In view of Gumdrop Northern’s recent move from the United States to Argentina and Colombia, three major ethical issues have arisen for consideration. The purpose of this memorandum is to identify, discuss and propose a solution for these issues. Clearly, what Gumdrop Northern has done skirts the limits of the law and runs roughshod over any utilitarian sense of ethics.
Gumdrop Northern had established a habit of using substandard materials in its production lines. This might not be such a bad thing if the company manufactured paddleball sets, with the small rubber balls attached by a rubber band, or sets of chopsticks for value-priced Asian restaurants. Instead, though, Gumdrop Northern is a manufacturer of munitions and vehicles for military institutions in countries throughout the world, including the United States. In order to cut corners on costs, it chose materials that rendered its body armor useless, as most antipersonnel ordnance would pierce it. The bottom of the armored vehicle, ironically, only featured a thin piece of steel, which made it handy for improvised explosive devices (IED’s) to penetrate after the vehicle drove over them. Even the land mines that it made were defective, because the switches would often activate too early, leading to the deaths of those who were trying to plant them.
If this weren’t enough, when the U.S. military figured out that the problem was the manufacturer, and civil attorneys as well as federal prosecutors began planning Gumdrop’s demise, the company faced a fairly daunting choice: pay the coming class-action verdicts and watch its executives go to prison, or try to skate away from the consequences. Most companies in this situation wait and face the music, but Gumdrop did not.
Instead of moving quickly to console families and build public relations (think about BP handled the oil spill in the Gulf of Mexico, initially), Gumdrop began planning its escape from the country. It fired or “retired” enough workers to get under the layoff notification laws, declared bankruptcy to exempt itself not only from its UAW contract but also from any pending verdicts from the class-action suits. It shipped money to offshore accounts in Switzerland and Argentina and moved its management to Argentina as well, as there is no existing treaty for extradition between Argentina and the United States. Interestingly, the company’s share value and profit margin remained unchanged, despite the global tragedy that Gumdrop had set in motion.
Ethical Issue #1: Substandard Materials
Although the issue of substandard materials was not part of Gumdrop’s decision to move, there is nothing in the case to indicate that Gumdrop will not continue to use these materials in their operations in South America. Gumdrop may have escaped its legal situation through this daring dash to a new continent, but while Argentina and Colombia are excited about their new military goodies coming off the production line, the fact that the factories down there are already working before Gumdrop has even had a chance to file its bankruptcy papers in federal court would indicate that the same materials are in use.
While tort law may be quite different in Argentina and Colombia than it is in the United States, one can be sure that once insurgents and drug lords in those two countries can blow up those armored vehicles, just as members of the Taliban did when the Americans were using them, then the local buyers in these two South American countries will be just as livid as their American counterparts were.
Knowingly using materials that are substandard is an ethical issue no matter where the manufacturing takes place; depending on the laws of the locality of the plant and corporate offices, it can also be a legal one. Certainly the issue is a legal one in the United States; hence the company’s Robert Irsay-like flight from the nation. It may not yet be an issue in Argentina and Colombia, where product-safety laws may be at a much more embryonic state, but it won’t take much time for momentum to build for those laws in those two countries, if Gumdrop does not change its ways. Accountability for an issue of this nature runs throughout the company, from the people who do the budgeting on the project, to the people who monitor the testing (or lack thereof) of production materials, to the assemblers who put the vehicles together, knowing full well that the sheet on the bottom wouldn’t hold back a Stephen Strasburg fastball, let alone the shrapnel from an underground mine. The management has a duty to spend the necessary monies to purchase materials that will make products that do what they are said to do – in this case, to provide protection in combat. While it might be difficult for assemblers to raise objections, their status as UAW members and existing American law protecting “whistleblowers” in companies remove any justification for not speaking out against the products they are turning out. All of these members of the organization are ethically (and legally, under United States law) for negligence, as the swiftly massing prosecutorial apparatus indicates).
Ethical Issue #2. Gumdrop Northern is certainly not thanking its workers for turning a blind eye toward the shoddy manufacturing that was going on, because the company is shedding workers to get under the 100-employee minimum that is required for the Worker Adjustment and Retraining Notification (WARN) Act to protect the rest of them from this sudden departure from the country. The law requires companies with more than 100 employees to give them 60 days’ notice if it plans to take its operations out of the country. By firing five of them without cause and sending five more home with mandatory retirement packages, it moved to 95 employees – and evaded the notification requirement.
This is an ethical issue because of the undue burden it puts on all of the employees of the company. It is certainly unfair for the five who were fired to have that termination on their employment record (and to have that affecting any applications for unemployment). The five who get the best deal are those who get “early retirement,” but the fact that it wasn’t voluntary points to mistreatment of them as well. The other 95, however, are badly off as well, because they show up to work one day just to find out that the company has moved not only out of the city or state, but also the continent. They have no warning about the pending change in their employment status. Except for the executive team (and the shareholders, of course) the rest of the organization is about to have their entire lives turned upside down by this decision. While this set of decisions by Gumdrop does violate the principles of ethics, it does not violate U.S. law (although one can imagine Congress hastily closing this loophole), and so it remains merely an issue of ethics.
In this instance, the liability falls at the feet of the executive team. One can assume that no one below executive level would have any inkling about the pending decision, because of the sheer outrage that such information would bring, not only within the company, but also within the workings of the UAW, and in the media. This sort of abandonment of legal and moral responsibility, even in the 2010’s, would horrify not only the union but also the press, which would jump all over Gumdrop, making for a public relations nightmare and, possibly, even putting a huge dent in share price. After all, Casey Anthony was only under suspicion for killing one person, and she can’t appear in public yet, more than six months after her “not guilty” verdict. How long would Gumdrop execs have to stay underground in the United States after the revelations that their company’s products killed scores of servicemen and other innocents? As for other stakeholders, it is difficult to fault shareholders for the misdeeds of the company, although one wonders what the levels of divestment were after the revelations of Gumdrop’s callous chutzpah.
Ethical Issue #3. The misuse of existing American law to provide an escape route for Gumdrop from all accountability is also an ethical issue in this situation. After all, the point of these laws is to protect personal and business interests from just the sort of violations that Gumdrop has committed, and has now exacerbated with its hasty retreat from the country – and from its day of accountability.
This takes place on several fronts. The first of these is the firing of ten people to get below the standard for reporting pending shutdowns. While this law was put into place to protect small businesses that may not have 60 days’ operating capital to survive the mandatory notification period, its purpose was not to allow companies hovering just above the minimum to dump workers in order to avoid responsibilities. The second is the misuse of bankruptcy laws. Again, these laws were put into place to provide protection to individuals and companies in the United States. However, that protection was not to take the form of swindling others, as is the case here. By filing for bankruptcy, it washes its hands of its contract obligations with the union, as well as of its potential tort obligations to the families of soldiers involved in the casualties. While few people are fans of tort attorneys, one reason why they are a formidable sector of the legal industry is that companies and organizations do cut corners and go out of their way to save money at the expense of their clientele, and the check operating against those companies is the threat of tort legislation. Bankruptcy allows knowing wrongdoers to escape their accountability. A third is the unethical use of banking and extradition laws in other countries. Initially, the purpose of this law was to keep individuals and small businesses from being ruined by some bad fortune; here, though, it is being used to cover up and evade clear wrongdoing. This misuse is unethical. A third example of using legal structures to escape accountability involves benefiting from differences in laws between countries. By moving to Argentina and Colombia, Gumdrop leaves U.S. jurisdiction behind; while this means that it can no longer do business in the United States, it also means that American shareholders can continue to profit from the success of the company. While the people in Argentina and Colombia will get the short-term benefit of the new jobs that would go along with Gumdrop’s new factory, it also means that the shoddy vehicles will now be made – and will now do harm in – their country.
This is only a legal issue in the sense that the company is taking advantage of opportunities that the writers of the laws mentioned did not anticipate. This is why, of course, countries have to continually update their codes of law, because malefactors such as Gumdrop take advantage of benefits that should not really be there. For the most part, this is an ethical issue.
Resolution – Ethical Issue #1. From a utilitarian standpoint, solving these ethical problems becomes a thorny issue. Historically, utilitarianism has referred to the action that generates the greatest good as the most morally correct (Driver, 2009). While the continued manufacture of shoddy goods might benefit the company and its shareholders, it certainly won’t benefit anyone else; in fact, it could even harm the company, if the materials fail in the process and end up injuring employees, the company could actually be out some money – and certainly some goodwill, even in a country with a less sophisticated view of occupational safety and health. To solve this ethical dilemma from a utilitarian perspective would be to insist on safer materials. Even if the company is already entrenched in South America, changing toward safe materials will keep further tragedy from taking place – at least that tragedy that the company can avoid. Since it has the money to compensate with the victims of its poor manufacturing, it should also attempt to reach a settlement (Belnap, Perloff and Xu, 2001).
Resolution – Ethical Issue #2. This is a stickier dilemma from the utilitarian standpoint. While it would indeed be better for those former employees to still be with the company, the fact is that the shareholders are better off – and there are no doubt more of them – each of which with the means to enjoy their continued dividends. Looking at this from the point of view of the good of the many reveals that there are many employees in Argentina and Colombia who can fill those jobs, and they can work more cheaply, building profit margins and sending the dividends of the shareholders even higher (Bergstroem, 1977). It is not realistic to suggest that a utilitarian would argue against this decision.
Resolution – Ethical Issue #3. While cutting corners to benefit shareholders may pass the utilitarian test, misusing laws for one’s own personal benefit does not benefit the greater good. After all, if nothing in the American legal system changes as a result of this situation, every company with the wherewithal will cut bait and flee to South America (or somewhere else) any time it hits the probability of a titanic tort action (Gibbard, 1965). The bottom line is that these loopholes must be closed, and the utilitarianism answer would be to fight for new litigation so that this situation cannot happen again.
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