BE Assignment 4: Individual Case

Randall Thompson, the Chief Executive Officer (CEO) at Healthy Foods, sat in his office bewildered. He had just left a board meeting where the second quarter figures were presented. The performance was way below projected figures. The Board’s Chairman mandated that Randall reduce total costs by at least $125,000 in order to achieve the projected profits at the end of the financial year.

Randall summoned his senior management team into the company’s conference room to discuss the way forward and come-up with an action plan for implementation by the end of the current month. The US-based company’s best-selling product was its infant formula; the Caribbean and Latin America market accounted for eighty-five percent (85%) of its sales and seventy percent (70%) of its total revenue. After a brief brain-storming session, the team came up with the following alternatives:

1. Reduce the staff and upgrade the automated manufacturing process in order to increase productivity and reduce recurrent expenditure on salaries.
2. Reengineering its existing baby formula, removing costly organic ingredients, substitute artificial ingredients, and include melamine in the formula in order to boost the protein content to twice the amount of its closest competitor.

Assuming that either alternative could be implemented by the end of the current month, the company would have five (5) months in which to achieve the performance targets.

The cost to upgrade the automated manufacturing process would be $65,000. Productivity would increase by ten percent (10%) with an anticipated increase in revenue by approximately $30,000 monthly. In addition, the company’s wage bill would reduce its wage bill by approximately $25,000 per month. The costs associated with severance would amount to $100,000.

The cost of the organic ingredients is $50,000 per month while the cost of the substitute ingredients and melamine is $10,000 monthly. However, the use of melamine in the production of food for human and animals is banned in North America and most of Europe as it has been linked to the development of certain cancers and renal failure. The legal department has advised that the potential legal liability of selling the formula in the Caribbean and Latin America is unlikely to be more than $144,000 per year.

Randall was in a quandary, there were so many factors to consider in order to make the most cost-effective and ethical decision. Randall prided himself on being an ethical manager and leading by example. In his MBA, he was exposed to different methods of making ethical decisions and he favoured the Cost-Benefit Analysis (CBA) and Cost-Effectiveness Analysis (CEA) as they provided an objective means of decision-making within a short period of time.

The CEO examined the data and conducted a CBA. The preliminary analysis showed that the total costs saved from Option 1 would be $110,000, while the total costs saved from Option 2 would be $140,000. He was aware that in some situations, CBA should not be utilised as the sole method of ethical decision-making, and after reviewing the figures, he questioned its validity as he believed other factors ought to be considered. However, he needed to make a decision without delay. Further, he was constrained by the fact that the company had a cash flow problem and it could not afford to support any additional costs of more than $170,000 over the next two (2) months.

Melanie Hargreaves, the Vice President – Marketing & Distribution, favoured Option 2 and suggested focusing its Marketing campaign specifically on middle- to low-income young working mothers in the Caribbean and Latin America. The packaging and labels would remain as is and the baby formula would continue to be promoted as a healthy alternative to breast milk.

Randall felt conflicted. The Chairman of the Board had made it abundantly clear that his future with the company was predicated upon his making the most financially prudent choice. But he wondered, would it be the most ethical option?

Questions:

• Based the CEO’s findings from conducting a CBA and other relevant information from the case, explain what course of action he should take.                                         6 Mk

• Randall felt that CBA and CEA may be inadequate to make an ethical decision.

1. Explain what is meant by ‘Rule-Utilitarianism’ and outline a rule that is relevant to the case. 4 Mk

1. Apply Rule-Utilitarianism to discuss the impact on at least four (4) of Healthy Foods’ stakeholders. In your answer outline fully at least four (4) factors that ought to be considered by Randall in order to make the most ethical decision.       6 Mk

Explain fully what is meant by ‘deceptive advertising.’ Explain fully its occurrence in the case and cite evidence to support your answer.

• Melanie Hargreaves, the Vice President – Marketing & Distribution is adamant that the organisation should pursue Option 2 and go full steam ahead with the proposed Marketing campaign. She argues that according to Immanuel Kant, as human beings we have one fundamental innate right, which is the right to be free from the constraint of the will of others. Therefore, the management at Healthy Foods has the right to run the business as it sees fit.

Discuss fully whose rights and which rights Randall ought to consider in order to make the most ethical decision.                                                                                             11 Mk

Your answer must include:

1. at least one (1) right of the management of Healthy Foods (other than the one stated above) that supports this argument.
   1. four (4) relevant rights of Healthy Foods’ customers.

• Assume that the Chairman of the Board of Directors at Healthy Foods mandates Randall to pursue Option 2 despite his discomfort with this option and its possible negative consequences for some of the company’s key stakeholders. Use the ‘Law of Agency,’ which outlines the confines of the ‘principal-agent relationship’ to explain what he should do 11 Mk

• According to Boatright (95), “A conflict of interest occurs when a personal interest interferes with a person’s ability to promote the interests of another when the person has an obligation to act in that other person’s interest.”

1. Identify and describe which one (1) of the four kinds or forms of conflict of interest that is most evident in the case. Justify your answer, inclusive of citing appropriate evidence from the case 7.5 Mk

1. Given the facts of the case, identify and describe which one (1) of the seven ways of managing conflict of interest is most appropriate to manage the kind of conflict found in the case as referred to in (f)(i) above 2.5 Mk

END OF ASSIGNMENT

TOTAL: 60 Marks