Please explain how you voted applying one of the principles we addressed in the particular segment or segments for which you are seeking credit. Only thoughtful responses will earn credit.
THE ETHICS OF CORPORATE SOCIAL RESPONSIBILITY:
[It is 10:45 a.m. on October 27, 2011 at Vandelay Industries’ high-end T-Shirt Division United By Blue. The Division’s Chief Executive Officer Brian Linton is meeting with Director of Clean-ups Mike Cangi, Director of Marketing Alli Blum, and Director of Finance Mary Boyle.]
Brian: Team, I’m really proud of what we’ve been able to accomplish together since I founded this company in May of 2010 just a few years after graduating from Temple University. Our products, manufactured in India, are now sold in 175 stores, including six Whole Food stores and 20 Urban Outfitter stores. For every piece of apparel we sell, we remove one pound of garbage from oceans and waterways around the world through clean-up projects that the company funds. I called this meeting because I was troubled by what I saw in the spreadsheets Mary handed me this morning. Mary, tell the group what we discovered about our profit margins.
Mary: Well, our wholesale profit margins have shrunk – from about 60% to 15%. It’s pretty clear we’ve got to do something or we risk going out of business in less than a year.
Alli: Why have our profit margins gone down so sharply?
Brian: A large part of it is the shift we made not long ago to how our products are packaged. It didn’t make sense to talk about how much waste we were removing through our clean-up projects while, at the same time, we were generating a lot of waste in our packaging and shipping. So I decided to use banana-fiber paper packaging, hang tags made of elephant dung, and twine instead of plastic to attach the tags. As a result, our plastic use fell by 80%.
Mary: But all of that cost a lot of money. The banana fiber bags cost 50 cents apiece as compared to the penny apiece the plastic packages cost. On top of that, cotton prices are at their highest level in 140 years, just as we switched to a higher grade of cotton in our shirts. We didn’t factor any of this into our wholesale T-shirt price of $14.50, with some of our best customers paying even less.
Alli: Have you considered packaging alternatives, like tissue paper or biodegradable plastic?
Brian: Sure we have. But tissue paper is too flimsy and the plastic could melt on hot cargo ships from India.
Mike: And then there’s the cost of the clean-ups. I can tell you that they are becoming more and more expensive. They cost $2,000 to $5,000 each.
Brian: So I wanted to ask you all what you would think if we raised the wholesale price of our shirts to $16.50, with a suggested retail price of $34.
Mary: Brian and I have talked about this and he knows what I think. I think we ought to leave the price where it is. I really don’t think continuing with these expensive clean-ups makes sense, It doesn’t make sense for a company with $1 million in sales to be doing cleans-ups costing several thousands of dollars each.
Mike: That would be unthinkable, Mary! Those clean-ups are part of the company’s DNA. The projects also allow us to engage with thousands of volunteers and inspire participation in the blue movement. Without these projects, Brian’s just another guy selling T-shirts.
Alli: In addition, this past summer we just became a Certified B corporation, which means that we’re part of a growing community of businesses dedicated to using business to solve social and environmental problems. It means that we must consider stakeholder value above shareholder value. I came to United By Blue because I wanted to make a difference in the world’s oceans. Why don’t we just raise the price of the T-shirts?
Mary: Because, as Brian well knows, a retail price of $34 would almost certainly lead Whole Foods and Urban Outfitters to drop our line. Sales from those two companies make up 25% of our revenue.
Brian: She’s right. Large retailers want discounts and margins around 60%. I negotiated our deals with those companies. They’re not going to budge.
Alli: So what if we lose those accounts? We can find others.
Mike: Unfortunately, I know it’s not quite that simple, Alli. Having big retailers carry our shirts has helped us build legitimacy with other stores. We lose that if they drop us. And there’s no guarantee that the big chains would be the only ones to reject the price hike. I still think there must be a way for us to keep the clean-up projects that are so central to our mission – and, by the way, the very reason I have a job here.
Mary: Look, we can still be socially responsible in a way. We’d still be using sustainable packaging, though we may have to revisit those costs as well at some point. Maybe instead of funding these clean-up projects ourselves, we could donate an unspecified percentage of our profits to ocean conservation programs. Brian, isn’t that what you did in your first venture as an eco-entrepreneur when you started a company that sold a line of sustainable jewelry?
Mike: But how can we call ourselves real supporters of the blue movement without getting our hands dirty?
Alli: As the Director of Marketing, I suggest that we test the waters by increasing the retail price to $34 on our website. If there are no complaints — and I can’t imagine there will be – we could send our retailers an email that says something like: “Since you have been carrying United By Blue, you have seen our shirts transform into what they are today. Unfortunately all of the work that we have put into making the best quality and most sustainably packaged products we can has resulted in increased costs. Beginning with our Spring/Summer 2012 shipment, our wholesale price for shirts will be $16.50 and the suggested retail price will be $34.”
Mike: I like it, Alli. Good work. Can’t hurt.
Mary: Yes, it can. What the two of you seem to be missing is that you can’t talk about selling sustainable products without a financially sustainable company. I think we should keep prices where they are and take a different approach to our clean-up program.
Mike: Brian, I’ve been with you almost from the start of this company. It’s your call, buddy. What do you say we do?
THEORETICAL METHODS OF
ETHICAL DECISION-MAKING IN BUSINESS
Objectivism: Whether the business decision I make is ethically sounds depends on whether my decision is rationally selfish, meaning that it results neither in sacrificing myself to others no in sacrificing others to myself. To live for my own sake means that the achievement of my own happiness is my highest moral principle.. Rand, A. 1964 “Objectivist Ethics” in The Virtue of Selfishness, pp. 30, 34.
I am an ethical decision-maker if my decision-making is consistent with the values of my highest ethical role-model and those of my most respected peers in my industry or professional community. A shortcut under this theory to dethermine whether a particular action is ethical is to consider how my action would reflect on my character if it appeared in the media.
Expansive view of social responsibility
A company is ethically obligated to be good for goodness’s sake.
Limited view of social responsibility
There is one and only one social responsibility of business: to use its resources & engage in activities designed to increase its profits, so long as it follows the law & engages in free & open competition without fraud.
(Source: Friedman, M. 1970 “The Social Responsibility of Business is to Increase its Profits,” New York Times Magazine: September 13.)
Strategic approach to social responsibility
“”The essential test that should guide CSR is not whether a cause is worthy, but whether it presents an opportunity to create shared-value; that is, meaningful benefit for the society that is also valuable to the business.””
(From Porter, M. and Kramer, M. 2006 Strategy & Society: The Link Between Competitive Advantage and Corporate Social Responsibility Harvard Business Review, December.)
THE ETHICS OF FAMILY BUSINESS: SON’S SPOT
Based on Alsever, J. (2011): “Father’s Footsteps.” Inc., November: 52
[It is 10:50 a.m. on October 12, 2009 at Vandelay Industries’ Welcome Basket Division in Pinellas Park, Florida. The company sends a set of offers from local merchants to people who have relocated. Michael Plummer, Jr., the son of the founder, is sitting at what was his father’s desk. As the scene opens, Plummer is signing paychecks for the company’s 30 employees. Cliff Hallmark, the company’s Chief Financial Officer, knocks on Michael’s door.]
Michael: Come in.
Cliff: Hi, Mike. I know you wanted to see me. Before we get down to business, though, let me once again give you my deepest condolences on the death of your father and tell you how moved I was by your eulogy at his funeral.
Michael: I still can’t believe he’s gone from a heart attack – at the age of 57. The day before he died, he went to an Alice Cooper concert and sped home in his Ferrari. He was always driving too fast around town, his car radio blasting classic rock. He didn’t care. He was his own man. He left his mark and this company is his legacy.
Cliff: He certainly changed my life profoundly.
Cliff: As a rigid accountant, I always questioned the way your Dad managed outside the box. Whether it was financial or emotional support he gave his employees, I felt I always left his office saying, “you’re crazy!” He showered friends and employees with gifts and even sometimes paid for strangers’ groceries at the market. Still, things always seemed to work out as he expected they would. He always ran with whatever was in his heart and what he felt was right. What he got in return was a staff that was as dedicated to pleasing him as I’ve ever seen and it paid huge dividends. Still, his approach didn’t always work out perfectly for the business.
Michael: Oh? I was always impressed by my father’s motives as an entrepreneur in starting this business. He believed he was building a community by introducing new families to local businesses.
Cliff: True enough. But he also was famous — in my view infamous — for paying for car washes and massages for employees and paying the rent of cash-strapped friends. In addition, the company payroll has become bloated, Mike. Your Dad was paying people who didn’t actually do anything. Also, instead of hiring the right person for the job, he hired friends. I guess all of that is why you wanted to see me.
Michael: That’s part of it. But there’s more on my mind, Cliff. I need some basic guidance.
Cliff: I’m ready to listen and let you know what I think.
Michael: It was always my father’s dream that I take over this business. Heck, I started working in the business stuffing envelopes when I was 5. That was 30 years ago. But I never felt it was my calling. I wanted to do medicine. When I was 20, you’ll remember that I turned down an offer to join the business at a salary of $65K a year to enlist in the Army as a medic. I still remember what he said to me when I broke the news. He said, “This is the dumbest thing you’re going to do.” He thought I was crazy to turn him down.
Cliff: I thought you were crazy, too. But, he really turned around. He was so proud when your military service eventually took you to South Korea where you ran an urgent-care clinic. He used to brag to me and others about how you had turned down the easy money to seek your own path.
Michael: All was well until 2000, when I received a sudden phone call that my Dad had suffered a heart attack. I rushed back here to Florida, where my then-wife and two daughters lived. Thanks goodness he survived quintuple bypass surgery. We both were happy we were able to bond and develop a close relationship while he recovered. But I knew my place was in Korea. Dad and I continued to talk by phone a few times a week. When Dad told me he needed some help with things here later in 2000, I returned to work for the company.
Cliff: You made some real improvements to our company’s IT functions.
Michael: The best part of the job was all the time I spent with my father. Then I got the call a little over a week ago that Dad had had a second heart attack. As I said in my eulogy, he was the strongest man I’ve ever known. A couple of days after my father died, I got a call purely by coincidence from a business broker wanting to know if I was interested in selling the business.
Cliff: This is the first I’m hearing of this. What did you tell the broker?
Michael: At first, I was shocked by the offer and turned him down. But in the last few days, I’ve been thinking. A lot of family members are fighting over the ownership and direction of the company. Employees don’t know what’s going to happen now. And there are other challenges too, which you as the CFO know all too well.
Cliff: Right. Because of the recession, sales are down 24 percent. And your Dad’s generosity and payroll practices have been an added weight on the company’s finances, even though I know he had the best of intentions.
Michael: I could sell the business and share the proceeds with my two sisters. I could retain equity and hire someone else to run the business. Or I could bite the bullet and run the business myself. After all, my sister, aunt, and cousin are employees. Dad and I spoke about the future of this company not that long ago, when neither of us had any idea I would be in this position at this time. He said that he understood that I would feel obligated to take over the business in this situation, but that he would understand if I sold it instead. I’m the one who has to make this call since Dad’s will put me in charge of his estate. So, Cliff, you worked closely with my Dad and you know me pretty well. What do you think I should do?
Cliff: This is a tough one, Mike, and it’s not a decision I can make for you. There really is no right or wrong option here. I guess I’d ask you to ask yourself one question: If you wrote your obituary, what would you want it to say?
THEORETICAL METHODS OF
ETHICAL DECISION-MAKING IN BUSINESS
The Ethic of Care: Ethic of Care
Whether the business decision I make is ethically sound depends on whether my decision results in helping others & avoiding/limiting harm. My decision must be tailored to specific circumstanstances of the situation facing me. Applying abstract rights & rules is less important than my responsibility to preserve the web of relationships. The theory’s focus on market consequences makes it closer to utilitarianism than theories such as Rawls’ theory of Justice. (Adapted from the writings of Thomas White)
THE ETHICS OF U.S. OPERATIONS IN DEVELOPING COUNTRIES:
Suggested by Downie, A. 2008 On a Remote Path to Cures: Adventurers and Merchants Have A Stake in Peru’s Maca Vegetable New York Times January 1: C1.
[It is 12:15 p.m. and Chris Hamlin, head of Vandelay Industries’ Natural Medicine Trading subsidiary in Lima, Peru, is in the middle of lunch with Elaine Brown, who heads the Peruvian operation of American-based Kramerica Pharmaceuticals, and Paul Aguilar, a physician and Lima native who has consulted with both companies on their products. For years, Medicine Trading has harvested and marketed maca, a small root vegetable that grows in the highlands of Peru.]
Paul: I am amazed at the work Medicine Trading is doing here in Peru and am proud to be part of the consulting team you have assembled, Chris. You and your company have done great things for the villages where maca is grown by finding a market in Western countries. It’s been a win-win situation. Maca is a wonder of nature that my own studies have shown increase stamina, helps ward off prostate cancer, and supercharges the sex drive. Your company pays almost twice the going rate for the crop to local farmers and you market the crop abroad in such products as Maca Stimulant. Sure, you also make a great deal of money for yourselves, but then you plow some of that money back to the community in the form of clinics providing free medical care for the villagers.
Elaine: Your operations really are impressive, Chris. We at Kramerica have modeled our own extensive pharmaceutical operations down here on what you have been doing. It has paid off in great relations with officials at all levels in this country, which is critical in our heavily-regulated industry. Dr. Aguilar, you have been a tremendous help, not only because of the depth of your medical expertise, but all because of the extent of your contacts throughout the country and the kind of thorough knowledge of the Peruvian culture that only a native could have.
Chris: Yes, doctor, you really have been a tremendous asset to both of our companies – even volunteering your time at the Vandelay medical clinics you mentioned. Elaine, in some ways your operations have been more successful than ours, especially on the PR front. Lately, I have been getting accusations that, notwithstanding all of the good things Vandelay is doing in this country, our company is only one step above a “bio-pirate,” stealing traditional knowledge about the benefits of maca and only providing very limited benefits to the local community. The company has asked whether there is something we can do about those accusations, perhaps keeping the government from taking some sort of action against us. Headquarters has given me some money to give strategically to local charities beyond what we are doing with the medical clinics. Do any of you have any ideas about how I could spend this money?
Elaine: Well, I got a brochure a few weeks ago from a charity called “Children of Maca.”
Chris: Yes, I got that in the mail, too. Isn’t that the charity that the wife of the Commerce Secretary, Mrs. Ceci Herrera, serves as the unpaid President?
Elaine: That’s the one. It says that Mrs. Herrera uses the money she’s collected to travel the country giving out free equipment to schools, mainly in the poor areas where maca is grown, hence the name. The charity is attracting a ton of money from businesses, especially those regulated by the government. Kramerica sent Children of Maca a check for $25,000. Seems like it would be a wise use of your company’s money.
Chris: I read the brochure and it looked good. What have you heard about it, Dr. Aguilar?
Paul: In the short time it’s been in business, it has done a lot of good. And Mrs. Herrera’s interest in it is genuine. She is herself a former educator and the mother of three children.
Chris: But how would that kind of donation look coming from us? Elaine, the brochure you mentioned says that the Commerce Secretary himself has no formal involvement in the charity, but there is a photo of him next to her on the charity’s corporate solicitation page on the charity’s web site. I checked.
Paul: That’s true. Also, what you may not know is that the chief fundraiser for the Secretary’s upcoming presidential bid is the charity’s treasurer. And an employee from the Commerce Secretary’s office who is an aide to Mrs. Herrera in performing her official duties as the wife of a cabinet officer is listed as a contact for the charity’s books.
Elaine: We learned all of that before we made the donation, but that didn’t stop us. Kramerica is expecting no special favors from the Commerce Department or any other government agency as a result of our donation to the Children of Maca or any other charity. I could understand if this were the Secretary’s own charity, but that’s not the case. It is apparent that the children of the Maca growing region have been blessed Mrs. Herrera’s involvement.
Paul: And it is common for companies from other countries doing business here to make those kinds of contributions, amigo. On the other hand, there are a lot of other charities to consider, including the medical clinics you already are running.
Elaine: But making a sizeable contribution to this charity at this time may end up sending a message of good will to the government at a time when they seem a little hostile to you. The connection to your company’s products is obvious so any donation is unlikely to attract suspicion. How about making a donation to Children of Maca and even joining one of Kramerica’s vice presidents on the charity’s advisory board?
Chris: The right thing to do seems pretty obvious to me. Let me just call my boss at headquarters and tell her how I think we should spend that money. I’ll be right back and tell you what she decides.
THEORETICAL METHODS OF
ETHICAL DECISION-MAKING IN BUSINESS
Integrative Social Contracts Theory: Whether the business decision I make is ethically sound depends on whether my decision is compatible with the legitimate ethical rules of the community in which I am doing business, meaning those ethical rules or norms that a community develops within its broad moral free space that do not conflict with any hypernorm.
a norm sufficiently fundamental that it serves as a guide for evaluating authentic, but less fundamental, norms; are generally reflected in broadly shared religious, philosphical, & cultural beliefs
(From Dunfee, T. and Donaldson, T. 2006 Social contract approaches to business ethics: bridging the “is-ought” gap in A Companion to Business Ethics, pp. 44-46 as well as other writings by Dunfee and Donaldson.)
The November, 2012 guide to FCPA says: “Companies often engage in charitable giving as part of legitimate local outreach. The FCPA does not prohibit charitable contributions or prevent corporations from acting as good corporate citizens. Companies, however, cannot use the pretense of charitable contributions as a way to funnel bribes to government officials.”
Five questions the guide says a company should nonetheless consider when making a charitable contribution in a foreign country to determine whether payment may violate the Foreign Corrupt Practices Act
1. Is the ____purpose______of the payment to obtain or maintain business, get other benefits from the government, or avoid government enforcement actions, penalties or taxes? If yes, the payment is more likely to be considered legal/illegal under the FCPA.
2. Is the payment consistent with the company’s internal ____guidelines__________ on charitable giving? If yes, the payment is more likely to be considered legal/illegal under the FCPA.
3. Is the payment at the ____request___________ of a foreign official? If yes, payment is more likely to be considered legal/illegal under the FCPA.
4. Is a foreign official ___associated_____________ with the charity and, if so, can the foreign official make ____decisions______ regarding your business in that country? If yes, the payment is more likely to be considered legal/illegal under the FCPA.
5. Does the company’s charitable contribution __upon_______ on whether the company receives business or other benefits, or avoids negative actions by the host government against the company? If yes, the payment is more likely to be considered legal/illegal under the FCPA.
Source: The Criminal Division of the U.S. Department of Justice and the Enforcement Division of the U.S. Securities and Exchange Commission: “A Resource Guide to the U.S. Foreign Corrupt Practices Act” (November14, 2012)
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