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Managing Business EthicsChapter 10

Treviño & Nelson – 5th Edition

++Chapter 10 Overview

Introduction

Managing Stakeholders

Ethics and Consumers

Ethics and Employees

Ethics and Shareholders

Ethics and the Community

Why Are These Ethical Dilemmas and Costs

Conclusion

++Stakeholders

What is a stake? An interest or share in some effort or undertaking A claim or a right to something

Primary stakeholder groups Consumers Employees Shareholders Community

++Consumer Rights

To be safe

To be heard

To choose

To be informed

++Due Care Theory

Design

Materials

Production

Quality control

Packaging, labels, warnings

Notification

++Ethics and Consumers

Conflicts of Interest Enron Marsh & McLennan

Product Safety Johnson & Johnson Toyota

Advertising Pharmaceutical industry

++Ethics and Employees

Employee Safety Johns Manville McWane, Inc.

Employee Downsizings Scott Paper Lincoln Electric

++Ethics and other stakeholders

Ethics and shareholders Salomon Brothers AIG

Ethics and the community Exxon

++ Conflict of interest

Big Insurance Company is a large supplier of health care services which is under fire from the government to lower costs and increase efficiency. Big Insurance has an excellent reputation and is widely acknowledged as one of the best-managed companies in the country. In spite of its reputation, however, Wall Street has reacted negatively to government efforts to reform the industry as a whole, and Big Insurance's stock price has lost 30% of its value in the last year. To counter the effect of possible government intervention, Big Insurance has just purchased Little Company, a discount health care supplier and traditionally one of Big Insurance's feistiest competitors. Wall Street has greeted the acquisition with enthusiasm and Big Insurance's stock price has rebounded by more than 10% since news of the acquisition was made public. While this acquisition could provide Big Insurance with a foothold in tomorrow's health care industry, a real problem lies in the mission of Little Company. Little has made its reputation by providing objective health care advice to its customers. Now that it's owned by Big Insurance, customers have expressed doubts about how objective Little can be in recommending health care services if it's owned by a health care provider.

++ Product SafetyAs a brand manager at a large food manufacturer, you're positioning a new product for entry into the highly competitive snack food market. This product is low-fat, low-calorie, and should prove to be unusually successful, especially against the rapidly-growing pretzel market. You know that one of your leading competitors is preparing to launch a similar product at about the same time. Since market research suggests that the two products will be perceived as identical, the first product to be released should gain significant market share. A research report from a small, independent lab - Green Lab - indicates that your product causes dizziness in a small group of individuals. Green has an impressive reputation and their research has always been reliable in the past. However, the research reports from two other independent labs don't support Green's conclusion. Your director of research assures you that any claims of adverse effects are unfounded and the indication of dizziness is either extremely rare or the result of faulty research by Green Lab. Since your division has been losing revenue because of its emphasis on potato chips and other high-fat snack food, it desperately needs a low-fat money maker. Since you were brought into the division to turn it around, your career at the company could depend on the success of this product.

++ Advertising

As a bottler of natural spring water, your advertising department has recently launched a campaign that emphasizes the purity of your product. The industry is highly competitive, and your organization has been badly hurt by a lengthy strike of unionized employees. The strike seriously disrupted production and distribution, and it caused your company to lose significant revenues and market share. Now that the strike is over, your company will have to struggle to recoup lost customers, and pay for the increased wages and benefits called for in the new union contract. The company's financial situation is precarious to say the least. You and the entire senior management team have high hopes for the new ad campaign, and initial consumer response has been positive. You are shocked then, when your head of operations reports to you that an angry worker has sabotaged one of your bottling plants. The worker introduced a chemical into one of the machines, which in turn contaminated 120,000 bottles of the spring water. Fortunately, the chemical is present in extremely minute amounts - no consumer could possibly suffer harm unless they drank in excess of 10 gallons of the water per day over a long period of time. Since the machine has already been sterilized, any risk of long-term exposure has been virtually eliminated. But, of course, the claims made by your new ad campaign could not be more false.

++ DownsizingThe new CEO, who has a reputation as a turn-around artist, is known for his propensity to make deep cuts in personnel, and to radically alter organizational structures. The employees are reeling from the layoffs, insecurity, and critical press accounts which suggest that Giant is having an identity crisis that could put it out of business if change doesn't happen fast. As a result, Giant's CEO asks you, the head of human resources, to design a plan to cut the oldest -- and most highly-paid and experienced -- employees from the company. He supplies you with a target number that he says will accomplish his goal and yet keep government regulators at bay.

Giant Company is a large company that has experienced significant decreases in sales and profits. It has become apparent to key stakeholders -- employees, customers, and the financial community -- that Giant has focused on the wrong product lines. Consequently, numerous small competitors have eroded Giant's place in its industry, and Giant's sales and profits have plummeted. Over the last year, Giant's board of directors has reduced the company's dividend, replaced Giant's CEO with someone from outside of the industry, and has demanded strict cost controls, including reduced employee benefits and headcount reductions. The experts suggest that 30% of Giant's employees will be terminated.

++ Ethics and shareholders

You work for an investment bank that provides advice to corporate clients. The deal team you work on also includes Pat, a marketing manager, and Joe, who serves as the credit manager for the team, as well as several other professionals. Just before your team is scheduled to present details of a new deal to senior management, Pat suggests to Joe that the deal would have a better chance of being approved if he withheld certain financials. "If you can't leave out this information," Pat says, "at least put a positive spin on it so they don't trash the whole deal."

The other team members agree that the deal has tremendous potential, not only for the two clients, but also for your company. The financial information Pat objects to -- while disturbing at first glance -- would most likely not seriously jeopardize the interest of any party involved. Joe objects and says that full disclosure is the right way to proceed, but that if all team members agree to the "positive spin," he'll go along with the decision. Team members vote and all agree to go along with Pat's suggestion -- you have the last vote. What do you do?

++ Ethics and the communityYou have just been named CEO of a small chemical refinery in the Northeast. Shortly after you assume your new position, you discover that your three predecessors have kept a horrifying secret. Your headquarters location sits atop thirty, 5,000-gallon tanks which have held a variety of chemicals - from simple oil to highly-toxic chemicals. Although the tanks were drained over 20 years ago, there's ample evidence that the tanks themselves have begun to rust and leech sludge from the various chemicals into the ground. Since your company is located in an area which supplies water to a large city over 100 miles away, the leeching sludge could already be causing major problems. The costs involved in a clean-up are estimated to be astronomical. Since the tanks are under the four-story headquarters building, the structure will have to be demolished before clean-up can begin. Then, all 30 tanks will have to be dug up, disposed of, and all of the soil around the area cleaned. You're frankly appalled that the last three CEOs didn't try to correct this situation when they were in charge. If the problem had been corrected 15 years ago, before the building had been erected, the costs would be substantially less than they will be now. However, as frustrated as you are, you're also committed to rectifying the situation. After lengthy discussions with your technical and financial people, you decide that a clean-up can begin in two years. Obviously, the longer you wait to begin a clean-up, the riskier it becomes to the water supply. Before you begin the clean-up, it's imperative that you raise capital, and a stock offering seems to be the best way to do it. However, if you disclose news of the dump problem now, the offering would likely be jeopardized. But the prospect of holding a news conference and explaining your role in keeping the dump a secret keeps you up at night.