Question

The responsibility of the directors of a corporation is to provide a return to shareholders on their financial investment in the corporation . . . in other words, shareholders expect to make money on their investment. Corporations such as Facebook, Google, and Apple are financed through the sale of billions and billions of dollars in shares purchased by investors. Sometimes, however, the duty to maximize profits runs contrary to legal, but still questionable, business opportunities.

Assume that you’re the director of one of the corporations listed below and have been presented with the business opportunity described in the scenario. Would you advise the corporation to accept the opportunity? Make sure to fully explain your answer, considering both the financial return expected and any related ethical concerns.

ToyCo has just been informed that it’s wooden trains produced in China contain lead paint and can no longer be sold in the United States. However, a distributor offers to negotiate a deal with a foreign company to sell the trains in a South American country that has no laws addressing the presence of lead paint in children’s toys.

BabyHealth is seeing decreasing sales of its powdered infant formula in the United States due to more and more mothers choosing to breastfeed their babies. In an effort to offset these losses, BabyHealth chooses to sell their formula in third world countries. However, it is widely known that the water sources in these countries is often contaminated and not boiled prior to use.

After producing 10 million versions of its new smartphone, PhoneLand discovers that due to a manufacturing oversight, 5 of the phones may catch fire if left in a car on a hot day. While the worst case financial impact from the phones catching fire is 10 million dollars in damages, recalling and repairing the phones will bankrupt the company.

Answer 1

- > Case 1 - As a director, I would advise the corporation to let go of the business opportunity of selling Wooden trains in Southern America. Lead is a dangerous component and can be hazardous to children's health. It is important to note that children have a habit of touching things and putting fingers in their mouth / eating their toys. Though the opportunity may save our losses, however, any case of death due to our toys would cause a global bad mouthing of the company and affect sales of all other product lines. The cost of risk here is much greater than cost of opportunity, further, it is not ethical to sell hazardous products.

-> Case 2 - I would advise BabyHealth to take up this opportunity. Powdered infant formula is an alternative to breastfeeding and it entirely depends on the mother's choice. The financial returns expected are good and will offset our losses. From an ethical perspective, it is not the company's problem that third world countries have poor infrastructure and access to clean water. It is a condition not caused by our actions. Further, to uphold the ethical principles, I would advise the company to print product lables with certain directions which would direct the user to boil water prior to use or use clean filtered water for mixing with our product.

-> Case 3 - As a director, I would not recall the phones. The defect percentage, in this case, is very low which is acceptable. The financial impact of recall is huge and puts company's existence into jeopardy. From an ethical perspective, the top management of PhoneLand can come out and issue a press note suggesting that it is advisable to not leave phones in cars on a hot day as there is a chance of phones catching fire. I believe the warning enough is a sufficient step to uphold our ethical principles by being transparent with our customers. Further, we can suggest that in case it happens, we will refund X amount or will pay for the actual damages that occur.