Managing Business Ethics

1
Managing Business Ethics

• Chapter 10
• Treviño Nelson 5th Edition

2
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

3
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

4
Consumer Rights

• To be safe
• To be heard
• To choose
• To be informed

5
Due Care Theory

• Design
• Materials
• Production
• Quality control
• Packaging, labels, warnings
• Notification

6
Ethics and Consumers

• Conflicts of Interest
• Enron
• Marsh McLennan
• Product Safety
• Johnson Johnson
• Toyota
• Advertising
• Pharmaceutical industry

7
Ethics and Employees

• Employee Safety
• Johns Manville
• McWane, Inc.
• Employee Downsizings
• Scott Paper
• Lincoln Electric

8
Ethics and other stakeholders

• Ethics and shareholders
• Salomon Brothers
• AIG
• Ethics and the community
• Exxon

9
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.

10
Product Safety

• As 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.

11
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.

12
Downsizing

• The 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.

13
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?

14
Ethics and the community

• You 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.