Question

American Products Corporation participates in a highly competitive industry. In order to meet this competition and achieve profit goals, the company has chosen the decentralized form of organization. Each manager of a decentralized investment center is measured on the basis of profit contribution, market penetration, and return on investment. Failure to meet the objectives established by corporate management for these measures has not been acceptable and usually has resulted in demotion or dismissal of an investment center manager. An anonymous survey of managers in the company revealed that the managers feel the pressure to compromise their personal ethical standards to achieve the corporate objectives. For example, at certain plant locations there was pressure to reduce quality control to a level which could not assure that all unsafe products would be rejected. Also, sales personnel were encouraged to use questionable sales tactics to obtain orders, including gifts and other incentives to purchasing agents. The chief executive officer is disturbed by the survey findings. In his opinion, such behavior cannot be condoned by the company. He concludes that the company should do something about this problem.

(a) Who are the stakeholders (the affected parties) in this situation? (

b) Identify the ethical implications, conflicts, or dilemmas in the above described situation.

(c) What might the company do to reduce the pressures on managers and decrease the ethical conflicts? Please post your comments. For parts (b) and (c) make sure you ellaborate

Answer 1

   a. Determine the stakeholders in the current situation:

The stakeholder is a party which is affected by the company’s actions. In case of American Products Corporation, there are two types of stakeholders: 1) internal stakeholder, 2) external stakeholder.

Internal stakeholders: The introduction of the evaluation system of the investment center on the basis of the profit contribution, market penetration, and return on investment will affect the managers and sales personnel. These parties would be at the risk of losing their position in case of not achieving the targets established by the higher management.

External stakeholders: The pressure of the targets would encourage the managers to compromise with the product quality which will directly affect the customer who is buying the product. The lower product quality would be unjustified for the compensation paid for the product.

   b. Identify the ethical issue in the current situation:

The ethical dilemma arises between maintaining the quality standards and achieving the targets for the safety of the job. If the managers would concentrate on providing the quality product, then they might not be able to achieve the targets. It would eventually lead to their termination. However, the target can be achieved by compromising with the product quality. It would be an unfair trade practice.

The use of unofficial incentives and gifts by the sales personnel is also an unethical practice because the sales should be made by conducting the normal course of business activities. The sales personnel should not leverage the buyer’s consent by using external factors. However, the sales personnel are conducting such practice for achieving their targets and insuring the job safety.

c. Remedies for reducing the pressure on managers and ethical conflict:

American Products Corporation should terminate the policy of demotion or dismissal of an investment center manager in case of not achieving the defined targets. The performance of an investment center can be measured in a long run. Therefore, the manager’s performance should be tracked on the long term basis. However, the periodic assessment should be carried out and conveyed with the managers in a term meeting and discuss the future course of the investment center.

The managers should be given a share in the profitability of the investment center that would motivate them to produce a quality product for the better profitability of the company. If the use of gifts and incentives can boost the sales of the company, then company should introduce a scheme of gifts and incentive to the customer.