Read the Ethics Case, The Kardell Paper Co., on pages 213-215 of your text. Chap
ID: 2455545 • Letter: R
Question
Read the Ethics Case, The Kardell Paper Co., on pages 213-215 of your text.
Chapter 4 Practical Ethical Decision Making
Business & Professional Ethics for Directors, Executives & Accountants, 7e Leonard J. Brooks and Paul Dunn South-Western, Cengage Learning, Mason Ohio, 2010 Instructor’s Manual
Using the Modified 5-Question Approach, analyze the ethicality of the decision to (or not to) incorporate the new technology and make a fully supported recommendation to the Board of Directors. Supplement this analysis with a Cost-Benefit Analysis (CBA) table.
You will need to reference your CBA in your recommendation to the Board. Make sure you thoroughly detail your recommendation with reflections on the consequences of the decision, whether the decision is fair to all, and whether the decision demonstrates the virtues expected of the Board of Directors, taking relevant codes of conduct into consideration, and the company as a whole in terms of social responsibility.
The following information and assumptions should be used to complete the Cost-Benefit Analysis:
Annual Revenues from the mill average 625 million.
Profit margin from the mill is approximately 11%.
Implementing the new technology would take two full years. The first year, the company would operate at 65% capacity (assume the company could maintain the 11% profit margin during reduced operations). During the second year, it would need to be completely shut down. After the two year, it would need to be completely shut down. After the two year period, the mill could reopen and operate at pre-implementation levels.
Approximate cost of litigation including medical costs for all affected by the contamination, environmental sanctions, legal and court costs, vistims’pain and suffering, and several other items is 1.7 billion. Estimate present value of future costs at 20%.
The company would spend approximately 4 million in hiring, onboarding, and training new employees after reopening as a result of several of their existing employees having to seek employment elsewhere during the shutdown.
As a result of the layoffs and shut down, the local economy would suffer greatly. The community would be forced to implement a 3 year tax on all local business profits of 5%. The tax would be enforced for 3 years beginning after the reopening of the mill. (Assume pre-implementation profit margins when calculating and exclude all other costs and taxes when preparing this analysis. Your recommendation should be addressed to the Board of Directors. It should be 4-6 pages long (including the CBA and a reference page). Your paper should be APA compliant.
Explanation / Answer
What this case has to offer
The Kardell Paper Co. Case involves decisions around the necessity to introduce a very expensive "closed loop" pollution control system in a pulp mill. This provides an excellent opportunity to:
1. Introduce and illustrate the stakeholder analysis approach as it deals with financial and non-financial issues with impacts in both the long and short term.
2. Get the students to grapple with the need for decisions based on partial or uncertain information.
3. Examine how a board of directors works in governing organizations, and how it ought to be constituted or operated to insure that all stakeholder interests are considered.
4. Learn to anticipate functional fixation, conflicts of interest and other forms of bias from lawyers and other advisors or decision makers.
5. Appreciate what "due diligence" requirements decision makers must keep in mind to minimize the impact of charges of negligence with regard to the treatment of the environment and the handling of hazardous waste.
6. Confront the downside (whistleblowing, fines, jail, closure) of suppressing information or debate at the decision making levels (executive and board) of the organization.
7. Appreciate the capacity of the stakeholder analysis approach to be used to refine a solution to produce a win/win, creative or better result.
Teaching suggestions
I use the Kardell Co. Case either after developing the 5-question/box Approach (5QA) with the students, or after developing the Moral Standards Approach (MSA) and the Pastin Approach (PA) as well. I start the discussion with a short scene-setting statement which raises the reality of the case setting - actually it is an embellished real case with changed names, and with sonox really being dioxin, a suspected carcinogen produces in the pulp making process. Then I ask the following questions, in order:
1. Who are the stakeholders here and what are their interests?
2. What are the major issues and how are the interests of each stakeholder group affected by them?
3. Which ethical decision making approach should be used: 5QA; MSA; PA? Why?
4. What are the major decisions to be made?
5. How should the stakeholder's interests be ranked? Why?
6. What facts and analyses would we like to have?
7. What decisions would the students make?
8. What was wrong with the quality of the debate at the board of directors?
9. What is the downside if the right decision is not made - consider economic factors and also what Jack might do?
The discussion moves along quite quickly, taking 30-45 minutes. At the end of the case, students feel quite good about the decision making approaches and their understanding of corporate governance.
Discussion of ethical issues
Stakeholders and their interests: The discussion of stakeholders and their interests produces the expected list except that usually neither Jack, the technician who discovered the potential problem and who is most concerned with the impact of sonox, and the unborn, are mentioned. I usually have to probe for these, and sometimes I let the discussion proceed until the quality of debate at the board level comes up before asking who is going to raise their issues and argue for their interests. A satisfactory decision is unlikely unless they are recognized as stakeholders and their interests taken into account. You can delve into the issue of whether mothers can adequately represent the unborn or not, but remember that mothers may suffer from conflicts of interest in regard to the perceived short-term need for jobs for their families, etc.
Similarly, the issue of whether the environment should be accorded status as a stakeholder in its own right, or simply as an extension of known human needs, is an interesting one. Pointing to the recent movie "Medicine Man" in which Sean Connery was trying to find a cure for the cancer in the Brazilian rain forest, but was prevented from doing so by efforts to clear for grazing cattle, is helpful here.
Ranking the stakeholder's interests: The ranking of stakeholders interests can be done after or in conjunction with the identification of the major decisions to be taken. Provided sonox is considered a health risk, the usual ordering of concerns by the public would be: life, health, quality of life, financial. I usually find that their is quite a debate in class over the primacy of shareholders concerns (financial) vs. those related to life and health. In the end, it usually boils down to how serious a health risk the student thinks that sonox is. This is an issue that is unresolved in the case due to lack of information (the same as in real life - dioxins are very harmful to monkeys, but science has not been able to make the same case for humans yet).
Choosing an ethical decision making approach: Because the case involves the environment, most students want to use the 5QA which features the sustainable development question. It also appears to be the most simple and logical since the decisions appears to lies outside the confines of the organization. However, the students should be reminded that the profit challenge in the
5QA it deficient because it is often short run in focus and fails to consider externalities like harm to the environment. These issues call for the supplementation of the 5QA with cost-benefit analysis as in the MSA. Also, the issues of discovering Kardell's internal ground rules and employing social contract ethics may be helpful in shaping recommendations and encouraging decision makers to consider the downside of the health concerns. Since numbers are not available, augmenting the profit challenge with the concept of CBA usually proves to be desirable and reinforces the idea of fashioning a hybrid system where advisable.
What decisions ought to be considered? What facts/analyses would we like to have?: Obviously the decision of whether to shut down and install the closed loop system is before the board. However, the class should realize that there are a number of variants which should be investigated, time permitting, with the ultimate decision depending on more information. For instance:
· Is Sonox really a problem?
· Are we polluting in sufficient quantities to cause a problem?
· Are there alternative and less costly process modifications which would reduce, but not eliminate, our Sonox discharge?
· The closed loop shut down and costs appear high: are their less disruptive/costly
· approaches?
· What are the costs of delay?
As a result, an alternate decision would be to defer the closed loop decision and seek more info on one or more of the above. In the interim, several decisions arise:
· Should the community be informed of the possible health risks? When?
· Should bottled water be brought in? When?
· Should the other competitors be brought into the discussions?
Getting the class to make decisions: I usually force the class to vote on the closed loop decision right after the choice of ethical decision making approach. They resist doing so, and I ask why - then the other questions come out. I keep asking for a decision and this forces the group to think through each stage of the process. Ultimately the class is usually split between those wanting to take the ethical "high road" and install the loop right away, and those who what to move more slowly.
What was wrong with the Board debate? At this point, it is easy to see that the board was not sufficiently representative of the stakeholders to meaningfully present and understand the important issues facing the company. Moreover, there was no one with sufficient technical expertise to appreciate the significance of the health issues or the biological impact on the environment. The lawyer may have felt a conflict of interest, in that he was both a director and a paid counsel. In any event, his view was limited to current and past legal precedent, not to the future, or to non-legal perspectives. This is functional fixation which can mislead a corporation into short-range thinking. The result of this analysis should be the realization that to properly govern a company, the board should have effective representation from all important stakeholder groups, and/or effective access to and information from representative groups or ethics experts.
This analysis will highlight the value in appointing "outside" directors (who don't rely on the organization for their livelihood) and also women directors to insure that all aspects of an issues will be understood and argued effectively.
What is the downside? Jack might blow the whistle if he thinks that the wrong decision is made or if the process is suppressed or if too much delay is involved. This would (did) involve regulatory sanction including fines, shut down, loss of market, loss of profit, and ultimately loss of control to creditors. If Jack doesn't blow the whistle, costs of ultimate clean-up and new process installation could rise.
If the decision by the board is just to wait and see what happens, they will not be able to argue that they took "due diligence" measures to keep abreast of the health risk unless they initiate some research into the sonox problem, even if it is a periodic literature search or a retainer arrangement with a researcher to keep them advised. Similarly, they should continue to take readings in the river to monitor their discharge and try to identify other polluters.
Creative solutions: I finish the case by asking whether the interests of certain stakeholders can be examined to refine or produce better decision. Sometimes one of the more astute students will speculate on the possibility of arranging with government for support as a test project for the closed loop system, or to offset the cost of a shut down. Also, the approach to other competitors on the river can be examined, since they are likely to be in the same boat...as it were.
What this case has to offer
The Kardell Paper Co. Case involves decisions around the necessity to introduce a very expensive "closed loop" pollution control system in a pulp mill. This provides an excellent opportunity to:
1. Introduce and illustrate the stakeholder analysis approach as it deals with financial and non-financial issues with impacts in both the long and short term.
2. Get the students to grapple with the need for decisions based on partial or uncertain information.
3. Examine how a board of directors works in governing organizations, and how it ought to be constituted or operated to insure that all stakeholder interests are considered.
4. Learn to anticipate functional fixation, conflicts of interest and other forms of bias from lawyers and other advisors or decision makers.
5. Appreciate what "due diligence" requirements decision makers must keep in mind to minimize the impact of charges of negligence with regard to the treatment of the environment and the handling of hazardous waste.
6. Confront the downside (whistleblowing, fines, jail, closure) of suppressing information or debate at the decision making levels (executive and board) of the organization.
7. Appreciate the capacity of the stakeholder analysis approach to be used to refine a solution to produce a win/win, creative or better result.
Teaching suggestions
I use the Kardell Co. Case either after developing the 5-question/box Approach (5QA) with the students, or after developing the Moral Standards Approach (MSA) and the Pastin Approach (PA) as well. I start the discussion with a short scene-setting statement which raises the reality of the case setting - actually it is an embellished real case with changed names, and with sonox really being dioxin, a suspected carcinogen produces in the pulp making process. Then I ask the following questions, in order:
1. Who are the stakeholders here and what are their interests?
2. What are the major issues and how are the interests of each stakeholder group affected by them?
3. Which ethical decision making approach should be used: 5QA; MSA; PA? Why?
4. What are the major decisions to be made?
5. How should the stakeholder's interests be ranked? Why?
6. What facts and analyses would we like to have?
7. What decisions would the students make?
8. What was wrong with the quality of the debate at the board of directors?
9. What is the downside if the right decision is not made - consider economic factors and also what Jack might do?
The discussion moves along quite quickly, taking 30-45 minutes. At the end of the case, students feel quite good about the decision making approaches and their understanding of corporate governance.
Discussion of ethical issues
Stakeholders and their interests: The discussion of stakeholders and their interests produces the expected list except that usually neither Jack, the technician who discovered the potential problem and who is most concerned with the impact of sonox, and the unborn, are mentioned. I usually have to probe for these, and sometimes I let the discussion proceed until the quality of debate at the board level comes up before asking who is going to raise their issues and argue for their interests. A satisfactory decision is unlikely unless they are recognized as stakeholders and their interests taken into account. You can delve into the issue of whether mothers can adequately represent the unborn or not, but remember that mothers may suffer from conflicts of interest in regard to the perceived short-term need for jobs for their families, etc.
Similarly, the issue of whether the environment should be accorded status as a stakeholder in its own right, or simply as an extension of known human needs, is an interesting one. Pointing to the recent movie "Medicine Man" in which Sean Connery was trying to find a cure for the cancer in the Brazilian rain forest, but was prevented from doing so by efforts to clear for grazing cattle, is helpful here.
Ranking the stakeholder's interests: The ranking of stakeholders interests can be done after or in conjunction with the identification of the major decisions to be taken. Provided sonox is considered a health risk, the usual ordering of concerns by the public would be: life, health, quality of life, financial. I usually find that their is quite a debate in class over the primacy of shareholders concerns (financial) vs. those related to life and health. In the end, it usually boils down to how serious a health risk the student thinks that sonox is. This is an issue that is unresolved in the case due to lack of information (the same as in real life - dioxins are very harmful to monkeys, but science has not been able to make the same case for humans yet).
Choosing an ethical decision making approach: Because the case involves the environment, most students want to use the 5QA which features the sustainable development question. It also appears to be the most simple and logical since the decisions appears to lies outside the confines of the organization. However, the students should be reminded that the profit challenge in the
5QA it deficient because it is often short run in focus and fails to consider externalities like harm to the environment. These issues call for the supplementation of the 5QA with cost-benefit analysis as in the MSA. Also, the issues of discovering Kardell's internal ground rules and employing social contract ethics may be helpful in shaping recommendations and encouraging decision makers to consider the downside of the health concerns. Since numbers are not available, augmenting the profit challenge with the concept of CBA usually proves to be desirable and reinforces the idea of fashioning a hybrid system where advisable.
What decisions ought to be considered? What facts/analyses would we like to have?: Obviously the decision of whether to shut down and install the closed loop system is before the board. However, the class should realize that there are a number of variants which should be investigated, time permitting, with the ultimate decision depending on more information. For instance:
· Is Sonox really a problem?
· Are we polluting in sufficient quantities to cause a problem?
· Are there alternative and less costly process modifications which would reduce, but not eliminate, our Sonox discharge?
· The closed loop shut down and costs appear high: are their less disruptive/costly
· approaches?
· What are the costs of delay?
As a result, an alternate decision would be to defer the closed loop decision and seek more info on one or more of the above. In the interim, several decisions arise:
· Should the community be informed of the possible health risks? When?
· Should bottled water be brought in? When?
· Should the other competitors be brought into the discussions?
Getting the class to make decisions: I usually force the class to vote on the closed loop decision right after the choice of ethical decision making approach. They resist doing so, and I ask why - then the other questions come out. I keep asking for a decision and this forces the group to think through each stage of the process. Ultimately the class is usually split between those wanting to take the ethical "high road" and install the loop right away, and those who what to move more slowly.
What was wrong with the Board debate? At this point, it is easy to see that the board was not sufficiently representative of the stakeholders to meaningfully present and understand the important issues facing the company. Moreover, there was no one with sufficient technical expertise to appreciate the significance of the health issues or the biological impact on the environment. The lawyer may have felt a conflict of interest, in that he was both a director and a paid counsel. In any event, his view was limited to current and past legal precedent, not to the future, or to non-legal perspectives. This is functional fixation which can mislead a corporation into short-range thinking. The result of this analysis should be the realization that to properly govern a company, the board should have effective representation from all important stakeholder groups, and/or effective access to and information from representative groups or ethics experts.
This analysis will highlight the value in appointing "outside" directors (who don't rely on the organization for their livelihood) and also women directors to insure that all aspects of an issues will be understood and argued effectively.
What is the downside? Jack might blow the whistle if he thinks that the wrong decision is made or if the process is suppressed or if too much delay is involved. This would (did) involve regulatory sanction including fines, shut down, loss of market, loss of profit, and ultimately loss of control to creditors. If Jack doesn't blow the whistle, costs of ultimate clean-up and new process installation could rise.
If the decision by the board is just to wait and see what happens, they will not be able to argue that they took "due diligence" measures to keep abreast of the health risk unless they initiate some research into the sonox problem, even if it is a periodic literature search or a retainer arrangement with a researcher to keep them advised. Similarly, they should continue to take readings in the river to monitor their discharge and try to identify other polluters.
Creative solutions: I finish the case by asking whether the interests of certain stakeholders can be examined to refine or produce better decision. Sometimes one of the more astute students will speculate on the possibility of arranging with government for support as a test project for the closed loop system, or to offset the cost of a shut down. Also, the approach to other competitors on the river can be examined, since they are likely to be in the same boat...as it were.
What this case has to offer
The Kardell Paper Co. Case involves decisions around the necessity to introduce a very expensive "closed loop" pollution control system in a pulp mill. This provides an excellent opportunity to:
1. Introduce and illustrate the stakeholder analysis approach as it deals with financial and non-financial issues with impacts in both the long and short term.
2. Get the students to grapple with the need for decisions based on partial or uncertain information.
3. Examine how a board of directors works in governing organizations, and how it ought to be constituted or operated to insure that all stakeholder interests are considered.
4. Learn to anticipate functional fixation, conflicts of interest and other forms of bias from lawyers and other advisors or decision makers.
5. Appreciate what "due diligence" requirements decision makers must keep in mind to minimize the impact of charges of negligence with regard to the treatment of the environment and the handling of hazardous waste.
6. Confront the downside (whistleblowing, fines, jail, closure) of suppressing information or debate at the decision making levels (executive and board) of the organization.
7. Appreciate the capacity of the stakeholder analysis approach to be used to refine a solution to produce a win/win, creative or better result.
Teaching suggestions
I use the Kardell Co. Case either after developing the 5-question/box Approach (5QA) with the students, or after developing the Moral Standards Approach (MSA) and the Pastin Approach (PA) as well. I start the discussion with a short scene-setting statement which raises the reality of the case setting - actually it is an embellished real case with changed names, and with sonox really being dioxin, a suspected carcinogen produces in the pulp making process. Then I ask the following questions, in order:
1. Who are the stakeholders here and what are their interests?
2. What are the major issues and how are the interests of each stakeholder group affected by them?
3. Which ethical decision making approach should be used: 5QA; MSA; PA? Why?
4. What are the major decisions to be made?
5. How should the stakeholder's interests be ranked? Why?
6. What facts and analyses would we like to have?
7. What decisions would the students make?
8. What was wrong with the quality of the debate at the board of directors?
9. What is the downside if the right decision is not made - consider economic factors and also what Jack might do?
The discussion moves along quite quickly, taking 30-45 minutes. At the end of the case, students feel quite good about the decision making approaches and their understanding of corporate governance.
Discussion of ethical issues
Stakeholders and their interests: The discussion of stakeholders and their interests produces the expected list except that usually neither Jack, the technician who discovered the potential problem and who is most concerned with the impact of sonox, and the unborn, are mentioned. I usually have to probe for these, and sometimes I let the discussion proceed until the quality of debate at the board level comes up before asking who is going to raise their issues and argue for their interests. A satisfactory decision is unlikely unless they are recognized as stakeholders and their interests taken into account. You can delve into the issue of whether mothers can adequately represent the unborn or not, but remember that mothers may suffer from conflicts of interest in regard to the perceived short-term need for jobs for their families, etc.
Similarly, the issue of whether the environment should be accorded status as a stakeholder in its own right, or simply as an extension of known human needs, is an interesting one. Pointing to the recent movie "Medicine Man" in which Sean Connery was trying to find a cure for the cancer in the Brazilian rain forest, but was prevented from doing so by efforts to clear for grazing cattle, is helpful here.
Ranking the stakeholder's interests: The ranking of stakeholders interests can be done after or in conjunction with the identification of the major decisions to be taken. Provided sonox is considered a health risk, the usual ordering of concerns by the public would be: life, health, quality of life, financial. I usually find that their is quite a debate in class over the primacy of shareholders concerns (financial) vs. those related to life and health. In the end, it usually boils down to how serious a health risk the student thinks that sonox is. This is an issue that is unresolved in the case due to lack of information (the same as in real life - dioxins are very harmful to monkeys, but science has not been able to make the same case for humans yet).
Choosing an ethical decision making approach: Because the case involves the environment, most students want to use the 5QA which features the sustainable development question. It also appears to be the most simple and logical since the decisions appears to lies outside the confines of the organization. However, the students should be reminded that the profit challenge in the
5QA it deficient because it is often short run in focus and fails to consider externalities like harm to the environment. These issues call for the supplementation of the 5QA with cost-benefit analysis as in the MSA. Also, the issues of discovering Kardell's internal ground rules and employing social contract ethics may be helpful in shaping recommendations and encouraging decision makers to consider the downside of the health concerns. Since numbers are not available, augmenting the profit challenge with the concept of CBA usually proves to be desirable and reinforces the idea of fashioning a hybrid system where advisable.
What decisions ought to be considered? What facts/analyses would we like to have?: Obviously the decision of whether to shut down and install the closed loop system is before the board. However, the class should realize that there are a number of variants which should be investigated, time permitting, with the ultimate decision depending on more information. For instance:
· Is Sonox really a problem?
· Are we polluting in sufficient quantities to cause a problem?
· Are there alternative and less costly process modifications which would reduce, but not eliminate, our Sonox discharge?
· The closed loop shut down and costs appear high: are their less disruptive/costly
· approaches?
· What are the costs of delay?
As a result, an alternate decision would be to defer the closed loop decision and seek more info on one or more of the above. In the interim, several decisions arise:
· Should the community be informed of the possible health risks? When?
· Should bottled water be brought in? When?
· Should the other competitors be brought into the discussions?
Getting the class to make decisions: I usually force the class to vote on the closed loop decision right after the choice of ethical decision making approach. They resist doing so, and I ask why - then the other questions come out. I keep asking for a decision and this forces the group to think through each stage of the process. Ultimately the class is usually split between those wanting to take the ethical "high road" and install the loop right away, and those who what to move more slowly.
What was wrong with the Board debate? At this point, it is easy to see that the board was not sufficiently representative of the stakeholders to meaningfully present and understand the important issues facing the company. Moreover, there was no one with sufficient technical expertise to appreciate the significance of the health issues or the biological impact on the environment. The lawyer may have felt a conflict of interest, in that he was both a director and a paid counsel. In any event, his view was limited to current and past legal precedent, not to the future, or to non-legal perspectives. This is functional fixation which can mislead a corporation into short-range thinking. The result of this analysis should be the realization that to properly govern a company, the board should have effective representation from all important stakeholder groups, and/or effective access to and information from representative groups or ethics experts.
This analysis will highlight the value in appointing "outside" directors (who don't rely on the organization for their livelihood) and also women directors to insure that all aspects of an issues will be understood and argued effectively.
What is the downside? Jack might blow the whistle if he thinks that the wrong decision is made or if the process is suppressed or if too much delay is involved. This would (did) involve regulatory sanction including fines, shut down, loss of market, loss of profit, and ultimately loss of control to creditors. If Jack doesn't blow the whistle, costs of ultimate clean-up and new process installation could rise.
If the decision by the board is just to wait and see what happens, they will not be able to argue that they took "due diligence" measures to keep abreast of the health risk unless they initiate some research into the sonox problem, even if it is a periodic literature search or a retainer arrangement with a researcher to keep them advised. Similarly, they should continue to take readings in the river to monitor their discharge and try to identify other polluters.
Creative solutions: I finish the case by asking whether the interests of certain stakeholders can be examined to refine or produce better decision. Sometimes one of the more astute students will speculate on the possibility of arranging with government for support as a test project for the closed loop system, or to offset the cost of a shut down. Also, the approach to other competitors on the river can be examined, since they are likely to be in the same boat...as it were.
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