O  GOOD ETHICS PAY FOR THEMSELVES? MULTIPLE ETHICAL CRISES AT  MAGMACORP : Addressing Corporate Ethical Issues

THE WORK SHOULD BE BASED ON THE CASE STUDY

MAST 6001: Management Principles
Assignment 2: Addressing Corporate Ethical Issues

TOPIC:
DO  GOOD ETHICS PAY FOR THEMSELVES?
MULTIPLE ETHICAL CRISES AT  MAGMACORP

THE SITUATION:

MagmaCorp. (hypothetical) is a prominent Oxford Street combination designer, manufacturer and merchandiser of young women s lowestprice trendy fashions under its nown LAVA TM brand name. Competitors on the high street include the likes of H&M, Top Shop, Mango and Miss Selfridge s, to name a few.

MagmaCorp s finance director is named Eric Tightpenny, appropriately. He predicted the Q1 2008 UK-US consumer recession correctly, and today his stature within the firm has soared. A narrow  pounds and pence man and a chartered accountant by training, Tightpenny aggressively argues the importance of spending NOTHING AT ALL for the duration of the present economic storm unless absolutely necessary. Tightpenny s predictions for his segment were recorded yesterday by the FT:  Several firms in our group will be forced out of business& I will personally make sure that MagmaCorp is not one of them.

If something can t be counted, measured and inserted into a line in the reported financial statement, Tightpenny isn t interested. Doubtful of what he refers to as those  touchy-feely aspects of business , Tightpenny dismisses any notion of absolute ethical standards and related practices:  the range of different opinions on key topics means that ethics are variable-often a matter of subjective opinion .

(One time in an unguarded moment when  tight (inebriated) at a local pub, Tightpenny slurred out:  the only time ethics become a company concern is when you get caught. Just don t get caught.

The FD s prime internal rival for influence and further promotion at MagmaCorp. is named Jack Leftbrain. He presently leads Human Resources, a continual target for Tightpenny s twice per year draconian staff and budget cuts usually but not always directed at those programmes and training where it is most difficult for Leftbrain to make a convincing case for the  hard (read: quantifiable) benefits to the organization as a whole..

Leftbrain contends that while some peripheral aspects of ethical issues might be subject to different perspectives to a degree (e.g., whether drug companies should be forced by governments to sell compounds on the basis of consumers needs rather than ability to pay, IF the former would force the firm into probable bankruptcy within five years or so), Jack contends that there are nonetheless some absolute values of fairness and humanity that MUST be reflected in ALL company s core operations for that firm to retain society s support. He refers to this as his notion of a business-social compact, as recently editorialized in Grapevine, a leading UK HR trade publication.

Both Tightpenny and Leftbrain sit on Magma s Management Committee. At last night s meeting, a private detective engaged by Jack, Gus Gumshoe, shocked the Management Committee when he revealed three separate ethical crises committed by Magma s employees:

(a.)  Backhanders in Bali : In order to gain preferential access to the most attractive, trendiest designs, Gumshoe revealed a pattern of systematic bribes to senior management of the design houses, over a period of years.

Leftbrain s shocked reaction was that this on its own could destroy the firm s reputation or worse, and in fact, under emerging transparency regulations, that Magma was probably required to disclose this abuse immediately, along with immediate steps to correct the situation.

In stark contrast, Tightpenny said that this was a common industry practice, and that eliminating such payments would reduce profits by 20% at least, possibly jeopardising the viability of Magma itself. Tightpenny added that he officially  wasn t present at this meeting and never heard about this at least for document keeping purposes.

(b.)  No Wonder Labour There is So Cheap : Gumshoe also revealed that children as young as nine years old were being used to sew dresses in one country, in clear violation of Magma s written contract with that subcontractor. In the UK, Magma had long been suspected of sacking even highly competent workers before they were two years in the job in order to reduce the theoretical risk of tribunal action later.

Tightpenny argued that it was unclear whether child labour was illegal in the foreign country in question, adding that (1) it was arrogant to impose UK laws to another country, (2) that in many instances, these children were the sole breadwinners for their families, and (3) replacing these children with customary adult workers would add another 10% to costs, again threatening the very financial viability of Magma.

Leftbrain argued that  stealing one s childhood was and is and will always be, an abomination and that corrective actions MUST be taken immediately. He went on to argue that Leftpenny s  Early Sacking practice in the UK would almost assuredly come under government scrutiny very soon, causing far more losses in the form of damage to public reputation than the small, temporary  savings that Leftpenny claims today.

(c.)  It s Advertising, Stupid .: Magma executives have long recognized that their advertising image is key to appeal with their advertising market, and has consistently had the top advert budget in the industry. Magma is continually (and some say, deliberately) running afoul of the UK Advertising Standards Board for its provocative, sometimes disturbing images and colourful language. Recently, the tone of the adverts have crossed the line from edgy and nihilistic to something far darker with the highly successful launch of the KillYerself TM line: all black clothing, sold on the telly by razor-thin models contemplating talking openly about self-harm, all the while wearing Magma s new line. Two actual suicides are said to be linked to the adverts, but nothing has been proven. Yet. Strangely, the Advertising Council delayed a prohibition order against the ads following a visit from Tightpenny.

Leftbrain argues that the Management Committee has an absolute moral responsibility to act immediately and pull the adverts and more to counsel young women who might possibly be vulnerable to self-harm and to help the families of the two girls who died.

Tightpenny, predictably, took the view that any such aid to the two girls families would encourage litigation against MagmaCorp, costing millions in unbudgeted legal fees. As for pulling the firm s most successful adverts (in revenue generation terms, at least) Tightpenny dismissed this as the type of  non-managerial thinking that he expected to  our esteemed head of Human Remains , referring viciously to Leftbrain.

Private Detective Gumshoe s rough estimation of the costs to rectify these two ethical problems runs into the  millions and millions of pounds when one takes into account directly-related costs such as substitutes and indirect expenses, including public relations, community involvement, internal and external counseling and other initiatives.

Leftbrain brought the issue to a head with the Management Committee, threatening to quit unless these  mandatory ethical issues of importance were addressed, immediately. Never one to be upstaged, Tightpenny made the same threat, IF the committee did anything to substantially increase the cost base of the firm, then he would have no choice but to tell City analysts that HE was quitting, as such increases would spell the end of MagmaCorp, in his opinion as a financial leader.

Persuaded by both managers, the Management Committee issues a curious edict. While it was essential that the firm must act ethically in all matters, it ALSO mandated that no actions could threaten the financial viability of the company.

THE ASSIGNMENT:

YOU have been brought in from outside the firm to advise the Management Committee about how best to implement the Committee s edict, taking into account relevant parts of