Background
Caterpillar’s ethical problems are worth examining because of three factors. First, it is a global company, with more than 500 dealer and facility locations all over the planet (Murphy, Laczniak, & Prothero, 2012). Second, the company achieved worldwide sales amounting to $42 billion in 2010 alone. Finally, Caterpillar produces heavy equipment that is needed in both industrialized and developing nations.
In other words, the overall success of Caterpillar will inevitably trickle down, affecting millions of households, and business organizations on a global scale. The failure to address ethical issues can lead to a host of problems, such as a decline in revenue; negative impact on the company’s reputation; and rising costs to operate the business. Rising costs were attributed to legal and social repercussions of unethical practices.
Stakeholder Analysis
Caterpillar confronts an ethical dilemma of immense magnitude, because it manages a complex network of stakeholders. It is a dilemma, because a decision to favor one stakeholder can irreparably damage the firm’s relationship with other stakeholders.
It is imperative to strike a balance, but this objective is easier said than done. Corporate leaders must learn to balance the complex interrelationship of at least four major stakeholders (Ferrell, Fraedrich, & Ferrell, 2008).
The first group is comprised of shareholders. The company needs to operate with healthy profit margins. At the end of each fiscal year, accumulated profits must reach a certain threshold to keep shareholders happy (Boatright, 2011). It is important to point out that shareholders deserve the financial rewards they will receive, because they took risk when they invested in the company.
From the point of view of the shareholders, the company must reduce operating cost in order to increase the amount of money that they will receive on a yearly basis. However, reducing operating budget could lead to mediocre products, and failure to comply with environmental standards.
The second group of stakeholders is comprised of the customers. Caterpillar must continually invest in research and development. Maintaining these two components of the business process will cost a great sum of money. Therefore, time will come when it is tempting to cut corners, and reduce the company’s ability to replace defective products or implement strategies that will treat harmful byproducts.
The third group is comprised of Caterpillar employees. Salaries must increase in relation to inflation. However, if the operating cost rises due to the need to comply with government regulations, the company may have to let go some of the employees.
The fourth group is comprised of the members of the community where Caterpillar’s showrooms, manufacturing facilities and repair centers are located. In thee communities, Caterpillar source out the firm’s human resources requirements. If the company ignores its corporate social responsibilities, then, time will come when it will be difficult to attract the best workers to work for Caterpillar.
Resolving Issues
Caterpillar can ignore the issues. This course of action will help the company save millions of dollars in operating expenses. However, this course of action will backfire because tougher environmental laws can bring expensive lawsuits to the company’s doorsteps.
The second course of action is to select only the ethical issues that must be resolved. In this course of action, Caterpillar will spend more money for research and development, in order to come up with better products. This course of action will solve the pollution issue, however, Caterpillar’s reputation in the international stage will suffer. Decline in sales is a strong possibility.
In order to resolve all issues, such as employee relations issues, environmental issues, and corporate responsibility issues, Caterpillar must consider two theoretical frameworks. First, the deontological framework compels corporate executives to consider all the ethical issues, because deontologists believe that the company cannot use any form of excuses or justification not to comply with the rules.
The same perspective urges corporate leaders to do the right thing. However, it is impossible to please all the stakeholders. It is therefore practical to balance this view with the utilitarian framework. In the utilitarian perspective, corporate leaders are compelled to develop strategies that will create the best solution for all stakeholders (Kubasek, Brennan, & Browne, 2009).
Combining the best features of the utilitarian and deontological ethical framework, the company must persuade shareholders to give back to the community and their employees. Thus, employees will receive the appropriate remuneration package. At the same time, funds will be diverted to the research and development department to develop zero-emission engines.
Furthermore, the company will invest in hiring a reputation management firm to deal with the negative press that the company has to deal with in recent years. The reputation management firm will help Caterpillar inform the whole world that it has excellent CSR policies. They must inform the public that specific steps had been made in the past that enabled Caterpillar to become one of the most admired companies in the world.
This course of action will assure critics that the company is doing its best to improve its performance. However, it is unclear if all critics will be satisfied with a mere public relations solution to the ethical problem.
Nevertheless, this is better than doing nothing. This course of action will also please the employees. However, shareholders will not be thrilled. A possible compromise is to find appropriate cost-cutting measures to increase the profitability of the company.
References
Boatright, J. (2011). Ethics and the conduct of business (2nd ed.). New Jersey: Pearson Prentice Hall.
Ferrell, O., Fraedrich, J., & Ferrell, L. (2008). Business ethics: Ethical decision making and cases. MA: Houghton Mifflin Company.
Kubasek, N., Brennan, B., & Browne, N. (2009). The legal environment of business: A critical thinking approach. New Jersey: Pearson-Prentice Hall.
Murphy, P., Laczniak, R., & Prothero, A. (2012). Ethics in marketing, international cases and perspective. New York: Routledge.