The Board of directors of Kardell Paper Company should accept the installation of the new processing technology witch protects the environment by refining the company’s waste water .Implementing this new technology will increase the company’s long- term profitability and reputation by providing enough power and ability to compete and operate efficiently in the future market.
This ethical solution is offered, after analyzing Kardell’s board of directors’ decision to refuse the new technology due to its high turn over costs. The impacts of this decision on the company’s primary stakeholders is studied carefully by using the 5-question ethical approach. The assessment has been made by comparing the profitability, legality, fairness and rightness of the company’s decision and its impacts on major groups of stakeholders and their interests.
The Kardell Paper Company (KPC) is a publicity traded company with good financial record and a profit of $1.7 million per year.Kardell’s original mill which is not designed with accordance to high environmental protection standards, is located near the Riverside, a community of 22,000 residents (Brooks 371) The local community has been suffering from an unusually high rate of miscarriages and respiratory disorders since 1985.Therefore,in the same year, a research has been done on the water sample of the river which showed high level of industrial chemical called sonox.Also,it was discovered that the plant lab failed to mention the high sonox level in its monthly report to the managers. However, after informing the CEO and the Board of Direcors, no serious action has been taken to solve this problem and proven the situation. They failed to undertake an appropriate environmental audit and even refused the possible solution of adopting a new technology to refine the company’s waste water.(Brooks 372)
In fact, KPC’s board of directors faced two major problems in adopting the new technology. First, the $70 million cost of implementing the new technology which would affect the productivity and profitability of the company. Second, the issue of unemployment and job loss that will occur, as a result of shutting down during the retrofit.
To analyze and asses KPC’s decision, the 5-question framework will be used. This approach requires identifying the company’s most important stakeholders, prioritizing their interests and applying five questions to examine the impacts of the company’s decision on each stakeholders group (Tucker 348).
Identification of Stakeholders and their Interests
According to the Corporate Social Responsibility (CSR), companies are concerned for the well being of the people, society and the environment (Brooks 399). Therefore, identification of all the stakeholders and their concerns are quite important for analyzing companies’ business decisions and ensure their long term success. The most important stakeholder groups that are impacted by KPC’s decision can be recognized and ranked as follow.
Current and Future Shareholders
The impact on this group measures in terms of profit or loss. In this case, current shareholders will face a short-term reduction in the dividend payments due to the high cost of adopting the new processing technology ($70 million) and the probability of capacity level reduction during the retrofit. However, if the decision becomes known, the company may end up paying high clean up and compensation costs as well as Governmental fines.On the other hand, the future shareholders such as ethical investors are more interested in long-term profits and give more value to moral and ethical behavior of the company.
KPC’s Employees and Labor Union
They may potentially get unemployed or receive less salaries and benefits due to the productivity reduction during the retrofit. However, KPC is putting its employees and their family’s life at risk by being the source of harmful emission and keep polluting their environment.Therefore, by refusing to install the new technology, KPC is ensuring the employees’ job and salaries at the expense of ignoring their core human rights such as right to good health.
This group consists of the company’s Executive Officers and other managers who receive generous bonuses and benefits. They seek for short term profit without paying enough attention to the long term consequences of their decision. They have ignored the risks that are involved upon revelation of their decision by whistle blowers such as; possible clean up costs as well as negative reaction of the community by boycotting the company’s products.
There is no doubt that KPC has CSR toward the community and therefore must ensure the business continues operating to create wealth and to build good reputation (Brooks 399). As the local community is suffering from the side effects of the high sonox level in the water, KPC has to act responsible ,honest and reliable to solve their problem. On the other hand, the local community might be highly dependant on the company as a main source of income in the area and would severely suffer during the retrofit. But, there is no doubt that saving their lives and living environment should be the company’s first priority.
As the Government wants the health and well being of the society and protect them from harm, it would like KPC to invest in the technology and bring down the number of sick people. Also, this might be to the government benefit as it would reduce the health cost.
As it has explained, KPC’s primary stakeholders consist of different groups with various interests .For being able to asses the impact of the company’s decision, the fundamental interest of the stakeholders should be taken into consideration. The decision should maximize the well-offness of all stakeholders, should result in a fair distribution of benefits and burdens, and also should not offend any of the rights of stakeholders (Brooks 336).
Considering the above mentioned criterias, even though the proposed decision may maximize some current shareholders and managers’ profits, but it is defiantly not fair or profitable for the other employees and the community.Moreover, KPC is offending the core human rights of the residents and its employees by jeopardizing their lives and health. Unquestionably those rights should be the company’s first and principle concerns.
Application of the 5-Question Approach
There is no doubt that the refusal of installing the new processing technology which cost $70 million and results in shutting down the firm, will be profitable in short term and will also reduce the risk of economic loss.However,the likelihood of the decision becoming public by either whistle blowers or ethical shareholders has to be estimated. In this case, KPC might face serious problems such as; loosing the community support, paying high compensations and clean up costs as well as possible future lawsuits for damaging the environment.Consequently, adopting the new technology will be more cost benefit in long term.Moreover, KPC will be able to offset some costs by reclaiming waste material and sell it to chemical producers (Brooks 372).
The KPC’s decision might not be illegal at the moment as it complies with the existing governmental limits and environmental regulations. But due to high number of miscarriages, birth defects and respiratory aliments in the area, there is no doubt that the government will tighten the standards to limit the sonox emission in near future. Therefore, KPC should make a proactive decision to reduce any chance of probable lawsuits.Also, according to the Golden Rules; KPC managers should treat the community as they want to be treated (Hunt and Cox 22). Also, KPC should give priority to the values such as Integrity, honesty, Responsibility, Predictability and try to apply more ethical principles and ground rules to implement those values.
While the deferment decision may considered fair and profitable for shareholders and managers, it is unfair for majority of stakeholders With regard to CSR ,KPC is not only responsible to make profit for its shareholders but also committed to various stakeholders (Brooks 359).Also, the even distribution of benefits and interests among all stakeholders a should be taken into consideration.If,this unfair treatment becomes public, it may result in severe reaction from the injured parties which will cause business failure.
4- Impact on Rights
As it has described, the proposed decision had negative impact on the rights of several stakeholder groups in terms of life, health, safty and security.KPC has negatively affected the health and well being of the society and its employees by potentially polluting their environment .Therefore, KPC’s decision would be considered unethical. It has failed to respect the stakeholders’ values and preserve their health and safety rights, by not disclosing appropriate information to the public and also not taking the necessary steps to solve its technical problem.
5-Is It Sustainable Development?
From the environmental prospective, KPC has to operate in accordance with high environmental protection standards. In order to prosper and progress in future, the company has to equip itself with the newest technology and skills required to keep the environment safe and sound.
Conclusions and Recommendations
The analysis has shown that, although KPC’s decision to defer the installation of the new processing technology might promise the short term profitability of the company and guarantee the shareholders’ interests and can be within governmental limits at the presents, it is not fair or right to the other stakeholders. Moreover, with regard to the valid probability of the decision revelation as well as the cost -benefit analysis, the long profitability of KPC might be at risk .The company may end up with paying high clean up costs and expenses. Consequently, KPC’s decision is unethical and may result in future public negative reaction and failure.
The above mentioned facts and consequences should be fully taken into consideration by the Board of directors.Therefor,Kardell’s board of directors should act immediately and solve the pollution problem by adopting the new processing technology and accepting the fact that the company’s long term success and productivity depends on this action.
In addition, KPC can resolve the probable job loss and unemployment during the retrofit by providing employees with early retirement packages or even ask the government to assist those employees with the unemployment insurance.