Factual Scenario for Authentic Assessment Project: Gumdrop Northern
Gumdrop Northern was a long-term military contractor and munitions manufacturer with annual revenues of $500 billion. The company employed 105 workers—highly paid United Auto Workers (UAW) technicians and mechanics. Gumdrop Northern manufactured body armor and armored vehicles for the U.S. military. Contrary to international law and treaties, the company also manufactured landmines, exporting them to Afghanistan and Iran, its best foreign customers. More than half of its profits derived from these clandestine operations.
All of Gumdrop Northern’s products had problems. Although the company was paid handsomely for its body armor and armored vehicles, the materials it used in manufacturing were substandard. The body armor did not protect service members from most antipersonnel ammunition. The simple addition of a standard issue flak jacket would have prevented most injuries, but Gumdrop did not tell the military because it feared that it would lose its contract. In addition, its armored vehicles, although quite strong and sturdy on the sides and top, had only a thin sheet of steel on their undersides, making them especially vulnerable to improvised explosive device (IED) explosions.
The landmines Gumdrop sold to the Taliban in Afghanistan and to the Iranian government were themselves defective. Many who attempted to plant the mines were themselves killed in the process due to faulty switches. Most of the mines’ victims were children and soldiers. When the U.S. military realized that Gumdrop Northern had sold it inferior body armor and armored vehicles, Department of Justice (DOJ) lawyers became involved, and the families of injured or killed U.S. service members consulted attorneys. Gumdrop’s corporate leaders were now looking down the barrels of criminal prosecution, and classes of plaintiffs were forming and growing quickly.
The Gumdrop board knew the company’s days were numbered. Although Gumdrop could afford to pay the class-action plaintiffs and could have replaced its top executives if they were imprisoned, the board came to the conclusion that the company’s fiduciary duties to shareholders would best be fulfilled by its abandoning its production facilities in the United States and establishing a factory in Argentina, a country that does not extradite to the United States; and Colombia, where union organizing is not a problem, as unionists are regularly murdered. But first, Gumdrop had to try to get out from under the potential legal liabilities, both to the families of service members who had been injured or killed as a result of using Gumdrop products and to the workers in its U.S. plant, who were protected by a collective bargaining agreement and by U.S. labor and employment laws. As it had more than 100 employees, under the Worker Adjustment and Retraining Notification (WARN) Act (see http://www.doleta.gov/layoff/pdf/WorkerWARN2003.pdf), the company would have had to have given employees 60 days’ notice of its departure from U.S. operations. Such notice would have had some undesirable consequences. First, it would have given notice to plaintiffs and to the U.S. military that Gumdrop was planning on leaving the country. Second, the exceptionally militant and well-paid UAW workers could have undertaken acts of sabotage or have at least have left on their own terms rather than on those preferred by Gumdrop. Third, under the UAW collective bargaining agreement, workers were entitled to significant amounts of severance pay in the event of a plant shutdown or mass layoff.
Violation of the law, however, would have imposed significant backpay liability on the company, which it wanted to avoid.
Gumdrop formulated a plan. First, it would outright fire five workers for no cause and would offer an early retirement package to five others that they could not refuse. This would bring the number of workers to 95, which would remove the company from the jurisdiction of the WARN Act. Then, Gumdrop would file for bankruptcy, under which it was certain to be able to reject the collective bargaining agreement. (When a company files for bankruptcy protection, the Bankruptcy Court has the power to relieve the bankrupt company of its contractual obligations when necessary. Bankruptcy is often used by companies who feel excessively burdened by union demands.)
These two courses of action were successfully undertaken in remarkably short order. Gumdrop now had neither notice requirements under the WARN Act nor severance liability under the now-rejected collective bargaining agreement. The bankruptcy also short-circuited the class-action suit brought by the families of injured or killed service members. With all remaining assets of Gumdrop in the hands of a court-appointed trustee in bankruptcy, no one would be paid for anything.
In the interim, Gumdrop had established relationships with contractors in Argentina and Colombia and had factories up and running even before the bankruptcy papers were filed in the United States. Company assets had been transferred to banks in Argentina and Switzerland, which assured customers that the money would be safe from creditors, whether foreign governments or other parties. Gumdrop profits and share value were maintained. Argentina and Colombia were ecstatic to have Gumdrop in their countries. Individual lower-level administrators were handsomely rewarded by Gumdrop for enabling the business to function smoothly and not be bothered by the host countries’ environmental laws, labor laws, and other (admittedly minimal) business restrictions. Argentinian and Colombian government leaders believed that the radiation and chemicals leaking into the local groundwater was a small price to pay for the cut-rate military equipment it received in return, enabling it to battle insurgents, union activists, and drug dealers.
Final Scenario Analysis
This course involves analyzing a scenario that I will provide, identifying and discussing the relevant ethical issues, discussing any legal issues or liabilities created by or related to the scenario, and developing solutions to ethical problems.
The scenario analysis culminates in the creation of a paper in the form of a complex memorandum directed to a company executive officer discussing the ethical issues and your recommendations. The memo will show how you have developed, sharpened, and applied critical thinking skills in recognizing, evaluating, and proposing a solution to ethical problems that arise in business management.
You are encouraged to engage in your own reflection, critical analysis, and argumentation, in addition to drawing influence from other sources. Support all viewpoints with arguments intended to justify the position to others.
Required Elements to include in the Final Scenario Analysis:
•Provide the relevant facts of the case
•Provide the basis of each ethical issue, and how legal concerns, managers’ fiduciary duties, and effects on corporate stakeholders define or relate to the issue
•Discuss and proposes a solution to each of three ethical issues raised in the scenario.
•Provide a reasoned argument for the best solutions, for both the short- and the long-term, for the company’s ethical, and any related legal, problems
In Meeting the Required Elements, students will:
•Distinguish the ethical issues from purely management, marketing, finance, etc. issues
•Distinguish legal issues from the ethical issues and explain how these issues are related
•Use and integrate the concept of fiduciary duties in analyzing managers’ ethical responsibilities
•Clearly and succinctly state facts relevant to the statement and resolution of the ethical issues
•Identify fiduciary duties arising in factual circumstances
•Support your recommendations with well-reasoned arguments and justifications.
•Articulate alternative courses of action, evaluating them in terms of implicated stakeholder interests and fiduciary duties.
•Persuasively justify one alternative as the best for the business, considering both ethics and bottom line
•Properly attribute words and ideas from other sources
