Reference no: EM131521761

Six months ago, Frank became the chief financial officer and a member of the Executive Committee of a medium-sized and moderately successful hand tool manufacturing company. He is the first non-family member to hold the position and to be included on the Executive Committee. He took the job despite a remark made during his final employment interview with the company's president (who is married to the daughter of the company's founder). The president said to Frank, "Some members of the family are concerned about your fit, but I'm willing to take a chance on you."

Soon after Frank started, the company decided for the first time to "right-size" (a euphemism for downsize) in response to declines in sales and the general downturn in the economy. Frank, who had been through this before when he was a senior manager at another company, agreed this was good for the long-term health of the company. He decided not to worry that family members seemed more concerned about their own short-term financial interests. Besides, the president was relying on Frank to help him determine how to downsize in an ethical manner; the president said he trusted Frank more on this than he did the human resources manager, who had "been around a little too long."

On Frank's recommendation, the company decided to make its lay-off decisions based on the annual performance appraisal scores of employees. Each supervisor would submit a list of employees ranked by the average score of their last three appraisals. If an employee had been with the company less than three years, the score for two employees was identical, or if there was some extraordinary circumstance, the supervisor would note it and make a decision about where to rank the person. At some point, Frank and the Executive Committee would draw a line, and those below the line would be laid off.

As Frank was reviewing the evaluations, he was puzzled to find three situations in which the employee at the bottom of the supervisor's list had "N/A" where the evaluation score should have been written. When he asked the supervisors to explain, they told him these employees had been with the company almost since the beginning. When performance appraisals had been instituted eight years earlier, the president agreed to these employees' request that they keep receiving informal evaluations "as they always had."  The supervisors told Frank they'd questioned this decision, and the president had told them it wasn't their problem.

When Frank raised this issue with the president, he responded, "Oh, I know. They haven't been evaluated in a long time, but it's time for them to retire anyway. They just aren't performing the way they used to. The company has been good to them. They've got plenty of retirement, not to mention the severance you've convinced me to offer. They're making pretty good money, so cutting them should let us save money and save jobs for some of the younger people--you know, young kids with families just starting out. And don't worry about a lawsuit. They won't do that."

"Do they know they're not performing well?" Frank asked.

"I don't know," the president responded. "They should. Everybody else in the company does."

As they walked to the door, the president put his arm around Frank's shoulder. "By the way," he said, "you should know that you've won over the Executive Committee. They think you are a terrific fit. I'm glad you talked with me today about these three employees. You got it right: We've always cared for our employees--as long as they're producing." And with that, the president winked at Frank and walked back into his office.

Frank left the president's office with the vague feeling that he had some moral choices to make.

There is no "right" or "wrong" answer to case studies. The questions listed below are provided to help get you started as you evaluate the case.

Is there an ethical problem here? If so, what the right thing to do? How should the employees be treated?

How should the decision be communicated to the company, as a whole?

How should Frank deal with the president?