5 Management Cases, Case Study Example

Question A1: Identify two major ethical issues that the executives at Google might confront.  For each of the two issues described, indicate two stakeholder groups involved and how Milton Friedman would argue that the decision makers should resolve the dilemma between the stakeholder groups.

Answer: The two major ethical issues the executives at Google might confront are:

1. Should they go against the company’s motto of “Don’t be evil” and censor information as required by the Chinese government and local authorizes or skip China?
2. Should they provide same or different information resources to Chinese users than the rest of the world?

The stakeholders involved in the issue of whether to censor information per Chinese government’s demands are the shareholders and the Chinese government. Any course of action will have implications for the company’s long term financial performance and market valuations. Similarly, the Chinese government has vested interest in promoting its ideals and does not want to lose control over its public image or its political and economic power. The stakeholders involved in the issue as to whether Google provide same or different information resources to the Chinese users than the rest of the world are the Chinese public and the human rights groups. The Chinese public deserves to have access to information, just like the rest of the world and similarly, human rights groups want companies to do more to improve human rights’ record around the world.

Milton Friedman believed in the ideas of Laissez Faire Capitalism, first introduced by the father of Economics, Adam Smith. Adam Smith believed that the private sector is capable of monitoring itself through the forces of demand and supply that will not only result in efficient allocation of resources but also effective functioning of markets. Thus, Adam Smith believed that no external regulation of capitalism is required because it will only introduce economic inefficiencies. Similarly, Milton Friedman subscribed to the shareholder view which states that the only social responsibility of the business is to create shareholder wealth. This is because shareholders are the owners and provide the capital, thus, the business owes no obligations to anyone except the shareholders who support its existence.

In the first ethical dilemma, Friedman would have argued that Google agrees to internet censorship by the Chinese government rather than skip China. This is because Google’s entry in China can only be ensured by agreeing to Chinese government’s demands and even though this course of action may go against the corporate mission, it will be benefit the company’s shareholders. This is because China has 1.6 billion users and is one of the world’s fastest growing economies. Many of Google’s competitors are already in China, thus, the company cannot afford any more delay. Entry and growth in China will provide profitable opportunities to the company and increase shareholders’ wealth. But if Google refuses, it will not hurt the Chinese government because there are already many companies willing to obey Chinese conditions in order to take advantage of the economic opportunities in the country. But Google’s shareholders will be hurt, given the number and magnitude of economic opportunities Google would be missing.

In the second ethical dilemma, Friedman would argue that that profit maximization should be every business’ only purpose, thus, the issue of Chinese public access to information just like the rest of the world should be irrelevant to Google’s management. The only thing Google management needs to take into account is whether they are breaking any U.S. or Chinese laws or not. In this case, they are probably not breaking any U.S. laws because many U.S. companies such as Yahoo! are already operating in China under similar agreements. In addition, Google can only compete in China by agreeing to Chinese laws which require censorship so Google would actually be doing a right thing by fulfilling its legal obligations which is what should matter and not social obligations. Thus, in this case the rights of both the stakeholders, i.e. Chinese public and human rights organizations, can be ignored because Google doesn’t have any legal obligation to take them into account and moreover, doing so will result in the great economic benefits for the company’s shareholders.

Question A4: Using the stakeholder framework suggested by Freemen, identify five stakeholder groups affected by decision situation described in the case.  For each stakeholder group identify how Wal-Mart may harm the interests of that stakeholder group.

Answer: The five stakeholder groups affected by the decision in the case are small retail businesses, customers, drivers, unions, and suppliers. Freeman takes an opposite approach to Adam Smith and Milton Friedman because he believes that the organizations are not only accountable to the shareholders but all the stakeholders who are directly or indirectly affected by the operations of the companies. Thus, where as Friedman emphasized maximizing value for the shareholders only, Freeman advocates maximizing value for all the stakeholders.

As far as small retail businesses are concerned, Wal-Mart will either drive them out of business or severely reduce their profitability. Due to the size of Wal-Mart, it is capable of meeting the needs of the old customers of hundreds of small retail businesses. Freeman would be again Wal-Mart’s proposal because it would hurt a significant number of small business retailers. The small businesses cannot enjoy the same economies of scale or cannot extract the same favorable terms from the suppliers as Wal-Mart, thus, no level of productivity gains would be sufficient to compete with Wal-Mart.

The second stakeholder to be affected will be customers. As the case notes, majority of Wal-Mart’s customers come from low-income groups. Thus, they will benefit from Wal-Mart’s presence just as the company’s American customers enjoy low cost of living. In this case, Freeman will support Wal-Mart’s expansion because it will help improve the quality standards of many poor residents in Vancouver.

The third stakeholder to be affected will be drivers. Wal-Mart’s presence in the area will increase traffic and congestion on the roads which means longer commuting times for the drivers. The company will offer huge parking facility free of cost which may also encourage some customers to drive who have been using public transport so far due to lack of parking facilities provided by smaller retail shops. The increased traffic will also increase air and noise pollution. Thus, Freeman will oppose Wal-Mart’s expansion in this case.

The fourth stakeholder will be unions. Wal-Mart has been known for its anti-union stance, thus, the company doesn’t have a single unionized store in the U.S. In Canada, it used to have two out of which one is about to be closed. Due to its sheer size, Wal-Mart is an organization with tremendous power and can afford to spend huge resources or incur losses in order to keep unions away. Wal-Mart’s efforts to keep unions away may not only mean low negotiation power for the employees but it may even encourage other big-box retailers to resist the presence of unions as well. Unions may have some drawbacks but they do increase employees’ negotiation power and often succeed in winning higher wages, better work benefits, and safer working conditions for their members. In this case, Freeman will either oppose Wal-Mart expansion or support on the condition that a union will be allowed to organize and employees will not be retaliated against for joining unions.

The fifth stakeholder will be the suppliers. Wal-Mart’s size allows it to extract extremely favorable terms from the suppliers and would not bulge even if the supplier’s existence is threatened as Rubbermaid’s case shows. The presence of Wal-Mart will mean lower negotiation power of suppliers as well as their profitability. In addition, some suppliers may even reduce working standards to reduce costs and threatening the safety of their employees in the process. Freeman will be against Wal-Mart’s expansion because Wal-Mart negotiates on suppliers on unequal terms and its sole focus is to maximize profitability.

Thus, overall the case is against allowing Wal-Mart’s expansion in Vancouver because doing so doesn’t maximize the value of all stakeholders but instead only the shareholders. Freeman would argue that all of Wal-Mart’s stakeholders except the customers will suffer, thus, the company should not be allowed to set operations in Vancouver.

Question B1: Consider the actions of Walmart regarding competition with other firms (i.e. – as a “category killer”) from (a)Friedman’s point of view (b)Freeman’s point of view.  Indicate whether each of the theorists would agree with those who oppose allowing Walmart to locate in Vancouver because of the effect on local businesses.  Provide at least two reasons to support each of your two assessments.

Answer:  Friedman believed that the free competition results in the most efficient allocation of resources and is the best economic model. Friedman also believed that the only responsibility of every business is profit maximization while staying within the boundaries of law. Friedman believed that businesses have no obligations to consider the social or moral aspects of their operations for as long as no laws are broken. This is because all the profits of the businesses belong to the shareholders and only they should have the right to decide whether they want their capital to be spent on non-profitable causes. Freeman on the other hand believes that not only shareholders but all stakeholders are important and the organization should not ignore any of them. Profit maximization even at the cost of other stakeholders’ rights should not be a motive of the businesses. The purpose of every business is to maximize the benefits of all stakeholders rather than just the shareholders.

As far as Wal-Mart’s Vancouver venture is concerned, Friedman would not agree with those who oppose allowing Wal-Mart to locate in Vancouver because of the effect on local business. This is because Friedman argued that businesses should only be concerned about profit maximization and, thus, in this case the effect of Wal-Mart on other local businesses would not be of any concern to Friedman. Second, Wal-Mart will not be breaking any local law, thus, Friedman would support Wal-Mart because Friedman believed the businesses only have obligation to follow the minimum requirements of the applicable laws and not moral or ethical standards.

Freeman would agree with those who oppose allowing Wal-Mart to locate in Vancouver because Freeman believed that all businesses should maximize the joint benefits of all stakeholders. In this case, only Wal-Mart and maybe customers will benefit but the number of stakeholders who will be negatively impacted is far greater including drivers, community (noise pollution), unions, local community (lower tax receipts due to lower wages paid by Wal-Mart), and small retail businesses. The second reason Freeman will oppose is because Freeman believed that stakeholders should not be used as just means but instead stakeholders have rights to demand from the businesses. Wal-Mart has a history of using its muscle to negotiate on unequal terms with stakeholders to maximize profitability, thus, Freeman will be weary of Wal-Mart’s project and assurances.

Question B6: Provide at least five examples of transfer of Walmart’s management principles from the US to Vancouver, Canada.  Indicate whether or not Patricia Werhane would support the transfer of each principle.  Justify your answer.

Answers: The five examples of transfer of Wal-Mart’s management principles from the U.S. to Vancouver are resistance to unions, low-cost competitive strategy, economies of scale, targeting low-income groups, and locations on the edges of the cities to take advantage of low land prices. Patricia Werhene argues that western style capitalism cannot always be exported in its exact form overseas, thus, the businesses should take a cautionary approach.

In case of Canada, the country is quite similar to the U.S. in terms of economic development and other cultural aspects. Wal-Mart’s first strategy is to resist unions in Vancouver, Canada as well. Werhane will oppose this because Canada seems to be more acceptable of union culture as opposed to the U.S. Wal-Mart operates a lot more stores in the U.S. than in Canada yet it didn’t have single unionized store in the U.S. while it had two in Canada. Wal-Mart is going to close one of the unionized stores in Canada, thus, Werhane will advise the company to be more union-friendly in Canada. Werhane will support the company’s low-cost competitive strategy because Canada also has a capitalist economic structure and there are many American corporations successfully doing business in Canada including Home Depot. Thus, this strategy is exportable.

Werhane will also support economies of scale strategy because Canada is a free market system which supports efficient business practices. Werhane may advise against only targeting low-income groups or locating stores on the edges of the cities. This is because the company needs goodwill in the country and the residents as well as the small retail businesses owner fear that Wal-Mart will drive out small shops out of business. Thus, Wal-Mart could focus on middle income groups and build goodwill before expanding its market base. Similarly, the city of Vancouver is trying to move to a more ecological or ‘Smart Growth’ Model and the additional traffic generated by Wal-Mart’s location on the edge of the city will negatively impact the city’s progress. Vancouver’s new model emphasizes community, thus, any action by Wal-Mart that threatens small businesses or result in noise pollution and traffic congestion will be a source of negative publicity.

Question C1: Using the Kantian approach of Denis Arnold, provide three recommendations to Google regarding how to proceed with regard to the imposed censorship of websites.  Justify those recommendations using the theoretical positions in the article.

Answer: Kantian approach calls for obeying universal golden rules, i.e. treating others in any particular situation just like one would like himself to be treated as. In other words, organizations can solve any ethical dilemma by asking themselves as to how they would have liked to be treated, were they in the other parties’ shoes. Thus, in a way Kantian approach calls for the globalization of human rights and ethical values where everyone would be treated the same way irrespective of cultural or social background.

The first recommendation to Google is that they should agree to Chinese government’s demand. As the article mentions the dilemma faced by the management, Google was faced with two conflicting choices because choosing either one of them meant it would be both be fulfilling and contradicting one of its corporate missions. One choice meant to censor information which goes against the company’s mission of free flow of information while the other choice meant skipping China altogether which goes against the company’s mission of serving Chinese users. In an ideal world, Google would be able to provide uncensored access to information to its Chinese users but given the circumstances involved, that is not possible. But given the circumstances, most of us will prefer access to partial information than no information at all. In addition, Google also provides various other services in addition to information which the Chinese users can only benefit from if the company agrees to the government’s censorship rules. If Google were to put itself in its Chinese users’ shoes, it would also have preferred some information to no information at all.

The second recommendation to Google is to post inaccessible links. Currently, the company does provide the notification that the search results are filtered but the users have no way of determining the nature of the filtering. The article notes that there are organizations outside China that continues to provide proxy servers and anonymizer programs to Chinese users to circumvent the Chinese surveillance program. The access to free information is one of the inalienable human rights and if the Chinese users at least know the information being censored, they may be able to access the information through stealth means. Thus, even though Google won’t provide direct access but it may still be able to provide indirect clues to the nature of the information being censored. Before we try to search for information we have to know what kind of information we are looking for. If Chinese users do not even know the nature of the information being withheld, they may not know what to search for through proxy servers to better educate themselves.

The third recommendation to Google is to anonymously fund the organizations outside China that build proxy servers and the anonymizer programs. Google could provide both financial and technical knowledge to the organizations. Ultimately, free access to information is a universal right even if Google cannot officially promote free access to information in China due to the Great Firewall of China as well as the commercial stakes involved. But the company still should do everything in its capacity to work towards the cause of granting Chinese users same information rights as those enjoyed in the west because the Chinese government is violating one of the basic universally-accepted rights of its citizens.

Question C3: Consider the arguments provided by Boatright regarding individual responsibility versus corporate responsibility for behaviors in corporations that harm others. Provide a set of at least four responses for the SEC in controlling behaviors like those of Goldman Sachs in its dealings with AIG.

Answer: Boatright argues that shareholders already have built-in protections which other stakeholders do not have. Managers are not agents of the shareholders and, thus, the management has duty towards protecting the rights of all the stakeholders involved. Thus, Boatman will argue that SEC needs to take more active approach in the regulations of financial markets.

First of all, SEC should force all organizations to go for compensation plans with long term structure rather than short-term structure. Short term performance of the organizations can be magnified by the overall economy or other factors external to the organization but the quality of an organization’s performance is better revealed in the long term.

Second, SEC should force organizations not to take more obligations, even if on the paper, than what they are capable of covering through liquid assets. AIG failed because it took more insurance liabilities in the form of credit default swaps than it could cover because the company never expected the situation to get worse as much as it did.

Third, SEC should force companies to increase the reserves with the Federal Reserve. This will leave a lower portion of the assets with which the organizations could bet and will also provide greater liquidity to the economy in times of crisis. The SEC has an obligation to ensure that organizations do not take excessive risk and threaten the whole system including ordinary taxpayers in the process.

Fourth, the SEC should force more organizations to go for fixed compensation system where the potential for bonus compensation is too huge so as to minimize the risky behavior by employees. The unlimited upside potential is what motivates employees to take excessive risk.