What are the respective roles of profits, obligations to customers, and obligations to the community for the firm in this situation?

The top management team of a medium-sized manufacturing company is on a strategic planning “retreat” where it is formulating ideas and plans for spurring new growth in the company. As one part of this activity, the team, working with the assistance of a consultant, has conducted a SWOT analysis. During this activity, an interesting and complex situation has been identified. Next year, the Environmental Protection Agency (EPA) will be issuing new—and much more stringent—pollution standards for the company’s industry. The management team sees this as a potential “threat” in that the company will have to buy new equipment and change some of its manufacturing methods in order to comply with the new standards.One member of the team, James Smith, has posed an interesting option—not complying. His logic can be summarized as follows:1 The firm has already developed its capital budgets for the next two years. Any additional capital expenditures will cause major problems with the company’s cash flow and budget allocations.2 The company has a large uncommitted capital budget entry available in three years; those funds could be used to upgrade pollution control systems at that time.3 Because the company has a spotless environmental record, James Smith argues that if the company does not buy the equipment for three years, the most likely outcomes will be (a) a warning in year 1; (b) a small fine in year 2; and (c) a substantial fine in year 3. However, the total amounts of the years 2 and 3 fines will be much lower than the cost of redoing the company budgets and complying with the new law next year.1 Before hearing any of your group’s comments on this situation, and from the perspective of your assigned role, do you think that James Smith’s suggestion regarding ignoring pollution standards is a good one? Write down the reasons for your position.2 Before hearing any of your group’s comments on this situation, and from the perspective of your assigned role, what are the underlying ethical issues in this situation? Write down the issues.3 Gather your group together and reveal, in turn, each member’s comments on James Smith’s suggestion. Next, reveal the ethical issues listed by each member.4 Appoint someone to record main points of agreement and disagreement within the group. How do you explain the results? What accounts for any disagreement?5 From an ethical standpoint, what does your group conclude is the most appropriate action that should be taken by the company in this situation?6 Develop a group response to the following question: What are the respective roles of profits, obligations to customers, and obligations to the community for the firm in this situation?

 

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