Ethical Considerations, Business Plan Example

Introduction

Ethics have to play a significant role in today’s business decision making process. According to Miller & Cross (2010, p. 37), “business ethics focuses on what is right and wrong behavior in the business world”. Through the scenario of the business case analyzed below, the authors would like to create a detailed business memo, taking into consideration ethical, regulatory and risk issues associated with the decision in question. The authors would like to focus on reducing compliance risks, ethical problems and the question of corporate social responsibility.

Summary of the Case

In this scenario, Olaf, an executive within Product Distribution Inc. needs to make a decision whether or not the company should put the newly developed product on the market: Jumpy Horse. The product is an energy drink that is designed for mental and physical stimulation. Given the peculiarity of the energy drink market and the popularity of the drink among teenagers, the company has carried out studies on the effects of the product on people aged 15 to 60. While the FDA has examined the reports sent by the company, and there were some side effects noted on the research document, they were only relevant to a small proportion of the sample. However, the side effects were more prevalent among young people aged 15 to 18 than any other examined populations. Only 0.02 percent of over 18 users developed side effects after drinking Jumpy Horse. Among young people between 15 and 18, this ratio was 1.1 percent. Olaf now needs to make a decision based on the fact that the product was approved by FDA based on the full report, however, it can cause severe allergic reaction and anxiety disorder among young people. The company invested 5.6 million dollars into developing the product, and not marketing it would mean that  Product Distribution Inc. will generate a great loss.

Scenarios

Olaf needs to consider several business and ethical aspects before making a decision. Simply put: he needs to balance the company’s goal for short-term profit maximization and corporate social responsibility.

Scenario 1: Olaf could argue that the media should make young people aware that energy drinks are not safe to be consumed by children. Indeed, coffee does not have a label that it increases heart rate and is unsafe for children. Jumpy Horse has Caffeine in, as well as Taurine and L-Theanine. In the end of the day, all parents and children can read the label. Olaf goes ahead with the marketing of the product, based on the fact that the company did not breach any regulations and Jumpy Horse has all the relevant FDA approval documents. The company, given the affluent energy drink market, makes substantial profit, hoping that only over-18 consumers buy the product. The company achieves the goal of short-term profit maximization, however, they increase the risk of consumer damage claims, accounting to potentially millions of dollars. Further, the company would not comply with its product liability requirements  (Miller & Cross, 2010) and engage in manufacturer negligence.

Scenario 2: Olaf, on the other hand, could consider consumer protection guidelines. He knows that based on the Consumer Protection Act (1986) provides consumers grounds for legal actions if they suffer damages as a result of using the product. According to the Act, every consumer has the right to safety, the right to be informed, the right to choose and the right to be heard. That is why Olaf decides that he starts marketing the product, however, he would speak tot he design and marketing departments to create a clear label and message in advertising that emphasizes the fact that the drink is intended for over 18-s only. The company does lose a proportion of potential customers, will make lower profits of Jumpy Horse, however, they comply with the Consumer Protection Act (1986) and market to a segment that is not likely to have side effects. It is, however, likely that the company would lose extra consumers who would think that the product is not safe for anyone if it is not recommended for under 18-s. According to the company’s customer survey data, this would result in a minimum of 12 percent decline in sales volumes.

Scenario 3:While the company has already invested 5.6 million dollars into developing Jumpy Horse, Olaf finds it safer to look into options that would reduce the amount of  L-Theanine in the drink, making it safer for the population aged under 18. This decision would require extra funds of 500.000 dollars and the release of Jumpy Horse by Product Distribution Inc. would be delayed by three months, the modified product, because it does contain less of the stimulating substances would not need to go through an FDA approval process again. This way, the company could keep on marketing the same way, would not need extra warning in the end of the advertisement and on the label and maximize sales. Olaf thinks that by making this extra investment into product development, the company could create a safe and marketable product that can create the Product Distribution Inc. a greater leverage on the market.

Recommendation

Based on the evaluation of the above three scenarios, the consumer protection, ethical and regulatory requirements, it is evident that Product Distribution Inc. should make the product safer. Even if the labels are put on the packaging and consumers are informed about the recommendation, it is not a strong enough safeguard. On the other hand, the company would potentially suffer reputation loss as a result of admitting Jumpy Horse not being suitable for children. Product Distribution Inc. would also lose a substantial proportion of the market. By putting the unchanged product on the market, on the other hand, would not be ethical and focus on only one aspect of the business: maximizing short-term profits. At the same time, marketing the product would create potential risks for the company based on the Consumer Protection Act (1986). The firm could face hundreds of consumer claims seeking damages. The loss of reputation would only be one consequence of the company’s behavior; financial and market share loss would follow, not to mention the large amount of compensation settlement the legal department would need to issue. Therefore, instead of focusing on short term profits and market expansion, Olaf needs to consider ethical business issues, corporate social responsibility and  regulatory factors.

Conclusion

By making a further investment of 500.000 dollars into product development and testing, Olaf would be able to preserve the company’s existing market. This way, the company could protect itself from regulatory and consumer actions, show corporate social responsibility towards consumers and make a decision on an ethical basis. The risks of legal challenges and court cases would be reduced, therefore, the affluent market of energy drinks would bring in the predicted profit of 10 million dollars a year from marketing Happy Horse.

References

Miller, R., Cross, F. (2010) The Legal Environment Today: Business In Its Ethical, Regulatory, E-Commerce, and Global Setting. Cengage Learning.