Reference no: EM132993872

The Situation

The top management team of a medium-sized manufacturing company is on a strategic planning "retreat" where it is formulating ideas and plans for spurring new growth in the company. As one part of this activity, the team, working with the assistance of a consultant, has conducted a SWOT analysis. During this activity, an interesting and complex situation has been identified. Next year, the federal government will be issuing new-and much more stringent-pollution standards for the company's industry. The team sees this as a potential threat in that the company will have to buy new equipment and change some of its manufacturing methods in order to comply.

The Dilemma

One member of the team, James Smith, has posed an interesting option-not complying. His logic can be summarized as follows:

1. The firm has already developed its capital budgets for the next two years. Any additional capital expenditures will cause major problems with the company's cash flow and budget allocations.
2. The company has a large uncommitted capital budget entry available in three years; those funds might be used to upgrade pollution control systems at that time.
3. Because the company has a spotless environmental record so far, James Smith argues that if the company does not buy the equipment for three years, the most likely outcomes will be (a) a warning in year 1; (b) a small fine in year 2; and (c) a substantial fine in year 3. However, the total amounts of the years 2 and 3 fines will be much lower than the cost of redoing the company budgets and complying with the new law next year.

The Assignment:

1. Decide whether James Smith's suggestion regarding ignoring pollution standards is a good one. Write down the reasons for your position.
2. Using the model discussed in Week 3 determine what the underlying ethical issues are in this situation.
3. What would be the most appropriate action by the company in this situation? Make sure that your answer addresses the strategic goal of the organization.