Case 1: Ethics vs Profit

A large American company participates in highly competitive industry. To meet the competition
and achieve profit goals, the company has chosen the decentralized form of organization. Each manager
of a decentralized center is measured on the basis of profit contribution, market penetration, and return
on investment. Failure to meet the objectives established by corporate management for these measures
is not accepted and usually results in demotion or dismissal of a center manager.

An anonymous survey of managers in the company revealed that they felt pressured to
compromise their personal ethical standards to achieve the corporate objectives. For example, certain
plant locations felt the pressure to reduce quality control to a level that could not ensure that all unsafe
products would be rejected. Also, sales personnel were encouraged to use questionable sales tactics to
obtain orders, including offering gifts and other incentives to purchasing agents.

The chief executive officer is disturbed by the survey finding. In his opinion, the company cannot
condone such behavior. He concludes that the company should do something about this problem.

Question:

1. What are the ethical problems mentioned in this particular case and what are the probable
causes of the problems?
2. Is it all right to do something illegal or unethical to maintain the company’s image and
profitability?
3. If you are the CEO of the company, what would you and why?