Business Ethics in Fictitious Company Analysis

 

This analysis will first include a brief introduction of a fictitious satellite imaging company, International Satellite Images (ISI), described in Case 3 of “Strategic Management and Business Policy,” and the role ISI plays in business ethics. Secondly, an analysis will be given as two separate scenarios that derive alternative outcomes. Lastly, a recommendation will be given based on the outcome I believe would be most beneficial for company.

Introduction:

ISI is in the process of developing a new imaging satellite capable of clear images within one meter. 150 percent of funding must be secured by ISI to complete the project. It will take $200 million to launch and build the satellite. Bankruptcy will be filed by the company if ISI is unable to secure funding during the launch process. Industry competition includes four nations: United States, France, Russia and Israel. The U.S. has the lead in technology regarding satellite image quality. The U.S. based companies are Lockart, Global Sciences and ISI. At ISI, Jim Willis is the Vice President of marketing and sales and Fred Ballard is the company’s President.

The Issue:

The new technology that ISI is developing consists of a thermal stabilizer for the satellite’s camera that a subcontractor is creating. The subcontractor claims that they are delayed-pushing ISI’s launch date out another 12 to 18 months. ISI’s competitors claim to be within the 6 month window of ISI’s initial published launch date. Each of the U.S. based companies revised their launch dates at least once if not twice. By doing so it changes the terms of the contract and creates further international contract negotiations leading to possible termination of contract. After learning this information, Fred Ballard believes the his customers already expect delays and disregards Jim Willis’ input on the matter extending the launch date.

ISI became apprised of a Japanese company, named Higashi Trading Company (HTC), that has been in a 6 month negotiation with ISI regarding a $10 million per year contract. Willis believes that ISI’s  prior knowledge of the launch delay due to the thermal stabilizer and not the actual spacecraft could damage the relationship with HTC and lose their contract.

Because the satellite imagery industry is quickly growing, all participants have to keep their current clients to be able to take part. Companies in this industry also need venture capitalists to finance projects. The negotiations with HTC has created duress for Jim bringing him to the point of whether to act ethically or unethically-in favor of his company.

Ethical Dilemma:

1. What are sources of the factors, which have created the ethical dilemma? There are several internal and external forces at work here.

Internal forces include:

Jim Willis’ boss, Frank Ballard, has given Jim a specific instruction not to disclose the information. the company code of conduct does not permit the disclosure of company proprietary information without prior approval. the financial health of the company could be jeopardized. Jim Willis’ personal financial well being could be jeopardized.

External forces include:

industry practice is to publicize optimistic completion dates that are rarely met.

the financial industry that has profitability expectations which may be impossible to meet

if realistic information is provided.

2. Is it ever appropriate to withhold negative information from the client?

The answer is, it depends. Potential problems with production, delivery, and maintenance arise all the time. Most of these problems are solved without any customer impact. It is neither

productive, nor reasonable to bring all of these problems to the customer’s attention. However,

when a known problem has the likelihood of having a severe negative effect on a customer, it is

the company’s responsibility to disclose this information. Numerous illustrations in the consumer

arena are testaments to the effect of failure to disclose. Ford Pinto gas tanks and Firestone tires

(Miller, 2000) had serious negative effects customer. Cases like Tylenol (Stevenson, 1986)

suggest that early disclosure can actually improve customer perception and loyalty.

3. What should ISI do?

As the epilog illustrates, the customer was savvy enough to provide safe guards against industry practice and the deal did not go through until much later than planned. While there is no

information as to whether or not the same ordering delay would have happened if Jim Willis had

disclosed the information in advance of the negotiations, it was clear that the level of trust between the parties was very low since the Japanese insisted upon completion guarantees.

Therefore, it can be surmised that in this case, disclosure could have afforded the two parties the

opportunity to work more closely together and in the end helped ISI to close the contract earlier,

on better terms. Therefore, in this case, ISI should either have disclosed the negative information

or delayed negotiations.

Scenario 1:

In the actual case, the date was not initially disclosed to the customer. However, the customer insisted that if the launch date was missed, the customer had the right to renegotiate the terms of the contract or void it all together. Further, the customer insisted that any ISI software purchased by the customer would be fully refundable if the satellite did not launch within six months of the launch date. Under these circumstances, ISI was forced to disclose that the launch date was in jeopardy. At that point, contract negotiations were suspended for more than a year. Other potential contracts were also put on hold. Although contracts were finally negotiated, it was not until after ISI went through bankruptcy and reorganization. Neither Jim Willis nor Fred Ballard was with ISI when the satellite finally launched. The actual launch took place five years after the original launch date. As Fred Ballard had predicted, all competitor launch dates were similarly delayed.

Scenario 2:

In 2004, the US government announced its intention to purchase commercial satellite imagery worth over $500,000,000. The contract would fund the production and launch of a new

spacecraft. Imagery resolution would be less than .5 meters. The leading contender for the contact entered one-on-one negotiations with the US government. Negotiations broke off after

the two sides failed to iron out financial terms and negotiate a “realistic” launch date. The satellite company had provided a launch date that they believed was realistic but which fell beyond the schedule the government agency requested. Industry experts knew the government agency’s launch date request was not realistic.

ISI had just emerged from bankruptcy protection and had launched its first high-resolution satellite (which had sensor problems and was unable to deliver planned image quality). Even though ISI was the weakest contender for the contract, they were awarded the contract. They were awarded the contract primarily because they agreed “comply” to the government spy agencies required launch date.

The question of ethics remains. One company truthful in its bid for the contract disclosed that it could not make the required launch date – they lost the contract. The other company agreed to the launch date requested in the contract even though it is extremely unlikely that they would be able to build and launch the satellite on time, and won the contract.

Less than six months after the contract award the winning company purchased the other

company. ISI’s satellite is believed to be behind schedule.

Recommendations:

Lying will breach their mutual trust, and also might increase risk of their goals during this contract i.e. hurried accomplishments.

If ISI wanted profits over ethics, 20 years ago, that might have worked due to limited market competition. Nowadays, ISI has to consider that even though short term profits are gained, long term relationships also build even more profits. With a lie, this will destroy those opportunities for long term commitments and result in loss of potential future capital. ISI needs to focus long term, especially with their industry standards.

Disclose the fact mentioning delay time, approaching a revised proposal with possible time duration and being more focused on the thermal stabilizer and other technical factors attained by subcontractors.

References

(Cox, 2008)Cox. (2008, June 17). Case study: Misleading satellite data contract. Retrieved February 13, 2017.

(Ward, 2010) Ward, L. (2010, August 25). The Evolution Of The U.S. Commercial Remote Sensing Space Policy. (11).

(Wheelen, 2015) Wheelen, T. (2015). Strategic Management and Business Policy (14th ed.). Pearson.