The Price of Ethics

Greg Walsh, a minor league hockey coach in the city of Peterborough, Ontario, was recently suspended for pulling his team off the ice during a November 15th, 2010 Midget Class hockey game. This violated Hockey Canada and league rules, and officials suspended Walsh for the balance of the season. For good reason, hockey league officials don't want coaches to nonchalantly withdraw their teams from competition because they don't like the colour of the referee's hair. Mr. Walsh's  motive? One of his young (16 years of age) players suffered verbal abuse on the ice, as an opposing player uttered racial slurs in an effort to throw Coach Walsh's player off his game. When game officials allowed the offending miscreant back on to the ice, Walsh withdrew his team from the game. 

Eventually, the offending (and offensive) player received a three game suspension. For his uncompromising support of his player, and in a valiant show of team solidarity, Coach Walsh was handed a one year suspension, "for breaking Hockey Canada rules".

In the wake of the suspensions, many have argued that the one-year penalty was unfair. Many argue that the league ought to use some discretion, and forgive Walsh's violation. No young player should be compelled to play in unsafe, or abusive conditions. 

However, Mr. Walsh pays a steep price for his actions. I heard him interviewed on radio today, and he does not sound bitter. He would have done the same again, given similar circumstances. He has shown great class, and in the face of a flawed rule book, decided that he was willing to pay whatever price was necessary to DO THE RIGHT THING. 

Frequently, there is a price to be paid for having the courage to act on principle, and to exercise good ethics. This is true in sports, in society, and in business. 

The price of unethical behaviour can be even more dramatic. Mark Madoff, son of disgraced fraud artist Bernie Madoff, committed suicide last weekend. Some feel that he was in father Bernie's inner circle, when Dad was bilking widows of billions. Father Bernie os rotting in jail for the rest of his life, and his name will be forever linked to all that is wrong with the American financial system. His son has killed himself. A costly venture indeed.

Ethical dilemmas are seldom as cut-and-dry as the examples referenced above. This will be the theme of my next few postings.   

Consider the following four scenarios:   

Scenario A:
A man has worked for a major player in the financial services industry for over ten years. He has accumulated considerable expertise, is very reliable, and has become the "go to" guy within his department. He is reliable, honest, a team player, and has a great work ethic. He was recruited into the company, in part, on the promise that the company was utterly committed to the value of "promotion from within": if you are talented and make an enduring contribution, you will advance. His paycheck is satisfactory, but unspectacular. After receiving a few modest raises and level advances in his first five years, his career has stalled. The business is successful. The employee has noticed that HR has developed a habit of hiring new MBA graduates, fast-tracking their careers, and rapidly promoting the new hires to senior executive positions such as Assistant Vice President within one or two years. He, and many others like him are routinely bypassed. He has been told to "be patient, and good things will come to those who wait." Last month, he applied for a new position within the company and his credentials matched the position exactly. A new MBA was hired into the position, directly from University. Behind closed doors, the Vice President of HR has been told by expensive consultants that MBA's must be hired to ensure that the company stays in tune with new industry trends and best practices. On the other hand, if the company rescinds the "promotion from within" policy, they will lose considerable expertise when fed up employees look elsewhere. 

Scenario B:
A large North American retailer, who has dominated the landscape for decades, is faced with fierce price competition from a new entrant into the industry. The new competitor has two distinct advantages over the older established firm: a superior logistics network which replenishes stock more quickly and efficiently, and a supplier/vendor network that is based primarily in southeast Asia. By sourcing from Asia, the new company takes advantage of labour and manufacturing costs that are one tenth of that in North America, where the established company has most of its vendors. The older retailer decides that it must aggressively develop vendor relationships in Asia to drive its costs down. Many of the vendors that it meets routinely use child labour. The vendors argue that this is culturally acceptable in Asia, and it is the only way many families can escape poverty. If the retailer turns away from such supplier opportunities, they will be unable to meet or beat the new competitor on price. Customers are flocking to the new retailer by the thousands.

Scenario C:
A European manufacturer who has been in business for centuries is facing intense competitive pressure. A major player in their market, who is in worse financial shape than they are, has decided to relocate manufacturing facilities in SE Asia. Labour costs are 90 percent lower than in their old traditional plants in Europe. Our company decides to follow suit. Their brand name has a strong association with the neighbourhood in which they have manufactured for several generations. Our company's marketing team assures the Executive Team that the brand image will not suffer, since the Asians can produce high quality product, and profit margins will skyrocket. Our company decides to sink tens of millions of dollars in setting up a set of factories in SE Asia, like the competition. The little European town where the company grew up is decimated, as our company has been the major employer in that area for more than 200 years. Supply of product to the key North American and European markets is damaged for months in the transition period. Inventory stability is destroyed. Consumers clue in to the fact that goods produced under our company's brand name is no longer from that little European town with a great reputation for craftsmanship. Our company's reputation as a producer of prestige product is at risk.     

Scenario D:
 A new Vice President is hired in to a retail company who is struggling to achieve former glories. The new woman's credentials are impecable. She is experienced, skillful, and possesses great drive. She works hard with her staff to build an internal analytical infrastructure to guide buyers in their appreciation of the impact that purchasing decisions have on inventory management, gross margin, ROII, and company profitability. Some buyers had to be terminated for refusing to accept the new direction. In the fullness of time, the changes start to take root, and ROII begins to recover. The new VP is rewarded with a new car, raises in salary and richer benefits. She goes on a Buying Trip in Asia. While there, she ignores the new buying infrastructure and decides to go with her "gut feel". She spends too much money on new inventory. Far too much money. This crushes the frail financial recovery that the company has recently enjoyed, and sends it on a downward spiral to bankruptcy. The VP is fired, but walks away with a $1 million severance. The employees are now out of work, and the company's assets are sold.   

These scenarios are loosely based on fact. 

How might a strong sense of ethics have helped resolve these problematic stuations?      
  

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