Case analysis of Luchetti

Apply underlying theory to write a case analysis about Lucchetti, including recommendations in the report
Lucchetti pp 171-183 Strategic Management 7th edition by Hill/Ireland

Conclusions

? Businessmen in Peru tend to make decisions based more on business objectives rather than on ethical issues.

? Strengthening an employee's own personal conduct code appears to be the best way to assure correct ethical behavior.

? There are several similarities in points of views of ethical issues and on what drives a person to act either ethically or non-ethically between Venezuela, Peru, Uruguay and Spain.

? Creating and implementing an ethical code in Peru is at a very initial stage, and the government over the years has imposed rules to try to create an ethical environment unfortunately obtaining negative results.

? The Catholic Church, the main Peruvian Business Schools and Large Private Corporations are beginning to create and divulge an ethical code as a way to obtain a healthier business environment.

1. A business ethics case example. The Luchetti Case

Luchetti is a Chilean food producer specialized in pasta. During the last months of 1998 Luchetti initiated the steps to build a food production plant in the suburban district of Chorillos (a municipality) in Lima. These initial conversations were conducted with different Peruvian officers at different responsibilities levels.

The plant, that would serve the Peruvian market, produced pasta and had an activity schedule of 24/7 and was projected to be placed in a natural reserve called Pantanos de la Villa controlled by the Peruvian government.

Luchetti informed the investment included 1 million dollars to create artificial lagoon surrounding the plant, which in fact were necessary for the plant provision of water. The company informed to the press that the noise level of the plant and the danger of sub product pollution were minimal and that the environment would not be affected.

The location of the plant was very attractive in terms of distribution and it also was and incentive for government because it would be helpful to diminish the unemployment rate in Lima.

Lucchetti informed that the total investment was going to be near to U$S 40 million, therefore the Chorrillos authorities initiated investigations to evaluate the environment impact of the project. By that time many environment protection groups and the press argued that the project would be very harmful for the Reserve.

It is important to aggregate and additional piece of information to this picture. The mayor of Chorrillos, Mr. Pablo Gutierrez, was leaving the office on December 29 of 1998. He was a key element in this negotiation since he was one of the major propulsors of Luchetti project (benefiting his municipality). He said that the location has been characterized as available for "small" production plants, and that Luchetti's project felled within this category.

Surprisingly and even though the central government in Lima was conducting some investigations, Mr. Gutierrez approved the project the last day of his appointment in office and Luchetti started to build the plant.

By mid 1999 Luchetti was still building the plant (based on the mentioned approval) and some environmental groups and politics presented a lawsuit against Luchetti and Mr. Gutierrez.

By the end of August, a judicial order authorized Luchetti to continue operations, but the harm to the community was done. What in first moment was an operating decision in order to optimize (and save) the use of water became in an "expensive" image problem for Lucchetti that led to a decrease in the firm sales. Right now, the plant is experimenting financial difficulties and the investment group is evaluating the possibility of selling the assets. The negative long-term effects clearly overcome the short-term savings in water consumption.