Using Insider Information

The following appeared in a memorandum from a member of a financial management and consulting firm:

"We have learned from an employee of Windfall, Ltd., that its accounting department, by checking about 10 percent of the last month’s purchasing invoices for errors and inconsistencies, saved the company some $10,000 in overpayments. In order to help our clients increase their net gains, we should advise each of them to institute a policy of checking all purchasing invoices for errors. Such a recommendation could also help us get the Windfall account by demonstrating to Windfall the rigorousness of our methods."

Discuss how well reasoned . . . etc.

The reasoning above has many flaws in it and cannot be taken on face value.

The first flaw is that the argument does not say much about the mystery employee of Windfall Ltd. who gave the insider information. It is not clear how reliable the source is and how the information was obtained. If the information was obtained by bribing or threat, such an act would not only be unethical, it could also land the company in legal trouble. Unless the argument covers this aspect, it is risky to accept it.

The second flaw is the assumption that all the clients would be as careless with their invoices as Windfall Ltd was. Though it is possible, it is not necessary. A more prudent approach would be to check the client invoices to see if such a problem exists and then suggest the concerned client. Making a blanket recommendation to all clients may or may not prove to be useful. In fact, if the clients don't find it useful they would see the suggestion as a useless advice that just increased their work. 

Lastly, the idea of advising Windfall Ltd. to do something that they are already doing and then hoping to get the Windfall account is counter-intuitive. Why would Windfall appreciate a recommendation that they already know? Most probably they have been implementing it much before the firm even thought of recommending it to them. A new idea would, perhaps, interest Windfall. Not something that they already know.

Concluding, the argument has many flaws and that makes it difficult for anyone reading it to agree with it. The concerned financial management and consulting firm should take the advice given in the memorandum with a pinch of salt. The argument can be considered only if it gives more details about the source, revises its strategy to give a blanket recommendation to all clients and tries to win the Windfall account on the strength of a new idea.