This is “Case Studies”, section 15.6 from the book Business Ethics (v. 1.0).
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Source: Photo courtesy of Mike Baird, http://www.flickr.com/photos/mikebaird/2202443907.
At the height of the American economic boom running from 2000 to 2008, a freshly elected senator from Virginia gave a sobering speech. He said,
When one looks at the health of our economy, it’s almost as if we are living in two different countries. The stock market is at an all-time high, and so are corporate profits. But these benefits are not being fairly shared. When I graduated from college, the average corporate CEO made 20 times what the average worker did; today, it’s nearly 400 times. In other words, it takes the average worker more than a year to make the money that his or her boss makes in one day. In short, the middle class of this country, our historic backbone and our best hope for a strong society in the future, is losing its place at the table. Our workers know this, through painful experience.Jim Webb, “Democratic Response of Senator Jim Webb to the President’s State of the Union Address,” New York Times, January 23, 2007, accessed June 9, 2011, http://www.nytimes.com/2007/01/23/washington/23webb-transcript.html?_r=1&oref=slogin.
According to Senator Webb (and doing the math), when he was in college around 1966, a corporate CEO had to labor eighteen days to make the money the average worker earned in about a year. Now, CEOs only need a day to reach a worker’s yearly total.
Jim Webb is a United States senator. When the United States was founded, there was about one senator for every twenty-five thousand people. Today, it’s one in three million. The salary of a US senator is $175,000; the salary of the average American worker is about $40,000.
Part of the reason Webb’s talk lacked specifics was that, as a US senator, he doesn’t want to offend any particular person or large company. (He probably wants their money for his reelection campaign, or at least he doesn’t want them funding his opponent.) Others, however, who share his opinion about wage imbalances aren’t similarly constrained. One notable example comes from the web page Daily Kos, a politically oriented site with a huge readership and located on the left fringe of American politics, somewhere between rowdy and rabid. On that page, the following point was added to Webb’s speech:
As an example of this inequality, look no further than Ford Motor Company. Just this week, Ford announced a staggering $12.7 billion loss, the highest in company history. This came after a year in which the company announced that it was cutting more than 40,000 jobs (30,000 of them union jobs). So what to do in a company that’s failed to deliver innovative products to the market, completely misjudged consumer trends, and managed itself into a fiscal bind? You award bonuses to the top management.Mark Sumner, “Jim Webb and Economic Reform,” Daily Kos, January 26, 2007, accessed June 9, 2011, http://www.dailykos.com/storyonly/2007/1/26/295137/-Jim-Webb-and-Economic-Reform.
The web page went on to explain that Ford CEO Alan Mulally would be giving performance bonuses to his top executives because, according to Mulally, “You have to keep the talented people you really need.”
Consider these four jobs: US senator, political commentator on a widely read web page (regardless of whether it happens to tilt left or right), CEO of Ford, and union worker on a car assembly line.
Source: Photo courtesy of xelusionx, http://www.flickr.com/photos/xelusionx/452851416.
The film Scarface cost $25 million to make and has earned back about $200 million so far. The story follows Tony Montana as he enters the cocaine dealing business. His mentor tells him that to survive over the long term you’ve got to fly under the radar and stay small. Comfortably wealthy, yes, but wildly rich, no. Montana isn’t so sure. Later he decides the advice is directly bad, kills the mentor who gave it to him, and expands his business as far and as fast as he can. As moviegoers learn at the film’s end, the mentor was probably right.
Though the initial reviews were mixed, time has proven the film’s popular appeal. More than twenty years after its release, Scarface continues to be a rental favorite, a standard campus feature, and a late-night TV standard.
Possibly the movie’s most repeated line is Al Pacino as Tony Montana explaining that to be successful in America, “First you get the money, then you get the power, then you get the women.”
Amado Carrillo Fuentes—better known as Lord of the Skies—was a serious innovator before he died in a Mexico City Hospital during a plastic surgery procedure to transform his appearance. While everyone else in his profession was flying small Cessna-like aircraft around Latin America and over the border into the States, he broke every limit by buying full-size Boeing passenger planes, hollowing them out, filling them with cocaine, and flying multimillion-dollar shipments. Though he never made the Forbes list of the world’s most powerful and wealthy (unlike other traffickers from the same Mexican state of Sinaloa, including Joaquín Guzmán), there’s no doubt that Carrillo Fuentes got extraordinarily wealthy by bringing innovation to the cocaine business.
Bill Gates got extraordinarily wealthy by bringing innovation to the software business. One argument frequently presented in favor of outsized rewards in the business world is that it can stimulate innovative ideas. Does the fact that creativity in the business world can do social good and social harm weaken this argument in favor of the star system? Explain.
Source: Photo courtesy of Anthony Easton, http://www.flickr.com/photos/pinkmoose/2955932263.
When Delta Airlines absorbed Northwest Airlines in 2008, the expanded Delta employed about twenty thousand flight attendants, or FAs as they’re called in the industry. The thirteen thousand Delta FAs weren’t unionized; the seven thousand that came over from Northwest were.
The nation’s largest flight attendant union, the Association of Flight Attendants (AFA) saw the opportunity to build membership numbers and lobbied the united workforce to unionize. The question went to a vote and the results were excruciatingly close: votes in favor fell 328 short out of 18,760 cast. Subsequently, the USA Today published a roundup of media reports and readers reactions.Ben Mutzabaugh, “Delta Attendants Vote Against Union,” USA Today, November 4, 2010, accessed June 9, 2011, http://travel.usatoday.com/flights/post/2010/11/delta-attendants-vote/129933/1.
One argument in favor of joining labor unions works from fairness, the idea that if workers are benefitting from the work done by a collective, they should sign up and contribute their share of the dues required to pay for the lawyers and the negotiators a major union needs to operate.
One person added this comment below the story about the culture around Delta: “Nobody cares about workers’ rights, including the workers.”distinctM, November 4, 2010 (11:02 a.m.), comment on Ben Mutzabaugh, “Delta Attendants Vote Against Union,” USA Today, November 4, 2010, accessed June 9, 2011, http://travel.usatoday.com/flights/post/2010/11/delta-attendants-vote/129933/1.
One argument in favor of joining labor unions works from a notion of solidarity. With respect to labor unions, what’s the solidarity argument for joining the FA union at Delta?
Delta spokeswoman Betsy Talton reacted this way to the “no” vote, “We have said all along that we believe our direct relationship works well for our people and our company,”
Some of the responses to the Delta vote didn’t concern the specific FA union but the question of unions generally. For example, one commenter believes a stigma attaches to union membership, a bad one. As he puts it, “I have read pro union people are lazy and want protection.” Another commentator adds that unions have, “basically destroyed the auto industry and the steel industry.”Timatl2002, November 4, 2010 (10:08 p.m.), comment on Ben Mutzabaugh, “Delta Attendants Vote Against Union,” USA Today, November 4, 2010, accessed June 9, 2011, http://travel.usatoday.com/flights/post/2010/11/delta-attendants-vote/129933/1.
How can this criticism of unions and union workers be converted into an ethical argument in favor of an economic star system?
A person identified as dinstinctM wrote, “Labor unions BUILT the American middle class. The middle class that is shrinking as unions have been decimated.”distinctM, November 5, 2010 (3:17 p.m.), comment on Ben Mutzabaugh, “Delta Attendants Vote Against Union,” USA Today, November 4, 2010, accessed June 9, 2011, http://travel.usatoday.com/flights/post/2010/11/delta-attendants-vote/129933/1.
This is an economic claim. Assume it’s true. How can it be converted into an ethical claim in favor of the FA union?
Source: Photo courtesy of Neilhooting, http://www.flickr.com/photos/neilhooting/2424703385.
The web page titled “How to Commute By Bicycle, All of a Sudden” begins this way: “There is a transit workers’ strike in NYC today. If you need to get somewhere, consider riding your bike. Even though it’s 22 degrees right now (8:33 EST), this is not a crazy suggestion.”“How to Commute By Bicycle, All of a Sudden,” Days of Leisure (blog), accessed June 9, 2011, http://www.daysofleisure.com/writing/How_to_commute_by_bicycle,_ all_of_a_sudden.html.
When you need to preface a suggestion with the assurance that it’s not crazy, you can be pretty sure that the situation is bad.
The New York City transit strike began on December 20, 2005, and ran three days. Representing the subway operators, bus drivers, and some related personnel, there was the Transport Workers Union, Local 100 (TWU). On the other side, representing the city—and the traveling, tax-paying public—there was the Metropolitan Transit Authority (MTA). Wages and retirement age were the main issues. The MTA argued (correctly) that the transit workers’ wages were much higher than the national norm, and their retirement age extremely low. The workers argued (correctly) that the job of driving in New York City was more stressful than in most other places. When negotiations failed, public transportation stopped a few days before Christmas, leaving millions of daily commuters stranded.
For some commuters, the bike became an option. In the abstract—sitting in a warm room reading about it—the possibility doesn’t sound so bad, get some good exercise and brisk fresh air on the way to work and back. There are real problems, though. The air can be dangerously cold and streets in winter are icy. It also needs to be remembered that the sun goes down early in December, so people biking home at night along the roadside are pedaling in the dark. Falls are common. Falls in front of oncoming cars are especially bad.
The transit workers strike was actually illegal. After a similar walkout years before, the Taylor Law had been enacted; it barred transportation workers from leaving their posts and implemented arbitration methods for settling disputes. When the workers ignored the law, a judge hit them with fines and sentenced their leaders to short jail terms.
The “last resort argument” justifying a workers strike is activated when three conditions are met: (1) There must be a just cause; (2) there must be proper authorization; and (3) the strike must be a last resort—that is, attempts to find solutions must’ve been fully explored.
In this case, the transport workers national union actually ordered the local to go back to work. The national union, in other words, didn’t authorize the strike, but the actual workers on the scene did. Does this count as proper authorization? In a union organization, who, ultimately, gets to decide whether a strike is appropriate, the organizing management selected to speak for the collective, or the individual workers on the ground? Explain.
What is the public safety argument against a union going out on strike? From the information provided, how could it be implemented in this case?
Source: Photo courtesy of Ekavet, http://www.flickr.com/photos/ekavet/3680866253.
The early 1980s were seismic years in American business. Newly elected President Reagan promoted waves of deregulation legislation, and the openness loosed a breed of entrepreneurs bringing innovative goods and services to the marketplace so rapidly that entire segments of business life erupted in disorder. One especially affected area was transportation, and one very affected transporter was the venerable Greyhound bus lines. This report from San Jose State University summarizes:
Deregulation of the transportation industry made the competition for passengers stiff. New entrepreneurs who paid low wages entered the business and offered fare prices much lower than the more established inter-city lines. The newly deregulated airline industry made things even worse for Greyhound. Low-cost passenger airline carriers sprang up. People Express, for example, charged only $23 for a flight between New York City and Buffalo. Greyhound charged $41 for the trip. A flight by Southwest Airlines from San Francisco to Phoenix was only $60, compared to a Greyhound’s bus ticket to the same location costing $79.Herbert Oestreich, “The Great Greyhound Strikes,” Mineta Transportation Institute College of Business, San Jose State University, September 2001, 2001, accessed June 9, 2011, http://www.angelfire.com/al/silverball/strikes.html.
When a higher-quality service (a fast plane ride) actually costs less than a lower-quality service (a slow bus trip), the simple rules of economics are, sooner or later, going to put the bus company out of its misery.
To survive, Greyhound had to cut its prices, which meant cutting costs. The prices of buses and gasoline and similar were fairly fixed, leaving wages to be targeted. Greyhound went to the workers collective, the local Amalgamated Transit Union, and proposed a 9.5 percent wage cut.
The answer was no. Greyhound insisted. A strike ensued.
Greyhound was prepared. They’d already recruited more than a thousand new hires in anticipation of the walkout, and agreed to pay them the salary the union had refused. A tremendous segment of business was lost while the company struggled to bring still more drivers aboard but, eventually, it became clear that the union would have to break, which it did.
In the aftermath, a stinging article was written: “Leave the Slave-Driving to Us.” That’s a play on the Greyhound advertising line “Leave the Driving to Us,” and it pretty clearly displays where the author comes down on the ethics of labor walkouts broken by replacement workers.Daniel, “1983: Leave the Slave-Driving to Us—Chris Fillmer,” Libcom.org, June 17, 2007, accessed June 9, 2011, http://libcom.org/library/1983-leave-slave-driving-us-chris-fillmer.
From the “Leave the Slave-Driving to Us” article: “After the strike got underway the Bus Lines tried to run scab buses. In response, the striking Greyhound workers carried out militant actions that were effective as far as they went. For example, pickets from Local 1225 in San Francisco, together with some supporters, tried to block the departure of buses from the 7th Street depot in downtown San Francisco. There was then a cop attack on the picket line and a melee ensued. Only one bus left the station. It soon experienced a collision with another vehicle (the driver of the other vehicle just happened to be a striking Greyhound driver) and it was forced to retreat to the S.F. depot.”
From the “Leave the Slave-Driving to Us” article: “During any strike material pressures (rent or house payments, utility bills, RV financing, etc.) may influence strikers’ decisions. Since Greyhound is not merely a bus line, but a conglomerate with revenues from many lines of business, its capacity to bear losses from a strike is much greater than that of individual strikers to bear the loss of wages. Even those who have substantial savings may run short during a long strike. To succeed, they had to convince other transport workers and their unions to strike in sympathy with them. But of course, that’s illegal under existing contracts and laws. But that only means that the ranks needed to take matters into their own hands from the very beginning. The rank and file did not have to respect the law.”
The marketplace test showed the strike was, in purely economic terms of supply and demand, not justified. The company was able to find workers at the wages it wanted to offer.
From the “Leave the Slave-Driving to Us” article: “‘Greyhound Lines Chair Frank Nagotte pulled down a hefty $447,000 in salary and benefits’ in 1983 [that’s 1,004,000 in today’s dollars]. In general, Greyhound management was slated to receive a 7–10% salary/benefit increase. Despite the competition from lower air fares cited by Greyhound management, the Bus Lines division alone earned a profit that has been estimated at $5 million in the first nine months of 1983.”
The fundamental cause of the Greyhound problem was competition from new transportation companies providing better service at lower cost, including Southwest Airlines, founded by Rollin King and Herb Kelleher. They’re both bright stars in the American economic star system.