Social and Ethical Issues in Management Chapter

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Social and Ethical Issues

Short Case

Consulting for a Tobacco Company

It would be difficult for me to consult for a tobacco company. I would have to seriously weigh the pros and cons of the assignment. One positive aspect is that it is only a short-term assignment. Thus if I did accept the assignment, it would only be for a short duration with a defined end point. Another advantage is that I would have some control over the decisions that the company made and I could recommend that ethics be applied in each situation. Although the sale of tobacco products is harmful to health in general, there are situations in which it can be relatively less harmful than it would otherwise be.

For example, there can be decisions made to use additives that are safer than others. There are also decisions to be made about marketing and distribution that could help keep the products away from young and underage products. For example, many tobacco products have been criticized over the years for producing marketing materials that have said to appeal to younger customers. If I were consulting for a company I would strongly recommend that any marketing material be ethically produced and try to focus only on the specified target market.

If I did not accept the position I would have no opportunity to try to influence the company to make its operations a little "less bad." Any changes to the company internally to make it operate a little more ethically would be missed by me because I refused to take the assignment. It might be good to have a consultant on the project who does not approve of smoking for that very reason -- so they can ensure that the company is operating in the most ethical manner as possible given their industry and their products.

However, at the same time, the organization is undoubtedly focused on profitability and not the well-being of a broader set of stakeholders given the nature of their products and the industry. Therefore, given my opposition to smoking it could also be the case that I am definitely unqualified for the position. I would not be able to make recommendations to the company to grow their market size or market share with my predisposition to smoking and as a result I could be a failure in this consulting position in terms of the end goals. It would be difficult for me to maintain a sense of professionalism in such a situation.

The case gives a limited amount of information about the consulting project and I think before I could make a decision either way I would need to find out more. I think the first step would be to schedule a meeting with the CEO to talk openly about my dilemma. It might be the case that the CEO is understanding and assigns someone else to the project. Or possibly they can provide more information about it that can clear up some of the issues that rest within my internal dilemma. For example, if I would only assist with some of the details of the merger and not anyway be contributing to the promotion of smoking then maybe it wouldn't be as challenging of an ethical position. Whatever the case maybe, I think that talking openly about some of my perceived challenges would be best not only for myself, but for the organization in general.

Conflict of Interest

Conflict Overview

The conflict described by the short case is one that is becoming increasingly common in the business world. A large manufacture of healthcare products acquires a smaller company that operates in a different space within the same industry. The smaller company has built a competitive advantage and a reputation for offering objective advice to its customers. However, many of the customers worry that after the acquisition that it could have a new mission that would sway its previously held levels of objectivity in its recommendations. The two companies' combined will have to reevaluate their positions in the marketplaces after the acquisition and make several decisions about how the new combined organization will be organized. This analysis will point out some of the possible strategies that could be followed as well as some of the pros and cons that might be apparent in each strategy.

Small Company as a Marketing Firm

The larger company and the stock market are most likely considering the strategy that the company can be used as a launchpad to promote many of the larger manufactures products.

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There are obviously some legal challenges that could present themselves in this strategy as well as some ethical obligations to the stakeholders at different levels. As the new organization emerges after the acquisition, there will need to be a realignment with multiple sets of stakeholders.

For example, the clients of the smaller firm represent a set of stakeholders that have grown accustom of Little Company's objectiveness when it comes to recommending products. If the objectiveness of Little Company changes after the acquisition then it has a legal and ethical obligation to these stakeholders to reveal its conflicts of interest. If the Little Company is now given a strategy that includes marketing the products of the Big Company, it is under obligation to disclose this information. Furthermore, disclosing this information could have series ramifications for the company's credibility among its clients.

However, at the same time, the Little Company also has a new set of stakeholders constituted of the financial investors of the Big Company and its new owners. The Little Company will now create value (or try to) for a new set of financial stakeholders. If they create value for these stakeholders by trying to promote the Big Company's products then this might represent the best interests for this set of stakeholders. The Big Company can find new networks and new distribution channels by tapping into the Little Company's networks.

The new company, the company that is created after the acquisition, will have to define how these companies will operate in the future in relation to all the stakeholders involved. If the Big Company does use the Little Company as part of a marketing program then it will have to disclose this information to all stakeholders. There will be many rules and regulations that are likely applicable that will further restrict the way in which products are promoted and represented to its stakeholders and the Little Company will lose its objectivity.

The Little Company Operates Independently

Another option would be to let the little company operate completely independently of the Big Company. This would mean that the Big Company would retain ownership but have any say in the decision making of the products that the Little Company would offer to its wholesale clients. The Little Company would be allowed to operate as it always has and its new financial stakeholders would profit from these operations without any say in the specifics of the operations.

However, even if the Little Company was allowed to operate as a completely independent agency it would still face many problems. One would be that its employees would feel an obligation to promote the Big Company's products even if were allowed to operate completely independently. For example, if the employees new that they were owned by the Big Company they may automatically feel the need to try to promote the company's products because it would be indirectly in their best financial interest as well.

Another issue is that even if the Little Company was allowed to be completely independent that there would still be a level of skepticism from its clients that could cost some of their business. If the Little Company wholesaled some of the Big Companies products in this situation then there clients would wonder if the products were actually good or if they were doing it for other reasons. Therefore, even with a fully independent company there would still be many challenges present.

A Hybrid Structure

The best strategy would likely be to create some kind of hybrid structure in which the Little Company was given some autonomy but still collaborated with the Big Company. To do this ethically and responsibly, the companies would have to develop a well-defined ethical system and make this system fully transparent to all the stakeholders in both companies. Such an ethical system, if it were transparent and closely followed, could alleviate many of the concerns of different sets of stakeholders as well as guide the operations of both organizations under the new combined organization.

Part of the advantage of an acquisition of companies is that it can be done strategically to create synergies that create value for different sets of stakeholders. For example, given the current pressures in the market that the Big Company is facing, acquiring the Little Company will allow them to diversify their product mix to reduce some of the risks that it is currently facing. The Little Company will also benefit from the Big Company's resources and….....

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