Reference no: EM132254936

Company Background

Laxtec, Inc., is a subsidiary of a Texas-based company that manufactures surveillance cameras. Laxtec’s main function is to manufacture the motor and arm that rotates the cameras. Laxtec is located in Illinois. Laxtec, Inc., has no individual ethical regulations, nor does it have an ethics team within the organization. Laxtec’s parent company however, has an ethics staff within corporate headquarters that deals with questions of ethics for its employees. The corporate headquarters does not take an active part in exercising ethics requirements in its subsidiaries due to staff limitations.

Situation

At the beginning of November 2018, Laxtec had been directed by its parent company to manufacture a new arm that will rotate 360 degrees instead of the present 180 degrees. Since Laxtec is operating near full capacity and cannot extend its resources to design and manufacture the special motor and control unit needed for the 360-degree specification, it has decided to subcontract this project. Knowing that only a few companies would be able to design and manufacture the arm, Peter Ferdenzi, president of Laxtec, instructed Sherry Morris, director of supply management, to inform the bidders that there were many companies bidding for the contract. This would insure that the bids received were competitive. One out-of-town bid and three local bids were received. Mr. Ferdenzi called Sherry into his office to discuss them. Sherry told Mr. Ferdenzi that the out-of-town bid from Aster Company appeared to be the most favorable. But Mr. Ferdenzi told Sherry to discard it because he wanted to subcontract the motor within the area to enhance business and social relationships with the community. Out-of-town contracting would only cause friction among the workers. The out-of town bids, explained Mr. Ferdenzi, were simply to obtain pricing information. Sherry looked over the remaining bids and explained that Prextel was the next best choice, then Gordon, Inc., and lastly Tomos Corporation. Sherry was familiar with the Tomos Corporation and told Mr. Ferdenzi that it had been involved in questionable business activities and was being investigated by the local authorities. Mr. Ferdenzi looked sternly at Sherry when he heard the Prextel bid was the best and told Sherry to discard it. Mr. Ferdenzi’s ex-wife was the director of the research and design team at Prextel and relations between the two were difficult, to say the least. Finally, Mr. Ferdenzi agreed to award the bid to Gordon, Inc. Mr. Ferdenzi told Sherry to negotiate the specifics with Gordon. Mr. Ferdenzi also told Sherry to delay notifying the other bidders of the award until two weeks after production had started with Gordon. In this way, it would not be necessary to listen to the other suppliers “beg” for more consideration. Negotiations between Gordon and Laxtec were finalized and production started. A problem arose within the second week, however, when Laxtec’s quality representative noticed that the materials being used were not of the quality standard stated in the contract. Sherry immediately called a meeting with Gordon, Inc. During the meeting it became apparent that there was a lack of honesty in the development of Gordon’s bid. Further, Gordon’s attempt to use substandard materials was an attempt to increase profit. Sherry realized that Laxtec could not rely on Gordon, Inc. She stated that she would cancel the contract based on fraud. Gordon, wishing to avoid any litigation and bad publicity, agreed and passively backed out. Luckily, at Mr. Ferdenzi’s direction, Sherry had not notified the other bidders of the award to Gordon. Sherry met with Mr. Ferdenzi again and recommended that Prextel be awarded the contract. Mr. Ferdenzi refused and ordered Sherry to meet with Tomos and negotiate a contract.

The Dilemma

Sherry called Chuck Moore, president of Tomos, for a meeting the next day. Chuck knew that if Laxtec wanted him to negotiate a contract, it must be in desperate need of someone. Accordingly, Chuck told Sherry that a donation to the Tomos pension fund would make things much smoother in the negotiations. Sherry brushed the comment aside and finalized the meeting time. Sherry told Mr. Ferdenzi about the pension fund. Mr. Ferdenzi simply shrugged his shoulders and told Sherry to pay Chuck since it was essential to have Tomos accept the contract. Sherry was unsure of what to do. In her last two jobs, she had refused to participate in similar activities and was fired on both occasions. That was when she was single. Now Sherry had a house and two children to support.

What should Sherry do?

What should the parent company do?