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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.

Solution Preview

STEP 1
? Businessmen in Peru tend to make decisions based more on business objectives rather than on ethical issues.
Base on the social contract theory this decision making is incorrect. This portion is taken from the website: http://web.sau.edu/"However, in its most widely accepted form, the social contract theory asserts that all businesses are ethically obligated to enhance the welfare of society by satisfying consumer and employee interests without violating any of the general canons of justice" http://web.sau.edu/
The decision of Luchetti to open a plant in a natural reserve was ethically incorrect and the decision taken by Luchetti was wrong. By opening the plant in Chorillos, Luchetti was not enhancing the welfare of the consumer but was feathering its own nest.
The decision was taken because it met Luchetti's need for cheap water and location for distribution. This decision was not taken to enhance the welfare of the society but to reduce its cost and increase short term gains.
The Mayor of Chorillos also behaved in an irresponsible manner in giving the permission for the project on the last day of his term.

STEP 2

? Strengthening an employee's own personal conduct code appears to be the best way to assure correct ethical behavior.
An employee can judge his own actions, can bring a balance in decision-making and can hope to satisfy the needs of all stakeholders. This portion is taken from the website: http://web.sau.edu/" As an empirical theory of management, the stakeholder theory holds that effective management requires the balanced consideration of and attention to the legitimate interests of all stakeholders" http://web.sau.edu/
In this case strengthening the personal conduct code of Mr. Pablo Gutierrez would have ensured that Luchetti would not have gone ahead with the project. As a mayor of Chorillos, he should have made a balanced consideration and given attention to the legitimate interests of all stakeholders. In this case, it is clear from the reaction of the environment protection groups and the press that the project would be very harmful to the environment. The mayor of Chorillos did not balance the legitimate interests of all the stakeholders of Chorillos and ...

Solution Summary

Case analysis of Luchetti is discussed in great detail in this solution.

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