Business Management: Evaluate Ethical Behavior

Subject: Business Ethics
Pages: 6
Words: 1649
Reading time:
6 min
Study level: PhD

Introduction

Ethics is an important element of business management. It enables managers to make decisions or take actions that benefit all the stakeholders of their companies. However, maintaining high ethical standards is often difficult due to the social, political, and economic challenges that managers have to deal with when making decisions (Trevino & Nelsons, 2010). This paper will focus on ethical behavior by analyzing the Folole Muliaga case study. Specifically, the legality and consequences of the decisions made by the managers of Mercury Energy will be evaluated.

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Summary of the Scenario

Mercury Energy is one of the largest energy retailers in New Zealand. The company supplies electricity and gas to over three hundred thousand customers in the country. In 2007, the company contracted VirCom Energy to disconnect electricity supply to customers whose accounts were in arrears (Bridgman, 2010). Folole Muliaga who owed Mercury Energy $168.40 was one of the customers who were affected by the disconnection. She was suffering from a respiratory disease that severely reduced her ability to breathe. As a result, she depended on oxygen machines to breathe. The oxygen machines were powered by electricity. Following the disconnection of the electricity supply, Muliaga died because of breathing difficulties (Bridgman, 2010). Her death was blamed on the contractor’s decision to disconnect electricity without considering the fact that she depended on it to breathe. In addition, Mercury Energy was blamed for failing to implement the recommendations of the Energy Commission that could have helped to avoid the tragedy. However, both Mercury Energy and VirCom Energy were not found guilty of any wrong doing.

Evaluation of the Consequences/ Outcomes

The actions taken by Mercury Energy and its contractor had the following outcomes. First, the death of Muliaga was the main consequence of the disconnection (Bridgman, 2010). The public and the media believed that Mercury Energy and its contractor made an unethical decision. However, the company justified the disconnection by the fact that customers were expected to pay their bills in time. In addition, disconnection was a strategy that Mercury Energy used to encourage its customers to settle their bills when the fell due. The resulting reduction in bad debts was expected to improve the profits of the company.

Although the justifications outlined in the foregoing paragraph seem to be reasonable, the decision taken by Mercury Energy and its contractor was unethical. The basic principle of business ethics is to do good to all (Jennings, 2011). Good corporate citizenship requires companies to strike a balance between serving the narrow interest of their shareholders and addressing the needs of the society. This balance is achieved when companies develop a culture of professionalism, which promotes self-regulation (Ferrell & Fraedrich, 2013). In this regard, companies must pursue their profit motives without causing damages to any of their stakeholders. Clearly, Mercury Energy had focused on satisfying the interests of its shareholders at the expense of its customer (Muliaga) who was also one of its stakeholders.

The company failed to provide adequate information to needy customers to register with it in order to avoid disconnections (Bridgman, 2010). In addition, the contractor’s failure to inquire about Muliaga’s health after seeing the oxygen tubes on her nose was an act of negligence. This indicates that the company and its contractor lacked professionalism. The death of Muliaga could have been avoided if Mercury Energy had acted ethically by taking her health condition into account before disconnecting her electricity supply.

Second, the disconnection had a negative impact on the image of Mercury Energy. The company lost its reputation in the community because people believed that it caused the death of Muliaga. The expected resistance from the community was likely to have a negative impact on the company’s financial performance (Ferrell & Fraedrich, 2013). As a result, the company had to make several public statements to restore its image after the tragedy. The statements were characterized by denials, excuses, and justifications.

Although the communicative response enabled the company to justify its action, its use was unethical. The company’s insistence that it had done nothing wrong was unethical because it contravened the principle of acting in good faith (Schwartz, 2007). This is illustrated by the fact that the company softened its stance after investigations revealed that it had not implemented effective measures to protect susceptible clients. Indeed, the company and its contractor did not act in an honest and transparent manner. They focused on defending themselves instead of taking responsibility for their unethical decision. Mercury Energy’s lack of knowledge about Muliaga’s health condition was a lame excuse. The contractor acted irresponsibly by failing to advice Mercury Energy to postpone the disconnection due to the customer’s poor health condition.

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Legality of Mercury Energy’s Action

The State Owned Enterprise Act states that all companies that are owned by the government should operate in a profitable and efficient manner (Bridgman, 2010). Moreover, the companies must demonstrate a sense of responsibility through their operations. This involves taking into account the interests of the communities in which they operate (Bridgman, 2010). Mercury Energy’s action indicates that it interpreted the State Owned Enterprise Act partially. The disconnection can be perceived as a strategy that was used to improve profitability as required by the Act. However, the company failed to demonstrate its commitment to act in the interest of the community because it did not provide any assistance to Muliaga. In this regard, Mercury Energy’s decision to disconnect Muliaga’s electricity supply was illegal since it did not fully comply with the provisions of the State Owned Enterprise Act.

The Electricity Commission used guidelines instead of laws to regulate the industry (Bridgman, 2010). Since the guidelines were not legally binding, Mercury Energy’s decision to avoid complying with them was not illegal. This suggests that Electricity Commission was also responsible for the tragedy since its guidelines were not effective.

The Decision of the Police and Coroner

I do not agree with the conclusion of the police and the coroner that there was no evidence to substantiate any charge against Mercury Energy and its contractor. This perspective is based on the following reasons. First, the police confirmed that Muliaga developed stress as a result of the disconnection. The stress caused her health condition to worsen, thereby causing her death (Bridgman, 2010). This means that if the power had not been disconnected, Muliaga could not have developed stress. As a result, her life could have been saved. Thus, the claim by the police and the coroner that there was no sufficient evidence is unfounded.

Second, the investigation focused on the manner in which the power was disconnected rather than the circumstances that surrounded the disconnection. The coroner confirmed that he did not have any evidence, which indicated that the family of Muliaga was aware of the help that was available to them (Bridgman, 2010). This indicates that the coroner’s investigations did not take into account the strategies that Mercury Energy was using to avoid putting the lives of its customers at risk through unreasonable disconnections. It was evident that the company did not provide information to enable Muliaga to identify herself as a vulnerable customer (Bridgman, 2010). Thus, the company should have been charged with negligence.

Reforms

The reforms that were adopted as a result of the tragedy include the following. To begin with, the Electricity Commission revised the guidelines that it used to regulate the industry (Bridgman, 2010). The objective of the new guidelines was to assist low-income earners to avoid unnecessary disconnections. The main strength of the new guidelines is that energy retailers were expected to provide compliance reports. This would enable the Electricity Commission to identify the retailers who had difficulties in complying with the guidelines. As a result, it would be possible to take timely action to improve compliance in order to avoid unfair disconnections (Tran, 2010). However, the new guidelines were not likely to be effective because of the lack of a legal framework to enforce them. Undoubtedly, energy retailers could still use unjustifiable reasons to avoid complying with the new guidelines. In addition, energy retailers had no incentive to implement the guidelines if the regulator could not take disciplinary actions against them (Jennings, 2011). As a result, unethical companies would continue to endanger the lives of vulnerable customers by disconnecting their electricity supply.

Mercury Energy also implemented several reforms to enable its customers to avoid disconnection. These included introducing proactive communication and several check points to identify vulnerable customers (Eweje & Wu, 2010). Improved communication was expected to enable the company to understand the concerns of its customers. The main strength of the reforms is that they will enable the company to act in an ethical manner by determining and fulfilling the needs of its customers. However, the effectiveness of the reforms will depend on the extent to which they will be implemented by the company. The reforms will be ineffective if they are not fully implemented. This is likely to happen if the community and interest groups fail to monitor the company’s commitment to act in their interest. In addition, the reluctance of the Electricity Commission to regulate the energy industry will provide opportunities to Mercury Energy to avoid implementing the reforms.

Conclusion

The decision by Mercury Energy and its contractor to disconnect Muliaga’s electricity supply was unethical. The decision indicated that the company was not not interested in addressing the needs of the community that it served. The contractor did not take any initiative to inquire about Muliaga’s health before disconnecting her electricity supply. Moreover, Mercury Energy failed to provide adequate information to enable Muliaga to be included in the list of customers who were to be exempted from disconnection. It is apparent that the death of Muliaga could have been avoided if the two companies had acted in a responsible and ethical manner. Nonetheless, both the Electricity Commission and Mercury Energy have adopted reforms to enable vulnerable customers to avoid unnecessary disconnections in future.

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References

Bridgman, T. (2010). Beyond the manager’s moral dilemma: Rethinking the idea-type business case. Journal of Business Ethicks, 94(1), 311-322.

Eweje, G., & Wu, M. (2010). Corporate response to an ethical incident: The case of an energy company in New Zealand. Business Ethics European Review, 19(4), 379-389.

Ferrell, O., & Fraedrich, J. (2013). Business ethics: Ethical decision making and case studies. New York, NY: McGraw-Hill.

Jennings, M. (2011). Business ethics: Case studies and selected readings. London, England: Palgrave.

Schwartz, M. (2007). The business ethics of management theory. Journal of Management History, 13(1), 43-54.

Tran, B. (2010). International business ethics. Journal of International Trade Law and Policy, 9(3), 236-255.

Trevino, L., & Nelsons, K. (2010). Managing buiness ethics. New York, NY: McGraw-Hill.

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