(Decentralization; ethics) A large U.S. corporation participates in a highly competitive industry. Company management has decided that decentraliza¬ tion will best allow the company to meet the competition and achieve profit goals. Each responsibility center manager is evaluated 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 acceptable and usually results in demotion or dismissal of a center man¬ ager.

An anonymous survey of company managers showed that they felt ex¬ treme pressure to compromise their personal ethical standards to achieve corporate objectives. For example, managers at certain plants felt it neces¬ sary, for cost control purposes, to reduce quality control to such a level that it was uncertain whether all unsafe products were being rejected. Also, sales personnel were encouraged to use questionable tactics to obtain orders, in¬ cluding offering gifts and other incentives to purchasing agents.

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

a. Discuss what might be the causes for the ethical problems described.

b. Outline a program that could be instituted by the company to help re¬ duce the pressures on managers to compromise personal ethical stan¬ dards in their work.

(CMA adapted)

 LO.1