Textbook Readings
· Trevino, L. K., & Nelson, K. A. (2021, 8th Edition). Managing business ethics: Straight talk about how to do it right. Hoboken, NJ: John Wiley & Sons, Inc.
Conflict of Interest
For this assignment, you will reflect organizational ethics. To get started, read the short "Conflict of Interest" case on page 390 of your Trevino text.
In your assignment, please write a short essay, answering the following questions:
· As the senior executive charged with bringing Little Company into the corporate fold, how do you proceed?
· What are the obligations to Big Company, and the customers of both?
· Are there other stakeholders, and what do you owe them?
· What provisions would you include in an ethics code for Little Company?
· How will social media influence the actions you take, and what role can social media play in an ethical resolution of this scenario?
SHORT CASES Conflict of Interest
Big Company is a large manufacturer of health‐care products that is under fire from the government to lower costs. Big Company has an excellent reputation and is widely acknowledged as one of the best‐managed companies in the country. Despite the firm’s reputation, however, Wall Street has reacted negatively to government efforts to reform the health‐care industry as a whole, and Big Company’s stock price has lost 30 percent of its value in the last year. To counter the effect of possible government intervention, Big Company has just purchased Little Company, a discount health‐care supplier. Wall Street has greeted the acquisition with enthusiasm, and Big Company’s stock price has rebounded by more than 10 percent since news of the acquisition was made public.
While this acquisition could give Big Company a foothold in a growing part of the 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 Company, Little Company’s customers have expressed doubts about how objective it can be in recommending health‐care products if it’s owned by a health‐care giant. Will Little Company be pressured to recommend the products offered by Big Company, its parent? Or will Little Company’s advice remain objective?
As the senior executive charged with bringing Little Company into the corporate fold, how do you proceed? What are your obligations to Big Company, Little Company, and the customers of both? What do you owe to shareholders and the financial community? Are there other stakeholders, and what do you owe to them? What provisions would you include in an ethics code for Little Company?
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 in fat and calories, and it should 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 its 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 that 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 moneymaker. You were brought in to turn the division around, so your career at the company could depend on the success of this product.
What are your alternatives? What is your obligation to consumers? Who are your other stakeholders, and what do you owe them? What is your obligation to your employer and to other employees at your company? What should your course of action be? How can you apply the due care theory to this case?
Advertising
At your company, a bottler of natural spring water, the 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 will have to 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 he or she 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.
List all of the stakeholders involved in this situation. Do any stakeholder groups have more to gain or lose than others? Develop a strategy for dealing with the contamination. How much does a company’s financial situation determine how ethical dilemmas are handled?
Product Safety and Advertising
For years, arthritis sufferers have risked intestinal bleeding from consistently taking nonsteroidal anti‐inflammatory drugs (NSAIDs) like Advil, which are used to ease chronic joint pain. Your company, Big Pharma, introduced a new type of painkiller, a COX‐2 inhibitor that addresses the pain without these gastrointestinal effects. To get the word out to consumers, Big Pharma decided to market the new painkiller directly to consumers so that they could ask their doctors about it. The marketing was extraordinarily successful, ultimately creating a multibillion‐dollar market. Over 100 million prescriptions were written in just five years, and the drug was a big contributor to your company’s bottom line. Patients and doctors seemed grateful for the alternative, and doctors began using it to treat all kinds of pain. Then, complaints began coming in about cardiovascular events (heart attacks) associated with taking the new drug. Early scientific studies suggested that there might be a problem, but the science remained inconclusive. It appeared that many of these patients had other health problems that may have caused their heart attacks. So your company undertook a more definitive double‐blind placebo controlled study (the only kind that can truly demonstrate cause and effect), which eventually showed a link between your drug and increased risk of cardiovascular events if the drug was taken consistently for more than 18 months. The Food and Drug Administration suggested a stronger black‐box warning on the drug packaging to warn of potential cardiovascular side effects from prolonged use. Your senior management team met to discuss what to do. Should you follow the FDA’s advice or do something else? The discussion included reference to your company’s values and strong commitment to integrity and human welfare. You also referred to the famous Johnson & Johnson Tylenol incident and the success of that recall effort. After much discussion, you decided to recall the drug and cease manufacturing it. The negative reactions were instantaneous. In stinging press reports and congressional hearings at which your CEO had to appear, your company was criticized for not recalling sooner based on the earlier evidence. And, the lawsuits began. It seemed that anyone who had ever taken your company’s drug and then had a heart attack was bringing suit. Ironically, on the other side, patients and doctors who had been using the drug successfully also complained. They thought you should return the drug to the market with a stronger warning, so that they could do their own risk assessment. Nothing else worked for some patients, and they were suffering. But, after careful deliberation, you decided to stick to the recall decision and fight (rather than settle) the lawsuits. Early in the fight, your company won some lawsuits and lost some, but vowed to continue fighting them all because you were convinced that you had done nothing wrong. The fight was costly in dollars and reputation. Eventually, after several years and winning more lawsuits than you lost, you decided to settle all remaining lawsuits and move on, a decision that was considered to be wise in the business community. Your company’s financial performance took a big hit, but it is now rebounding and the future looks more hopeful as some promising new treatments appear on the horizon.
Who are the stakeholders in this situation? Experts claim there’s always a risk when people take prescription drugs. How much risk is too much? How widely do drug companies need to publicize the risks of prescription medications? Or, is that the doctor’s responsibility? Do consumers really understand these risks? Do drug companies have an obligation to ensure that doctors don’t overprescribe their drugs? Is that a reasonable expectation? Was direct‐to‐consumer marketing appropriate for this type of drug? When is it appropriate, and when is it not? Do drug companies have a bigger obligation to explain the risks of the drugs that they heavily market directly to consumers because such consumers are more likely to ask their doctors for these drugs? Why do you think the reaction to the decision to recall in this case was so different compared to the Tylenol situation? Should senior management have expected the reactions they got? Was there anything they could have done to change them?
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; Joe, the credit manager for the team; and 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—though 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 he adds 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, but you have the last vote. What do you do?
In this hypothetical case, what is your obligation to the shareholders of your organization and to the shareholders of the two organizations that are considering a deal? Are shareholders a consideration in this case? Are customers? Are employees? Could the survival of any of the three companies be at stake in this case? In a situation like this one, how could you best protect the interests of key stakeholder groups?
Community
You have just been named CEO of a small chemical refinery in the Northeast. Shortly after assuming your new position, you discover that your three predecessors have kept a horrifying secret. Your headquarters sits atop thirty 5,000‐gallon tanks that 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 leach sludge from the various chemicals into the ground. Because your company is located in an area that supplies water to a large city over 100 miles away, the leaching sludge could already be causing major problems. The costs involved in a cleanup are estimated to be astronomical. Because the tanks are under the four‐story headquarters building, the structure will have to be demolished before cleanup can begin. Then, all 30 tanks will have to be dug up and 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 cleanup can begin in two years. Obviously, the longer you wait to begin a cleanup, the riskier it becomes to the water supply. Before you begin the cleanup, 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 will 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.
Who are the stakeholders in this situation? What strategy would you develop for dealing with the dump and its disclosure? Are you morally obligated to disclose the dump right away? How will Wall Street react to this news? Does your desire to correct the situation justify keeping it a secret for another two years?
Think about the due care theory presented earlier in this chapter. Can we draw parallels between due care for the consumer and due care for the environment? What if the oil tank dump mentioned in the hypothetical case was located in a foreign subsidiary of a U.S. company, and the country where it was located had no laws against such a dump? Would the CEO be under any obligation to clean it up? Should American companies uphold U.S. laws concerning the environment in non‐U.S. locations? How much protection is enough?
