Factual Scenario for Authentic Assessment Project: Gumdrop Northern

Factual Scenario for Authentic Assessment Project: Gumdrop Northern

Carrying out business activities in an ethical way in the contemporary environment has become critical, as increasing failures of initially sound firms have resulted from unethical practices. For instance, the failure of Lehman brothers and failures of many financial institutions during the recent financial crisis have reinforced the role of ethical corporate governance in contemporary environment. In this respect, entities need to adopt ethical codes and entrench a culture of ethics to sustain their growth. In this paper, the case of Gumdrop northern company is analyzed to highlight the ethical challenges that organizations in the modern day face.

Facts of the Case

Gumdrop northern company had contractual obligations to manufacture armored vehicles for United States military to meet agreed-upon quality standards. However, the entity’s products, including those illegally sold to Iran and Afghanistan, were faulty as evidenced by massive casualties in the United States military. This was a blatant violation of contractual provisions as was envisioned by the two contracting parties. Equally, being an international business entity, Gumdrop northern had legal obligation to comply with provisions of international law concerning production and distribution of vetoed military hardware to Iran and Afghanistan. However, in contrast to provisions in such laws and international treaties, Gumdrop Northern exported landmines to Iran and Afghanistan. Further, wrongful dismissal of workers violated worker adjustment and retraining act that stipulated that workers were to be given 60 days notice before termination of contract.

Additionally, Gumdrop Northern failed to meet the ethical threshold provided by the moral fabric that guides business operations and management practices. Although the US military paid Gumdrop Northern handsomely to manufacture high quality armored vehicles, it used substandard materials to manufacture its products. Essentially, the board of Gumdrop Northern failed to employ ethical consideration in decision-making. Moreover, they were under moral obligation to manufacture quality armors; instead, they resulted into deception and production of inferior quality products. Furthermore, Gumdrop management fired five workers for no cause to ease their legal liability to employees. Perhaps, for gumdrop northern, the end justified the means. Nevertheless, in Gumdrop’s scenario, fiduciary obligation of managers to the shareholders conflicted with the ethical requirements. The fiduciary principle dictates absolute loyalty to the one who entrusts an agent with one’s interests (Cooper, 1997); as such, managers had a responsibility to protect shareholders’ interests. However, fiduciary duty does not supplant ethicality in managerial practices; instead, ethical decision-making should complement fiduciary duty by safeguarding shareholder’s interests in the long term.

Legal and Ethical Issues Raised In the Scenario

Gumdrop Northern scenario created legal issues especially when the US military discovered the armored vehicles that Gumdrop supplied were substandard; they sought legal recourse through the department of justice. Gumdrop faced serious legal liabilities since all its products had quality issues and had caused extensive damages to the US military personnel, occasioning large number of legal suits against the company. Moreover, board members faced criminal liability following the entity’s breach of contract. Violating international laws and arms treaty also amounted to a criminal offence adding to the legal woes of Gumdrop Northern management. Further, the entity contravened Workers Adjustment and Retraining Notifications act that stipulates that “you must receive a written notice 60 days before mass lay off or plant closing…failure to which you may be able to seek damages for back pay for up to 60 days” (WARN Act, 2003). Contrary to these provisions and UAW collective bargain agreement, Gumdrop management decided to terminate employees contracts abruptly rather than giving adequate notice. This was a complete violation of American labor and employment laws. In their view, this would have warned department of justice, and deceased and injured plaintiffs that Gumdrop northern was exiting the American market.

To avoid the growing classes of plaintiffs and significant back pay liabilities, Gumdrop corporate leaders resulted into gimmick and unethical practices. For instance, they formulated a plan to dismiss five workers without any cause and give them enticing retirement packages to lower the number of unionizable employees to 95, which would expunge the company from the jurisdiction of the WARN Act. Furthermore, managers acted unethically by filing for bankruptcy to protect shareholders’ wealth from creditors and significantly high legal liabilities, even though they could afford to meet their monetary obligations. Filing for bankruptcy qualifies as an ethical issue because Gumdrop Northern was not in a liquidity crisis; in fact, it was making more than $500 billion in annual revenues. This was a plan to seek bankruptcy protection, which it would use to reject the collective bargaining agreement and WARN notices. Following a successful bankruptcy application, Gumdrop northern was relieved all its contractual obligations, which eliminated requirements imposed by WARN Act and severance liability under the breached collective agreement.

Fiduciary Duties Impact on Ethical Issues

Gumdrop case scenario exposes a tricky balance between ethicality in business operations and fiduciary obligations of corporate managers. Gumdrop managers faced the overriding duties of a fiduciary such as an obligation of undivided loyalty to shareholders (Pridgen, 2007). Gumdrop managers upheld the economic principle of maximizing shareholders wealth. Perhaps the argument may be their fiduciary duty was to the shareholders and not to employees. Gumdrop management chose the strategy that would have guaranteed protection of shareholders interest out of the perception that they were primarily liable to the shareholders. Comparatively, Ethicality advances a decision-making approach that follows a moral or virtue framework compared to fiduciary duty, which have a basis in legislation. Therefore, Gumdrop managers had to apply ethical considerations at their discretion. Following the growing legal liabilities, Gumdrop managers chose to uphold their fiduciary responsibility of protecting shareholders from massive financial losses hence applied for bankruptcy protection.

However, filing for bankruptcy under false pretence and subsequent investment in Colombia and Argentina violated the basic rules of justice, despite the directors’ requirement as trustees for the shareholders holds to make informed decisions that best protects shareholder’s interests. Corporate managers essentially encounter a challenge of navigating between fiduciary duty and ethical requirements. However, the bedrock of the manager’s decision is to pursue profitability and take action in line with shareholders’ interests. Nevertheless, ethical culture and moral obligations prevail on business leaders to make right choices that guarantee biggest benefits to the greatest number of people (Pridgen, 2007). Collaboration with Colombian and Argentina contractors, countries that never allowed unions, and subsequent environment pollution portrays Gumdrop as ethically inconsiderate.

Discussion and Solutions to Ethical Issues Raised In the Scenario

Although, Gumdrop northern directors were under fiduciary duty to protect shareholders’ interests, they should have considered the ethical implication of their decisions. Instead of using substandard materials to manufacture armored vehicles, they should have invested in research and development to invent cost effective designs thus maximize their profits. This would be possible and feasible since they had received handsome payment from the US military. By investing in research and development, they would have produced quality, armored vehicles that would have protected servicemen at a reasonable cost. Ncube and Wasburn (2006) observe that ethics is a central component of business sustainability. Had they embedded ethical practice in their organization culture, they would have considered the repercussions of their actions.

Further, instead of firing five employees without any cause and using undue influence to occasion the employees’ retirement, Gumdrop northern should have followed principles of fair negotiations to reach an amicable solution. Justice based on virtues requires an employee to be paid for the work done. Gumdrop should have introduced an acceptable worker compensation program to settle employees’ grievances. Perhaps, giving them advance salary and wages would have compensated for the 60 days benefits as indicated in WARN Act. This would have mitigated the severity of the legal implications that arose from the employees’ dismissal.

Equally, rather than of laying false claims to warrant bankruptcy protection, Gumdrop Northern would have explored strategies such as restructuring to relieve vulnerable directors off their duties. Since the shareholders’ knew the unethical operations of the company, they should have negotiated with the victims to reach an amicable agreement. In contrast, although Gumdrop Northern could afford to pay class-action plaintiffs and change executives in the event they were imprisoned, it chose the easiest alternative of filing a false bankruptcy claim to the detriment of creditors and employees.

Recommendations

Following the analysis of the Gumdrop northern scenario, various ethical interventions are required in the entity’s operations. The following recommendations are advised:

• The corporate executives should develop a workable ethical framework aligned to company’s fiduciary obligations to shareholders. This will provide managers with a guide to advise their actions when they face an ethical dilemma where fiduciary and ethical duties conflict.
• Management should redefine their business practices to take care of their duty to different stakeholders of the organization including employees, customers and public. Such an approach will help institute a culture of ethical business practices as a central pillar of firms overall performance. The approach also enables managers to identify ethical deficiencies that may lead to potential legal implications early enough to take corrective measures.
• Managers should view fiduciary duty as a responsibility towards all of the entity’s stakeholders, since such a perspective will be the sure way to sustainable development. In this respect, fiduciary obligation need not be a reason for unfair treatment of one group of stakeholders such as the unfair dismissal and forced retirement of employees at Gumdrop.
• Gumdrop northern should have considered ethical and legal implications of using substandard materials in manufacturing armored vehicles as well as exporting landmines to Iran and Afghanistan. Instead of engaging in such unethical practices, the entity could have renegotiated the contract to cater for increasing costs associated with high-quality raw materials. Moreover, respecting international laws and treaties would build the other players’ trust in Gumdrop, thus enabling it to get more clients in future.

 

 

 

 

References

Cooper, D. (1997). Fiduciary government: Decentring property and taxpayer’s interests. Social and Legal Studies, 6, (2), 235-257. DOI: 10.1177/096466399700600204.

Ncube, L. G. & Wasburn, H. M. (2006). Strategic collaboration for ethical leadership: A mentoring framework for business and organizational decision-making. Journal of Organizational and Leadership Studies, 13(1), 77-92. DOI:10.1177/10717919070130011001.

Pridgen, N. B. (2007). The duty to monitor appointed fiduciaries under ERISA. Compensation and Benefit Review, 39(5), 46-52. 17. DOI: 10.1177/0886368707306948.

Worker Adjustment and Retraining Notification Act (1988). Retrieved from <http://www.doleta.gov/layoff/pdf/WorkerWARN2003.pdf>

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