This discussion involves a business ethics case that companies and boards of directors regularly face in conduction business.:
1. Identify the most important and ethical issues arising from the situation.
2. Identify the viable options for addressing these issues and the ethical implication of the identified options.
3. Reach a definite resolution of the ethical issues by choosing what you think is the best option.
4. Develop a strategy for implementing your resolution. Please cite your references.
Background
Paul Oliver, Sr., immigrated to the United States from Greece. After working for several wineries, he started Oliver Winery, Inc., which eventually found a market niche in non-varietal jug wines. Through mass-marketing techniques, the company established a substantial presence in this segment of the market. Ten years ago, Paul, Jr., joined the firm after receiving a degree in enology (the study of winemaking). He convinced his father of the desirability of entering a different segment of the wine market: premium varietals. To do this, the company needed a large infusion of capital to purchase appropriate vineyards. Reluctantly, Paul, Sr., agreed to take the company public. The initial public offering succeeded, and 40 percent of the company's stock went into outsiders' hands. Also, for the first time, outsiders served on the board of directors. Although Paul, Jr., wanted to use a new name for the premium varietal to appeal to a more upscale market, his father insisted on using the name, Oliver.
Board Meeting
The board of directors met, along with Janet Stabler, the director of marketing of Oliver Winery, Inc. The following directors were in attendance:
Paul Oliver, Sr., chairman of the board and founder of the company
Paul Oliver, Jr., CEO, has an advanced degree in enology
Cyrus Abbott, CFO, has an MBA
Arlene Dale, the comptroller, has a CPA with a master's degree in accounting
Raj Ray, COO, has a master's degree in industrial engineering
LaTasha Lane, vice president legal, has a J.D. degree
Elisabeth Constable, the union representative to the board, has a GED degree
Rev. John W. Calvin, the outside director, has a Doctor of Divinity degree
Carlos Menendez, the outside director, has an MFA degree
Oliver, Sr.:
The next item on the agenda is a proposal to develop a new line of wines. Janet Stabler will briefly present the proposal.
Stabler:
Thank you. The proposal is to enter the fortified wine market. It's the only type of wine in which unit sales are increasing. We'll make the wines cheaply and package them in pint bottles with screw-on caps. Our chief competitors are Canandaigua with Richard's Wild Irish Rose, Gallo with Thunderbird and Night Train Express, and Mogen David with MD 20/20. We'll market the wine with little or no media advertising by strategically sampling the product to targeted consumers. That's it in a nutshell.
Oliver, Sr.:
Any questions before we vote?
Menendez:
Who'll buy this wine?
Calvin:
From what I know about the consumers of your competitors, it appears to me that it's bought by homeless winos.
Stabler:
Not entirely. For example, pensioners on a fixed income would find the price of the wine appealing. Thunderbird has been recently introduced into England and has become very popular with the yuppie crowd.
Calvin:
Then why put it in pint bottles?
Stabler:
For the convenience of consumers.
Menendez:
Why would pensioners want a small bottle?
Calvin:
Homeless people want it in pints so they can fit it in their hip pockets. They obviously don't have a wine cellar to lay away their favorite bottles of Mad Dog.
Stabler:
The pint-size also keeps the price as low as possible.
Calvin:
Translation: The homeless don't have to panhandle as long before they can make a purchase. Also, why would you increase the alcoholic content to 18 percent and make it so sweet if it weren't for the wino market?
Stabler:
Many people like sweet dessert wines and 18 percent are not that much more than other types of wines that have 12 percent alcohol.
Menendez:
Is it legal?
Lane:
Sure. We sell to the retailers. It may be against the law to sell to intoxicated persons, but that's the retailers' business. We cannot control what they do.
Calvin:
Isn't this product intended for a perpetually intoxicated audience that many people consider to be ill? Wouldn't we be taking advantage of their illness by selling highly sugared alcohol that suppresses their appetite? I've spoken to drinkers who claim to live on a gallon of this type of product a day.
Oliver, Jr.:
What will this do to our image? We're still trying to get our premium wines accepted.
Stabler:
Of course, we won't use Oliver's name on these wines. We will use another name.
Menendez:
Is it okay to do that?
Stabler:
Why not? Canandaigua, Gallo, and Mogen David all do the same thing. None of them put their corporate name on this low-end product.
Abbott:
We're getting away from the crux of the matter. Profit margins would be at least 10 percent higher on this line than our others. Moreover, unit sales might increase over time. Our other lines are stagnant or decreasing. The public shareholders are grousing.
Dale:
Not to mention that our stock options have become almost worthless. I'm only a few years from retirement. We need to increase the profitability of the company.
Ray:
Operationally, this proposal is a great fit. We can use the grapes we reject from the premium line. It will also insulate us from bad grape years because any grape will do for this wine. We can fill a lot of our unused capacity.
Constable:
And hire back some of the workers who were laid off!
Stabler:
It's a marketing dream. Just give out some samples to "bell cows."
Menendez:
What are bell cows?
Stabler:
Opinion leaders who will induce other consumers to switch to our brand.
Calvin:
Do you mean wino gurus?
Oliver, Sr.:
Look, if we don't do it, others will. In fact, they already have.
Abbott:
And they'll get richer, and we'll get poorer.
Lane:
Gallo pulled out of several of these skid-row markets as did Canandaigua. Little good it did. The alcoholics just switched to malt liquor, vodka, or anything they could get their hands on.
Dale:
I think our concern is misplaced. These people are the dregs of society. They contribute nothing.
Calvin:
They're human beings who need help. We're profiting off their misfortune and misery.
Oliver, Sr.:
We can take that up when we decide on what charities to support. Is anyone opposed to the proposal?
Calvin:
Is this a done deal? I believe we should contribute half of our profits from this product to support homeless shelters and other programs that benefit indigent and homeless people. If not, I must resign from this board.
Sources
Carrie Dolan, Gallo Conducts Test to Placate Critics of Its Cheap Wine, The Wall Street Journal, June 16, 1989, p. B3.
Frank J. Prial, Experiments by a Wine Maker Fails to Thwart Street Drunks, The New York Times, February 11, 1990, p. A29.
Alix M. Freedman, "Winos, and Thunderbird Are a Subject Gallo Doesn't Like to Discuss," Wall Street Journal, February 25, 1988, p. 1.
