Reference no: EM133525430

After working her way up the managerial ladder in the finance departments of a number of large manufacturing companies, Margo Romano finally landed what she believed was her dream job: chief financial officer and a member of the executive committee for a financially successful, family-owned tool and die manufacturing business. Initially, she had been concerned about being the first non family member to hold a position on the executive committee, but the firm was highly regarded in the industry, and the compensation package was excellent. She was also working hard to develop a good rapport with the other members of the executive committee, especially the CEO. The CEO, the daughter of the founder of the company, had told Margo privately that although some of the other family members had initially been concerned about bringing a non family member onto the executive committee, she had supported her and told them that Margo was the "perfect match" for the position. After Margo had been with the company for about a year, the CEO called an executive committee meeting to announce that, for the first time in company history, the company would have to downsize to respond to rapid changes in its manufacturing business. Margo and the CEO had met several times prior to the announcement to review the financial situation, and Margo had agreed with the CEO that downsizing, although always a painful process, was necessary for the long-term health of the 40-year-old company. Margo was pleased that the CEO publicly stated that Margo would be in charge of the entire process of reorganizing the company because she trusted that Margo would do things "in a thoughtful and an ethical manner." Further, after the meeting, the CEO told Margo privately that she had complete faith in her and, in fact, trusted her more on than she did the head of her human resources department, who had "been around for quite some time now." On Margo's recommendation, the company decided to make its layoff decisions based on the annual performance appraisal scores of the employees.

Margo directed that each department manager submit a list of employees ranked according to the average score of their last five annual performance appraisals. Several years ago, the company had initiated what it felt was a very fair performance management system. At the start of every year, each manager and employee met to establish five goals for the employee for the coming year. After agreeing on the goals, the manager and the employee signed off on those goals. At the end of the year, they met again, and the manager assigned the employee a performance rating based on accomplishment of the agreedupon goals. Both, manager and employee then signed off on the annual score. As long as the performance appraisals had been conducted in a fair and impartial manner, this seemed to be the best way to approach the challenging task of layoffs. In fact, this method of review has been used by other major U.S. corporations, including General Electric. As Margo was reviewing the performance evaluations, she noticed that in three departments, employees were listed at the bottom of the performance list for that department but had "N/A" where the evaluation score should have been written. When she asked the managers to explain, they told her that these workers were old-time employees who had been with the company since the beginning. The formal performance-appraisal system had only been instituted 10 years earlier, and the former CEO and founder of the company, the current CEO's father, had agreed to these long-time employees' request that they keep receiving informal evaluations "as they always had." In a private meeting, Margo raised the issue with the CEO, stating: "Yes, I am aware that some of our oldest employees haven't been evaluated in a long time, said the CEO, "but frankly, and just between you and me, it's time for them to retire anyway. They just aren't performing the way they used to. However, remember that the company's been very good to them; they will have a good retirement package, not to mention the severance you've convinced me to offer. Letting them go will let us lower our overhead and save jobs for the younger people-you know, the ones with young kids and families just starting out." Margo thought for a moment. "Have these employees been informed that their performance has not been satisfactory" she asked? "Well, good question," the CEO responded. "I've tried to talk with each one of them, or most of them, in any case, informally every year and we've talked in general about when they might want to consider retiring for a number of years now. It's true, some of them seemed to get the hint, others didn't.

But in any case, we have got to do what is in the best interests of the company, don't we? If we don't, in this competitive environment, no one will have a job." As they got up from the table, the CEO put her arm around Margo's shoulder. "By the way," she said, "you should know that both the executive committee and I think you've really been doing a good job. This makes me feel good about what a good choice I made when I hired you!" she said with a smile. "Also, I'm glad you talked with me today about these employees. It's a good reminder that you and I always need to keep all communication channels open!" Margo smiled in return as she left the CEO's office. But as she walked down the corridor, she knew there were some important issues she needed to think about.

1. What are the key ethical questions raised?

2. What ethical principles apply in this case?

3. What is your solution to the ethical dilemma? What is the right thing for Margo to do?

4. What ethical-leadership lessons have you learned?