Business Ethics Scenarios

1. Receiving a Holiday Gift:

A supplier sends a basket of expensive foodstuffs to your home at Christmas with a card: "We hope you and your family enjoy the 'goodies.'". What action(s) might you want to take?

2. Sales Expense:

The purchasing manager for a large company agrees to give you an order (their first), expecting you agree to make a $200 donation to his favourite charity, a local youth sports team. How do you respond?

3. Sales Expense Reimbursement:

A customer executive from Southeast Asia will visit your HQ facility and meet with your executive team. Your independent Southeast Asian agent requests that you reimburse the customer for his expenses, including expenses that could violate your company's policies. The agent will reimburse you. How do you proceed?

4. References:

A large, prospective client calls you and asks about a competitor's reputation. One of your long time customers had a very bad experience with this competitor. What information do you share with the prospect? How do you respond to the prospect call?

5. Gratuities:

A customer has a large sailing yacht on a vessel that your company will be discharging. The customer is present and is watching the off-loading operation.

The five stevedores you manage pull off a very tricky maneuver, safely transferring the yacht to the trailer. The customer is elated, and reaches into his pocket, pulling out a big wad of $50 bills. What do you do?

6. Conflict of Interest:

As department manager, you are hosting an informal celebration in the office. The food budget is $200. Your next door neighbor has just started her own catering business and asks to supply the food. Since she is just starting out, she'll do it at cost and provide extra items at no charge. What might you want to consider?

7. More Competition:

You are in a head-to-head battle with your arch competitor, Evil Enterprises. One of your co-workers approaches you. He has recently joined your company after having worked for a second competitor for several years.

He suggests, "I made notes on all of Evil's bids when I could get the data. They use some clear cost standards. Would you like me to bring my notes to the office tomorrow and let you look through them?" How do you respond?

The Case of the Sole Remaining Supplier

The heart pacemaker is a modern wonder. The device has a timer that resets itself every time the patient's heart beats. If the heart does not beat on schedule (say, within 1.2 seconds), the pacemaker gives a stimulus that causes a heartbeat.

But the technology was not always so sophisticated, and its early limitations form the background of this true stor. Although the events happened 20 years ago, the ethical issues they raise are still relevant.

It's 1975, and you are on the board of directors of a company that makes transistors. Among the many companies with whom you have a contract is one that makes heart pacemakers.

Pacemaker technology is in its infancy. When doctors implant a pacemaker, the patient's normal heartbeat is disabled, and he or she relies entirely on the device. If it fails, the patient's heart stops. Doctors are not very adept at installing the pacemakers, which are extremely delicate; there is even a story of a person yawning deeply, pulling the pacemaker wire in his chest, and dying.

After that and many similar incidents, the board begins to reconsider whether your company should sell to the pacemaker company. Members of the board feel this situation is a major lawsuit just waiting to happen and your company, as well as the company you supply, will be liable. In addition, you feel the specs the pacemaker company uses to test the transistors are not very strong.

You and the board decide to get out of the business before it's too late. You tell the pacemaker company representatives about your conclusion, and they respond, "You can't stop selling us the transistors. You are the sole remaining supplier for us. Everyone else has backed out for the same reasons you're giving. If you don't sell us the product, we'll go out of business. Pretty soon, no one will be making heart pacemakers, and many people need them. Without the pacemaker, people don't even have a chance."

You take that information back to the board. People around the table have different opinions. One person says, "This is a bad deal, and it isn't our problem. We don't make enough on this sale to make the risk worthwhile." Another person says, "We don't know how other companies use the transistors we sell them; why should we be concerned about this one? What about that baby who died when the transistor in the incubator failed? We didn't know how that company was using the transistor." Another person says, "I think we're missing the real issue here. Don't we have an ethical obligation to sell the product to the pacemaker company? What will happen if we don't sell to them?" Another person says, "Give me a break. Our only obligation is to our shareholders. And how did we get so stupid that we're the last source? I'm telling you, we don't need this." Finally, the chair of the board says, "OK. Let's make a decision."

What do you do?

The Case of the Performance Appraisal

Frank became chief financial officer and a member of the Executive Committee of a medium-sized and moderately successful family-owned contracting business six months ago. The first nonfamily member to hold such a position and to be included in the Executive Committee, he took the job despite a lunch-time remark by the company's CEO that some members of the family were concerned about Frank's "fit with the company culture." But the CEO (who is married to the daughter of the founder of the company) said he was willing to "take a chance" on Frank.

Soon after Frank started, the company decided for the first time to "right-size" (a euphemism for downsize) to respond to rapid changes in its business. Frank, who had been through this before when he was a senior manager in his previous company, agreed this was good for the long-term health of the 20-year-old company. He decided not to worry that family members seemed more concerned about their own short-term financial interests.

Besides, the CEO was relying on Frank to help him determine how to downsize in an ethical manner; the CEO said he trusted Frank more on this than he did the head of his personnel department, who had "been around a little too long."

On Frank's recommendation, the company decided to make its lay-off decisions based on the annual performance appraisal scores of the employees. Each department manager would submit a list of employees ranked by the average score of their last three appraisals.

If the employee had been with the company less than three years, if the score for two employees was identical, or if there was some extraordinary circumstance, the manager would note it and make a decision about where to rank the person. At some point, Frank and the Executive Committee would draw a line, and those below the line would be laid off.

As Frank was reviewing the evaluations, he was puzzled to find three departments in which the employee at the bottom of the list had "N/A" where the evaluation score should have been written. When he asked the managers to explain, they told him these employees had been with the company almost since the beginning. When performance appraisals had

been instituted six years earlier, the CEO agreed to the longtime employees' request that they keep receiving informal evaluations "as they always had."

The managers told Frank they'd questioned this decision, and the CEO had told them it wasn't their problem.

When Frank raised this issue with the CEO, he responded, "Oh, I know. I haven't really evaluated them in a long time, but it's time for them to retire anyway. They just aren't performing the way they used to. The company's been very good to them. They've got plenty of retirement stored away, not to mention the severance you've convinced me to offer. They're making pretty good money, so cutting them should let us lower the line a little and save jobs for some of the younger people--you know, young kids with families just starting out. And don't worry about a lawsuit. No way they'd do that."

"Do they know they're not performing well?" Frank asked.

"I don't know," the CEO responded. "They should. Everybody else in the company does."

As they walked to the door, the CEO put his arm around Frank's shoulder. "By the way," he said, "you should know that you've won over the Executive Committee. They think you are a terrific fit with this company. I'm glad you talked with me today about these three employees. You got it right: This is a company that cares for its employees--as long as it can and as long as they're producing. Always has, always will."

Frank left the CEO's office with the vague feeling that he had some moral choices to make.

Does he have an ethical dilemma? What's the right thing to do? If he disagrees with the CEO, how does he protect his own career and the interests of his own family? What do you think?

This case was written by Thomas Shanks, S.J., Executive Director of the Markkula Center for Applied Ethics.

The Case of the X979 JumpstartBy Peter A. Facione

Who owns ideas? That question comes up again and again in the start-up environment. This fictional case study asks us to consider the ethical boundaries involved in intellectual property.

The computer market was ready for a new chip. That had been Knoll Tings’ assessment two years ago when he joined forces with John Callender, a genius engineer who had left Silicon Industries after the wafer-making giant declined to pursue his idea for a faster chip. Tings, who had 15 years experience as a marketing executive in technology, helped Callender obtain venture funding. Together, they had set up Millbrae Technologies to develop X979, Callender’s brainchild. Now CEO of the company, Tings had to get his product off the ground within the next few months or Millbrae Technologies would be in serious trouble. But the project was behind schedule due to technical glitches Callender had said "weren't supposed to happen."

Tings was beginning to wonder whether Callender was just not smart enough to bring his project to fruition. Or was it something else? Tings suspected that San Bruno Instruments, the chief competitor of Silicon Industries, was also working on a faster chip. It had to be. The timing was right. For a crazy moment, Tings actually wondered whether someone on the Millbrae Tech payroll might also be working for the San Bruno firm. Deliberate sabotage? No, that's not likely. His employees have more loyalty than that. Millbrae Tech is a family. He takes care of his people and they know it.

Thinking about the folks at San Bruno Instruments gave Tings an idea. He picked up the phone and called the CFO of the company, Susan Finn. The third member of the founding team, Finn was chief financial officer and, as is so often the case in a start-up, also a sort of chief cook and bottle washer. The company was too young for an HR director, but Finn had helped with some key hires.

"Susan," Tings told her earnestly, "we really need to jumpstart the X979 project. I’m seriously beginning to wonder if John is up to the job. We need

a new pair of eyes in that lab, someone who can think outside the box, see what everyone else is missing. We have to get this project back on track."

Finn, who had also been worrying about the delays, responded, "I'm thinking a senior-level scientist or development expert, someone who knows our industry, our kinds of products, our markets…."

"Yes, you have the idea, Susan. We don't have any time to waste on this one. In fact, I was thinking, Susan, maybe you should target one of the senior R&D people at San Bruno Instruments. They have a chip design skunk works. Find out who their top people are there, and see if one of them is interested in making a lucrative career move."

The Case of Bad NewsThe new CEO of a corporation learns that he has inherited problems with growth and profitability. A four-day workweek and, eventually, layoffs prove necessary. Who is the CEO obligated to inform and when?

By Gil Amelio

Responding to a Business Downturn

George Anderson was just a few months beyond his 40th birthday on the day he became CEO of Astratech Communications International (ACI). What an upper! He was still basking in the glow of his good fortune, eager to try out his skills as the CEO. He hoped to get the chairmanship one day when the company's founder, Mike Marcus, decided to step down. Life was good.

ACI was a leading supplier of fiber optic transceiver components for the telecommunications industry. It sold to companies like Alcatel, Northern Telecom, and Ericsson, who put ACI's components into the lightwave equipment they manufactured. The company was based in Irvine, Calif., a great place to live, work, and raise a family.

ACI's annual sales were around $500 million with 2,500 employees in locations in Mexico and Scotland, in addition to its Southern California headquarters. All of ACI's hourly employees in the United States and abroad were represented by the IBEW, a union with a history of good working relationships with management. The Mexican operation was launched to take advantage of lower labor costs and close proximity to headquarters. The Scotland plant gave the company relief from onerous European tariffs. Both offshore facilities enjoyed excellent employee relations.

After settling into his new position, George busied himself identifying the major issues facing the company. Coming in, he had realized that ACI's growth and profitability were problems, but he wasn't sure if the source was the management team, product development, marketing and sales, or something else.

After several months, George was clear that it wasn't the people. Sure, there were a few problem areas, and some employees seemed a bit too comfortable. But the main issue was a lack of focus and a general weakness in the business systems required in this fast-paced industry. There was no clear vision of what ACI wanted to be and no acceptable plan on how to get there. What was it that someone said? "If you don't know where you are going, all roads will lead you there."

To address this weakness, George implemented a task force made up of middle managers from all the various disciplines, as well as the executive team. He chaired the task force because he believed strongly that CEOs shouldn't delegate strategy.

When it came to business systems, the problem seemed to be a lack of adequate cost accounting. The company didn't know its individual product costs to any reasonable degree of accuracy. To address this challenge, George brought in a new chief financial officer.

But just as George was beginning to feel optimistic about where ACI was going, he got a phone call from sales to tell him that Alcatel was canceling its backlog. Apparently, Alcatel's customers were slowing their acquisition of new equipment, and Alcatel seized that opportunity to shift all of its business to a French competitor of ACI's that had a reputation for higher product quality.

George's first call was to the chairman. To his surprise, Mike handled it well, voicing his empathy and support. But clearly, George was expected to take action quickly. He decided that one way of avoiding a layoff was to implement a four-day workweek. That spread the pain evenly among all employees. George called his executive team together to tell them the bad news and to get the necessary action underway. Next, he went to discuss the issue with union leadership. The regional head of the union-also the local steward-was in George's office before lunch with a stern look on his face. "Look, George, you're the new kid on the block, so we don't think this setback was your doing. No one likes to lose part of their paycheck, but your plan treats management the same as the blue-collar workers, so you've got our support. We want to give you a chance to act. If we don't like what you're doing, we'll be back."

The four-day workweek was implemented. Without being told, the entire management staff knew that they got four day's pay, but they were expected to be there five. After about six weeks, the lower costs began to kick in, and ACI was again holding its head above water...barely.

Then, George's worst fears began to unfold. The lack of demand from Alcatel was now spreading to his other customers and, although they didn't cancel their backlogs, they significantly reduced them. The customers' forecasts reflected the same story.

Like it or not, George could no longer avoid a layoff. His best calculation was that 900 people would have to go. The remainder would go back on a five-day week. But a lot more details had to be worked out. What projects should be cut? What parts of the organization should be hit the hardest? Who should be protected?

Discussion Questions

1.When George moved to the four-day workweek scheme, should he have expected his managers to work five days for four days' pay?

2. Should George tell anyone except his immediate staff about the impending layoff before the details have been worked out? What about the board of directors? The union? The employees?

The Mike Wallace Factor and the Common Good

George decided to be open about the impending layoff with all the important constituencies even though the implementation details were not worked out. That evening as he left his office for the day, George was surprised to see that a television crew had set up their camera near the main entrance and were talking to employees as they left.

As soon as the reporter spotted him, the crew raced over and thrust a microphone in his face. "We understand that there are going to be layoffs at this plant. What is your comment? We hear that the plants in Mexico and Scotland are not going to be hit as hard as the Irvine plant. Aren't you just using this layoff as a way to export jobs to lower-wage countries? Don't you owe it to the American workers to let them keep their jobs so long as there are foreign workers to be laid off?"

George made a few comments that set the matter in perspective. Although still sceptical, the press grudgingly conceded the argument...for the moment.

When he got to the parking lot, he found that his car had been slashed. The paint job was ruined. As he drove home, he thought, These problems are not my doing. If the managers and workers had paid more attention to quality, they might not have been hit so hard by order cancellations. The layoff was going to happen the next Tuesday, and he scheduled an all-hands meeting for the remaining employees. Did he ever have things to say to them!

The next six months were the roughest of George's career. But things started to click, the industry was coming back, and the organization had fixed the quality problems. Best of all, the new product, which used technology that was a generation ahead of the competition, was moving along at lightning speed. They would have it to market by his first anniversary. As George reflected on the past year, he realized he had learned a lot.

Two years later, ACI was the most profitable company in its sector. It felt like a rebirth, for George as well as for the company.

Discussion Questions

1. Was George's decision to be open about the impending layoff the ethical thing to do? Are there situations in which it is best to try to keep a lid on such information?

2. The particular jobs cut at ACI were chosen on the basis of the long-range interests of the business and not on the nationality of the work force. As the reporter's questions implied, shouldn't American businesses favor American employees over foreign employees? What do you think George said to the TV reporters?

Gil Amelio, partner in the Parkside Group and former CEO of Apple Computer Inc., presented this case at a meeting of the Ethics Roundtable for Executives.