Haigazian University
Fall 2024-2025
Faculty of Business Administration and Economics
Case Study
Contemporary Interiors (CI).
This case study is submitted in partial fulfillment of the requirements of BAD325, and presented
to Mr. Garabed Boghossian by Shiraz Atikian, Meghety Bdrjkian, Serj Demirjian, and Garod
Saghdejian.
1/10/2024
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Table of Content:
I- Identification of Issues ------------------------------------------------------ 1
II- Stakeholder’s Perspective -------------------------------------------------- 2
III- Connections to Theoretical and Empirical Research ------------------- 3
IV- Analysis and Evaluation --------------------------------------------------- 4
V- Action Plans ----------------------------------------------------------------- 5
VI- Evaluation of Consequences ---------------------------------------------- 6
Questions --------------------------------------------------------------------------- 7
References -------------------------------------------------------------------------- 8
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I. Identification of Issues
II. Stakeholder Perspectives
1-In the case of Contemporary Interiors (CI), there are several key stakeholders, each with
different perspectives and interests that create tension and conflict. It’s important to understand
these perspectives to evaluate the ethical implications of the decisions CI’s management is
considering.
To commence, we need not introduce Geoff Armstrong, the Chief Executive Officer, and the
upper echelon of CI. Their principal task is to maintain profitability for the company and ensure
that their factories in North Carolina remain open as they have come under harsh competition
coupled with dwindling sales. They perceive that the use of Indonesian ramin wood has been one
such means of keeping the business afloat as it is cheaper. But now customers are increasingly
demanding them to switch to the greener alternatives. Their job is how to fund the gap that the
company has without harming its image or getting into legal trouble or both. This may include
increasing the sales, cutting down costs, or manipulating the financial statements at the yearend.
They do feel a lot of pressure to improve the financial performance of the bottom line by the end
of the year, and that pressure may make them look for ways that may bring the bottom line now
and disregard the consequences in the future from an ethical or sustainable perspective.
The consumer and environmentalists come next in this sequence. These people are becoming
more concerned with sustainability, especially when it comes to tropical woods, such as ramin.
Some even feel they should boycott CI until such change happens, they want to move to more
ecologically safe materials. This places CI in a scenario where they either switch to more
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expensive but eco-friendly resources or use unsustainable, cheaper lumber to sustain short-term
returns. These stakeholders would be most likely satisfied if the company’s production of goods
conforms to their expectations. It is correct in a way but costs will increase, which may affect
morality versus competitiveness.
The local authorities and suppliers of wood in Indonesia are also playing their effective roles.
The economic operations of CI are important to them. These suppliers could lose a considerable
part of their income if CI stops using the ramin wood. Local authorities may agree to this if they
get finances on the condition that they will certify Ramin wood safe even when it is not safe if
CI’s proposal is to be adopted. It has become a matter of making the international environmental
standards and the local's development benefits compete against each other. For the short term, CI
may take advantage of this, but if ever these actions were made known, it would have severe
negative impacts on CI’s image and its legal position.
The employees of CI based in North Carolina have some interest in the results as well. Given
that their survival is related to the oral relations of the firm, general expenditure heads such as
Advertising or manipulation of the year’s returns might therefore help in guaranteeing one of
their jobs. But, on the other side, this may bring about the risk of short-term measures focus on
too much culture since the operational security of the business may be at risk in the future. These
workers may support strategies that sustain the business profitability level even if the strategies
put the ethics and future of the business at risk.
Another major category of people consists of investors and shareholders whose chief concern is
in the financial performance of the CI. They would support any means of improving the
bottomline in the short run such as selling equipment to realise one time gains or booking
revenues when not yet warranted. However, these measures may misrepresent the true position
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of the company and risk its future. The challenge here is finding a middle path in which the
shareholders are provided with strong year-end performance without compromising on the true
nature and detail of the financials.
Finally, the last category of clients is CI, in particular, US retailers. Selling furniture that is made
of non-sustainable tropical timber can also be damaging to the company so there is also a shift to
carry such items. Though retailers might pressure CI to change its materials to more friendly
ones, it is expected that the cost incurred as a result will cut its gross margins. For this reason,
there is competition between fulfilling the increasing market demands for eco-furniture and
delivering the furniture at lower rates.
III- Connections to Theoretical and Empirical Research
Problems and issues identified in the CI case are closely related to a number of established
theories and empirical findings in the field of management accounting, corporate ethics, and
sustainability. The next section provides an overview of those theoretical frameworks, which is
valuable in understanding the nature of ethical dilemmas and decision-making processes faced
by the management of CI.
Theoretically, the main link could be made to the stakeholder theory that focuses on showing the
balance of interests between all stakeholders, not just the shareholders. Freeman (1984) suggests
that companies need to balance the interests of all stakeholders, not just shareholders, for long-
term success. The stakeholder theory stresses the need for long-term success through the
addressing of varied needs: customers, employees, suppliers, and environmental advocates. In
this case, CI will be in a position where its internal financial ambitions will be balanced by
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consumers who ask for greener products. The trade-off between making short-term profits and
implementing one of the many short-term sustainable practices, thus, becomes the primary
dilemma in the stakeholder theory. It is argued that the exclusion of some stakeholders, such as
environmentally conscious customers, will eventually lead to the failure of the firm. This is in
addition to the fact that, as confirmed by the data, companies taking care of stakeholder
relationships outperform others in performing well over time. Agency theory also applies to CI's
situation, particularly to the extent of management's responsibility to shareholders. This is based
on the agency theory researching problems of conflict of interest when managers, acting as
agents for the shareholders, formulate strategies not in the best interest of the owners. For CI,
various proposals have been put forth, which comprise recognition of revenues well in advance
or the sale of equipment on production, and many more, all of which are merely a means to
artificially increase profitability for a short-term period at the cost of long-term stability. Such
decisions may benefit the management with bonuses or temporary financial success but can be
misleading for shareholders with regard to the real financial health of the company. Agency
theory underlines the transparency and ethical presentation of financial reports, which would
lead to a convergence of managers' and shareholders' interests which has been the critical issue in
this case.
Related to the present case, is the concept of Corporate Social Responsibility as well. On the
reverse side, this kind of method is used a couple of times, and it has achieved such a point that
consumers are leaving dependence on supplies making them achievable. Business accountability
is no longer just in financial terms as the TBL suggests that it should — good or bad business
praxis is also social and environmental troubled. (Toikka, 2024). CI, on the other hand, uses
Indonesian ramin wood which is now deemed more and more unsustainable. This is causing
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boycotts on CI operations by environmental groups and potentially putting their social license to
operate into question. Method The proposal is for the product which has a carbon-heavy
production method, adding such methods to proposal "g" along with a new planting community
service facility will restore some of the social and environmental name of the firm. It would help
limit reputational damage snowballing into a drawn-out problem, it could also fit as part of the
company's commitment to CSR. More specifically, for CI to be part of an actual long-term
strategy rather than just something that the organization does; empirical studies have shown that
companies with more sustainable practices also have a higher degree of customer loyalty and
better brand perception which importantly suggests that sustainability should be implemented as
part and parcel when building CI.
From the accounting perspective, the ethical standards introduced by the Institute of
Management Accountants (IMA), like the integrity and credibility standards, are particularly
relevant. CI management accountants should weigh decisions like recognizing revenues
prematurely or deferring expenses that violate all ethical principles of accounting. Models for
ethical decision-making, such as Rest's four-component model of ethical behavior, indicate that
ethical actions are a result of a process that includes moral sensitivity, moral judgment, moral
motivation, and moral character. Thus, an application of moral judgment by the management
accountant should signal the act of manipulating the financial reports through options such as
prematurely recognizing revenues and deferring bonuses as a violation of integrity and
credibility under the IMA standards. Empirical management accounting research has established
that companies perceived to maintain high levels of ethics in financial reporting are more trusted
by investors and stakeholders, thus having a long-term view of financial performance (Bowen et
al., 2019).
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For companies like Contemporary Interiors (CI), facing backlash for non-sustainable practices,
the role of crisis management is crucial to restoring consumer confidence. According to recent
studies, adopting transparent, ethical responses and shifting towards sustainable business models
are vital strategies during crises. This shift can improve long-term resilience by mitigating
damage and aligning with consumer expectations of responsibility. Crisis management theory
suggests that firms need to adapt quickly, implementing sustainability measures to address the
public's concerns and reduce negative reactions. (Chen, J. 2022).
III. Analysis and Evaluation
As it navigates the complexity of sustainability, consumer expectations, and ethical
responsibilities, Contemporary Interiors (CI) faces a wide range of difficulties. These problems
fall into a number of important categories:
First, sustainability issues. A major obstacle facing CI is the change in consumer opinions of
sustainable products. Growing public knowledge of environmental concerns has led to a
preference for items made using sustainable materials. According to research, about 75% of
customers give sustainability a high priority when making purchases, and they are also notably
ready to pay more for sustainable goods. This change requires CI to review its sourcing policies,
especially with when it comes to the usage of Indonesian ramin, which has received attention
because of deforestation and environmental issues (Lochhead, 2024).
Second, ethical considerations. Several solutions for the sustainability challenge show major
ethical dilemmas. For example, CI's ethical integrity is compromised by choices like bribing
Indonesian local officials to approve ramin as sustainable or deceiving product materials. Such
acts carry a risk of legal consequences, and they may also weaken customer trust and harm a
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brand's reputation. The Institute of Management Accountants (IMA) states that such methods
clearly breach the ethical decision-making standards of management accounting, which require
on specialists to operate with integrity and openness (Institute of Management Accountants,
2021).
Third, financial implications. CI may take significant short-term financial measures, including
extreme price reductions or early revenue recognition on unshipped orders, in order to meet the
urgency of declining sales. These strategies could be profitable right away, but they carry the risk
of harming CI's brand equity over time, misleading stakeholders, and affecting its financial state.
Such strategies go counter to the core values of truthful reporting and moral financial
management.
Fourth, market dynamics and competitive positioning. CI needs to be aware of how the market is
changing and how consumers are placing a higher importance on corporate social responsibility.
If CI doesn't modify, competitors that put an emphasis on sustainable practices could have an
advantage over it. According to the trend, businesses that embrace sustainability can eventually
increase revenue by improving consumer satisfaction and brand loyalty (Lochhead, 2024).
Evaluation of Proposed Solutions
Every strategy that the management has suggested needs to be evaluated in terms of potential
consequences and ethical standards.
*Certification Manipulation (a): Trying to falsely certify ramin as sustainable deceives customers
and violates the IMA's ethical guidelines. Such behavior may result in serious damage to one's
reputation, a decline in consumer trust, and possible legal action for misrepresentation.
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*Price Reductions (b): Although making large price reductions may boost sales temporarily,
doing so runs the risk of undermining brand value and creating a negative image of lower-quality
goods. This strategy may ultimately affect CI's profitability and market position.
*Executive Bonuses Accounting (c): Postponing the recognition of executive compensation until
the next year may cause financial statements to be misrepresented, putting CI's financial
reporting under regulatory scrutiny and affecting its accuracy. Being transparent is essential to
preserving trust among stakeholders.
*Advertising Strategy (d): While CI's reputation may initially be improved by marketing
products as "made in the USA," this claim needs to be supported by actual methods. False
advertising might cause dissatisfaction and further weaken customer trust.
*Material Substitution with Recycled Plastic (e): Shifting to recycled materials is a strategic
approach toward sustainability. This method may improve CI's reputation as a responsible brand
without sacrificing product quality, and it also conforms to customer preferences.
*Pressuring Customers for Early Deliveries (f): While this technique might improve short-term
cash flow, it risks damaging relationships with customers over time. Maintaining a favorable
brand image and creating loyalty require ethical sales practices.
*Sustainable Sourcing (g): Shifting to sustainable hardwoods from North America and starting a
"plant a tree" campaign are proactive measures taken in response to consumer requests for
sustainability. Despite the 25% cost increase associated with this technique, it may be
appropriate to pass these expenses on to customers given the increasing consumer willingness to
pay for environmentally friendly products.
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*Selling Production Equipment (h): While this tactic can result in short-term financial benefits, it
has the risk of weakening CI's operational capacity and reducing its ability to produce flexible
goods in the future.
*Revenue Recognition on Unshipped Orders (i): Recognizing revenue prematurely is unethical
and might have serious financial consequences, including penalties and damage to CI's image.
To sum up, the analysis indicates that CI must take decisive action to align its operations with
ethical standards and shifting consumer expectations regarding sustainability. Implementing the
shift to sustainable materials while preserving financial reporting and marketing transparency is
the most practical course of action. The reputation and market position of CI are likely to suffer
in the long run from strategies that violate ethical standards. In addition to addressing current
customer problems, CI can position itself as a pioneer in the furniture industry dedicated to
ethical business practices by adopting sustainability as a core value.
IV. Action Plan
The action plan for Contemporary Interiors (CI) should address the immediate challenges of
sustainability, ethical financial reporting, and long-term business viability.
Shift to Sustainable Materials (Option g)
CI will switch to using hardwoods from North America in place of Indonesian ramin. In addition
to this change, a "plant a tree" campaign will be implemented to guarantee that a tree is planted
for each piece of furniture sold. This change will respond to customer concerns and meet the
increasing calls for sustainability.
Within six months, the company will phase out ramin in favor of developing partnerships with
North American hardwood suppliers and a sustainable supply chain. In keeping with this shift,
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CI's marketing will highlight its dedication to sustainability and ethical sourcing.
CI plans to transfer the 25% rise in material costs to customers, positioning it as an additional
cost for eco-friendly merchandise. To foster trust, this should be openly disclosed to clients.
Redesign of Products Using Recycled Materials (Option e)
Recycled plastic will take the place of the ramin in CI's redesigned upholstered furniture. This
modification, which has no effect on durability or appearance, will let CI sell its furniture as
"sustainable" and environmentally friendly.
On the redesign, engineers and designers will work together to maintain the same level of quality
and aesthetics in the final product. Marketing departments will highlight these products'
sustainable features.
Cost savings from switching to recycled materials should partially offset the higher expenses
associated with using sustainable hardwood.
Marketing and Rebranding (Option g and e)
start a broad marketing campaign emphasizing the use of recycled materials and the switch to
North American hardwood with a focus on sustainability. The campaign's main component, the
"plant a tree" initiative, will draw in eco-aware customers.
Targeting environmentally conscious consumers, CI will spend money on a traditional and
digital marketing campaign to highlight its new, sustainable product lines. It is essential to work
together with retailers to emphasize CI's dedication to sustainability.
Ethical Financial Practices
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Rejecting options that call for delaying bonus payments (Option c) and premature revenue
recognition (Option i), CI will uphold ethical financial reporting. By taking these steps, CI will
be able to maintain its credibility and integrity with stakeholders and investors.
To guarantee accurate financial reporting and adherence to the ethical standards of the Institute
of Management Accountants (IMA), internal controls will be reinforced.
Long-term Sustainability Goals
Set long-term sustainability objectives for CI, such as reducing carbon emissions, increasing the
use of renewable energy in production, and enrolling in a sustainable forestry certification
program.
To oversee these initiatives and incorporate them into the business's operational and marketing
plans, CI plans to appoint a sustainability officer.
V. Evaluation of Consequences
Improved Brand Image and Customer Trust: CI will regain the trust of its customers and
environmental organizations by switching to sustainable hardwoods and employing recycled
materials. The company's reputation will be further enhanced by the "plant a tree" campaign,
which will appeal to environmentally conscious consumers who value sustainability.
Expected outcome: A greater degree of customer loyalty, an enlarged clientele, and enhanced
connections with merchants who aim to collaborate with ethical brands. CI may anticipate a
larger market share from environmentally conscious customers.
Financial Impact: Production costs will rise due to the 25% increase in material costs from
sustainable hardwoods, but this can be compensated for by marketing CI's products as high-end,
green furniture. Costs can be kept under control by using recycled materials in upholstered
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furniture.
Expected outcome: Increasing material costs may cause short-term profit margins to narrow, but
over time, CI's emphasis on sustainability should increase revenue as consumer demand for
sustainable goods grows. Maintaining investor confidence and shielding the business from
regulatory risks are two more benefits of ethical financial practices.
Compliance with Ethical Standards: Rejecting unethical financial practices will help CI stay
out of legal trouble and keep its stakeholders informed. Examples of these practices include
delaying bonuses and recognizing revenue too soon.
Expected outcome: CI will establish a strong reputation for moral financial reporting,
safeguarding its long-term sustainability and lowering the risks of future lawsuits or fines from
the authorities.
Operational Challenges: Selling production equipment (Option h) might increase profits in the
near term, but it might also reduce CI's operational capacity, increasing leasing costs and limiting
production flexibility. Consequently, it is not advised to choose this option for long-term
viability.
Expected outcome: Bypassing this option, CI will be able to continue operating at full capacity,
which will enable it to produce high-quality furniture quickly and affordably without having to
pay extra for leasing.
Long-Term Competitive Position: CI aims to establish itself as a prominent player in the
sustainable furniture sector by emphasizing ethical and sustainable practices. By using this tactic,
CI will be able to set itself apart from rivals, especially those who keep using non-sustainable
materials.
Expected outcome: In a market where sustainability is becoming more and more important, CI
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will draw in investors and customers who care about the environment, assuring long-term growth
and resilience.
References
Bowen, R., Rajgopal, S., & Venkatachalam, M. (2019). Financial reporting quality and corporate
transparency: A systematic review. Journal of Accounting and Economics, 68(2), 101-125.
https://doi.org/10.1016/j.jacceco.2019.05.002
Chen, J., Li, Y., Li, W., & Su, M. (2022). Impact of crisis on sustainable business model
innovation—The role of technology innovation. Sustainability, 14(18), 11596.
https://doi.org/10.3390/su141811596
Freeman, R. E. (n.d.). (1984). strategic management a stakeholder approach. Boston, MA
Pitman. - references - scientific research publishing.
https://www.scirp.org/reference/referencespapers?referenceid=1751722
Institute of Management Accountants. (2021). Statement of Ethical Professional Practice.
https://www.imanet.org/ima-certifications/~/link.aspx?
_id=4F620553A34B4FBDBD3EC841DCB76DC2&_z=z
Lochhead, G. (2024, Jul 16). Sustainability is driving the Future of Furniture. BFM
https://www.furnitureproduction.net/resources/articles/2024/07/1466487575-sustainability-driving-
future-furniture
Paron, A.J. (2024, June 3). Wood for Good: The Case for Sustainable Furniture. Surround.
https://surroundpodcasts.com/episodes/wood-for-good-the-case-for-sustainable-furniture/
Toikka, J. (n.d.). (2024) What is Sustainable Procurement and why is it important? Sievo.
https://sievo.com/blog/sustainable-procurement-part1
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