How Can a Business Organization Be Made Moral?
Chapter Objective: What do you do when a major problem or managerial crisis occurs?
*Example given is wreck of Exxon Valdez, which created 11 billion gallons of oil spill in
the United States, which requires immediate and forceful action.
- Oil spill caused severe environmental damage along stretches of Alaska coastline
- Killed seabirds, ruining fishing ground and results in financial losses for company
shareholder and local residents.
- Didn’t have to happen, and cause was lack of trust, commitment, and effort on the
- Lack of cooperation, innovation and unification on the organizational level
- No one did job properly:
1. Upper level: Reduce investments / cut expenses,
2. Middle Level: Get by as best they could with no one for improvements
3. Lower Level: Gave up caring
- Result was total failure of managerial responsibility throughout firm
Main Case Timeline:
- On Thursday, March 22, 1989 Exxon Valdez filled up oil barrels and left Alaska
- Captain Murphy testified he smelled alcohol on the breath of Captain Hazelwood,
whom assumed control after Murphy steered the ship out of a 0.5 mile narrows.
- Hazelwood, radioed the coast guard to ask them if he could alter course to avoid
large ice chunks. Permission was granted, and he turned over command to Third
Mate Gregory Cousins, whom was not licensed to pilot a ship in Valdez sea
channels. (It was common practice to do this)
- Although Mr. Cousins tried to alter course to bring the ship back into the proper
channel and avoid the reef, he couldn’t as either Hazelwood didn’t tell him the
ship was on auto-pilot or they forgot to disconnect the automatic pilot, which
prevented manual steering.
- The ship hit the Bligh Reef and 260 000 barrels of oil leaked.
- Alyeska was the pipeline service company that was responsible for the
containment and recovery of all oil spills within the harbour and sea lanes.
- The problem was that the single ship capable of handing the oil spills at Alyeska
was out of service and needed to be reloaded. In the afternoon, the ship carrying
booms (floating devices to contain oil) and pumps to the wreck site.
- The following day, they pumped oil to a secondary ship (Baton Rouge) and
several ships with vacuum equipment arrived to contain the oil.
- The next day, the coast guard admitted the situation was out of control as the oil
spread over 700 miles along the coast, destroying fishing resources, and killing
wildlife. - The causes of the accident were blamed on the intoxication of the captain, the
unlicensed command of the ship by a unlicensed third mate, as well as tired crew
members from long hours at work and the captain ignored the sailing rules.
- Exxon agreed to compensate the fishing operators, and company executives didn’t
comment on the disaster.
- They felt that they couldn’t be blamed for the intoxication of the captain and that
the company couldn’t use chemical dispersants on the oil. (Break up oil into tiny
droplets, but will be ingested by wildlife, casing them to die)
- The government blamed Alyeska and Exxon for their slow clean-up process,
saying it should have been done much faster.
- They also blamed Alyeska for not having the required ships as in the plan they
had written up before (needed 2, they had one half broken).
- Overall, there was a shortage of equipment, shortage of personnel and lack of
- Exxon then gave it’s a large portion of its employees the chance to retire or quit
early with compensation.
Management of a Moral Company:
- Although the oil spilled damaged the ecosystem, impacted the livelihood of
fisherman, almost destroyed the food sources for native Indians and Exxon was
fined 2.4 billion by the Federal government
- They didn’t change their pattern of operations, and appealed the fines in court and
contested (go against) the claims made by the Native Indians.
- They claimed that the company shouldn’t be held responsible for the actions of
company employees who violated company policies.
- It toke many years before a final settlement of federal fines and civil claims were
- The idea is that Exxon was not able to deal with this issue effectively. They cut
costs when the prices of oil decreased, leaving less equipment and employees felt
overworked and underpaid, so they didn’t care about the company. Therefore, the
outcome is a company unable to handle such a crisis.
- Objectives for corporate management shouldn’t be to maximize profitability for
stockholders without care for other stakeholders, or there will be a lack of
trust/cooperation among other stakeholders.
- Exxon didn’t care about its employees, they didn’t care about external costs to the
fisherman, the natives and environmentalists.
- They didn’t obey the law (oil spill agreement), and was not truthful about its
- The result is a huge cost to the company and a huge fine.
Corporate Vales - Corporate values are duties the senior executives owe to the various stakeholders
of the company.
- A company should always consider every stakeholder, no matter how big or small
in the company.
- In this case, Exxon should continue to provide profit to its owners/shareholders,
but also made the employees’ working conditions much better, as well as the
environment in general.
- Company goals are end points that the senior management should set for the
various dimensions of performance that are possible
- Instead of placing all goals on one aspect (financials), try improving things like
technology, equipment advances, employee morale, environmental protection,
- They are all important aspects and will ultimately contribute to a company’s
- The mission statement combines organizational goals and values together.
- Should describe the future of the firm, summary of its activities and nature of its
- Should consider other stakeholders like customers, suppliers, employees before
- Its important for a company to consider both capital and cost. Capital is long-term
investments needed for buildings, inventory and equipment. Cost is short term
expenses like wages and outside services.
- It’s important for a company to budget appropriately so it remains financially
stable, but at the same time considering its stakeholder and preparing itself for
- Company must focus on duties, its goals as well as profits, not just one of the
- Means to evaluate performance of persons assigned to various tasks in the
company and achieve the mission of the firm within long-term and short term
- Many of them are financial related, like how much money did we make during
- Some are numerical, like how much inventory we have or our customer
satisfaction. - It’s important to balance both of these and establish performance measures in the
business to understand both how the business is financially doing but also at the
same time the overall image and performance of the employees and customer
- Rewards for good performance of people in achieving company mission
- Usually given when people meet their targeted performance measures, like
achieve this much money in a week.
- Can be in the form of money, praise or promotions.
- However, these payments will usually cause people to take risks and break their
ethical duties, (Like firing people to reduce expenses to meet financial goal).
- Important to g