A new CEO is appointed to a large regional chemical production company. The business focuses on producing a variety of chemicals and polymer materials used in numerous products, including orders from the military. The company has a traditional corporate and shareholder structure, but the owner is a business magnate holding the majority stake in the enterprise. Effectively, his decisions have lowered the company’s profitability and competitiveness in the industry. A new CEO was brought in to restructure the company and focus on cutting costs.
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The owner and the board have strongly indicated the areas of the firm that require curtailment of spending. After careful examination, it is evident that the budget reduction will affect several critical aspects of the business, including its quality. Overall, the board is asking the CEO to implement a budget that cuts corners instead of properly assessing the firm’s financial capabilities. Also, safety is put at risk as protective equipment, machinery, and storage containers will be used past the recommended utilization date. The company will follow regulations to the very minimum or attempt to showcase compliance to the government regulators who are lenient in attempts to support central regional business.
This is an ethical issue since the budget cuts are aimed at the areas critical to the company functioning and can affect lives or safety. In an attempt to rapidly curb expenditure, the stakeholders are affected. Employees working in hazardous conditions are placed at a direct risk due to cuts in safety equipment. Customers of the company products will be faced with a low-quality product that will impact goods produced from these chemicals and polymers. For clients such as the military, a malfunction due to poor quality can result in lost lives. The government is responsible for the regulation of industrial production, specifically regarding chemicals. If there is a major safety accident due to a violation of safety protocols, a federal investigation must occur. Finally, if any of these events occur due to the owner’s attempt to force budget cuts, his company may face downfall, heavy fines, and possible criminal investigations. Essentially, there is little benefit to anyone in a situation like this. The board may benefit by preserving high salaries and bonuses at the cost of quality and safety. However, the company itself does not benefit from the numerous possibilities of negligence and the lack of constructive financial restructuring.
It is unethical for a CEO to enforce such budget cuts due to the possibility of consequences for the safety and lives of employees and clients. If it is necessary to reduce costs, they should be implemented properly and aimed at unnecessary spending. The CEO becomes responsible as well if he chooses to act on the recommended direction by the board. It is his responsibility to act for the company’s benefit and follow the duty of protecting its employees. Personal integrity becomes obsolete if a person chooses an action that may result in harm. It is critical not to bow to pressure and risk losing the CEO position instead of making a negligent decision.
A final ethical decision would be not to implement immediately recommended budget cuts. Instead, the CEO can work with the CFO and analyze methods to properly lower costs and develop a strong, sustainable strategy for the company. It is a good decision since it uses a logical approach that considers the company’s future and its employees’ safety. Meanwhile, non-compliance and insubordination to the recommendations of the board may result in the termination of the CEO. The decision essentially comes down to either following basic human ethics or focusing on one’s career.