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Home Depot and Business Ethics

In the Case of the Home Depot below, is it inherently unethical to make business decisions that add long-term value to the business and which do not violate law or social convention? Why or why not? Explain your position.

What alternatives to Home Depot's action would you consider more morally appropriate in consideration of the operating situation they faced in which both the community and the business would be better served? Provide details.

Under what conditions could managers, acting entirely in support of the organization's economic benefit, make a morally relevant decision? Provide details.

Home Depot: Good Ethics or Shrewd Business?

When weather forecasters predicted that Hurricane Andrew would strike the Miami
area with full force, customers rushed to stock up on plywood and other building
materials.7 That weekend the 19 Home Depot stores in southern Florida sold more
4-foot-by-8-foot sheets of exterior plywood than they usually sell in two weeks. On
August 24, 1992, the hurricane struck, destroying or damaging more than 75,000
homes, and in the wake of the devastation, individual price gougers were able to sell
basics like water and food as well as building materials at wildly inflated prices. But not
Home Depot. The chain's stores initially kept prices on plywood at pre-hurricane
levels, and when wholesale prices rose on average 28 percent, the company
announced that it would sell plywood, roofing materials, and plastic sheeting at cost
and take no profit on the sales. It did limit quantities, however, to prevent price gougers
from reselling the goods at higher prices. In addition, Home Depot successfully negotiated
with its suppliers of plywood, including Georgia-Pacific, the nation's largest
plywood producer, to roll back prices to pre-hurricane levels. Georgia-Pacific, like
Home Depot, has a large presence in Florida; the company runs 16 mills and distribution
centers in the state and owns 500,000 acres of timberland. Although prices
increased early in anticipation of Hurricane Andrew, Home Depot was still able, with
the cooperation of suppliers, to sell half-inch plywood sheets for $10.15 after the
hurricane, compared with a price of $8.65 before, thereby limiting the increase to less
than 18 percent. Home Depot executives explained their decision as an act of good
ethics by not profiting from human misery. Others contend, however, that the company
made a shrewd business decision.

Solution Preview

Home Depot should be commended for making a short term ethically appropriate decision which ingratiated them in the long term with consumers. Their decision to sell product at cost, prevent individual price gouging, and negotiate low prices on lumber- as well as adequate supplies of lumber- enabled the community to react more quickly and economically to the disaster. All within the community were privy to weather forecasts, and in fact, hurricanes have a season which can be predicted and anticipated, should an individual desire. If individuals object to price increases due to natural disasters one could stock up ahead of the season. In this case I would imagine Home Depot and Georgia Pacific each had increased costs of business due to the storm ravaging their own businesses. Both companies worked at keeping these costs restrained to help ...

Solution Summary

This detailed solution discusses if Home Depot acted ethically during Hurricane Katrina in their pricing and supply of materials to the community. It considers alternatives and under what conditions managers could make morally relevant decisions while acting entirely in support of the organization's economic benefit. It includes links and examples.

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