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Go Out of Business or Risk Surviving? A Case Study on Challenges of Ethical Decision Making in Complex Business Situations
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City University of Seattle and George Fox University, USA
1. The PCO’s Case
Steve was a senior executive at PCO, an American construction and civil engineering firm in Dubai with headquarters in Portland, Oregon. This company engaged in projects including residential and business construction (buildings and superstructures), bridge erection, roadway, excavations, and large scale repair work. The 2008 global financial crisis caused widespread instability in Dubai’s economy and contributed to PCO’s financial struggles as well as the collapse of many construction firms in the region. In addition, significant numbers of Chinese civil engineering companies manipulated Dubai’s construction business by offering low rates and fast-paced performance. This vastly reduced the number of available projects within PCO’s domain of operations. In a corporate meeting, a report analyzing the financial status of PCO indicated that a failure to devise an effective survival strategy within the next three months could lead to the branch’s closure.
As a highly competent manager, Steve’s strategic and tactical success at PCO for over 15 years transformed him into a valuable asset for the company. PCO’s strategic sector highly trusted and valued Steve’s opinion and incorporated his insights and solutions into the firm’s decision making framework. Influenced by his decentralized and facilitative management style, Steve’s relationship with his employees was highly positive and based on care, trust, and mutual respect. As a team leader, Steve placed great emphasis on sustaining and popularizing values, such as integrity, transparency of actions (open agendas), and moral conduct on both individual and collective levels. Accordingly, PCO’s executives always used Steve’s assistance to develop ethics training programs. In addition, Steve advocated for holistic and fact-based decision making, which led him to engage in actions including gathering information from multiple resources and involving stakeholders in the decision making process.
Frustrated by PCO’s financial situation in Dubai, Steve felt responsible to find a solution to reduce the high costs of engineering, designing, and drafting in order to save the company and his workforce from losing their jobs. While sitting in his office thinking about potential options, Steve received a phone call from Ali, a close and trustworthy friend who owned a startup civil engineering and design company in Iran. Prior to establishing his company, Ali worked as a civil engineer in Dubai for over five years, which helped him become familiar with laws, regulations, key success factors, and nature of construction business in UAE. Ali invested a significant amount of money in his company and hoped to expand his business rapidly. However, Iran’s unstable economy, which primarily resulted from political conflicts and issues related to foreign policies, posed many challenges to Ali and his business. From experience, Ali knew that sealing a business deal with a Dubai-based Western construction firm
could help his business survive during Iran’s economic and political instabilities. More specifically, the successful completion of a business contract with a Western firm could enhance the reputation of Ali’s company and stabilize its position locally, which in turn would attract more business to his firm. Considering the unpleasant business conditions, Ali had prioritized the survival of his startup at any price.
In the course of their discussion regarding PCO’s challenges, Ali presented a solution that could solve a substantial portion of PCO’s financial problems. Ali proposed that his company could assume PCO’s engineering, design, and draft work for approximately one fifth of the cost that PCO spent on these sectors. Steve asked, “How is this even possible?” In response, Ali highlighted that each
U.S. dollar was being traded for 3,500 Toman (a super unit of Iranian currency), which implied a value difference of over three times. Further, Ali told Steve that his staff salaries were much lower compared to those of PCO employees because of the company’s startup status and the average pay in Iran. By leveraging a favorable exchange rate and lower cost of labor in Iran, Steve determined he could reduce PCO’s overall expenditure in three crucial areas of business.
While listening to Ali’s appealing proposal, Steve recalled that U.S. companies could not engage in business with Iranian firms because of U.S. economic sanctions on Iran. Steve interrupted Ali and asked, “What about the economic sanctions restricting business between the U.S. and Iran? I can’t engage in illegal business.” Ali responded, “No worries, I also have a strategy to work around those sanctions. There are no business restrictions between the United Arab Emirates and Iran. If we establish a [middleman] company in Dubai, we can exchange business through this mutual source. I assure you that the quality of my service will exceed your expectations. So what do you say, Steve?”
Steve was amazed by Ali’s proposal and its details. He believed this cost-saving strategy could help PCO survive and buy itself time to devise additional plans to secure business success. Steve realized that if he decided to engage in business with Ali, he would not be able to discuss the Iran-end portion of the contract with his corporate office. This is because, in the eyes of the industry and the U.S. government, working around sanctions is perceived as unethical, and demonized by other U.S. entities. Therefore, one option for Steve was to engage with Ali’s company through the Dubai-based intermediary while concealing the fact that PCO would indirectly collaborate with an Iranian firm. Even as a temporary solution until reaching financial stability, this option would pose serious risks to Steve and PCO. On the other hand, disregarding Ali’s proposal would most likely push PCO-Dubai towards closure because the corporate office possessed no feasible plans to save this branch within the specified timeframe.
Steve faced a critical decision making challenge primarily because he was not able to easily determine the rightness of a potential course of action. An additional layer of complexity that contributed significantly to the difficulty of Steve’s decision making process related to the presence of two groups of stakeholders (PCO’s executives and Steve’s employees) with distinct needs and agendas; the firm’s executives preferred to comply with the U.S. government’s foreign policies while Steve’s employees prioritized keeping their jobs. Moreover, Steve’s emotions and personal values (e.g., feeling frustrated due to time pressure, caring for employees, and valuing moral conduct) further increased the complexity of his decision making. Steve’s situation signifies a highly complicated case of decision making in the realm of management.