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Ethics and Legal Environment

Jerry is one of two partners who owns a chain of twenty-four family style restaurants in the Northeast. The restaurants have a reputation for serving high quality food at reasonable prices. Since the opening of the first restaurant thirty-five years ago, the restaurants have built up a loyal clientle. However, many of the customers are now over 50, and the restaurants are not attracting a younger clientle. Economic conditions have resulted in a downturn in the restaurant industry in general recently. Jerry and his partner George decided to update the restaurants' image to appeal to a younger crowd. In order to do this, Jerry and George took on quite a lot of debt to remodel the restaurants, update the menus, and market the new image.
Five of the twenty-four restaurants are in Boston. In the last few days, Jerry has received seven phone calls from people who claim they have gotten sick after eating at his restaurant in the North End. After investigating, he discovers that a shipment of frozen sausage was contaminated with Salmonella ohio, a rare form of food poisoning. How should Jerry respond to the seven customers who have already called? How should he respond to any additional complaints? If he denies that the contamination was caused by his restaurants, it is possible that no one will find out. After all, there are hundreds of restaurants and grocery stores in Boston that could have poisoned the customers.

In his heart, Jerry feels that he should pull all of the shipments of sausage from his freezers to prevent the possibility that anyone else will be hurt. He also believes that the business should offer compensation to the seven people who became sick. However, his partner, George disagrees. George says that nothing has been proven, and they should not offer to compensate anyone or pull any product until it has been proven that they are responsible. Besides, if the sausage is contaminated, it's most likely the fault of the sausage manufacturer. Why should they jump in to pay the victims? George argues that if they compensate these seven people they could become liable for compensating many more, and it just isn't financially feasible for the restaurants.

How should Jerry balance the ethical considerations with the economic implications? Should his response vary depending on whether the restaurants are a corporation or a partnership? Should his response vary if they are covered by liability insurance?

Use either the Ethical Leaders' Decision Tree or Professor Badaracco's framework to analyze the ethics of the situation. Based on your analysis, advise Jerry about what he should (not just could) do. Your analysis should present options, but you need to provide a recommendation for Jerry and tell him what you would do if you were in his shoes. Given your word length limitations, it is not necessary to restate the facts of the case. You may simply stipulate to the facts as stated, and just include relevant facts in the other parts of your discussion. If you need additional information to analyze the situation, you should state what additional information would be useful. When applying the frameworks, be sure to include a discussion of ethical values, principles and tests.

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RESPONSE:

Ethical Business Leader's Decision Tree. To ensure success, managers must create a culture of socially responsibility by asking a series of questions:

A. Is the Action Legal?

a. The owners of the restaurant are required by law to report known products that are contaminated with salmonella. The owners have had the products tested. They must report this to the appropriate authorities. This applies to all business entities.

B. Would it Maximize Shareholder Value?

The alternative courses of actions:

a. Remove sausages from freezer and report incident to the customers and authorities without offering compensation:

Here, they would call the customer to tell them that a shipment of frozen sausage was contaminated with Salmonella ohio, a rare form of food poisoning and tell them that the products have been removed from the freezer and it has been reported to the appropriate authorities. Although not short-term, this could maximize shareholder value in the long term, to prevent future legal suits from client's who might be tested positive and then the doctor is required by law to report any suspected restaurants or food outlets suspected. The restaurant would probably lose customers if the news gets out that they tested products but yet did not contact the customers for them to see a doctor. Be concerned and apologetic. (Or they would need to lie about the incident if they were approached by authorities if someone reported the restaurant, since there were seven customers, which is also unethical).

Removing the sausages has a negative impact on shareholder value as it needs to adsorb the costs of the tainted sausage.

b. Report incident to the customers and authorities and offer compensation.

Here, they would call the customers and tell them that a shipment of frozen sausage was contaminated with Salmonella ohio, a rare form of food poisoning and tell them that the products have been removed from the freezer and reported to the appropriate authorities; also offer compensation. This might also maximize shareholder value over the long-term but offering compensation could suggest that it was the fault of the restaurant, whereas the sausage was ...

Solution Summary

Applying ethical theories (ethical values, principles and tests), this solution addresses these questions: How should Jerry balance the ethical considerations with the economic implications? Should his response vary depending on whether the restaurants are a corporation or a partnership? Should his response vary if they are covered by liability insurance?

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