UP Business Law Ethical Decisions in Downturn Case Study Essay

Read the case “

Responding to a business downturn and The Mike Wallace factors and the common good

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Answer the following questions based on “Responding to a business downturn”:When George moved to the four-day workweek scheme, should he have expected his managers to work five days for four days’ pay?Should George tell anyone except his immediate staff about the impending layoff before the details have been worked out?What about the board of directors? The union? The employees?Answer the following questions based on “The Mike Wallace factor and the common good”:Was George’s decision to be open about the impending layoff the ethical thing to do? Are there situations in which it is best to try to keep a lid on such information?The particular jobs cut at ACI were chosen on the basis of the long-range interests of the business and not on the nationality of the workforce. As the reporter’s questions implied, shouldn’t American businesses favor American employees over foreign employees? What do you think George said to the TV reporters?  Responding to a Business Downturn
The new CEO of a corporation learns that he has inherited problems with growth and profitability.
A four-day workweek and, eventually, layoffs prove necessary. Who is the CEO obligated to inform
and when?
George Anderson was just a few months beyond his 40th birthday on the day he became CEO of
Astratech Communications International (ACI). What an upper! He was still basking in the glow of
his good fortune, eager to try out his skills as the CEO. He hoped to get the chairmanship one day
when the company’s founder, Mike Marcus, decided to step down. Life was good.
ACI was a leading supplier of fiber optic transceiver components for the telecommunications
industry. It sold to companies like Alcatel, Northern Telecom, and Ericsson, who put ACI’s
components into the lightwave equipment they manufactured. The company was based in Irvine,
Calif., a great place to live, work, and raise a family.
ACI’s annual sales were around $500 million with 2,500 employees in locations in Mexico and
Scotland, in addition to its Southern California headquarters. All of ACI’s hourly employees in the
United States and abroad were represented by the IBEW, a union with a history of good working
relationships with management. The Mexican operation was launched to take advantage of lower
labor costs and close proximity to headquarters. The Scotland plant gave the company relief from
onerous European tariffs. Both offshore facilities enjoyed excellent employee relations.
After settling into his new position, George busied himself identifying the major issues facing the
company. Coming in, he had realized that ACI’s growth and profitability were problems, but he
wasn’t sure if the source was the management team, product development, marketing and sales, or
something else.
After several months, George was clear that it wasn’t the people. Sure, there were a few problem
areas, and some employees seemed a bit too comfortable. But the main issue was a lack of focus and
a general weakness in the business systems required in this fast-paced industry. There was no clear
vision of what ACI wanted to be and no acceptable plan on how to get there. What was it that
someone said? “If you don’t know where you are going, all roads will lead you there.”
To address this weakness, George implemented a task force made up of middle managers from all
the various disciplines, as well as the executive team. He chaired the task force because he believed
strongly that CEOs shouldn’t delegate strategy.
When it came to business systems, the problem seemed to be a lack of adequate cost accounting.
The company didn’t know its individual product costs to any reasonable degree of accuracy. To
address this challenge, George brought in a new chief financial officer.
But just as George was beginning to feel optimistic about where ACI was going, he got a phone call
from sales to tell him that Alcatel was canceling its backlog. Apparently, Alcatel’s customers were
slowing their acquisition of new equipment, and Alcatel seized that opportunity to shift all of its
business to a French competitor of ACI’s that had a reputation for higher product quality.
George’s first call was to the chairman. To his surprise, Mike handled it well, voicing his empathy
and support. But clearly, George was expected to take action quickly. He decided that one way of
avoiding a layoff was to implement a four-day workweek. That spread the pain evenly among all
employees. George called his executive team together to tell them the bad news and to get the
necessary action underway. Next, he went to discuss the issue with union leadership. The regional
head of the union-also the local steward-was in George’s office before lunch with a stern look on his
face. “Look, George, you’re the new kid on the block, so we don’t think this setback was your doing.
No one likes to lose part of their paycheck, but your plan treats management the same as the bluecollar workers, so you’ve got our support. We want to give you a chance to act. If we don’t like what
you’re doing, we’ll be back.”
The four-day workweek was implemented. Without being told, the entire management staff knew
that they got four day’s pay, but they were expected to be there five. After about six weeks, the
lower costs began to kick in, and ACI was again holding its head above water…barely.
Then, George’s worst fears began to unfold. The lack of demand from Alcatel was now spreading to
his other customers and, although they didn’t cancel their backlogs, they significantly reduced them.
The customers’ forecasts reflected the same story.
Like it or not, George could no longer avoid a layoff. His best calculation was that 900 people would
have to go. The remainder would go back on a five-day week. But a lot more details had to be
worked out. What projects should be cut? What parts of the organization should be hit the hardest?
Who should be protected?
The Mike Wallace Factor and the Common Good
George decided to be open about the impending layoff with all the important constituencies
even though the implementation details were not worked out. That evening as he left his
office for the day, George was surprised to see that a television crew had set up their camera
near the main entrance and were talking to employees as they left.
As soon as the reporter spotted him, the crew raced over and thrust a microphone in his face.
“We understand that there are going to be layoffs at this plant. What is your comment? We
hear that the plants in Mexico and Scotland are not going to be hit as hard as the Irvine plant.
Aren’t you just using this layoff as a way to export jobs to lower-wage countries? Don’t you
owe it to the American workers to let them keep their jobs so long as there are foreign
workers to be laid off?”
George made a few comments that set the matter in perspective. Although still skeptical, the
press grudgingly conceded the argument…for the moment.
When he got to the parking lot, he found that his car had been slashed. The paint job was
ruined. As he drove home, he thought, These problems are not my doing. If the managers and
workers had paid more attention to quality, they might not have been hit so hard by order
cancellations. The layoff was going to happen the next Tuesday, and he scheduled an allhands meeting for the remaining employees. Did he ever have things to say to them!
The next six months were the roughest of George’s career. But things started to click, the
industry was coming back, and the organization had fixed the quality problems. Best of all,
the new product, which used technology that was a generation ahead of the competition, was
moving along at lightning speed. They would have it to market by his first anniversary. As
George reflected on the past year, he realized he had learned a lot.
Two years later, ACI was the most profitable company in its sector. It felt like a rebirth, for
George as well as for the company.