Dianne Estrada Management Strategy Kucinski September 9, 2010 THE SCAFFOLD PLANK INCIDENT OVERVIEW Bob Hopkins, a previous banker, accepted a “trader” position with White Lumber, who was one of the bank’s best accounts. John White, the owner of White Lumber, was a director at the bank Bob previously worked for and a leading citizen in the community. The “trader” position Bob accepted involved buying and selling lumber. Bob’s compensation was incentive-based without a salary cap. The ethical dilemma Bob faces in this case is a transaction that makes Bob question his and the company’s ethics and legal obligations.
It’s February, business was slow, the company was $5,000 below their breakeven point, and it appeared as if a recession was on the horizon. Bob receives a call from Stan Parrish, a buyer at Quality Lumber, for a large order of lumber. Bob has four additional inquiries for the same amount of lumber, but for scaffold plank. Bob becomes concerned whether the order that was called in by Stan is suppose to be for scaffold plank. Bob addresses his concerns with his partner, Mike Fayerweather, who doesn’t think there is a problem because Stan did not specifically ask for scaffold plank nor did Bob quote him for it.
Mike also advises Bob that if Stan is bidding for a job he will win because his order is less expensive than scaffold plank. Bob suggests that he calls Stan to verify if the order needs to be for scaffold plank, but Mike advises against calling because it could harm the business relationship. It may also appear as if Bob is accusing Stan of being unethical. Mike also points out that if their company had knowledge that the material will be used for scaffolding then they would be legally liable as well.Against Mike’s advice, Bob calls Stan and discovers that the lumber will be used as scaffold plank. Bob notifies Stan that the lumber does not meet the requirements and that he doesn’t feel comfortable with the situation. Stan states that he is selling it to the purchasing company as regular construction lumber, the company is protected because the invoice will reflect it that, informs Bob that the foreman will be using it for scaffolding in order to keep costs down, and that the extra inch in thickness will prevent the lumber from failing.
After Stan’s explanations, Bob continued to express hesitation. Stan threatens to take his business elsewhere and reminds Bob that his job could be in jeopardy due to the economy. The next day Bob is called in to John White’s office. Bob advised John of his and Stan’s conversation. John ordered the lumber and filled in Bob’s name on the sales order.
Bob did not want any part of the transaction. John pokes at Bob’s ethics and makes it clear the he has the superior reputation.John insisted that they are not liable for the lumber after it leaves the yard, the invoice would be marked that the lumber is not to be used as scaffold plank, ethics and liability fall on the purchasing agent, and if they asked one client what the material was going to be used for then they would have to ask every client, which may seem as if they are trying to bypass the distribution channel. Bob’s rebuttal is although the chance that the lumber will fail is minimal he doesn’t want to take that chance, feels there is a responsibility to customers, and an obligation to do the right thing.
At the end of the conversation, John preys on Bob’s feelings by saying he has to look out for the other people in the company such as Steve, who doesn’t have a high school diploma and would have limited job opportunities, or Janet, who has a disabled husband who needs the company insurance. Bob’s intentions when he first entered the office were quitting, but after John’s arguments he left his office confused and uncomfortable about the decision, but relying on the trust and respect he has for John.Ethics and legal questions arise in this case because scaffold plank grading rules are restrictive. Scaffold planks are wooden planks are used between metal supports. They require minimal defects in the wood and high strength in flexing. They are often used by jobs that require people to be very high off the ground. It is difficult to distinguish regular lumber from scaffold plank.
White Lumber did not carry scaffold plank. ANALYSIS Although Bob exhibits a higher degree of ethics and legal responsibility than Stan, Mike, and John, ethics and legal responsibility are not always in alignment.In this case, John completes the order for Quality Lumber with Bob’s name on the sales order. Quality Lumber has an established client relationship with White Lumber. The current state of the economy makes the existing client relationship even more valuable. Bob suspects that the lumber that is being purchased will be used illegally as scaffold plank. Scaffold plank has to meet strict requirements and grading for safety and usage.
Failure to abide by the requirements could result in accident, death, legal liability, and fraud.If the lumber being used as scaffold plank fails resulting in injury or death, then White Lumber may be held legally liable since they had firsthand knowledge about how the lumber was going to be used. It may also constitute as fraud because White Lumber is knowingly selling lumber that will be used as scaffold plank. Bob’s own ethics are tested with the transaction. Bob knows he has a responsibility to keep a good relationship with his clients (Quality Lumber), but also feels that he has a responsibility to the end user of the product since he knows the lumber will be used for scaffolding.
Bob knows that completing the transaction conflicts with the legal requirements and grading for scaffold plank. Bob wants to ensure that he meets his ethical and legal requirements, but doesn’t realize the ultimate responsibility lies between Quality Lumber and the end user. John White makes a valid argument for completing the transaction. John has an obligation to the company and his employees. John has to ensure that his company makes a profit and continues to grow, especially during difficult economic times. John has to be able to maintain valuable client relationships since repeat business it vital.
Profit ensures that employees maintain their jobs. Employees need to perform tasks within the realm of their job description. Employees that have ethical or legal concerns about business practices need to address those concerns with management. Management will determine the best possible solution for the company taking into account the ethics, legal issues, the company, stakeholders, and employees. Management must make the best possible decision in order for White Lumber to remain competitive. Management must balance ethics with their financial responsibilities in order to manage risks.John’s decision to go ahead with the transaction has several risks. If the end user of the lumber sustains an accident or death, then White Lumber’s reputation will be ruined since they had knowledge that the lumber was going to be used for scaffolding.
In business, a bad reputation can ruin current business relationships and prevent White Lumber from creating new ones. If the end user suffers an accident or death, then White Lumber may be found to be negligent and pay punitive damages, which can hurt the company’s bottom line or even cause them to cease operations.White Lumber may also be fined for not following regulations for the use of scaffold plank. These risks may cause White Lumber to lose client relationships, prevent new relationships, a loss to the bottom line, a loss in sales, a loss in profit or revenue, or the ultimate loss of ceasing operations or becoming bankrupt. Bob and John have some alternatives, but those alternatives also carry risk.
Bob could have refused the transaction, but this may caused Bob to lose his job or Quality Lumber to take their business to the competitor.Bob could have completed the sale and earned his compensation, but in the event of an accident or if a legal issue arises Bob would be held responsible. Instead of calling Stan, Bob could have addressed his concerns with John and let John make the final determination on the transaction.
After John filled in Bob’s name on the sales order, Bob could have quit, but would be unemployed and without income. John could have fired Bob for calling Stan, but John loses an employee, may have to pay workers compensation, or takes the risk of Bob reporting the situation to the Better Business Bureau or those that regulate the sale of lumber.Ultimately, John decides to complete the sale in order to maintain the client relationship with Quality Lumber. The transaction provides revenue and compensation for White Lumber and Bob. John feels his legal obligation is fulfilled because the invoice will be marked, “This material is not suitable for use as scaffold plank. ” Furthermore, John adds that they have a signed purchase agreement and are supplying lumber that meets the specifications requested.
John believes the ethical responsibility lies between Quality Lumber and the end user of the roduct. CONCLUSION There is no clear decision that can be made in this case, but in my opinion, when Bob verified the lumber was going to be used for fraudulent purposes then the firm should not have conducted the sale. The company is essentially endorsing the fraudulent use of lumber as scaffold plank and if other clients find out about the transaction they could be enticed to do the same. If they are not enticed to do the same, they may feel obligated to report the company’s business practices to regulators.
Additionally, there is too much legal risk in the event that there is an accident, death, or regulators discover White Lumber sold lumber to be used as scaffold plank. This case makes it clear that business decisions are not always black and white issues, but may lie in a gray area. Companies may face business decisions that are not in alignment ethically and legally. Management has to weigh all options in order to determine the best possible decision for all stakeholders involved. This case is a prime example that the best business decisions management makes may not be ethical.