrugia, then a member of the tech company Gemplus International SA. Mr. Farrugia is now a senior director at Apple. Smartflash, which doesn't make its own products, claimed that Apple violated the patents by using the technology in managing apps sold through its iTunes store, such as "Coin Dozer Pro" developed by Game Circus LLC and "Grub Guardian" and "WizardBlox," developed by Kingsisle Entertainment Inc. The latter two companies had been defendants before being dismissed from the case. The jury found that Apple had willfully infringed all three patents, and that Apple hadn't proven the patents were invalid. Smartflash had sought $852 million in damages.

CLASSROOM APPLICATION: A Texas jury has found that iTunes software infringed on three patents of a small privately-held company, Smartflash. Interestingly, Smartflash has filed similar cases against Google and Samsung. The company makes no products, has no employees, creates no jobs, and has no U.S. presence. Of course, Apple believes this is just another example of someone exploiting the patent system and will appeal the verdict.

QUESTIONS: 
1. (Introductory) Do you think Apple was targeted by Smartflash because of its size and financial success for a patent infringement lawsuit?

2. (Advanced) Because Smartflash is also suing Google and Samsung, does this mean that it is basically in the business of suing companies for patent infringement?

3. (Advanced) There seems to be some vagueness over how Apple would have obtained the Smartflash ideas, so how do you think the jury could make a decision on a case like this if they had no previous experience in developing and analyzing patents?

Reviewed By: OC Ferrell, University of New Mexico


Tobacco Companies Agree to Settle Lawsuits in Florida Federal Courts
by: Tripp Mickle
Feb 25, 2015
Click here to view the full article on WSJ.com

TOPICS: Business Ethics, cigarette, Tobacco Industry

SUMMARY: The three largest U.S. tobacco companies agreed to pay a total of $100 million to settle hundreds of federal lawsuits in Florida, resolving some-but not all-of the legal uncertainty that has hung over the industry since a class-action suit was brought by state residents in 1994. Altria Group Inc. and Reynolds American Inc. will each pay $42.5 million and Lorillard Inc. will pay $15 million to resolve about 400 cases. The agreement excludes a handful of federal cases that have gone to trial. The settlement is far less than the more than $500 million the industry has had to pay plaintiffs in federal and state cases in Florida over the past decade, but it leaves unresolved more than 3,000 lawsuits pending in state courts, cases that are potentially more damaging. They are more difficult for the tobacco industry to settle because they are spread across Florida's court system. Also, the industry has fared worse in the state's courts, winning roughly 40% of more than 100 trials and on average paying damages of about $4.5 million a case, according to Matthew Grainger, an analyst with Morgan Stanley Research. The Florida cases, which collectively became known as the Engle lawsuits, sprang from an initial class-action lawsuit filed in Dade County Circuit Court in 1994 on behalf of a smoker, Howard Engle. The suit charged several big tobacco companies with misleading consumers. The defendants included Philip Morris USA, a subsidiary of Altria Group; R. J. Reynolds Tobacco Co., a unit of Reynolds American; Lorillard; and Liggett Group, a division of Vector Group Ltd.

CLASSROOM APPLICATION: Once again tobacco companies are settling lawsuits related to selling a product that poses a significant health hazard to consumers. Most of the tobacco cases claim that the companies were involved in misleading consumers about the health risks of cigarettes. Thousands of cases have been dismissed, but plaintiffs have won about 60% of the cases brought to trial.

QUESTIONS: 
1. (Introductory) Since it is widely known that cigarettes cause serious health risks, should consumers receive compensation when they willfully consumed a dangerous product?

2. (Advanced) Cigarette companies say they are making efforts to educate consumers about the dangers of smoking and only supply the products to those who desire to face the risks of the products they sell. Is this defense adequate?

3. (Advanced) What would be the outcome if cigarettes were banned because of the health risks they pose?

Reviewed By: OC Ferrell, University of New Mexico


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