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Managerial Accounting

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Lilly Inc.: Decentralized Divisions and Ethical Issues

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Lilly Inc. prefers a decentralized management style, permitting local managers to manage their units as an investment center, buying and selling assets, setting prices and selecting merchandise in response to local conditions.

What is an ethical problem with this leadership style?

A

Local managers will compete with each other and that is misconduct.

B

Local managers may have an incentive to take risks in order to improve performance and hurt the overall company.

C

The division managers may reject transfer pricing opportunities that help overall performance.

D

Top management may reward managers that increase sales more than those that cut costs and assets.