Question

The company's total R&D cost for 2017 was expected (budgeted) to be $5 billion. During the company's midyear budget review, Chris realized that current R&D expenditures were already at $3.5 billion, nearly 40% above the midyear target. At this current rate of expenditure, the R&D division was on track to exceed its total year-end budget by $2 billion! In a meeting with CFO Ronald Meece later that day, Jackson delivered the bad news. Meece was both shocked and outraged that the R&D spending had gotten out of control. Meece wasn't any more understanding when Jackson revealed that the excess cost was entirely related to research and development of a new drug, Vyacon, which was expected to go to market next year. The new drug would result in large profits for BrisCor , if the product could be approved by year-end. Meece had already announced his expectations of third-quarter earnings to Wall Street analysts. If the R&D expenditures weren't reduced by the end of the third quarter, Meece was certain that the targets he had announced publicly would be missed and the company's stock price would tumble. Meece instructed Jackson to make up the budget shortfall by the end of the third quarter using "whatever means necessary". Jackson was new to the controller's position and wanted to make sure that Meece 's orders were followed.

What would you recommend Jackson do?

A. Jackson should not agree to slow down the R&D efforts on Vyacon and sell off the rights to Martek. Each of these appears to sacrifice the overall economic interests of BrisCor for short-run gain. Jackson should argue against doing this but not resign if Meece insists that these actions be taken. If, however, Meece asks Jackson to capitalize R&D, he should raise this issue with the chair of the audit committee after informing Meece that he is doing so. If the CFO still insists on Jackson capitalizing R&D, he should resign rather than engage in unethical behavior.

B. Jackson should resign immediately.

C. Jackson should contact legal counsel. If legal counsel is unwilling to take legal action against Meece , then Jackson should resign.

D. Jackson should agree to slow down the R&D efforts on Vyacon and sell off the rights to Martek. Both of these decisions will benefit BrisCor in the short-term and long-term. If Meece asks Jackson to capitalize R&D, he should raise this issue with the CEO of the company. If the CFO still insists on Jackson capitalizing R&D, he should resign rather than engage in unethical behavior.

Answer 1

Answer is option A

Jackson should not agree to slow down the R&D efforts on Vyacon and sell off the rights to Martek. Each of these appears to sacrifice the overall economic interests of BrisCor for short-run gain. Jackson should argue against doing this but not resign if Meece insists that these actions be taken. If, however, Meece asks Jackson to capitalize R&D, he should raise this issue with the chair of the audit committee after informing Meece that he is doing so. If the CFO still insists on Jackson capitalizing R&D, he should resign rather than engage in unethical behavior.

There exists an ethical dilemma for Jackson. The intention and actions taken by Jackson to please his new supervisor cannot be considered unethical behavior. However, he is advised to act ethically and follow standards of this profession. The action of capitalizing R&D to please his new supervisor is purely illegal and unethical and thus it is an unacceptable action.