Part I. These are questions pertaining to the assigned coursework. There are five questions in Part I. If information is used from text or outside resources, cite them using APA format. Please give a full citation of any sources used at the end of each answer. There is no length requirement for each answer. Please answer each question in its entirety. Part II. Please read the attached case study and answer the following questions. Part II has five questions. Please do outside research to support the answers. This case study requires the use of knowledge gained from this course and use it in a real world situation.

This is broken into two parts (I and II).

Part I. These are questions pertaining to the assigned coursework. There are five questions in Part I. If information is used from text or outside resources, cite them using APA format. Please give a full citation of any sources used at the end of each answer. There is no length requirement for each answer. Please answer each question in its entirety.

Part II.  Please read the attached case study and answer the following questions. Part II has five questions. Please do outside research to support the answers. This case study requires the use of knowledge gained from this course and use it in a real world situation.

Part I:

1. Explain the case of Stella Liebeck vs. MacDonald’s (refer to case 6.2 on p. 231 or the supplemental article). Could government regulation have prevented this accident? Why or why not? Consider issues of product liability, product safety, and legal paternalism in your answer.

1. Who should bear the burden of cleaning up pollution, those responsible for the pollution or those who would benefit? Support your answer using concepts from the text and class discussions.

1. Is Affirmative Action ethical? What are the two positions, for and against, affirmative action? Is it an outdated policy? Support your answer using concepts from the text and class discussions.

1. What does loyalty to the company mean, and how important is it, morally? Under what circumstances, if any, do employees owe loyalty to their employers? When, if ever, do they owe loyalty to their coworkers? Support your answer using concepts from the text and class discussions.

1. What complications does sexual harassment bring to the workplace? How should a manager handle a claim of sexual harassment by one of his/her employees? Support your answer using concepts from the text and class discussions.

Part II: Case Study (5 Questions at the bottom)

It was 9:30 in the evening of what had been a very long Friday when the phone rang in Chip Brownlee’s home study. On the line was Arch Carter, the lead director of Galvatrens, the

Houston-based consumer Products Company that Chip had led as chairman and CEO for the past ten years.

“I just got your voice mail,” Arch said. The parts about a lawsuit and accusations that we manipulated our sales numbers certainly got my attention. What’s going on?”

“At this point, I don’t know much,” Chip responded, “but I wanted to give you a heads-up. A former divisional sales manager has filed a lawsuit against the company, charging he was wrongfully terminated because he tried to report an illegal scheme to inflate sales.”

Chip had received a copy of the lawsuit that afternoon. As he’d read through the complaint, he’d gotten a whole new perspective on the multiple departures that had rocked Sales during the past four weeks. The plaintiff was Mike Fields, who had left Galvatrens three weeks earlier. He claimed that he’d come across a plan devised by Greg Wilson, another divisional sales manager. According to Mike, Greg had proposed shipping goods to a few of his bigger customers, billing them, and booking the sales – but with a side agreement that they wouldn’t have to take ownership, could return the shipments at any time, and would get a 2% discount on any goods they accepted and paid for in the following quarter. The purpose of the channel-stuffing scheme was to meet quarterly sales targets and trigger bonuses, Mike contended.

“So what’s the wrongful termination charge about?” Arch asked.

“Mike says he found out about the scheme by accident and, since he didn’t know who else might be involved, contacted Harry about it,” Chip said. In the lawsuit, Mike claimed that he had left a confidential voice mail for Harry Mart, Galvatrens’s COO, asking to speak with him about a matter of the utmost urgency involving possible misconduct by a company manager. He said Harry never followed up with him and instead referred the matter to Mike’s boss, Terry Samples. Until a week ago, when he left abruptly to take another job, Terry had been the senior vice president of sales.

“Mike alleges that Terry subsequently told him his performance was not up to snuff and that he’d have to accept a demotion and a transfer to Indianapolis if he wanted to stay with the company,”

Chip continued. “Mike says the demotion and transfer were in retaliation for exposing the channel-stuffing scheme–and Terry knew that Mike, as a divorced father with joint custody of his kids, couldn’t leave town.”

“Yikes! So Terry could have been involved in this?”

“We don’t know at this point,” Chip said. “At the very least, it looks like he found out from Mike about Greg’s plan. We don’t even know yet whether Greg followed through on it.”

“What about this Greg guy?” Arch asked.

“He resigned about a month ago. He took a job in California. When Terry left so suddenly last week, I was beginning to wonder if the turmoil in Sales was more than unhappy coincidence.”

“Oh, man,” Arch muttered.

“That’s not all,” Chip added. “Mike also says our channels for confidential reporting of misconduct don’t work very well. He claims that, as a company, we made it easier for Terry to retaliate.”

“How could that be? I thought we had everything in place,” Arch said.

“Well, as I’m sure you’ll agree, the board should know about this. Can you set something up?”

“I’m already working on it.”

Changing the Guard

The board, employees, and Wall Street had rejoiced when Chip agreed to become the chairman and CEO of Galvatrens in January 1997. He had previously led Paloreq, a pharmaceutical and  medical devices company, during a period of tremendous growth, building businesses in medical devices and diagnostics and broadening the firm’s pharmaceutical offerings through shrewd  acquisitions. He had attracted a team of stellar managers and scientists through the same sorts of “people” initiatives he would launch at Galvatrens.

The year before Galvatrens’s board hired Chip, it had reached an impasse with longtime CEO Walter Nikels over strategy and management style. Walter, who had taken the helm when Galvatrens was a midsize firm, had run it in an authoritarian, hierarchical fashion. As the company grew larger and more complex, the board urged him to delegate more and inject some fresh blood into the executive team, but he resisted. As a result, top-performing employees were defecting to the competition, and Galvatrens recruiters were having a hard time getting MBA students to sign up for interviews. The word was out that Galvatrens was not the place to be. With earnings deteriorating, the directors finally decided they had to act. Walter announced his plans to retire at the end of 1996, and Chip stepped right in.

Chip had lived up to his reputation. Expanding beyond Galvatrens’s core businesses in home health care and personal beauty, he took the company into nutritional and wellness products, medical diagnostics and devices, and products for infants and the home. Revenues, earnings, and the share price rose steadily.

So that Chip could focus on developing strategy and building relationships with customers and business partners, he had sought a COO who would concentrate on the company’s day-to-day operations. Harry Mart, whom Chip had lured away from a competitor, had fit the bill nicely. Once on board, he modernized the management of Galvatrens’s supply chain, greatly improved manufacturing efficiency, and increased capacity.

In addition to dramatically expanding Galvatrens’s product portfolio, Chip worked hard to change the company’s culture. Early in his tenure, he announced an ambitious initiative to make Galvatrens an organization that excelled in listening to and learning from its employees and its customers. He combined the initiative with a diversity campaign in an effort to achieve preferred-employer status in the consumer products industry. He replaced the general counsel, a member of the old guard, with Sydney Baydown. She had been Chip’s general counsel at Paloreq, where she had played a central role in a number of people initiatives that had enhanced the company’s ability to attract and retain talent.

At her urging, Galvatrens took steps to upgrade its procedures for uncovering misconduct and solving conflicts in the workplace – reforms Syd had championed at Paloreq. Chip gave Syd the go-ahead to have a consulting firm review the existing system. Following the consultants’ advice, Galvatrens instituted an open-door policy for raising workplace concerns or problems, formalizing rules and practices that some operations had adopted on their own. While the policy encouraged employees to go to their immediate supervisors whenever possible, it emphasized that they could approach any manager at any level for assistance. The policy included a specific ban on retaliation.

The company also added a toll-free, 24-hour hotline for reporting violations of the code of conduct, added an ethics officer to its ranks, and launched an ethics awareness campaign. The ethics officer, who was responsible for ethics training and enforcement of the code of conduct, reported to the general counsel. After the passage of the Sarbanes-Oxley Act, the company mandated that the ethics officer inform the board’s audit committee of any allegations of  financial wrongdoing or other possible code violations that involved company executives.

Two of the consultants’ recommendations, however, were not adopted: proposals that the company should hire an ombudsman and that the board should make a director or a committee of directors responsible for ethics oversight. Focus groups and interviews had revealed that many employees would not feel comfortable raising concerns through formal management channels. Having a truly impartial ombudsman who reported to the CEO and had access to the board would make employees much more likely to come forward. The ombudsman would allow people to report issues anonymously or confidentially and could offer a range of informal means for helping them resolve issues, the consultants said.

Dale Willis, the senior vice president of HR at the time and a holdover from the Walter Nikels era, had opposed both of these recommendations. Anything that operated outside management’s chain of command, he argued, might let serious problems slip through the cracks and was therefore a recipe for disaster. With some reservations, Chip agreed not to create the ombudsman role.

Chip also acceded to Dale’s request to delay training related to the new open-door policy until HR had completed existing programs. Then other priorities arose, and the training initiative was forgotten.

Getting the Lowdown

On Monday, three days after Mike’s lawsuit had been filed, Chip opened a conference call with the eight directors he’d been able to round up.

“Okay, I think we’re all here – or at least everyone we could get on such short notice,” Chip said.

“The negotiations for the Aletha Products acquisition are at a critical stage, and Harry couldn’t break away,” he said, referring to Galvatrens’s COO.”And Dan Richardson is on a trek in the Himalayas.”

When Chip asked Syd to brief the group, she said, “We’ve confirmed that Greg Wilson pitched a channel-stuffing scheme to two of his biggest customers. However, we don’t know at this point whether he got any further than that.

“We’ve also determined that Mike’s performance declined considerably in his last ten months here,” she continued. “Records show that his team missed sales targets by a growing amount during that period.” Syd noted that Mike had been unreachable during business hours with increasing frequency and had missed important meetings. Prior to that period, though, he had been a solid producer. In an initial phone conversation with Galvatrens’s outside counsel, Mike’s lawyer hadn’t disputed the change in performance but claimed it was due to a nasty custody fight between Mike and his ex-wife. Terry’s reaction to the slide in performance had been brutal, contributing to Mike’s emotional stress, the lawyer said.

“Given this information, we intend to file a response to Mike’s lawsuit, denying his charges of wrongful termination,” Syd said. “We’re also having an independent investigation of the channel-stuffing allegations. Chip has asked me to be the liaison between the outside investigators and the board. We’ll try to delay discovery in the lawsuit to give the investigators time to do their job.”

“This is Sheila,” interjected Sheila Cruse, the chair of the board’s audit committee and an accounting professor at Valhalla University. “What should the board’s role in the investigation be? To whom should the investigators report? Do we need a special committee for something like this?”

“We do need to sort that out,” replied Arch, the lead director, “but first let’s focus on how we’re going to respond to the lawsuit. How does battling with a guy who attempted to raise some serious allegations square with our mission and values? I see giant reputational risks on every front here. If we don’t handle this well, we could hurt ourselves with employees, customers, and shareholders.”

“Arch, this is Syd. We do have to respond to the lawsuit. Denying Mike’s claims while we also investigate and negotiate is just standard procedure.”

The other directors acknowledged that while Arch had raised some good points, it still made sense to proceed as Syd had outlined. They agreed to take up the issue again in six weeks at a scheduled board meeting. By then, they should have more facts and would be in a better position to weigh their options.

Preventing a Repeat

The board met six weeks later at the Houstonian. Located on sprawling, heavily wooded grounds in the center of Houston, the hotel and spa complex was a popular choice for off-site Galvatrens meetings. Arch and Chip stood outside the conference room as the directors filed in, complaining about Houston’s legendary humidity. Dan Richardson, a software entrepreneur and a friend of Chip’s from the Paloreq days, was back from his trek in the Himalayas; he was sunburned and noticeably leaner. But Harry, the COO, was absent again – this time because of continuing problems at factories damaged by hurricanes Katrina and Rita, the ongoing merger talks, and a labor dispute.

The independent investigators had reported to the board the previous week. They found that the customers had simply ignored Greg Wilson’s channel-stuffing proposal. It appeared that Terry had forced Greg out when he learned about the plan, but he’d allowed Greg to resign and hadn’t told anyone else about the scheme. Greg had not responded when the investigators tried to contact him.

Terry’s only reply had been a terse note, delivered through his lawyer, saying that Terry was reviewing their questions and would respond appropriately. The investigators had also confirmed the decline in Mike’s performance, although Terry’s role was still murky. What was clear was that Mike had done his best to raise the alarm about Greg’s scheme. The judge had allowed discovery to begin, and the company had initiated settlement discussions with Mike.

“For the life of me, I still do not understand why we didn’t hear about all this sooner and why no one except Mike Fields came forward,” said Dan, who served on the board’s corporate governance committee.“It’s disappointing enough that Terry didn’t report this, but I can’t help wondering if others in Sales knew about it, no matter what the report says. And why didn’t we hear about it from our customers? It doesn’t seem like we have a handle on these kinds of problems.”

Syd pointed out that extensive research over the years had demonstrated that, in many cases, employees who see misconduct in their organizations don’t come forward. “And in our own defense, Dan, we’ve come a long way since Chip took over,” she added.

“That may be the case,” Sheila said, “but clearly the good things we’ve already put in place – the open-door policy and the code of conduct – aren’t working. Harry didn’t take the original complaint seriously and just passed the buck. Nothing came in through the hotline. And no one contacted the ethics officer or HR.” “Is it realistic to expect Harry to deal with something like this?” Arch asked.

“After all, he’s the guy responsible for making the trains run on time – it’s not like he’s lying around drinking cocktails on the beach.”

Sheila shook her head in disagreement. “I know we don’t expect Harry to personally investigate and resolve complaints that come directly to him, but we do expect him to follow up and refer a problem like this one to the ethics officer. He didn’t do that.”

“A lot of this is at my doorstep,” Chip said. “I’ve kept Harry’s plate full. He realizes now that he should’ve given this more attention. I’ve asked Syd to think about how we can ensure that something like this doesn’t fall through the cracks again.”

Arch and Sheila exchanged skeptical looks. Later, when they were walking to their cars, they agreed to meet for breakfast the next morning at the Four Seasons.

Taking Charge

When Arch walked into the hotel restaurant at 7 am, the summer sunlight was pouring into the beautiful room, which was elegantly set with white linens and flowers. It was Arch’s favorite place for breakfast meetings. He spotted Sheila standing at the buffet table, admiring the glistening berries. He joined her.

After they sat down at their table and the waiter poured them coffee, they compared reactions to the meeting the day before.

“I’m thinking that we need a board retreat to deal with this situation,” Arch said. “We’ve got a lot to chew on. We should look at ourselves first. I don’t feel we’ve met our oversight responsibilities. We were not ready for something like this.”

Sheila wholeheartedly agreed. “Once we got into this thing, it seemed clear to me that we as a board didn’t know what our role was supposed to be,” she said. “And I certainly took it for granted that Chip and Syd had established the channels for anonymous reporting that the audit committee – and the full board, for that matter – needs in order to provide oversight.”

“That’s on us,” Arch said. “It’s got to show up in our self-evaluation this year. And I think we have to take several aspects of this into account in evaluating Chip and deciding what we should ask of him in the future. After we put all these procedures in place, why did only one guy come forward–and he ends up suing us? Why did Chip keep Dale Willis on so long and let him get in the way of some of the very changes we brought Chip in to make? When the new employee survey comes out, I’ll be curious to see if we’re really improving morale – especially in Sales, where we’ve had so many turnovers.”

Sheila hesitated. “I agree with you about Chip, but the person who worries me the most is Harry. I know you’re a big fan of his, but I am troubled by his failure to respond appropriately when Mike Fields called him. Harry may be technically strong, but he has got to be able to take care of people, and he’s just no good at it. I think we have to look at the consequences for him as well as new expectations for Chip.”

“I’m thinking we’ll need a full day,” Arch suggested. Sheila nodded. “Let’s get the ball rolling.”

Part II:

1. 
   Who is the whistle-blower in this case? What protections are available for him/her? In your opinion, why did only one individual come forward? Support your argument with concepts from the text and class discussions.

1. Explain the reporting system available to employees for reporting sensitive issues. Is it an effective system? Why or why not? Support your argument with concepts from the text and class discussions.

1. Is there evidence showing discrimination and or a hostile work environment toward the plaintiff in this case? Why or why not? Support your argument with concepts from the text and class discussions.

1. Are there any conflicts of interest with members of the board? Why or why not? Support your argument with concepts from the text and class discussions.

1. How should management and the board respond to the lawsuit? Support your argument with concepts from the text and class discussions.