Analysis, Pages 17 (4041 words)
My company is in the business to provide home products and services to home builders and property management companies. For our property management division, we obtain business through various marketing channels such as industry trade shows. Early on in our startup, we noticed that many of our competitors are not honest with their billing practices. A competitor may give one of our customers a price per square foot or square yard, but then they intentionally overestimate the amount of material that they use, thereby raising their overall price and profit margin.
Since this is quite confusing to many customers, it is a widely used practice that many floor covering companies get away with. When we first realized that this was occurring, we had to make a decision: do we embrace this already accepted practice or do we try to “rock the boat,” working to convince our customer base that many of our competitors were not being honest with their billing practices? This makes this an ethical dilemma for me as now I have the decision of whether we will continue to follow the status quo, overbilling for goods and services, or am I going to change the way that the whole industry views yardage integrity.
The values that are in conflict are as follows:
Competence. If we are competent in our ability to estimate, we can easily see that our competitors are over billing for their goods and services. We know this from many of our current customers sharing with us their previous measurements.
We always are able to save our customers the amount of product used. So either our competitors are incompetent, or they are intentionally fudging their numbers just to earn a few extra margin points. Customer Satisfaction.
Our competitors were satisfying their customers in the sense that they installed a quality product at a fair price and delivered this in a timely manner. What the customer didn’t know is what hurt them, though. Due to the inherent confusion of estimating for carpet replacements, the customers were unaware of getting ripped off. We, on the other hand, who informed customers that they have been overpaying for goods and services for many years, are actually providing more benefit and service to our customers as we truly look out for their best interests. One of my main personal values is customer service.
This makes this “value” one that hits home for me in many ways. Fairness/ Justice. This value is in conflict as many of our competitors, although providing good customer service, are not being fair to their customers. Intentionally overbilling for a product or service does not equate a principle of fairness. This relates to my personal values as I try to be fair and just with anyone whom I come into contact with. I believe in “an eye for an eye” in a big way. Honesty. This value is in conflict as the policy of intentional overbilling is completely dishonest.
This is considered dishonesty by “pulling the wool” over their customers eyes. Just because a customer may never find out about a practice doesn’t make it right to withhold this information. This relates to my personal values as I see honesty as critical to a good character. Integrity. This value is in conflict as many of our competitors are not practicing what they are preaching. Many of them say that they provide “honest quotes’ for work to be done, but the opposite is true. Integrity to me means doing the right thing when no one is watching. I try to follow this creed in all that I do.
I am a husband and father. Setting this example for my wife and children is very important to me. Responsibility. To me responsibility means taking the initiative to do what is needed to get something done right. Our competitors were irresponsible in the sense that they did not show the fortitude to do what is right. By showing our customers the real quantities that are needed, we are being responsible for our actions. For me, I show up for work every day (and even write papers like this on weekends), as it has been installed in me since I was a boy.
Trustworthiness. Our competitors were using the veil of ignorance to shield their dishonesty. They were not being trustworthy, although their customers did not know it. Unfortunately in business, perception is reality. The way things worked was that it only mattered to appear like they were being trustworthy, when in fact our competitors were not doing right by their customers. This relates to my personal values as I have built a career and a network of friends and business associates by being trustworthy to all that know me.
If something needs done I will get it done, and do it right. Conformity. This value is in conflict as we had a choice to conform to the business norms that were in place. It was an unwritten rule that anyone who did this kind of work had an extra “fluff” built in there to overbill the customer base. We could have followed the way things were, conforming to these business mores, by continuing to overbill for goods and services as well. This stands in stark contrast to what I believe, and what we decided to do. Just because something is popular does not make it right.
This value is in conflict as it was essentially okay to cheat to win in this industry. It sort of reminds me of the steroid use in sports controversy. Eventually the word got out, and all the pro athletes who used performance enhancing drugs were now stripped of rewards, embarrassed by what they had done. Winning is important to me, but it is not important to win by any means. The end does not justify the means in my book, no matter how convincing Machiavelli is. Now that I have defined the ethical dilemma and the values in conflict, I will apply the major frameworks for making ethical decisions.
First the Consequentialist framework, in which I will identify and evaluate the multiple stakeholders, harms, and benefits to society (see chart at end of paper). I will not fill in the chart with much detail as it would require a lot of space. I will, however, explain the rationale for my decision making through a broad evaluation concerning the greatest good for the greatest number of people. I hope I will make the father of Utilitarianism, Jeremy Bentham, proud of my though process. As you can see, the stakeholders are listed below along with the costs and benefits of the ethical decision that had to be made.
I chose to call the one decision conformity, as this was the way things were done in the past. The alternative decision, letting customers know the truth about overbilling, I chose to call honesty. For my customers, the cost involved with me conforming to the culturally accepted business norms of overbilling is the actual amount of overbilling they have been paying for over time and moving forward. The benefit of me conforming to this policy was nothing. The cost of me being honest to my customers and potential customers is nothing. But conversely the upside to this honesty is huge.
Existing customers would gain the dollar amount they have been paying for all work moving forward. For dishonest competitors, the cost of me conforming is nothing. They would continue to operate under their dishonest policies unless someone called them out on their unscrupulousness. The benefit to me conforming was they would continue to make the financial gain over the overbilled amount each time they worked for a client. The cost of my whistle blowing would essentially make our competitors less profitable on an existing customer, or it would even make them lose customers to honest competitors like myself or someone else.
For honest competitors, there is no cost associated with conformity. The benefit of them conforming (if they chose to overbill like the industry unintentionally accepted) is the gain of extra revenue by billing for extra footage/ yardage not installed. The cost of an honest competitor being honest is the possible loss of business due to them not following suit with the rules of engagement. The customers who are too busy to listen to this will still think that because their price per unit is lower that they are getting a better deal than they really think they get.
The benefit of honesty to an honest competitor is the gain of new business when customers start to realize that the honest way is actually a cost savings for them. For my employees, the conformity cost is nothing. The benefit for conforming is job security, in a sense. I say job security because if we conformed we would be able to acquire business easier from honest competitors, thereby increasing our market share faster. This increased volume would ensure that my employees have work to do. The cost to my employees for my honesty is the possibility of getting laid off.
If I could not get enough volume of business in the “hopper,” I may have to start laying people off. The benefit of my policy of honesty in our billing practices will give them pride in working for an ethical company. For my business partners, the cost of conformity is nothing. The benefit is the financial gain that we would receive if we did not rock the boat. We would be able to acquire new business easier than if we were honest, as this policy would allow us to undercut honest competitors and be on an even playing field with dishonest ones.
The cost of our honesty would possibly be a loss of business due to not following suit with conformity. The benefit of a yardage integrity program would be a gain in new business as time goes on and customers are aware of the situation. As you can see, this decision was not an easy one that I had to make. The cost of conformity was nothing to all stakeholders but one – the customer base. And since the customer base had no idea this dishonest billing practice was going on, this made my decision even harder. My decision, based on utilitarian principles, was to create a policy of yardage integrity for all customers.
This is the greatest good for the greatest number of stakeholders in the long run. Although conformity had no cost associated with it for most stakeholders, I weighed the customer’s benefits more than the costs of our competitors. If one treats all categories equally, it can be argued that one may conform if adhering to utilitarian principles. Next I will analyze this situation from a deontological perspective. Here I will look at the duties, rights, obligations, principles, and values that apply to my situation.
As Dr. Trevino puts it clearly in her Managing Business Ethics book, my decision should be based upon “broad, abstract universal ethical principles” about what is right. Here my decision is a no brainer. What is right is clearly the virtue of honesty, and I certainly did the right thing by being honest with my customer base. Some other ethical principles that apply are fairness, justice, responsibility, and loyalty. Following the “golden rule,” I would decide to offer fair billing practices. I would also hope that if I was in the same situation someone would show the same candor to me.
By following Kant’s categorical imperative, I would ask myself, “Is intentionally fluffing measurements for financial gain a principle everyone should follow? ” The answer is obviously no; as if everyone did this we would lose all sense of integrity/ honesty in business dealings. Furthermore, by applying Rawl’s veil of ignorance, the fair thing to do if people’s identities were unknown would be to put an end to the unjust billing practices. This is difficult to apply in this situation as I am the only one who knows about the inherent fluffing that is going on.
This certainly would alleviate any inclination of utilitarian thinkers who may see a greater good in following the status quo of the ways things have been. Next I will analyze this dilemma from a virtue ethics perspective. Here I ask myself what it means to be a person of integrity in this situation. The focus on virtue ethics lies more in the mind rather than the act itself. This reminds me of my undergraduate classes in criminology in which we studied the concept of premeditation. Here I learned of the two parts of a crime, the act itself (actus reus) and the guilty mind (mens rea).
This concept of virtue ethics is recognized by the American criminal justice system. If a person commits an act of passion (with no guilty mind) they often times are offered mitigating circumstances and a lesser sentence. To me integrity means doing the right thing even when no one is watching. In this situation, no one is watching as no one will ever know about the overbilling practices if I never bring it to the lime light. Since the profession I work in does not have a high standard for ethical conduct for community members, this focus on integrity is not as useful as in other professions like accounting or medicine.
Now that I have applied the ethical decision making framework to my ethical dilemma, I will discuss the cognitive, psychological, and managerial influences on the ethical decision I made. First I will discuss the impact of the famous 16th century Italian statesman, Niccolo Machiavelli who bluntly professed that the “ends justify the means. ” This essentially means that it doesn’t matter how you get there, as long as you accomplish your goal. This is very applicable to my ethical dilemma as one of my main goals as an entrepreneur is to increase revenue and take market share.
If Machiavelli were the one making the decision, he definitely would not let customers know about overbilling practices. Being a very competitive person by nature, I can very easily fall into Machiavellian thinking, capitalizing on opportunities as they come to me, no matter what the cost. I know that I have to keep my Machiavellianism in check so as to ensure I make ethical decisions every day. Another influence upon the ethical decision I made is moral disengagement. There are several mechanisms prevalent here in which I could have engaged in the unethical behavior of overbilling.
First, I could have easily put the attribution of blame on the victim, saying it was their “own fault,” rationalizing that if these customers were smart they would have figured this out and not let it happen. Also, by distorting the consequences, I can easily rationalize why the negative consequences are less serious than they are (my customers were not even aware of this going on). Furthermore, I could always use the advantageous comparison tactic, rationalizing this behavior by simply noting that most of my competitors are using this method of billing and doing so to a greater extent than we would be doing.
This is the “everybody is doing it” argument coupled with the “they are way worse than we are” argument. Finally, I could apply moral justification here by convincing myself that doing this would help my employees and contract laborers have more work and more job security as this billing method would certainly produce some quick results. Saying things like “they deserve this” or “it’s no big deal” or “it’s not as bad as some other competitors do” would easily stop me from feeling badly about this action, hence morally disengaging me from my ethical decision.
Due to length constraints on this paper, I will now briefly touch on my third cognitive/ psychological influence with regard to my ethical decision I made. The third psychological influence that effected my decision was locus of control. My locus of control score was a 3 on the scale, which skewed me towards a very strong internal locus of control. With all decision I have made in my life, I have turned within, knowing that my efforts would produce results. In this situation, I decided to follow Harry Truman’s mantra “the buck stops here” and take the responsibility for our corporate behavior.
I knew that if I did nothing this would catch up to me someday, somehow. I also knew that if I did something it would set a positive example for my team and show honest business practices to our customer base. Even though there was inherent social pressure from many competitors who were partaking in this practice, I decided to follow my “gut” and do what was right for our company and our customers. I chose to leave out ethical awareness & its influences, cognitive moral development, and cognitive barriers from my analysis.
These are all applicable to an ethical decision making process as they all affect an ethical judgment to be made. Due to length constraints of this paper I will not speak of these influences. Next I will discuss the managerial influences as listed in Chapter 7 of Dr. Trevino’s Managing Business Ethics. The first one I would like to cover is Reward systems & punishment. This is a crucial factor in my ethical dilemma because the unethical behavior is not punished in my industry in my trading area.
Some may argue that acting ethically, or providing accurate billing/ measurements, is actually not rewarded as it essentially cuts into our margin on a given job. Internally, our sales team has goals for “hitting their numbers” for a given month. Our sales team does not, however, have rewards for acting ethically to do so. Given our vocal stance on acting ethically with regard to our estimating, this actually motivated our employees to follow suit. I know that there is an inherent flaw in our reward system, though.
We need to have formal rewards built into our system for acting ethically. We also need to have formal punishments for acting unethically. Next, I will discuss group norms and roles. The informal standard of behavior in my corporation is to “do whatever it takes” to get the job done. As I have listed on my values exercise, customer service is one of my top values that my business follows. I know we must be careful in our over zealousness as we could end up with conflicting values. Our goal of “satisfying customers every time” is something we reward our employees for.
If we only focus on this goal, we lose sight of other values like honesty and integrity. It would be easy to rationalize the overbilling that is prevalent in our industry using the “everyone is doing it” norm. When I put my foot down, disallowing this practice to take place, I actually set a new group norm within our own company. This norm is a rule that is clearly established and enforced. Another important managerial influence to consider is roles. As Dr. Trevino points out in her book, roles “can reduce a person’s sense of his or her individuality” in a process called deindividuation.
The key is to ensure that the role has norms that are ethical. In my company, we have a person whose role is to ensure billing accuracy. Her job is to ensure we are billing the right amount of material based upon the estimator’s takeoff. This is an added layer of security we have to avoid overbilling. A sales rep may estimate a job and then provide separate billing info to the billing coordinator which would yield a higher net profit for that sales person, but the billing coordinator is responsible for ensuring this billing is accurate.
The Milgram Experiments clearly indicate how most of us are inclined to do what we are told by authority. Whether it be following one of the 10 commandments of honoring your father and mother at home (even though you think they are wrong) or listening to a police officer who tells you to do something. As a business owner I understand the power of this authority. I am certain that I could easily tell my billing coordinator to overbill our customers for work that is done. Since I am her boss she would probably listen to me and may not even question it.
If she questions my authority and does not listen to me, she may feel that her job is in jeopardy. It is important to take this authority responsibly, setting examples that high ethical standards are expected of everyone at all times. As Dr. Trevino notes in her book, it is important that the “message should begin at the top of the organization and work its way down through every level. ”Now that I have analyzed this ethical dilemma from multiple perspectives, I would like to evaluate what I have done.
I believe I did the right thing based upon the prescriptive theories. From a consequentialist perspective, the utilitarian principle of the greatest good for the greatest number of people, given the analysis on the page below, shows that the right decision was to inform our customer base of the unjust billing practices. Although some may argue otherwise (stating that it is better for more people by just following the accepted norm of billing the same way), I feel it is important to weight the options with the consequentialist analysis.
Not all stakeholders’ harms and benefits should be counted the same way. My competitors, especially the dishonest ones, should not have the same weighted score as my employees or my customers should. From a deontological perspective, by following the golden rule, I certainly would want to have someone be as forthright with me. I therefore support my decision from a deontological perspective as well. Finally from a virtue ethics perspective, it is important to note that this practice of overbilling is a culturally accepted business practice.
So one may argue that “towing the line” is okay from a utilitarian perspective, it cannot be argued that staying the course is right by virtue ethics standards. Integrity means doing the right thing, even when no one is watching. The psychological theories certainly help me understand how and why this happened. One example that I did not discuss earlier is script processing. We all have schemas developed in which things become “second nature,” like riding a bike. Many of my competitors have developed schemas for “fluffing” measurements, thereby making this practice second nature.
As principled leaders, we need to develop schemas for ethical decision making in the same way some have developed schemas for unethical decision making. Another example that helps me understand what happened is moral disengagement. Since “everyone is doing it” and some people are doing worse things, some may just continue to fall prey to the unethical decision of doing what others have done. As a business owner who wants nothing more than to take market share and grow my company, I can see how Machiavellianism can take over a corporate culture.
As we can see from the many companies that went down due to illicit practices and moral bankruptcy, the end may have been justified by the corrupt means, but sometimes a different end will be in store for you if you don’t follow your moral compass along the way. Based upon my analysis, I would do things the same way today as I would have 5 years ago when I instituted this policy of accurate billing for goods and services. Knowing what I know now, I will, however, start to implement some more formal rewards, principles, and punishments to encourage my team. The key is for them to develop schemas or ethical decision making through the use of formal policies and procedures and through a formal reward system designed to encourage them to make ethical decisions. From chapter 7 in Dr. Trevino’s Managing Business Ethics, she states it is important to empower employees to be personally responsible for the outcomes of their decisions. Holding individuals to high ethical standards will produce good results. It is also important to encourage information sharing across the organization. I plan to use these tips to make some positive changes in my own organization.