Question

Case Study

Read the case then answer the three questions below:

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.

Answer the questions below:

1. Does he have an ethical dilemma? If yes, what is it?

2. What options are open to him? How would you assess these options using utilitarian and Kantian perspectives?

3. How should Frank proceed (what should he do)? Justify your answer.

Answer 1

Q1. Does he have an ethical dilemma? If yes, what is it?

A1. Yes, it is an ethical dilemma for Frank. Removing these employees without the formal appraisal scores, as decided to lay off, is not as per set rules. Also, there is the possibility of removing someone who might be a good performer without formal appraisal scores.  On the other hand, not removing these employees can jeopardize the job of those employees who are laid off because these longtime employees have no formal appraisal scores to compare them with other employees on performance.

2. What options are open to him? How would you assess these options using utilitarian and Kantian perspectives?

A2. The options open to Frank are:

a. Laying off these employees is one option open to Frank. This is a Utilitarian perspective, as it will do bigger or maximum good for all. These laid of longtime employees with no formal appraisals will get severance allowance, removing them saves the jobs of younger employees, removing them help the company to save by getting the work done by lower-salaried young employees. So, overall good is more here.

b. Not laying off these employees is another option open to Frank. In this case, the means will be given more importance than the final outcome. i.e. if the criteria are that the formal appraisal scores are used to layoff then those who do not have such scores must be excluded from the selection or rejection in the decision of laying off employees. This is a Kantian perspective that gives more importance to means than the overall benefit of outcomes.

3. How should Frank proceed (what should he do)? Justify your answer.

A3.

Frank should go ahead with the decision of laying off these employees because of the following reasons:

1. Longtime employees themselves requested the CEO to exclude them from formal appraisals. Formal and regular appraisals keep the employees informed about their performance and work in the direction to reduce any deviation in their actual performance and expectations of the company. These employees have lost such opportunities with their own choice. Also, bypassing formal appraisal using special approval from the CEO, these employees enjoyed an unfair advantage using an unfair favor over other employees who were formally appraised.
2. Laying off these longtime employees without formal appraisal can set good example that avoiding the good practice of formal appraisal is not beneficial in the long term and must be avoided by all employees. On the contrary, keeping these employees will set a wrong example that taking special approvals and favors from top management works in the long term.