Panel Considers Ethics Versus the Bottom Line

Ethics often clashes with business practice, even in industries that have high standards, such as the refrigerated warehouse industry, said Dr Fred Guy, director of the Hoffberger Center for Professional Ethics at the University of Baltimore. He addressed the 110th annual meeting of the International Association of Refrigerated Warehouses in Boca Raton, Florida, May 5 to 10, 2001.

“We are good people,” Guy said in a panel discussion on ethical leadership. “We generally do things right, but sometimes ethics is more a matter of day-to-day stuff — like how we treat people, what we forget, and what we're not aware of.”

Guy conducted an informal session that included a five-member panel consisting of four warehouse operators and a warehouse-law attorney. He asked for comments on ethical case studies geared specifically to warehousing.

Before moving to specific industry cases, Guy set up the discussion using a generic business situation: A warehouse manager is interviewing a candidate for a position with the company. The candidate has a terrific résumé, apparently can do a lot for the warehouse, and expresses a desire to do anything to help the company's bottom line, as long as it is legal. When the question of ethics is raised, the applicant asks what ethics has to do with business.

“The applicant is probably from the city,” said Ray Tarnowski of Philadelphia Warehousing and Cold Storage in Philadelphia, Pennsylvania. “Urban people think that the most important thing is to complete the job, just get it done. Get the trucks in the door and the checks in the mail. Do things as efficiently as possible.”

Another panel member, Jordan Tatter of Hanson Cold Storage in Benton Harbor, Michigan, said that he wouldn't be comfortable with candidates that might not live up to the high standards of the refrigerated warehouse industry. A veteran trade magazine editor 20 years ago described warehouse operators as the gentlemen of the frozen food industry, and that description remains true today, Tatter said.

John Randall of P&O Cold Logistics in Sydney, Australia, said, “At some stage, the drive for the bottom line and an ethical issue would collide. We cannot allow the drive for the bottom line to override everything, or the standards of the organization would be lowered.”

Putting aside industry standards, another problem with hiring people driven solely by the bottom line is that the reputation of the company could be tarnished, said John Horvath, an attorney with Horvath & Lieber PC in Chicago. “If I were a warehouse operator faced with the prospect of hiring an individual with intentions to do whatever was necessary to improve the bottom line, but to do it without any respect for ethics, I would show the individual the door,” he said. “We all know people in business who have little or no ethics. Their reputation will tarnish your business and your name as well.”

But in the marketplace, many companies do not encourage ethics over the bottom line, an audience member pointed out. It's very difficult for employees to be ethical if they work for a business that makes little or no profit and is trying to increase earnings, he said. A good example could be a consulting company that assigned one of its associates to produce a 150-page report favorable to moving corporate headquarters to a site where the CEO wanted to move, rather than any of the nine other locations under consideration.

Underlying the clash between the bottom line and ethics is an age-old philosophical question: Does the end justify the means? “Companies need to ask themselves what they want to achieve,” Guy said. “Is it simply the bottom line? Or is it a culture they want to develop in their organization? What happens when employees don't feel comfortable doing whatever is required for the bottom line? Providing such an ethical atmosphere may be a tremendous problem that requires good leadership.”

Sometimes it's not company leadership that's at fault, said another audience member. Warehouse operators may face another issue: how to evaluate employees who come from a negative working environment.

“In that case, it would be good for the company to provide a mentor,” Guy responded. “The mentor would explain company rules and guide an employee into the corporate culture.”

Common Rationalizations

The end justifies the means is one of 12 common rationalizations — known as the dirty dozen — that help people avoid ethical behavior, Guy said.

Others are:

  • Telling a white lie is for someone's own good.

  • Everybody does it.

  • Who am I to judge?

  • Someone else is a bigger one (liar or cheater, for example) than I am.

  • It's not my job.

  • Nobody's hurt.

  • It's too important; it's necessary.

  • It's not important.

  • I'm not perfect.

  • It's a stupid rule.

  • Ethics is a luxury I can't afford right now.

Companies would do well to think about the core values they would like to encourage in their organizations, Guy said. “The best codes of ethics are probably those that are short and provide goals to aspire to, rather than delegation or direction,” he said. “Keep it simple.”

Some core values that could be used in a code of ethics include:

  • Integrity: A commitment to values and principles.

  • Respect: To hold persons in regard and to relate to them with some regard.

  • Justice: Treating others fairly and equitably.

  • Compassion: Concern for the suffering of others.

  • Responsibility: Following through on obligations and expectations.

  • Beneficence: Acting to benefit others.

“The first step in an ethical decision-making model is awareness — what's the story?” Guy said. “What's my attitude toward this case? Am I biased? And what are the consequences? Would I mind if my family and friends and a newscaster on the six o'clock news knew of my choice and actions?

“Ethics is critical thinking about good and evil, right and wrong. On the practical side, ethics is following the thinking, and putting that thinking into practice. Ethical leadership is leading by example, awareness, and action.”

Have a Blast

Guy asked how to deal with a hypothetical situation entitled “Have a Blast”: Product enters the warehouse at 20° F. Normal practice would be to blast freeze the product. However, the customer doesn't want the extra expense of blast freezing. On the other hand, putting warm product into the freezer could detract from quality and possibly result in later food safety issues.

The warehouse would have the responsibility to voice its concerns, but based on a written refusal, would not be obligated to blast freeze the product, Tarnowski said. Hans van Leeuwen of Frigolanda Cold Storage in Dresden, Germany, agreed, adding that the warehouse should warn the customer that it could be liable for later spoilage if the product were not blast frozen.

“What if the customer still says no,” Randall responded. “Should the product still be put in the normal freezer? Yes, we'd put it in the freezer and note that the customer refused blast freezing. If he's a small customer, we could ask him to go away.”

An audience member questioned whether 20° F product requires blast freezing. “I would be concerned about 35° product,” he said, “but I'm not as concerned about placing 20° product in a zero-degree room. Very few BTUs are left in 20° product. Of course, I'd be careful to place it away from other product to prevent heat transfer. However, if I've got 15 million pounds in my freezer and the box is at minus five degrees, and I'm putting in 40,000 pounds of 20° product, I don't think the heat transfer is going to be that great.”

Warehouse operators who follow a customer's instructions not to blast freeze product when they know it should be may face problems with the Department of Agriculture and the Food and Drug Administration, Horvath said. For example, if the product is fresh chicken legs, the likelihood of spoilage before the temperature drops is high.

“From a purely ethical point of view, the warehouse probably is okay if it explains the situation to the customer, shows him the manual, and documents the customer's instructions,” Horvath said. “But when that product goes into the stream of commerce — when somebody cooks those spoiled chicken legs, consumes them, and becomes ill — the warehouse may be held liable,” he said. “The warehouse industry is considered an expert on frozen storage, and warehouse operators need to deal with whatever information they have.”

Real-Life Case

Horvath related a similar, real-life case: A warehouse was told that inbound boxed meat product had been held at 0° F. But the customer had not handled it properly, placing it in storage without spreaders and without providing proper air circulation. Later, when product in the center of the pallet spoiled, the customer blamed the warehouse, claiming it should have reported that the product needed blast freezing. However, the warehouse operator had no indication that the product was at any temperature other than 0° F.

Warehouse operators should check inbound product temperatures, rather than assuming what the customer says is fact, the panel replied. It may not be necessary to check every box, but at least check the center of the pallet. One panel member suggested that the warehouse blast freeze the product anyway, and hold the customer responsible for payment, even though he didn't authorize it. Another questioned if the warehouse could get the customer to pay.

“When a warehouse refuses to release product claiming it has a warehouse lien on it, the customer is going to say that he specifically ordered that the product not be blast frozen and will refuse to pay,” Horvath said. “What if the customer is 30% of your business?”

Large customer or not, good ethics dictates that, when it comes to food safety, warehouses can't look the other way. “Warehouses always have a right to refuse product,” Guy said. “Another way to deal with this is to tell the customer that, given the state of the product, that without blast freezing, the warehouse is uncomfortable receiving it. Warehouses don't have to do everything that customers ask, just as physicians don't do everything that patients ask. Operators should ask if they would want their family eating this food.”

“I don't think this is a question of who's right and who's wrong,” an audience member said. “Just receive the product and blast freeze it. That way, you keep the customer happy and do the right thing. Who's going to pay can be worked out later.”

The panel considered another case: More than 100 pounds of ammonia has been released. Because of the release location, no neighbors were affected and no evaluation was necessary. It appears that only warehouse personnel are aware of the release, although US law requires that warehouses report ammonia releases of more than 100 pounds.

Warehouses normally designate someone to talk to fire departments and other authorities, Tarnowski said. “In most cases, we probably would not have an engineer make that determination,” he said. “He would report to the general manager who would report the release.”

“Do you report anything at all?” Guy asked.

Environmental Policy

Randall replied that P&O Cold Logistics has a strong environmental policy and would require that the incident be reported. Asked if this would be the case in Australia as well as the US, he said it's a company-wide issue not a geographical one.

“Legally, we must report the release within 24 hours,” Tatter said. “It's very important to make a timely report. In our group, the warehouse manager is expected to make the report and file appropriate documents. The situation is a lot tougher when ammonia gets outside of the building and people are affected by it.”

The warehouse should report the incident to customers, added an audience member. “Ammonia can't be hidden,” he said. “It's going to get in the food and packaging. Communicating with customers is not just a golden rule, it's a platinum rule. Their product is involved. Get them involved in any decisions on what to do with the product.”

Another ethical situation was posed by an audience member: Assuming that most companies follow the law and report a 100-pound ammonia release within 24 hours, what happens when a release occurs and the warehouse is unaware of it? Perhaps ammonia was released from the building and the fire department knows about it and reports it. What does the warehouse do when someone appears at the office? Does the company try to cover it up? The warehouse is facing potentially large fines that could have a big economic impact.

“That gets back to the question: Are we ethical only because of self-interest?” Guy said. “We have to think about third parties. How would we like this if it affected a loved one or a family member? Good ethics means good business.”

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