From this period, Campbell diversified its products and posted billion dollars sale but small profits. The most important development, however, was due to its borrowings from investors, the company gradually became subject to the decision and pressures of stockholders. The most important of which include the managements protracted legal battles with investors. This dimension to Campbell’s existence has resulted to the adoption of management teams that were desperate to improve Campbell’s positive net margins because it affects the stock price. This the reason why it has pulled all the stops in order to generate the positive earnings that Wall Street demands to the point that illegitimate policies were adopted. Cases in point were the improper accounting, trade loading, among other policies.
1. Identify legitimate business practices that corporate executives can use for the primary purpose of manipulating or “managing” their company’s reported operating results. Are such practices ethical? Defend your answer.
Examples of legitimate business practices that corporate executives can use in order to manipulate their organization’s operating results include: trade loading or the use of excessive price concessions in order for consumers to buy more products thereby propping up the reported revenues or profits for a specific period; and, converting given period-ending discounts as selling, general and administrative expenses instead of treating them as reductions of gross revenues. Another legitimate gimmick that organizations could legitimately use to smooth out its earnings and manipulate its operation reports is by putting excessive reserves on its balance sheet (i.e. for bad debts or defective merchandise) in one quarter, in effect, lowering earnings below what they otherwise would have been, and then reversing the process in another quarter, which would result to the conversion of some of the excess reserves into profit