Memorandum

To: Mrs. Elizabeth Ward, Chief Executive Officer (CEO)

From: Darlene Nopper, Elementary Divisional Manager

Date: October 15, 2012, 2012

Re: Ethical Decisions

Dear Mrs. Ward,

It was bought to my attention that one of our products included in the toy collections did not

pass our routine inspection due to high levels of lead. I would like suggest to you the different

alternatives available to the company and the impact they would have on the company from a

financial, legal and ethical perspective. As a part of the company’s quality control procedure

testing has to be done on all categories of product to ensure they are safe for customer’s

consumption. During one of the company’s routine testing the quality control department

identified a problem with a metal whistle that is included in the toy collection. This whistle

did not pass the test as small traces of lead were found which is above the US legally

acceptable level for children 7 years and younger.

1. Three possible decision alternatives to address the problem regarding the

whistles:

Alternative One

The first alternative the company could take is to cancel the entire shipment. With this option

the company will incur addition expense of $100,000.00 to reproduce and repackage the toy

collection.

Advantages of Alternative One

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For the first alternative to cancel the entire shipment, the main advantage of this

alternative is that of social responsibility. The company is being socially

responsible by not be supplying toxic whistles that will be harmful to young

children.

Also the company’s reputation and goodwill will not be tarnish.

Customers will be delighted to know they are receiving products that are safe for

the young children.

And finally the likelihood of facing lawsuits is significantly reduced.

Disadvantages of Alternative One

However the main disadvantage be the loss of revenue as the product cannot be

sold but has to be disposed of.

An addition expense had to be incurred to repackage and reproduce the whistle.

Being a small company the additional expense which was not budgeted for could

have a drastic impact on the company’s cash flow. This may mean that the

company has to incur additional debt to meet its daily expenses.

Also the company might have other orders to produce. This may mean that the

staff will have to work overtime to produce current order in addition to reproduce

the toy collections.

There might also be a delay in getting the order delivered to the customer on time

as school is due to be open in a week’s time.

If the delivery doesn’t make it one time the customers will be dissatisfied, and

dissatisfied customers will definitely share their experience which might damage

the company’s reputation.

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The financial, legal, and ethical considerations of each alternative One:

Financial

From a financial perspective cancelling the entire shipment would be a significant expense

that the company would have to incur. An additional cost of $100,000 would be incurred with

this option. If this cash isn’t readily available then this may affect the daily operation of the

company. For example delay in paying its Vendors which would free up cash flow to

accommodate the reproduction and repackaging cost. Also the company could borrow for

their line of credit to facilitate the additional cost

Legal

However with this alternative there wouldn’t be any legal cost to consider as the company is

ensuring that the customers receive products that are safe and free from harmful toxics.

Ethical

The company is being ethical and socially responsible by not sending the shipment out with

the contaminated whistles. They realize that further testing needs to be done to rectify the

problem. Hence they have their consumers’ best interest at heart knowing that the final

consumer is vulnerable young children.

Alternative Two

Since the testing of the whistle showed only small traces of lead the company could take the

risk and send the shipment as is as company need to take such risk in order to be profitable.

Advantages of Alternative Two

The second alternative was to send the shipment as is. The main advantage of this

alternative is that the $100,000 that would be used in the reproduction and

repackaging of the toys would not be incurred.

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The shipment would be delivered on time for the new school year and thus

fulfilling the customer’s demands.

The company can continue with normal operation as they wouldn’t have to

repackage or reproduce the shipment.

Disadvantages of alternative Two

On the other hand there is the possibility that a large quantity of the whistles is

toxic. If this is the case the main disadvantages to the company would be; lawsuits

from the customers, fine from government authority as well as damage to the

company’s goodwill.

The company would not be acting ethically by supplying harmful toys to young

children as they are quite aware of the devastating impact the high lead content

could have on the children. Also the company can create ill will by their action as

a result they will lose loyal customers to their competitors.

The company may have to do a recall because of the negative publicity that it has

received by supplying toxic whistles to children.

The financial, legal, and ethical considerations of each alternative Two:

Financial

If the company was to send the shipment as is, the additional cost of $100,000 would be

incurred. Hence their immediate cash flow would not be affected. However in the long run,

the company may have to pay out thousands of dollars in lawsuits. See legal consideration

below.

Legal

This alternative could be detrimental to the company. From a legal stand point the company

could face thousand of dollar in lawsuits if the toxic whistles harm the children. The

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company’s’ liability insurance could increase resulting in higher premiums which may affect

the company’s cash flow.

Ethical

By allowing the shipment to go as is would be increasing the risk of placing toxic

contaminated whistles in the hands of young children. The company’s action is unethical as

they are only thinking about profit not planet or people. When making ethical decisions one

has to think whether the decision is fair and legal. In this situation the decision is neither fair

nor legal as the whistle has exceeded the legal limit allowed in the US.

Alternative Three

The final alternative is change the component of the whistle. Instead of using lead which can

be toxic use a more environmentally friendly material.

Advantages of Alternative Three

The third alternative was to replace the content or the material used to make the

whistle is one that is safe and environmentally friendly. There may be government

grants or loans available for producing products that is environmentally friendly.

The main advantage of this alternative is that the company is protecting the

environment as well as being ethical.

The company will not be facing any lawsuits or fines from the government.

Also the company could attract new customers that support environmentally safe

product “ green products”

The company will face minimal lawsuits as their products will be lead free.

Disadvantages of Alternative Three

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The main disadvantage of this alternative is the cost associate with acquiring new

material to reproduce safe and none toxic whistle.

Also this alternative is on a long term basis rather than the short term. The

customers are expecting their order to be delivered for the upcoming school term.

Customers might be dissatisfied with the new product, hence loss of customers to

competitors.

The financial, legal, and ethical considerations of each alternative Three:

Financial

This alternative may be the most expensive. The company will have to invest in research and

development as well as marketing and redesign of the whistle. The cost incurred however

could be subsidized by government grants available to companies investing in

environmentally friendly products.

Legal

This alternative will not have any immediate legal implications; however in the future there

may be minimal lawsuits as there will always be a customer that is dissatisfied.

Ethical

The company’s decision to go green is very ethical and socially responsible. The redesigned

product will be environmentally safe and free of toxic which can be harmful to young

children. As mentioned previously this alternative takes into consideration profit, people and

planet. The company could also attract new customers as more and more customer are going

“green”.

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1 (a) Explain the process or method that you used for selecting each of the alternatives.

The decision making process that I used for all three alternatives is listed below:

Step 1

Identify a problem or opportunity- The problem that the company is facing is that a

whistle in the toy collection did not pass the lead test.

Step 2

Gather Information-The quality assurance team identified the problem with the whistle.

Their test results showed that the lead content present in the whistle slightly exceeded the

US legally acceptable limits for children 7 years and younger.

Step 3

Analyze the situation-I discussed with the management team the impact the toxic whistle

could have on the company and what could have possibly gone wrong with the

production process why the lead content in the whistle has exceeded the acceptable limit.

Step 4

Developing Options- The team and I looked at the most economical, ethical and social

means of solving the problem. We also looked at the health implication of the excess lead

content in the whistle as our market is mainly young kids age 7 and younger. Based on

this information we were able to develop three alternatives. The first was to cancel the

entire shipment. The second was to send the shipment as is and the final alternative was

to change the component of the whistle to one that is environmentally friendly.

Step 5

Evaluation Option-In evaluating the alternatives the team looked at the pros and cons of

each alternative. We also looked at the cost and benefits of the alternatives. We looked at

how feasible each alternative is, in reality can it be done. Also how well each alternative

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will solve the problem of the toxic whistle. Most important the financial impact of each

alternative. Listed below are the alternatives and the areas that we took into consideration.

(1) Cancel the entire shipment and reproduce whistles. The company will incur additional

expense of $100, 000 which means there is a possibility of breaking even or not

making a profit on this shipment. Even though the company will incur additional

expense they will maintain their integrity knowing the supplied there customers with

only the best quality product. The company’s reputation will remain intact as they

don’t have to worry about the consequence of supplying goods that is contaminated to

young kids as well the health hazard associated with the consumption of lead. Also I

making this decision the company took into consideration the impact of breaching

government regulations and standards as well as the consequence could have on their

environment.

(2) The second alternative would be to send the shipment as is. With this option the

addition expense incurred in alternative one would be eliminated. In order for companies

to grow and be profitable they have to take risk. Taking this alternative the company took

into consideration human factor that is, were errors made when the test was being done

and what is the likelihood of occurrence. We also looked to see if there were any changes

made to the quantities of lead in the production of the whistle and also the severity of the

impact of selling a product that might be contaminated.

(3) The third alternative is to change the component or material that is use to make the

whistle to one that is environmentally friendly and safe for kids. This option might be

expensive in the short run profitable in the long run. By choosing this option the company

does not have to worry about strict government rules and regulations. They will have the

peace of mind that there product is safe. There have been too many cases of lead poising

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in young children who are in their oral stage of development. Since the production is

going into the children’s mouth the company has to ensure that the product is safe and

free from toxic.

Step 6

Selecting the preferred Alternative- After thoroughly evaluating the alternatives I selected

the alternative that has the most advantages and the fewest serous disadvantages. That

alternative was alternative one.

Step 7

Acting on the Decision-The shipment was reproduced and repackage. We also

implemented quality check at each stage of the production process to ensure that defects

are identified early in the process and this will eliminate this problem from reoccurring in

the future.

A. (2) Recommend one of the three possible decision alternatives

I am recommending that the company choose the first alternative as it is the most

economically viable, ethical and socially responsible option. In order to eliminate the

occurrence of this event the company must implement a zero defect policy. This will

eliminate defective good from passing through the assembly line. Although the shipment

might be delayed the customers know that they will be receiving products that are of the

highest quality. This alternative will prevent the company from having embarrassing

recalls. The possibilities of future legal action and lawsuits would be considerably

reduced and the business relations with the customer would remain intact.

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B. Analyze how your recommendation could affect customer relationships

My recommendation will improve and strengthen the customer relationships since they

are quite confident that we would be selling them whistles that are safe. The teachers at

the elementary who are indirect customers will be have the assurance that they are being

supplied with safe and harm free toys for their students, and they want to know that they

have ample supply for all their kids. For some students it will be their first time attending

school. As such having toys is very important as it will provide some means of comfort

and pleasure. Therefore having safe toys is crucial. Parents are also indirect customer.

Parents want to know that their kids are safe and free from harm while they are at school.

Therefore they expect the school to create a safe environment for their children to learn

and play.

As mentioned, there might be a slight delay in getting the shipment delivered in time for

the beginning of the school year. Irrespective of the delay in delivery of the toys, the

customers can be guaranteed that our whistle of the best standard. The company will offer

incentives such as discount to the customers affected by the delay in delivery as a way of

customer appreciation.

C. Discuss the role of social responsibility in your decision-making process

In general it is the responsibility of the company to improve and protect the welfare of the

society as well as the organization’s interests. Based on Keith David model of corporate

social responsibility, he proposed that “The social costs and benefits of an activity,

product, or service shall be thoroughly calculated and considered in deciding whether to

proceed with it”. (“Social Responsibility”). Being socially responsible means that the

company has the responsibility of producing products that are of high quality and

maintaining a good customer relationship with its stakeholders. Oftentimes companies

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will not get the recognition for producing high quality goods. However in many cases

companies will receive negative publicity because of dissatisfied customers or poor

quality goods or services. The social responsibility of business therefore is to protect the

economic system in which they operate; this includes natural resources as well as the

immediate environment in which they operate as well as the bigger socio economic

environment. Social responsibility and ethic works hand in hand. The company should

therefore carry out business with these core principles in mind. As such, the company is

oblige to provide safe, reliable, non toxic toys to small children.

I hope this memo was beneficial to you in determining the best way to move forward.

Yours sincerely,

Darlene Nopper

Elementary Divisional Manager

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PART 2: Report to the Chief Executive Officer (CEO) and board members on the importance

of ethical Decision making

Many people may ask why ethics is such an important part of the of the management process.

Without being ethical, it is impossible for companies to be competitive at either the local or

global levels. When making decisions management need to ask the following questions: is it

right, is it legal and is it fair. By taking an ethical approach it is critical that management

analyze the situation before making a decision. This will help them to understand the

implications and to choose decision that will benefit the company in the long term.

Corporate ethics and responsibility of companies such as Toyota weighs on the minds of

consumers in the wake of the tragic highway accident that took the life of 4 family members

that took place in September of 2009. It is therefore the responsibility of organizations to

conduct business transparently and ethically in the environment in which they operate be it

national or international. Through corporate governance and social responsibility,

organizations demonstrate that their decisions have implications for nations and

communities.” (Importance of Ethics, 1999). During the regular course of business

companies will be faced with ethical dilemmas. Before making a decision one must take into

consideration the three questions mentioned: is it right, is it fair, and is it legal. At time it is

best if a team approach is taken when making decision. This will help to facilitate ideas from

different team members as such collective decisions can be made. In the case of

contaminated whistles management has to take into consideration the legal, financial and

ethical implications before making a decision.

1.  Discuss two strategies that the company could adopt to ensure that ethical decision making takes place at all levels of the organization.

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Companies need to make ethical business decisions consistently as it is

key to long-term success for any business. At times, ethical decision

makers may achieve weaker short-term financial results than their shadier

counterparts. Knowing how to make ethical business decisions can help

the company to set the standard throughout the organization. Ethical

decisions will help the company to garner a strong and positive reputation

in the marketplace while securing a loyal customer base. (Ingram, n.d).

Two strategies that the company could adopt to ensure that ethical decision making takes

places could be to:

1) Create a code of Ethics – the code should be consulted before decision making takes

place. When there is a formal code of ethics implemented within the organization it

will enable both the employer and the employees to make decisions more quickly as

these set of rules would have already been agreed upon by everyone. The code of

ethics will serve as a guide for employer and employees as it summarizes the mission

and core values of the company. Again when making a decision each alternative

should be scrutinized by going through the code and determine whether the alternative

adheres to the code.

2) If the company operates in an environment that is very regulatory then the company

can use industry regulations as a starting point when making decisions. Industries,

including construction and financial services, are highly regulated to ensure the

ethical operation of all companies. “Regulations generally require a minimum level of

ethical consideration, however, and it is possible for companies to operate within legal

boundaries while still acting unethically”. (Ingram n.d) As was the case with Enron

back in 2001 when the company collapse due to greed and fraud. (Kim, 2011). Rather

than conforming to minimum standards, the organization should be built to exceed

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laws and regulations. This means going further than your competitors to ensure that

all stakeholders are treated equitably

2) Explain how the company could benefit from a code of ethics

A code of ethics is like a compass it is used to guide the company through its business

environment. It promotes an environment of respect based on integrity. When ethics is a part

of the organizational culture, employee will know the code of ethics and follow it. It will

create an atmosphere of trust, respect and confidence in the actions of each employee. When

there is a written code of ethics, employees at a company, for instance, are expected to

behave a certain manner toward each other and toward customers. “The practical result of

this is a more peaceful atmosphere in which to work, and one that is free of such widespread

problems as work-based sexual harassment, violence and other forms of misconduct. A code

of ethics is only effective in this way when group members are confident that the rules will be

enforced”. (Ince, n.d)

Another major benefit of having a code of ethics is that it makes people take responsibility

for their actions, be it the employees or management. Being responsible is being is

accountable and honest, and holding oneself accountable promotes these good character traits

in others who see them in you. This helps to create a cohesive and productive work force,

employees will feel less stressed and thus longer employee retention. Trust is another benefit

of the code. When trust is violated it should be dealt with so that employees can learn from

the violation. The code should allow from for individual growth as such employees will do

their best to follow the guideline of the code. (Vitez, n.d)

In order for the code of ethic to achieve its purpose it must be communicated to all

employees. As mentioned above the code holds every one accountable for the actions. As

such individuals are usually required to portray honesty, transparency and integrity in their

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daily roles. The toy company Code of Ethics will stipulate the various processes through

which sound ethical decision making could be carried out. In order to deal with the dilemma

excessive lead was discovered in the whistle the code would give guidance of how this matter

should be dealt with. Since the code promotes honesty, transparency and integrity, the code

of ethics would definitely disagree with the company supplying contaminated goods to its

customers. When making decisions that has ethical implications the company has to take into

consideration the impact their decisions will have on the stakeholders and the environment in

which they operate.

4. Analyse a code of ethics for another company of your choice to determine the

components that are important to include in the development of a code of ethics

AT&T Inc., for instance, strictly follows a Code of Ethics. All the employees are expected to

be familiar with the code and adhere to it. The code of ethic at AT&T Inc. is built on the

premise of honesty, transparency and fair dealing. The company adapted the code of ethic to

do the following:

encourage honest and ethical conduct, including fair dealing and the ethical handling

of conflicts of interest;

encourage full, fair, accurate, timely and understandable disclosure;

encourage compliance with applicable laws and governmental rules and regulations;

ensure the protection of the Company's legitimate business interests, including

corporate opportunities, assets and confidential information; and

deter wrongdoing. (Corporate Governance)

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It is important that all employees, officers and directors of a company act with integrity. That

means it is expected that employees are honest and ethical while keeping information about

the company confidential when required. Also every step should be taken to avoid conflict of

interest. It should be made clear to employees, officers and directors that “fidelity or service

to the company should never be subordinated to or dependent on personal gain or advantage”.

All employees that is involved in the company’s disclosure procedures should familiarize

themselves with the disclosure requirements of the company as well as not to knowingly

misrepresent the facts about the company. Compliance is also very important component that

needs to be considered when developing a code of ethic. This is because companies have to

comply with applicable laws, rules and regulation or else they could be looking at fines and

lawsuits. Each employee, director and officer has the responsibility to comply with policies,

procedures, standards and restrictions imposed by the laws, rules and regulations.

“Each employee, officer and director should endeavour to deal fairly with the company's

customers, service providers, suppliers, competitors and employees. No employee, officer or

director should take unfair advantage of anyone through manipulation, concealment, abuse of

privileged information, misrepresentation of material facts, or any unfair dealing practice.”

(“Corporate Governance”). All of the employees should constantly work to maintain a

working environment that encourages co-workers to raise concerns about possible violations

of the company’s Code of Ethics. We often hear stories of other companies where employees

were aware of problems, but did not feel comfortable coming forward. A culture should be

created with the organization where employees feel comfortable about reporting breaches in

the code. A unanimous hotline could be created just for reporting compliance issues.

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Reference List

Corporate Governance. (n.d). AT&T Investors Relations. Retrieved on October 19, 2012

from http://www.att.com/gen/investor-relations?pid=5595

Ince, S. (n.d). What Are the Benefits of a Code of Ethics. Retrieved on October 18, 2012 from

http://www.ehow.com/list_6059639_benefits-code-ethics_.html

Ingram, D. (n.d). How to Make Ethical Business Decisions. Retrieved on October 17, 2012

from http://smallbusiness.chron.com/make-ethical-business-decisions-445.html

Importance of Ethics, (1999). EHOW. Retrieved October 17, 2012, from

http://www.ehow.com/importance-of-ethics/

The Ethics Committee. (n.d). Navran Associates. Retrieved on October 19, 2012 from

http://www.navran.com/tools/Ethics-Committee-Description.pdf

Vitez, O. (n.d). Why Do Professional Organizations Have a Code of Ethics?. Retrieved on October, 31 2012 from

http://smallbusiness.chron.com/professional-organizations-code-ethics-1210.html

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