Case Studies in Organizational Ethics and Liability

An individual’s moral compass guides every impactful decision he or she makes. But are ethics only under the jurisdiction of individuals? Can corporations have a moral compass? A corporation doesn’t have a soul, but it definitely needs ethical principles. As a Christian business leader, you already understand the importance of implementing company-wide policies and procedures that follow sound ethical standards. It isn’t just the right thing to do—it’s good business sense because it limits the company’s liability. Take a look at these case studies in organizational ethics and liability.

This iconic American company began life in 1886 when a railroad agent started moonlighting as a watch salesman. For decades it was a retail giant, but in 1992, the company faced a crisis. Its auto service business was accused of defrauding consumers by selling them unnecessary services and parts. Let’s take a step back and examine how this happened. Sears was facing fiscal uncertainty and increased competition in the auto service sphere. It responded by rolling out an incentives and goals program, including minimum work quotas. The Sears service advisors were paid by commission, and were required to sell a certain number of shocks, brake jobs and so on each shift. Employees who didn’t meet the quotas might face a reduction in work hours.

When the complaints surfaced, the company denied purposeful fraud, but did acknowledge faulty decision-making. Commissions for service advisors were eliminated and sales quotas no longer had to be met. The company paid millions to settle lawsuits. Sears also restructured the former job title “service advisor,” which became “customer service consultant.” Despite these efforts, Sears’ auto centers struggled to win back the public’s trust.

Beech-Nut also had a major problem with public trust. Its scandal during the 1980s not only led to liability issues, but also to criminal convictions. Parents had trusted the company to provide pure, no sugar-added apple juice for their babies. But it was discovered that the “apple juice” was actually a mixture of corn syrup and water. Quite a few people within the company had voiced concerns about the purity of the product. The new CEO also discovered evidence of the fake apple juice just two years after taking the helm. Under pressure to turn a profit for the new parent company, Nestle, the CEO opted not to destroy the inventory.

It wasn’t long before an FDA investigation made public the true ingredients of the product. The company was charged with selling misbranded and adulterated juice, and it pleaded guilty. Not long thereafter, the CEO also pleaded guilty. He and another top executive were each sentenced to a year and a day in prison. The Beech-Nut and Sears scandals highlight the importance of considering every major decision in light of a company’s ethical obligations.

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