Ethics in business leadership

Ethics

The Kolcraft Travel-Lite crib had a design defect that resulted in five toddler deaths. The company issued a recall but poorly managed the recall process, such that two deaths occurred post-recall. This paper discusses the actions of Kolcraft and the ethical considerations surrounding the case, relying on the Kantian perspective and agency theory as derived from Friedman's writing on the social responsibility of business.

Kolcraft's Travel-Lite crib was subject to a design flaw that resulted in five infant deaths. Kolcraft management performed poorly during both the design process and the recall process. The result was across-the-board ethical failure. The company could have improved on its performance had it better understood the moral imperatives of the situation, which were dictated by the CPSC and not the company. The company also failed to take into account the prevailing ethical custom in the United States, which holds manufacturers of products for children to a higher standard of performance than merely upholding the law.

Discussion Part a

Kolcraft had several goals in mind when developing the Travel-Lite crib. The company was responding to what it perceived as a gap in the marketplace for a travel crib. It viewed competing products in the space as being poor. Thus, the root objectives with the crib were to build a better product than was currently on the market and to build out the market niche that it saw. The company's product development process was ad hoc. Plans were drawn up with loose specifications to meet the criteria that had been identified when the niche was determined. The product testing process was also relatively ad hoc. In order to gain market share, Kolcraft licensed the Playskool name from Hasbro.

There are a number of problems with the Travel-Lite crib. From a safety perspective, the main issue is with regards to the upper side bars. Those bars can be collapsed by the force exerted by a toddler. When this occurs, sometimes the collapsed causes the toddler's neck to fall into the V that is created when the side bars collapsed. As a result, the toddler strangles in the V. This problem was unknown to Koltun prior to the first death. Product testing did not reveal the problem. Now that the problem has become known, the recall has been issued. Koltun needs to implement the recall and formulate strategy for handling the recall situation.

There are several steps to managing this recall. Health Canada prescribes the following steps for enacting a product recall. The first step is to identify a person within the company who can coordinate the recall. If there is an employee with experience in recalls, that is preferred. The second step is to identify all products that need to be recalled. Koltun has done that. Warehouse stocks of recalled products should be isolate to ensure no future stocks reach the market. The products that have been distributed need to be tracked. This process entails identifying accounts that have received the product and gathering contact information. These accounts will need to be informed of what actions they need to take, in the form of a formal recall notice. The effectiveness of the recall needs to be checked -- in this case the recall has a fairly low effectiveness rate with just 23.5% of Travel-Lites accounted for. Consumers need to be notified. Koltun went through pediatricians whereas Health Canada prescribes the use of media (Health Canada, 2005).

Discussion Part B

In general, Kolcraft in general had a communication style that bordered on passive-aggressive. Kolcraft's communication is indirect and self-enhancing. The company fails to respond to communications directly. Kolcraft's responses hint at anger without articulating the company's perspective in a meaningful way. Outcomes are de-emphasized in the communication. The most classic passive-aggressive communication comes with the CPSC and is characterized by evasiveness, indirectness and a masked truculence (Rose, 2007). The company in general avoids the issue when dealing with the public. For example, they choose to communicate with the public indirectly via pediatricians, essentially conscripting the doctors to do the company's dirty work, should they choose. The communications with Hasbro are only marginally better. The company remains in contact with Hasbro, but is indirect in the communications and makes no meaningful attempt to foster a coordinated strategy. Thomas Koltun addresses the public with vague pablum about being concerned about the safety of children, an utterly meaningless statement that fails to address even the most basic concerns the public might have.

When Kolcraft brought this product to market, it had a set of ethical obligations. The primary stakeholders in this situation are the customers, the owners of Kolcraft and the employees of Kolcraft. There is also a direct ethical obligation to Hasbro. The primary obligation of Kolcraft towards consumers is to create a safe product. Kantian ethics provide a solid grounding for explaining the ethical considerations of Kolcraft in bringing this product to market. This moral imperative (Johnson, 2008) has been given to the company by the consumer protection laws, especially the codes surrounding cribs and travel play areas. Kolcraft's contention is that because its product is unique, not wholly in either product area, it is not subject to any specific laws. Kolcraft's interpretation is that this negates any moral imperative. That is an incorrect assessment. The company is still subject to governance from the CPSC, so the moral imperative still exists even if there are no specific laws codified for the product category. In addition, the threat of a civil suit from consumers also creates a moral imperative that the company outright ignored.

With regards to the owners (Koltun family), employees and Hasbro, Sanfred and Thomas Koltun also have an ethical obligation to protect the integrity of the Kolcraft business and the Playskool name. The licensing agreement implicitly creates this moral imperative on the part of Hasbro. While it could be argued that Koltun owes no duty of care to himself, he does owe a duty of care to the employees of the company that he should not recklessly endanger their livelihoods. There is less grounding for a Kantian moral imperative on this point given the doctrine of at-will employment, but this duty of care is again implicit given the role of management in preserving shareholder wealth, which by extension provides some moral obligation to protect the business and therefore its employees from the consequences of negligent or criminal behavior.

In recalling the product, the moral imperative is dictated by the CPSC. The agency guides the process the initiating a recall. The underlying principle by which the agency operates is a form of consequentialism (Sinnott-Armstrong, 2006). During the process of brining the product to market, the agency takes the view that foreseeable consequences should be avoided (with implications for product testing). In light the laissez-faire regulatory style prior to the product being released onto the market, the more important ethical view is the actual consequentialism to which the agency subscribes. The CPSC, as governing body, view Kolcraft's responsibilities to the public in terms of actual outcomes, in particular taking the view that minimizing negative consequences is the ideal objective. Kolcraft does not view its own obligations the same way. Its underlying ethical philosophy is obfuscated somewhat by its passive-aggressive communication style but Sanfred's dismissal of culpability for the first death indicates that he does not share the ethical view of the CPSC. In this situation, however, the regulatory power of the CPSC sets the ethical obligations for Kolcraft

The implication then is that the company failed to meet its ethical obligations both prior to the launch and subsequent to the launch. The company attempted to dictate the ethics of the situation but in neither case was in a position to do so. As a result, the company not only failed to behave ethically but it potentially put itself in a difficult financial position as well, meaning that it also failed in its duty to the firm's owners and employees.

Discussion Part C

Thomas Koltun bears no responsibility for the actions of others before he arrived. That said, Koltun is not entirely lacking in personal culpability. He was an executive with the company when the crib was launched and more importantly was the heir apparent to his father. This means that he shares the same culpability as the rest of the company for its actions during that period. In his role as president of the company, he is an agent for the company and as such bears professional responsibility on behalf of the company for the entire Travel-Lite debacle.

Thomas Koltun's primary ethical obligation at this point is with respect to what he does going forward. He is left with the task of managing the aftermath of this predecessor's actions. He is responsible for a number of key tasks with ethical implications. He is responsible for managing the company's response to the death of Danny Keysar. He is responsible for the civil suit that has been filed by Keysar's parents. He is also responsible for the ongoing task of managing the recall of the Travel-Lite and also for managing the relationship with Hasbro concerning this product.

Contemporary agency theory dictates that managers only act in the interest of maximizing shareholder (owner) wealth (Roberts, 2004). This standard can be reasonably viewed as the minimum ethical standard that the president of a company should have. Taking this view, Thomas Koltun is essentially in damage control mode. Because of the mistakes of the company in the past, Koltun is faced with significant downside risk from mishandling this situation. It could also be reasonably argued that Thomas Koltun still bears responsibility for the original ethical imperatives that the company has had all along as the result of bringing the Travel-Lite to market. If three-quarters of these products are as yet unaccounted for, then the company still bears ethical obligations as defined by the CPSC with regards in particular to consumers.

There are serious implications associated with a mishandling of these obligations. The company has suffered ethical failures in relation to its obligations to most stakeholders. The most pressing concern is the ongoing threat to life, especially given that the company is fully aware of the problem and has already issued a recall. That the company has not followed sound recall procedure only adds to the risk that the company now faces to the company's brand and reputation. The company faces the risk of legal action in civil court, possible criminal proceedings from the CPSC if the agency comes under pressure to re-open the file, and legal action from Hasbro. Any of these actions, if realized, could result in the company being bankrupted. They make $30 million per year in revenues -- civil cases of infant death could yield awards of much higher figures than that. The company could fight the award but may be required to put the award in escrow during the proceedings. For all intents and purposes, Thomas Koltun now faces the risk that the company will be wiped out, should be mishandle the current situation.

There is little benefit to the company of attempting to hide behind the Playskool brand. The Kolcraft name may not resonate as much with the public, but it will resonate with potential branding partners and with regulators. If Kolcraft tries to throw Hasbro under the bus by hiding behind the Playskool brand, the company will lose whatever goodwill remains in the industry. It will be near impossible for Kolcraft to engage in any such licensing deals in the future.

Furthermore, the company uses its own brand on many products, and does to this day. Yet, the aftermath of the botched recall is still readily available -- indeed a Google search for Kolcraft brings up the Travel-Lite on the first page of hits. Damage to a company's reputation in light of such ethical lapses can be ongoing, in particular on the Internet. Most of the costs to the company's reputation may have been realized by the time that Thomas took the reins of the company, but the opportunity to restore some goodwill and disassociate the company from the errors of the previous regime was still there. Instead, the company still suffers reputation damage as a result of this incident. The case was even cited in a journal article investigating the state of the nation's produce recall system (Felcher, 2003).

Ethical Considerations

The continuing danger presented by the Travel-Lite places Thomas Koltun at an ethical crossroads. While he is new management, the company retains all of its original ethical obligations. Thomas in his professional capacity is an agent of the corporation and must behave accordingly. The company has to this point failed to live up to its obligations to its stakeholders. Thomas can choose to continue that legacy or he can choose to begin living up to his ethical obligations.

There are two additional points worth considering in discussing the ethical crossroads at which Thomas finds himself and his company. The CPSC bears a degree of culpability at this point. It is charged with the oversight of the industry and as such it essentially sets the moral imperative for ethical action. The company's previous ethical failures were in direct relation to that imperative. At this point, the CPSC has closed the file on the Travel-Lite. It could be interpreted that the agency has now ceded the previous imperative. There is no new imperative from the agency. Indeed, the agency's lack of follow through in the Travel-Lite case has been considered to be an example of regulatory failure as much as it is considered an example of corporate ethical failure (Felcher, 2003).

Thus, Thomas may choose whatever ethical path suits the company best at this point. According to agency theory, his responsibility to the company would mean that he upholds the former ethical obligations in order to prevent the possibility of civil suits. This new ethical guidance will yield the same result as if Thomas adheres to the old ethical standards, but is rooted in different concerns. For example, if the Keysar suit does not yield a large judgment against Kolcraft, the downside risk to the company would be all but eliminated, meaning that Thomas has very little ethical imperative to act if he believes that such a civil lawsuit is unlikely to succeed.

The other point to consider is the degree to which the company will be impacted. Similar products from multiple manufacturers had similar problems, with similar outcomes. The V problem and the deaths that resulted from it were not unique to Kolcraft. This mitigates the potential damage to the company vis-a-vis its competitors, who care essentially in the same position. If no competitor can gain moral high ground, then the issue of goodwill deterioration is if not moot then at least of reduced relevance.

In the most basic economic sense, agency theory suggests that the company only need comply with the law (Roberts, 2004). The law provides sufficient ethical guidepost, given that the role of the agent is to enhance shareholder wealth. At the intellectual root of the agency theory of enhancing shareholder wealth, however, is the work of Milton Friedman. While Friedman's work has been distilled to this singular concept, it is sometimes misunderstood in the context of corporate ethics. The theory of agency as understood by Roberts fails to account for Friedman's full theory regarding social responsibility. The modern understanding of agency theory and the obligation of business to simply produce profit without any other ethical consideration is essentially a straw man. What Freidman (1970) wrote was that the role of free enterprise is "to make as much money as possible while con-forming to the basic rules of the society, both those embodied in law and those embodied in ethical custom." That ethical custom was left undetermined. Thus, even the advocates of a strict application of agency theory must consider that there is at least an obligation to some form of societal ethical norm. It is not a stretch to suggest that in American society undertaking actions that could reasonably be predicted to result in the deaths of toddlers violates the societal ethical norm.