Markkula Center of Applied Ethics

The Case of the Million-Dollar Decision

By Michael L. Hackworth and Thomas Shanks, S.J.

In "The Buck Stops Here," a presentation for the Markkula Center for Applied Ethics Roundtable for Executives, Michael Hackworth talked about how he models ethical leadership in his role as CEO of chip manufacturer Cirrus Logic. "Employees take their cue from the CEO," he said. "In every situation, they ask, 'What does the boss want?' They give him what he wants when they talk about the business, when they talk about the law, and when they talk-or don't talk-about ethics. In general, people line up behind what the CEO wants."

The Ethics Roundtable for Executives brings business leaders together to discuss the moral dilemmas they confront in the workplace. Using this case study, created with Center Executive Director Thomas Shanks, S.J., Hackworth encouraged members of the Roundtable to imagine how they might confront this challenge: Their company is planning to expand into a country where bribe-taking is considered a normal part of doing business.

Pegasus International Inc. is a leading manufacturer of integrated circuits (chips) and related software for such specialty markets as communications and mass storage, as well as PC-based audio, video, and multimedia. With a focus on innovation, Pegasus is committed to "technology leadership in the new millennium." Its long-standing strategy has been to anticipate changes in existing and emerging growth markets and to have hardware and software solutions ready before the market needs them. The company has also made significant strides in wireless communications.

The systems and products of Pegasus' wireless business have been selling well in its already existing markets in the United States, Japan, and Europe. But, like any company, Pegasus is eager to grow the business. At a strategy session with the Wireless Division, Pegasus CEO Tom Oswald and division managers decide to explore the potential of expanding their business to China.

Initial research indicates that China is likely to develop into a huge market for wireless because its people do not currently have this capability and the government has made spending on wireless a priority. Wireless is really the only choice for China because of the high cost of burying the communications cables necessary in wired systems; further, in underdeveloped countries, copper wires are often stolen and sold on the black market.

Subsequent research does raise one concern for Pegasus wireless managers. They tell Oswald, "We have this problem. China allocates frequencies and makes franchise decisions city by city, district by district. A 'payoff' is usually required to get licenses."

The CEO says, "A lot of companies are doing business with China right now. How do they get around the problem?"

His managers have done their homework: "We believe most other companies contract with agents to represent them in the country and to get the licenses. What these contractors do is their own business, but apparently it works pretty well because the CEOs of all those companies are able to sign the disclosure statement required by law saying that they know of no instance where they bribed for their business."

"I wonder if paying someone else to do the crime is the same as our doing the crime," Oswald says. "I'm just not very comfortable with the whole question of payoffs. So, let me ask you, if we don't expand into China, how much business will we lose, potentially?"

His Wireless Division manager responds, "It will be huge not to do business in all the countries expecting payoffs. China alone represents easily $100 million of business per year. It's not life and death, but it is a sizable incremental opportunity for us, not to mention potential Japanese partners who will make significant capital investments. All we have to do is add our already-existing technology. When you consider all that, we have a lot to gain. What will we really lose if our local contractors are forced to make payoffs every now and then?"

Oswald wants his company to succeed, he wants to maximize shareholder value, he wants to keep his job, and he wants to model ethical leadership. He has made an effort to build a corporate culture characterized not only by aggressive R&D and growth but also by integrity, honesty, teamwork, and respect for the individual (See Pegasus Values below). As a result, the company enjoys an excellent reputation among its customers and suppliers, employee morale is high, and ethics is a priority at the company.

What should he decide in this case? Why?

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Pegasus International Values

Pegasus International has always placed a high premium on its relationship with its employees. Although the nature of our business and markets may change as the company evolves to meet different market conditions, a strong emphasis on ethical behavior and respect for each other will remain constant.

Our behavior is guided by these simple but important values: Integrity and Intellectual Honesty

  • Be Honest With Yourself and Others

  • Tell It All and Tell It Like It Is

  • Protect Our Intellectual Property

  • Face the Facts

Teamwork and Trust

  • Keep Your Commitments Make It Happen

  • Take Personal Responsibility Be Accountable

  • Think Beyond Boundaries Leverage Your Activity

  • Value Each Other's Contributions/ Opinions/Perspectives

Respect for the Individual

  • Attack the Problem, Not the Person

  • Be Prepared for Meetings

  • Do Not Waste Others' Time

  • Listen Actively

  • Seek Others' Participation

Delight the Customers

  • Create Value for Customers

  • Promise What You Can Do and Do What You Promise

  • Build Quality In and Improve Continuously

  • Meet/Exceed Customers' Requirements

  • Create Long-term Successful Customers

Spring 1998

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