LAXTEC, INC. axtec - Discuss the ethical situations present in the case? What sh
ID: 470573 • Letter: L
Question
LAXTEC, INC.
axtec - Discuss the ethical situations present in the case?
What should Larry do?
Company Background Laxtec, Inc., is a subsidiary of a Texas-based company that manufactures surveillance cameras. Laxtec’s main function is to manufacture the motor and arm that rotates the cameras. Laxtec is located in Illinois. Laxtec, Inc., has no individual ethical regulations, nor does it have an ethics team within the organization. Laxtec’s parent company however, has an ethics staff within corporate headquarters that deals with questions of ethics for its employees. The corporate headquarters does not take an active part in exercising ethics requirements in its subsidiaries due to staff limitations. Situation Laxtec has been directed by its parent company to manufacture a new arm that will rotate 360 degrees instead of the present 180 degrees. Since Laxtec is operating near full capacity and cannot extend its resources to design and manufacture the special motor and control unit needed for the 360-degree specification, it has decided to subcontract this project. Knowing that only a few companies would be able to design and manufacture the arm, Peter Ferdenzi, president of Laxtec, instructed Larry Morris, director of supply management, to inform the bidders that there were many companies bidding for the contract. This would insure that the bids received were competitive. One out-of-town bid and three local bids were received. Mr. Ferdenzi called Larry into his office to discuss them. Larry told Mr. Ferdenzi that the out-of-town bid from Aster Company appeared to be the most favorable. But Mr. Ferdenzi told Larry to discard it because he wanted to subcontract the motor within the area to enhance business and social relationships with the community. Out-of-town contracting would only cause friction among the workers. The out-oftown bids, explained Mr. Ferdenzi, were simply to obtain pricing information. Larry looked over the remaining bids and explained that Prextel was the next best choice, then Gordon, Inc., and lastly Tomos Corporation. Larry was familiar with the Tomos Corporation and told Mr. Ferdenzi that it had been involved in questionable business activities and was being investigated by the local authorities. Mr. Ferdenzi looked sternly at Larry when he heard the Prextel bid was the best and told Larry to discard it. Mr. Ferdenzi’s ex-wife was the director of the research and design team at Prextel and relations between the two were difficult, to say the least. Finally, Mr. Ferdenzi agreed to award the bid to Gordon, Inc. Mr. Ferdenzi told Larry to negotiate the specifics with Gordon. Mr. Ferdenzi also told Larry to delay notifying the other bidders of the award until two weeks after production had started with Gordon. In this way, it would not be necessary to listen to the other suppliers “beg” for more consideration. Negotiations between Gordon and Laxtec were finalized and production started. A problem arose within the second week, however, when Laxtec’s quality representative noticed that the materials being used were not of the quality standard stated in the contract. Larry immediately called a meeting with Gordon, Inc. During the meeting it became apparent that there was a lack of honesty in the development of Gordon’s bid. Further, Gordon’s attempt to use substandard materials was an attempt to increase profit. Larry realized that Laxtec could not rely on Gordon, Inc. He stated that he would cancel the contract based on fraud. Gordon, wishing to avoid any litigation and bad publicity, agreed and passively backed out. Luckily, at Mr. Ferdenzi’s direction, Larry had not notified the other bidders of the award to Gordon. Larry met with Mr. Ferdenzi again and recommended that Prextel be awarded the contract. Mr. Ferdenzi refused and ordered Larry to meet with Tomos and negotiate a contract. The Dilemma Larry called Chuck Moore, president of Tomos, for a meeting the next day. Chuck knew that if Laxtec wanted him to negotiate a contract, it must be in desperate need of someone. Accordingly, Chuck told Larry that a donation to the Tomos pension fund would make things much smoother in the negotiations. Larry brushed the comment aside and finalized the meeting time. Larry told Mr. Ferdenzi about the pension fund. Mr. Ferdenzi simply shrugged his shoulders and told Larry to pay Chuck since it was essential to have Tomos accept the contract. Larry was unsure of what to do. In his last two jobs, he had refused to participate in similar activities and was fired on both occasions. That was when he was single. Now Larry had a house and two children to support.
Explanation / Answer
Yes Larry has a house and children to support
There is an interesting counterfactual discussion to be had. Should a rate increase have been so clearly signaled. If rates are in fact going to be increased the answer is almost certainly yes. The Fed has done a good job of guiding expectations towards a rate increase while generating little trauma in markets. Assuming that the language surrounding the rate increase is in line with what the market expects, I would be surprised if there are major market gyrations after the Fed statement.
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