LEGAL AND ETHICAL ENVIRONMENT OF BUSINESS
Corporate Social Responsibility Paper
For this project, you are a member of the Board of Directors of ABC Steel, Inc. (ABC), a corporation incorporated in Delaware that is headquartered in Reading, Pennsylvania. The members of the Board of Directors are elected by the shareholders (i.e., the owners) of ABC Steel, Inc. The members of the Board of Directors set the strategic plan for and manage the activities of ABC Steel, Inc. They also appoint the officers (the Chief Executive Officer, the Chief Financial Officer, etc.) who run the business on a day-to-day basis.
As a member of ABC’s Board of Directors, you must write a memorandum to the other members of ABC’s Board of Directors addressing what action or actions ABC should take given that it is facing the problem described in Part I below and given its corporate social responsibilities.
- The Problem
ABC is the largest employer in Reading, Pennsylvania, which has a population of over 87,000 people. Reading has been economically depressed for decades and is one of the poorest cities in the United States with a poverty rate of 41.3 percent. ABC has had a presence in Reading for 120 years and locals can trace multiple generations of service to the company.[unique_solution]
The shares (ownership interests) of ABC are publicly traded on the New York Stock Exchange. The vast majority of stockholders reside outside of the state of Pennsylvania. Prior to the 2008 Financial Crisis, the company’s share price hit a high of $78.35 per share. During the Financial Crisis, it hit a low of $12.64 per share. It rebounded to $65.80 per share by March 14, 2014 but is now trading at about $25-27 per share.
In compliance with Section 406 of the Sarbanes-Oxley Act, ABC adopted a Code of Ethics. ABC’s Code of Ethics consists of the following provisions:
Code of Ethics
It is the policy of ABC Steel, Inc. (ABC) that the Chief Executive Officer (“CEO”),
Chief Financial Officer (“CFO”), Chief Accounting Officer (“CAO”), and Controller of ABC adhere to and advocate the following principles governing their professional and ethical conduct in the fulfillment of their responsibilities:
- Act with integrity in every relationship with customers, suppliers, employees, shareholders and the community.
- Act with honesty and integrity, avoiding actual or apparent conflicts between his or her personal, private interests and the interests of ABC, including receiving improper personal benefits as a result of his or her position.
- Perform responsibilities to ensure that periodic reports filed with the SEC contain information which are accurate, complete, fair and understandable.
- Comply with laws of federal, state, and local governments applicable to ABC, and the rules and regulations of regulatory agencies having jurisdiction over ABC.
- Act in good faith, responsibly, with due care, and diligence, without misrepresenting or omitting material facts or allowing independent judgment to be compromised.
- Respect the confidentiality of information acquired in the course of the performance of his or her responsibilities except when authorized or otherwise legally obligated to disclose. Do not use confidential information acquired in the course of the performance of his or her responsibilities for personal advantage.
- Proactively promote ethical behavior among subordinates and peers.
- Use corporate assets and resources employed or entrusted in a responsible manner consistent with ABC’s Guidelines of Business Conduct.
- Do not use corporate information, corporate assets, corporate opportunities or one’s position with ABC for inappropriate personal gain. Do not compete directly or indirectly with ABC.
- Advance ABC’s legitimate interests when the opportunity to do so arises. The Corporate Governance Committee of the Board of Directors shall have the power to monitor, make determinations, and recommend action to the Board with respect to violations of this Policy.
A perfect storm has been brewing in Reading with two principal components. First, the federal Environmental Protection Agency (EPA) has determined that the amount of air and water pollution are beyond acceptable federal levels. There is a remedy for both problems, but it will cost the company at least 10% of its yearly profits to comply with these remedies. The EPA has given the company two years to come into compliance or face a “cease and desist order” that would shut down the company if it fails to meet the standard.
While the company is dealing with these compliance issues, they also are dealing with labor unrest from their employees. ABC is a union shop. All of the workers, with the exception of management, belong to the union. ABC has a collective bargaining agreement with the workers of the company. Management must pay workers according to the terms of the collective bargaining agreement and cannot alter the working conditions or pay of individual workers covered by the agreement. Thus, management cannot award pay raises or bonuses to individual workers that differ from the terms set forth in the collective bargaining agreement.
There have been labor disputes in the past, but they had always been resolved without the necessity of a general strike. However, because of changing market conditions and lower profits, the labor force had reluctantly accepted no increase in wages or benefits based upon a shared agreement. That three year agreement is coming to an end. The union is now demanding an increase that reflects the economic realities of their membership. They are threatening a general strike unless their basic demands are met. Accountants and analysts for the company have determined that, in order to satisfy the demands of the union and keep the doors open, it will diminish profits by 15 percent in the coming five years. There is no predicable forecast beyond five years.
The company has been examining a proposal by a group of investors that would have the company halt all operations in Reading and move the entire factory operation to a Chinese city. Effective on April 10, 2015, the Chinese government authorized foreign investment in the Chinese steel industry for the first time.
The investors have proposed that ABC takeover an existing Chinese steel mill. China’s growth in recent years has slowed from about 10 percent to less than 7 percent annually. China’s supply of steel currently exceeds its demand for steel. It has been exporting its surplus steel to the rest of the world, creating a glut of steel on world markets and driving down the prices for steel. The worldwide price of steel has dropped from $190 a tonne in 2011 to $50 a tonne in 2015. A tonne means a metric ton and it weighs about 2204 pounds.
Right now China has existing mills that could produce up to 1.25 billion tonnes of steel but which are only currently producing 800 million tonnes of steel annually. To deal with this overcapacity, China has closed 37 mills and laid off tens of thousands of workers.
Because China currently has surplus capacity, it is willing to sell one of its existing steel mills to ABC for an amount that would be less than it would cost ABC to retrofit its existing US mill to bring it into compliance with the EPA air and water quality standards. The existing Chinese plant does not meet the strict environmental regulations required by the United States. The Chinese government has assured the ABC executives that Chinese environmental laws contain grandfather provisions protecting the factory from having to comply with any tougher environment standards that China might enacted in the future. The population of China has begun to demand reforms to address China’s air and water pollution problems, which are some of the worst in the world.
In terms of water and natural resources, i.e., water and power, the Chinese city and Reading are equal to the needs of the company. The Chinese alternative offers cheaper wages and access to water and power. For example, the average hourly manufacturing wage in urban areas in China is about $2.85 while the average hourly manufacturing wage in the United States is $20.08.
Finally, one of your assistants has notified you that, in June 2015, five other U.S. steel manufacturers have filed a complaint with the U.S. International Trade Commission (ITC), alleging that Chinese steel is being sold in the United States at below-market prices because of state aid provided by the Chinese government. The petition from the U.S. steel manufacturers identified 48 separate subsidies provided to steel manufacturers by the Chinese government. As a result of the glut in steel and the drop in steel prices, the five U.S. steel manufacturers have laid off thousands of workers and closed several plants in the past year. They requested that the U.S. government impose punitive tariffs on U.S. imports of Chinese steel in order to raise the price at which Chinese steel can be sold in the United States. If ABC acquires a Chinese steel mill, any steel that it exports from China to the United States would be subject to the same tariffs imposed on steel coming from other Chinese plants. Thus, if the US Government imposes punitive tariffs on Chinese steel coming into the United States, the steel from ABC’s China plant would be subject to the same punitive tariffs. Even though it is now September 2017, your assistant, however, failed to check whether the US Government has acted on this petition yet.
- Analysis
As a member of ABC’s Board of Directors, you must write a concise memo (three to five pages) recommending what action or actions ABC should take in response to the problem presented above and in light of ABC’s corporate social responsibilities. Your memo should reflect the current state of the economy and the relevant laws as of July 2017.
Your memo must take into account all of the following:
- Demonstrate an awareness of social and ethical responsibilities to various stakeholders;
- Recognize the importance of standards in ethical business conduct;
- Recognize the ecological, social, and economic implications of business decisions; and
- Analyze the ecological, social, and economic implications of business decisions.
The board depends upon you to not only address these key components, but to also give a recommendation at the conclusion of your memo.
This paper is an exercise in critical thinking. The final position that you take on the problem matters less than how you analyze the problem. In analyzing the problem, you should identify the social and ethical issues raised, the relevant social and ethical principles that should guide ABC’s actions when addressing those issues, how those principles operate given the facts in the problem, and a conclusion about how ABC should act. Your analysis must support your conclusion.
You should support your analysis with factual information. You must provide a citation for where you found any factual information that is not found in the facts given in the problem and is not common knowledge to the average U.S. high school student.
In order to have all of the relevant factual information, you may have to do some research. Any factual information not provided in the problem must come from reputable sources, such as newspapers, magazines, legal cases, etc. You may not cite entertainment sources, such as People magazine or TV Guide.
You may not cite an internet page or web site unless the page or web site is for a government agency or reputable news source and the web page’s url ends in .gov, .edu, or .com. If you do cite a web page, you must still give the author, the title of web page, and the date the page was published or, if no date of publication is listed, the date that you last accessed the page, in addition to the url for the web page.
You may not cite Wikipedia as a source. Anyone who cites Wikipedia as a source will receive an “F” or no points on the project. This prohibition is strictly enforced!
You may not collaborate with anyone else on this assignment. You are expected to turn in a paper that is entirely your own work product. You may not turn in a paper that is based in whole or in part on a paper that you turned in for or are planning to turn in for another course.
III. Format
Your memorandum should be lages limum page limitat least three pages long. This means the paper cannot be shorter than three pages and should not be longer than five pages. The paper should be typed, double spaced, and in 12 point font with one inch margins on the top, bottom, and sides of each page. It should be printed out on one side of each sheet of paper and stapled in the top left hand corner. Do not provide a cover sheet or put the memorandum in a folder or other type binder.
At the top of the first page, you should insert the following information in this format:
MEMORANDUM
DATE: [Date that the memorandum was completed]
TO: Members of the Board of Directors of ABC Steel, Inc.
FROM: [Your full name]
SUBJECT: Recommendation Regarding Whether to Relocate ABC’s Manufacturing Operations to China
After the above information, the body of the memorandum containing the analysis of the relevant issues should be presented. At the end of the memorandum, you should provide a heading entitled “Conclusion”, skip a line, and then provide your conclusion about what action the Board of Directors should take.
The paper should contain proper spelling, grammar, and sentence structure. This means that you should not only use computer aids, like Spell Check and Grammar Check in Word (or similar word processing programs), but you should PROOFREAD your paper for errors before turning it into the instructor. Computer programs do NOT catch all spelling and grammar errors. You should follow the grammar rules set forth in Strunk and White’s The Elements of Style.
You must provide footnotes with citations to reputable sources for any factual statement made in the paper that is not one of the facts given in the problem and is not within the general common knowledge of the average U.S. high school student. In other words, you do not need to provide a citation for a statement like “The sky is blue” but you do need to provide a citation if you state in the paper something like: “The gross domestic product in the United States grew at an annual rate of 3.7 percent in the second quarter of 2015.” Any reputable, common citation style (APA, Chicago, Blue Book, etc.) is acceptable as long as it provides sufficient information to locate the source and it is used consistently throughout the paper.
You should not provide a bibliography or list of sources at the end of the memorandum. Instead, you should provide the information about a source that would normally go in a bibliography or list of sources in the footnote. In other words, it is not sufficient or appropriate to only provide (Friedman, 1970) in the footnote. Instead, you should provide the following information (or something similar) in the footnote:
Friedman, Milton. 1970. “The Social Responsibility of Business is to Increase Its
Profits.” New York Times Magazine, Sept. 13: at 32, http://query.nytimes.com/mem/archive-
free/pdf?res=9E05E0DA153CE531A15750C1A96F9C946190D6CF
This provides sufficient information for someone else to locate the source and verify where the information came from within the source. Footnotes should contain the specific page or pages on which the relevant information may be found.
You should be extremely cautious using internet sources. As noted above, you may ONLY use internet sources from reputable government agency websites or new source websites. To help you evaluate whether an internet source is reputable and how and when to cite the internet source in order to avoid plagiarism, you should consult Writing with Internet Sources: A Guide for Harvard Students. Please note that, when citing an internet source, it is not sufficient to provide only the link or url where the document maybe found. In other words, “http://query.nytimes.com/mem/archivefree/pdf” or anything similar by itself without any indication of the author, title of the article, periodical, and date is not enough.
Footnotes containing the relevant citations should go at the bottom of the page and should be typed, single spaced, and in 10 point font. If you use Microsoft Word (or its Mac/Apple equivalent), you should use the “Insert Footnote” function under the “References” tab to create your footnotes. To do this, place the pointer at the end of the sentence or phrase in the memorandum that the citation supports and click on “References” in the function bar at the top of the frame. Then click on “Insert Footnote.” The program will insert a number at the end of the sentence and create a footnote at the bottom of the page in which the citation goes.
If you are is not familiar with the information required by the citation formats, you may wish attend the Writing Center’s Citation Bootcamp. For more information about this workshop, please see the Writing Center’s webpage. If you cannot attend this workshop, you may wish to make an appointment with a Writing Center tutor to discuss how to put citations in the proper bibliographic format under one of the standard citation formats (APA, MLA, Chicago, Blue Book, etc.).
If you are struggling with how to construct a proper citation, Microsoft Word has a function under the “References” tab that will help you put a source in the proper citation format. This is the “Insert Citation” link. You should pick which style of citation formatting that you want to use among the choices in the menu next to “Style.” These include APA, Chicago, and many others. If you are is creating a new citation, you click on “Insert Citation” and selects “Add a New Source.” A box will appear and at the top of the box, you will be asked to identify what type of source (book, article in a periodical, etc.) the citation is for. After you select the appropriate type, the box will reconfigure itself to request the necessary information to create the appropriate citation. You will have to get Microsoft Word to print out the bibliography form of the citation by clicking “Bibliography” and then “Insert Bibliography” in order to get all of the information required and in the proper format for the footnote. Because this will print out all of the sources, you will have to copy and paste the relevant source from this list into the relevant footnote.
Your grade on the paper will be based on content and writing style.
The content portion of the paper will be evaluated based on the depth of your analysis and should reflect a thoughtful understanding of the problem addressed in the paper. It will also be based on the extent to which you have provided cogent sources to support your analysis and given proper attribution to your sources. This portion is worth 60% of the assignment.
Your writing style will be evaluated in terms of organization, clarity, grammar, spelling, and professional appearance (i.e., did you follow the format requirements listed above). Your grade will be significantly lower if severe or frequent errors detract from the instructor’s ability to read and understand your paper.