Question 1: Discuss ethical lessons that can be learned from CAT Inc. (10 marks)

Question 1: Discuss ethical lessons that can be learned from CAT Inc. (10 marks)

Caterpillar Inc.’s achievements stem from its strong ethical conduct, goals, and strategies. Its sustainability vision, mission statement, and strategy express its commitment toward the environment, the economy, and the workforce. While having a mission and strategy that is stakeholder-oriented is important, successfully implementing these strategies through practice can be difficult, which has led Caterpillar to many ethical dilemmas that we can learn from. These ethical lessons include;

1. Employee relations. Strikes and lockouts occurred at Caterpillar facilities in 2012, resulting in a factory closure, and employees having to adopt concessions they believed were unfavorable. Also strongly criticized is CAT’s compensation to its CEO. At the same time, CAT defended the CEO’s composition and said it was a reflection of his performance; many believed that he should have taken home much less than he did. Companies need to strike a balance between their love for profit and employees. This can be achieved by implementing strategies that support equity and equality hence promoting better employee/employer relations.

2000. Environmental laws. In August 2000, the Clean Air Trust named CAT the “Clean Air Villain of the Month.” The company had violated the Clean Air Act after it sold defective diesel engines that emitted nearly three times the allowed limit of nitrogen oxides. Companies should be cautious when developing new products to ensure that they conform to existing environmental laws. CAT would have easily avoided this ethical dilemma by producing Diesel engines that conformed with the Clean Air Act. These mistakes can be costly to companies as we see CAT was required to pay over $128 million in penalties in August 2000.

1. Product safety. Caterpillar has criticized the fact that the Israeli Defense Forces (IDF) have used CAT’s bulldozers to destroy Palestinian homes and other violent acts. In its defense, CAT claims it might not be able to control how its customers use its products, but critics argue that it can limit to whom it sells its products. Companies should have some degree of responsibility for its use by creating resources that demonstrate responsible use, limiting the sale to irresponsible users, or publicly speaking against actions that may portray its brands in a negative light.

8. Accounting standards. The Securities & Exchange Commission (SEC) and the Internal Revenue Service (IRS) launched probes into Caterpillar’s accounting and tax management. The SEC is questioning how Caterpillar determined the value of the “goodwill” associated with Bucyrus when Caterpillar acquired it in 2011 for $8.8 billion. Additionally, Caterpillar is being investigated for strategies it had adopted to reduce its U.S. taxes. Companies should ensure that they deploy accounting standards that are clear and legal. Accounting policies should not be used to avoid paying taxes or to inflate value that the company has not created through legal trade.

Question 2: Explain how being ethical is converted to profitability by CAT Inc. (10 marks)

CAT Inc. is a company that has made ethics and environmentalism into one of its core values. CAT Inc. has been able to create profitability with great success by emphasizing ethics as one of its guiding principles. Environmental sustainability is an area in which the company is very invested in, with environmental sustainability is a key aspect of its vision and company strategy. By adhering to its sustainability principles, the company has been able to maximize the life cycles of their products and minimize the economic costs of ownership. The vision of the company is fulfilled through its corporate social responsibility initiatives, which then, in turn, lead to profitability. This it does in the following ways;

1. Environmental and safety considerations are part of environmental sustainability that CAT Inc. adheres to. They, therefore, offer their customers’ safety information and videos on how to use their products. This makes them more appealing to customers who are likely to purchase more or repurchase.
2. The company uses an innovative manufacturing method that reduces waste and fixes defects before the final production process. By maintaining high product quality, CAT establishes good relationships with its customers, which eventually leads to profitability.
3. CAT understands that as part of being ethical, they have to cater to all their audiences. This they do by educating consumers and dealers on the safe use of its products through their newsletters. In this way, they maintain vital dealer and customer relationships that allow them to maximize through sales.
4. Through their CSR program of the Caterpillar Foundation, CAT has a matching gifts program for its employees and other philanthropic activities, mostly outside the United States. By engaging in worthy causes, the company builds a positive reputation that translates to profitability.
5. In using the Six Sigma manufacturing process, CAT can reduce process variations that may cause product defects. This reduces the number of faulty products, and the company can reduce such costs while at the same time, increasing its effectiveness and profitability.

Question 3: Is CAT Inc. ethically liable to unethical use of its products by customers that potentially cause pain, death, and injuries (10 marks)

1. CAT Inc. has a responsibility to educate its customers on the safest ways to use their products and optimize them. One way to do that is to specify uses for its products and reinforce the same across its dealer and supplier networks; this way, every user will be made fully aware of the functional role of CAT Inc. products. However, this will still expose the company to potential misuse or disuse of its products should a user seek to explore other uses of the product that could be deemed injurious or life-threatening.
2. The second way of ensuring ethical use of CAT Inc. products would be to encourage co-creation with users; the company can run a program that harnesses and encourages innovativeness on the part of its users and dealers at large. By doing so, CAT Inc. can mitigate potential pain, death, or injuries from its products and minimize ethical liability through public/consumer participation.
3. From the above proposition, it behooves CAT Inc. to take ethical responsibility for how users interact with their products.
4. Conversely, users bear direct responsibility for how they choose to use CAT Inc. products. This is based on the premise that a certain product has a specified use as disclosed by the manufacturer, and any other use has deemed an abuse or misuse of the product. By so doing, the user absolves the manufacturer of any wrongdoing and takes the most responsibility for their product
6. CAT Inc. must proactively lead the narrative for the correct use of its products and continuously educate its stakeholders on safe usage of its product portfolio.

Q4. How should Caterpillar manage employee relationships to avoid ethical issues going forward?

As outlined in the Caterpillar case, ethical issues facing CAT regarding employee relations, mainly comprise of CAT’s attitude towards unionized employees and employee compensation.  Even though Caterpillar has already done a good job of promoting diversity and educating employees on safety, the firm should look into incorporating the following:

1. Reduce the pay parity evident between the CEO and staff

Caterpillar tried to reduce the pay parity by aligning the CEO’s pay with performance. However, that was not enough given the pay cuts employees faced. Therefore, Caterpillar should look at a more inclusive compensation that cuts across the board. If employees are facing a 50% cut, the CEO should face a similar pay cut.

1. Engage employee unions

Caterpillar has been cited as a company that values profit over employee welfare due to their negative attitude towards employee unions. The executive board and management should look at forming cordial ties with employee unions. The power employee unions hold growing. Leveraging employee unions gives companies a better hand when communicating and negotiating with their employees.

1. Encourage and listen to employee grievances.

Employee strikes and office lockouts arise as a result of unheard employee grievances. Opening a safe channel for employees to provide honest and objective pain points allows the company to reduce the likelihood of radical employees leading strikes. More so, employees will feel appreciated and valued, leading to better quality output.

1. Uphold promises and commitments to employees

Employees expect that when they take pay cuts or early retirement for the firm, they will be repaid for their loyalty. Caterpillar will foster a work environment where employees are willing to help the company through tough times by upholding promises and commitments made during tough times. So far, the diversity initiative is a good step in the right direction.

1. Hold accountable those who violate standards, especially leaders.

Caterpillar needs to set a precedent of holding violators accountable irrespective of their position. Employees look up to their leaders; Caterpillar should emphasize that ethical actions are to be followed by all. By doing so, the firm will encourage and take care of whistleblowers who might initially be afraid of their supervisors.