Business ethics and law

Business Ethics and Law

Over the last several years, the issue of ethics and legal challenges has been increasingly brought to the forefront. This is because globalization has created a change in the way firms are interacting with employees. Over the course of time, this has resulted in firms outsourcing jobs to key locations (which have lower labor costs). This has given executives greater amounts of flexibility in determining: what is asked of employees, the kind of benefits that are received and the impact on labor relations. (Franklin, 2001, pp. 7 -- 16)

In the case of Caterpillar, they have been using this kind of strategy to reduce their costs and to begin selling their products in developing markets. This has resulted in the company realizing increasing profit margins and it has helped the firm to aggressively market to consumers in these areas. However, a problem has emerged inside many of the established plants at locations throughout North America. In these kinds of situations, executives are asking employees for greater reductions and changes to their union contracts. This has resulted in a series of strikes and labor disputes. After a period of time, is when the union will renegotiate a contract that is in line with the management's objectives. This is problematic, as these practices are circumventing different legal and ethical guidelines. To fully understand what is happening requires focusing on: the issue in relation to the firm, understanding current ethical challenges and providing suggestions for addressing these kinds of impasses in the future. Once this takes place, is the point that existing and future challenges can be effectively dealt with inside the workplace. (Franklin, 2001, pp. 7 -- 16)

The issue / situation in relationship to business, government and society

One of the major challenges, facing Caterpillar has been the contentious relationship the firm has with its employees. This is because the company is a traditional manufacturer of heavy equipment that is used in the construction and excavation industries. However, as time went by the firm was adjusting to changes that were occurring from globalization. At first, this was a very gradual shift with the company building plants in states where unions were not as strong. (Franklin, 2001, pp. 7 -- 16)

Then, in 1990s, is when the firm began to rapidly expand its operations to locations overseas (i.e. Japan, Europe, China, South Korea, Mexico, Brazil and India). Their focus was on establishing a foothold in key markets that were quickly growing. Moreover, the emphasis on free trade and the elimination of critical barriers; meant that Caterpillar could open a number of manufacturing facilities in these regions. (Franklin, 2001, pp. 7 -- 16)

When this happened, the firm was able to reduce their costs and increase profit margins. For many established facilities in the U.S., this resulted in Caterpillar closing some plants and shifting the work to other locations. In 1991, when the company's union contract was up for renewal, management wanted to change the terms. As there was a focus on several areas that were supposed to help streamline the way they are dealing with these issues to include:

Demanding a reduction in salary and benefits: In this situation, the management wanted the average hourly rate reduced from: $35.00 to $17.00. At the same time, executives wanted to pass on more of the health care and retirement costs to the employee.

Requiring employees to have less protection against possible disciplinary procedures: This is when the firm wanted to enforce workplace rules without having to go through the traditional grievance procedures. Over the course of time, this allowed executives to increase the quality of work from their employees by imposing harsher standards on them.

The ability to fire and lay off staff members: During times when the economy was facing severe challenges, the firm needed to have greater amounts of flexibility. This meant that they wanted to make adjustments to the workforce (to reflect these shifts). At the same time, the company needed to have an effective strategy for getting rid of bad employees (who are creating a toxic work environment). (Franklin, 2001, pp. 7 -- 16)

The combination of these factors set the stage for a series of strikes throughout the 1990s. The difference this time, were that the company had over 50% of their plants in locations outside of the U.S. This meant that they could shift their workload to these locations. When this happened, the firm was able to continue to meet the demands of customers and circumvent union plants (where strikes were occurring). (Franklin, 2001, pp. 7 -- 16)

After going back to work without any contract, is when managers began to impose new workplace regulations that were in line with these objectives. This reduced the power that the employees had in any kind of collective bargaining by: forcing them to take what the firm was offering. In 1999, these issues were finally settled (as the contract was following the provisions management had originally laid out). These different elements are showing how Caterpillar was dealing with employee related issues by: circumventing legal and ethical guidelines. Once this occurred, is when there was a change in the employer -- employee relationship. This is signifying how globalization is transforming the way that firms are following labor related practices and guidelines. (Franklin, 2001, pp. 7 -- 16)

Current ethical issues, sources of ethical behavior and legal viewpoints in relation to the problem / situation.

The biggest ethical issues facing Caterpillar is the fact that the firm had a legal contract with their employees. However, the elimination of trade barriers and an attempt to control supply chain management caused the company to change its strategy. This meant that executives began to shift their operations to locations where labor costs and regulations were less intrusive. Over the long-term, this is having an adverse impact on employees who are working inside unionized plants. As they are forced to take a reduction in salary and benefits, in order to keep their position with the firm. This is despite the fact that many of the individuals have contributed directly to the company's success and their ability to increase market share. (Zarate, 2008, pp. 111 -- 117)

Evidence of this can be seen with observations from Zarate (2008) who said, "A benefit arising from sourcing a product from relatively poor country is economic and financial. When a plant is relocated from a rich to a poor country, the transfer makes a small contribution towards inequality. The laid off employees in the rich country are, at least for a time, less well off than they were and the GDP of the rich country dips a little. The newly hired employees of the same company (in the poorer country) now have a job, or perhaps have a better job than before. The GDP of the poorer country goes up slightly. These changes are individually minute, but when a lot of these relocations happen, the total can become significant." This is showing how the outsourcing of jobs to these locations is hurting employees at unionized plants. (Zarate, 2008, pp. 111 -- 117)

From an ethical perspective, this is short changing those employees who have dedicated themselves to the company. Moreover, many communities are often devastated from these actions with the standard of living decreasing in these areas. This can have an adverse effect on local businesses and the ability of municipalities to collect tax revenues. Once this takes place, is when these actions have been known to destroy communities. (Zarate, 2008, pp. 111 -- 117)

Legally speaking, the firm is using select provisions in the law to renegotiate union contracts. In these kinds of situations, executives will wait for the contract to expire and then propose new terms (which are much less than employees are receiving). Once the union begins to strike select plants, is when operations will be transferred to non-union locations overseas. This allows the company to continue with its operations (despite the fact that there is a major strike inside the U.S.). After about six months to one year, is when employees will go back to work with no contract. This is the point that management will begin to impose new workplace rules. (Miller, 2002, pp. 91 -- 117)

A good example of this can be seen with comments from Miller (2002) who said, "Analyses of government have had little to say about the management of people within the modern corporation. This is a sign of the transformation of the principles and practices for governing factories which occurred in the U.S.A. across the last two decades of the twentieth century. This transformation, included: changes to the technology, physical layout of factories, concepts according to which manufacturing is organized, and transformations in the public discourse concerning work and the worker. The reshaping of identities for workers and managers, the construction of new ideas of economic citizenship are represented as new ways of governing economic life. 'Rethinking the factory' means both a physical reconstruction of the plant, as well as a modernization of ideas and practices about how to govern the actions of persons within the reengineered customer-driven factory." This is showing how globalization is giving executives greater amounts of flexibility when addressing these challenges. (Miller, 2002, pp. 91 -- 117)

Moreover, the firm has a collective bargaining agreement in place since 1948. This was in response to the animosity between labor and management throughout the company's history. After this occurred, is when the total number of work stoppages decreased. Part of the reason for this, is the collective bargaining agreement provided a basic standard for negotiating between the different parties. Once globalization became more of a dominant force, is when these legal provisions were no longer relevant. Instead, management wanted to impose dramatic changes to any kind of contracts that were signed with union officials. From a legal standpoint, this is using loop holes in the law to go against the traditional practices of the company. (Torres, 1996, pp. 377 -- 394)

As a result, Caterpillar executives are using this as a way to change how the firm is operating its different plants (by reducing costs and increasing productivity). This is designed to impose radically different terms and force employees to go back to work without a contract. After this happens, is when they can renegotiate with union officials to create an agreement that is in line with these objectives. This is illustrating how the firm is using different legal tactics by following the provisions of the contract. Once it is up for renewal is the point that executives will demand sweeping changes (which are in compliance with state and federal labor laws). (Miller, 2002, pp. 91 -- 117)

Suggestions / ideas for corrective action pertaining to the issue / situation.

To deal with these kinds of issues another approach must be taken that will respect the rights of workers. While at the same time, it is ensuring the company is able to remain competitive and adapt with the unique challenges it is facing. This means that managers must create a basic model that will address their underlying concerns. (Windrum, 2009, pp. 197 -- 229)

One possible approach is to introduce some kind of companywide tier system. Under this strategy, employees at unionized plants will be able to receive the same kind of benefits as they have under previous collective bargaining agreements. The difference is that the union will give managers greater amounts of flexibility in: conducting layoffs, hiring / firing and making adjustments to the workforce. This will help them to be able to deal with a host of challenges and it will ensure that the company can maintain a low cost structure. (Windrum, 2009, pp. 197 -- 229)

For employees, this will ensure that they are able to receive similar kinds of benefits. However, in exchange for these advantages, everyone must be willing to do more to increase productivity. Moreover, they must also be prepared for larger layoffs and furloughs during times when the company is facing severe financial challenges. This will ensure that all unionized plants are in line with previous collective bargaining agreements. (Windrum, 2009, pp. 197 -- 229)

At the same time, it is allowing executives to reduce the total number of employees in these locations and to effectively control costs (based upon changes in supply and demand). This will help to ensure that these facilities are able to control expenses and increase productivity. When this happens, the company will have a solution that will address these underlying legal and ethical challenges. Once this happens, is the point that there will be a positive transformation in this relationship. (Windrum, 2009, pp. 197 -- 229)

In the case of overseas locations, the company can impose a labor contract that is a hybrid of the one negotiated with unionized plants. The way that this will take place, is through imposing policies that has a tier system of compensation and rewards. As those employees will have a system of being rewarded based upon: their time with the company and total output. This could be augmented with improvements in technology to increase collaboration and coordination. If this were to occur, Caterpillar would create a policy that is taking into account ethical and legal considerations. (Windrum, 2009, pp. 197 -- 229)