AWC Inc. is an aluminum fabricating company, situated in South-western Ontario, run by the MacDonald family. Not only is it known for its product design and quality, but also for its involvement in supporting employees’ families. AWC was involved in the community and committed to creating a family-oriented environment, through sponsoring local sports teams and providing summer work for children of employees. In July 1991, however, Alex MacDonald was faced with a predicament: AWC’s emissions control systems did not adhere to the regulations set by the Ministry of the Environment.
In order to comply with regulations, he needed to invest $240,000 to $400,000 in ventilation equipment. However, the investment, coupled with the economic recession, would drastically cripple the company’s finances. This paper will analyze the ethical issues and alternatives for this case. What Changed to Cause Ethical Issues? Jim MacDonald founded AWC Inc. in 1950. He nurtured it to become a successful organization with a great company culture and eventually passed it down to his son, Alex.
It seemed as though AWC was well on its way. Unfortunately, a recession came about, financially crippling AWC and the aluminum fabrication industry.
To uphold the firm’s competitive advantage, AWC created a new door design – one that was competitive in price, assembly, and performance. It significantly increased sales and was in high demand. It was functional even in high-use areas, provided that the door spent more time on the welding line for a stronger welded corner. This change proposed a problem. The welding line produces poisonous fumes.
When inhaled, they can have dire consequences on employee health as they have been known to lead to respiratory damage and cancer. At the same time, there was a government focus shift towards environmental preservation.
In order to coerce companies into taking social responsibility, the government implemented legislation that imposed harsher penalties for polluting the work environment with high concentrations of harmful particles and oxides. The environmental issue here affects AWC. If AWC decides to vent the fumes outside and pollute the air, it could be fined up to $400 000 a day for not complying with the regulations. Stakeholders Jim was the founder of AWC and is indirectly involved. Before passing the company down, environmental issues were not of major concern to the government.
During his time with AWC, only large companies were targeted for not complying with regulations. Ignoring regulations, he was able to form a successful company. From applying his experience in the past, Jim’s solution would be to ignore it and focus on financial stability. Alex wants to protect employees’ health but it may put AWC out of business. Not knowing what to do, he looks towards his father’s actions for guidance because they were successful in the past. However, his reality is different from Jim’s because of the shift in government focus to environmental sustainability.
He realizes that from an ethical standpoint, it is only right for him to protect employee health and safety, as well as the environment, but feels conflicted due to AWC’s poor financial situation. What is being chosen for employees is either money to live by risking their health, or protecting their health, but risking not being able to find a job during the recession. Although they are not directly involved in the decision-making, employees are arguably the most affected by Alex’s decision of economic or health and environmental stability, which makes them stakeholders.
Other stakeholders include the government, nearby neighbours, competitors and suppliers. The government is the one who implemented the environmental regulations, affecting Alex’s decision. Nearby neighbours may be affected by his decision, as it may affect the surrounding air by increasing pollution. Competitors hope that AWC will go out of business, as that will generate more sales for them. Suppliers would want AWC to stay in business to maintain their own sales. Ethical Issues The welding line fumes are a hazard to employee health.
To protect employee health, Alex needs to vent out the fumes or filter the air. However, in doing so, he could potentially devastate AWC’s finances to the point where it cannot run anymore, and would need to lay off workers. Furthermore, if he chooses to vent the fumes outside, he would be contributing to polluting the environment. If he chooses not to do anything, Alex could possibly keep AWC running and keep workers employed. However, he would be breaking the law and endangering employee health. There is also the chance that he could get caught.
The question that arises is this: Should Alex sacrifice the preservation of the environment and the well-being of employees for AWC’s financial stability? Alternative #1 – Doing Nothing The first alternative is to ignore the problem. This option has the highest return. If Alex is not caught, according to the projected income statement (Cases in Business Ethics, 2006, p. 208), AWC’s income will continue to grow. In addition, he would not have to lay off 100 of his employees. With a high return, there is always a high risk.
His employees continue to inhale toxic fumes that may lead to significant health concerns. If he is caught, however, AWC could be fined up to $500 000, while he and his employees could be fined up to $25 000. Furthermore, if it is revealed that he knowingly disregarded the health and safety regulations and aware of the impact toxic fumes can have upon one’s health, he could open himself up to lawsuits from the employees. Considering costs involved in the worst-case scenario, it could be much more expensive than investing in air filtration equipment. Alternative #2 – $240 000 Exhaust System
The second alternative is to purchase an exhaust system for $240 000 that would vent the fumes outside. This solves the problem of health and safety regulations within the plant, but the fumes are now transferred outside. By transferring the problem outside, AWC is now subject to following the regulations set by the Ministry of the Environment. One of the requirements is a Certificate of Approval. However, it is unlikely that AWC will obtain the certificate because the air quality test is dependent on neighbouring property owners, something that AWC has no control over.
Furthermore, its neighbour is a concrete plant. According to Alex, they produce much more pollution than AWC, which implies that there is very little chance for the company to pass the air quality test. If Alex were to implement this system, it would only result in a loss and sunk cost of $240 000. Employees would most likely be laid off and Alex would need use more money to find another solution. Alternative #3 – $400 000 Recirculating Filtration System The last alternative is to purchase a recirculating filtration system for $400 000.
It needs to be approved by the Ministry of Labour, Department of Occupational Health and Safety. The filters for the system have to be cleaned by a cleaner that generates toxic sludge. To get rid of the sludge, an authorized hazardous waste disposal company has to be paid a fixed cost of $500 per trip. This is the most expensive option, but if properly financed, can help employees keep their jobs, enable AWC to stay within health, safety, and environmental regulations, as well as continue business. Choice of Alternative
Although this is the most expensive option, the recirculating filtration system is the best option for Alex. Approval for this filtration system is based only on AWC, which is something within his control, unlike the certificate required for the $240 000 system. Employees would be safe from the toxic fumes, and all the health and safety requirements would be met. The cost does pose a problem. To help fund for the system, Alex could cut sponsorship for local sports teams. Although it creates a good name for AWC, it is not essential and that money can be put towards the filtration system.
Also, the bulk of AWC’s expenses are wages and benefits. To save costs, Alex could implement a work-sharing program. This way, he can cut the hours of work, but each employee would still be able to bring a paycheque home. Considering the economic conditions, if workers were laid off, they would unlikely be able to find jobs. Therefore, work-sharing would be to the employees’ benefit. This option would also relieve him of the possibility of lawsuits from employees. Conclusion Although there is not a perfect solution to this case, investing in the $400 000 recirculating filtration system is the best.
It is costly but the company does have a chance of surviving the recession by cutting work hours and unnecessary expenditures. More importantly, Alex would be able to fulfill his ethical duties in preserving the environment and protecting the health of his employees, while minimizing job losses. Although it will not leave AWC in the best financial position, the benefits outweigh the costs. A dollar value cannot be placed on our health and implementing the filtration system will definitely provide a healthier working environment for future workers to come.