USAA and Shake Shack: Ethical Issues in Business Conduct

Introduction

To a large extent, the way businesses conduct their affairs is governed by a certain set of standards or principles. As commercial entities, businesses should not only be driven by the need to generate profits. Instead, they should be aware of their responsibilities to a wide range of stakeholders including, but not limited to, employees, customers, suppliers, regulatory agencies, and competitors. This is especially true given that some actions could be perfectly legal yet unethical or injurious to the wellbeing of certain stakeholders.

This paper examines a number of ethical issues relating to two entities: USAA and Shake Shack. In doing so, it considers the implications of the decisions made by the two organizations on their stakeholders, and how those decisions can be viewed from both a Kantian and a utilitarian perspective.

Ethical Issues

From the outset, it is important to note that the COVID-19 pandemic affected individuals and businesses in diverse ways. Due to the hardships that most people experienced as a consequence of lost livelihoods, the U.S. Congress structured a stimulus package to cushion the most vulnerable. This was the intent behind the funds deposited into the checking accounts of USAA members. However, USAA proceeded to use those deposits to offset the negative balances reflected in some members' accounts. As a result, some funds did not reach those in dire need. USAA can therefore be viewed as insensitive to the plight of its members.

When it comes to Shake Shack, it is worth noting that with a market capitalization of $2.06 billion and a listing on the NYSE, the organization cannot reasonably be considered a small business. Nevertheless, the enterprise used the provisions for accessing Paycheck Protection Program (PPP) funds to its advantage. Furthermore, a significant portion of the loan may have been used for executive compensation, given that the company's Chief Executive Officer had received total compensation of $2.3 million in 2019. By taking up the loan, Shake Shack effectively denied other, more vulnerable and deserving enterprises access to funds intended to protect their employees from the harmful effects of the pandemic. This concern is amplified by the fact that the PPP depleted its funds shortly after the company received its $10 million loan.

Stakeholder Implications

In this context, stakeholders can be described as all those who were affected by, or had an interest in, the decisions made by the two organizations.

Key stakeholders in the case of USAA included USAA members (i.e., those who maintained checking accounts with the organization), employees of the organization, top officers of the firm, and the U.S. government. The implications for each stakeholder group are as follows:

1. USAA members: While some members received their stimulus funds in full (those without a negative balance), others received only a portion, and some received nothing at all, depending on the size of their negative balance. This meant that a number of members were not adequately protected from the economic damage caused by the pandemic, effectively worsening their financial situation.

2. Employees of the organization: From a financial perspective, USAA's decision may have been the most viable one for keeping the organization afloat and enabling it to continue paying employee salaries and benefits. However, there could be a negative "blowback" effect in the future if the organization acquires a poor reputation as a result of this decision, potentially resulting in a mass exodus of members.

3. Top officers of the firm: Those who made the decision to offset the negative account balances may be praised in some quarters for what could be seen as a prudent financial move, but they risk losing their reputations for appearing indifferent to the plight of their members.

4. The U.S. government: The government is also a stakeholder because it originated the funds and sought to achieve a specific objective in releasing them. Whether that objective was met in light of USAA's decision remains an open question.

Key stakeholders in the case of Shake Shack included small businesses, the firm's customers, the firm's employees and shareholders, key decision makers within the firm, and the Small Business Administration (and, by extension, the U.S. government). The implications for each group are as follows:

1. Small businesses: Because the funds available to small businesses were finite, Shake Shack's decision to seek the loan effectively locked out other, more deserving enterprises from accessing relief.

2. The firm's customers: Some customers may view the decision as unethical and choose to take their business elsewhere.

3. The firm's employees and shareholders: If properly utilized, the funds could benefit the company operationally, with those benefits flowing to employees — particularly if the money was used to cover payroll — and to shareholders.

4. Key decision makers in the firm: Over time, their choice may be judged as either wise or deeply flawed. There is also the question of whether the company's CEO had a personal financial interest in the decision, given that part of the loan could have been applied toward his compensation.

5. The Small Business Administration and the U.S. government: The government's overall objective was, among other things, to ensure that small business employees remained on payroll. Whether this goal was achieved when larger organizations like Shake Shack also drew from the fund is debatable.

Conclusion

In the final analysis, it is clear that both organizations acted in a manner that cannot be described as upright from a moral point of view. Businesses ought to be mindful of, and responsive to, the needs of their various stakeholders. The application of ethical and moral frameworks — whether Kantian, utilitarian, or virtue-based — can help executives make more appropriate decisions, even under conditions of uncertainty.

References

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Westacott, E. (2019). Moral philosophy according to Immanuel Kant. ThoughtCo.