Harvard Case - Cedar Environmental: Innovation vs. Corruption in Lebanon?
"Cedar Environmental: Innovation vs. Corruption in Lebanon?" Harvard business case study is written by Nien-he Hsieh, Youssef Abdel Aal. It deals with the challenges in the field of Business Ethics. The case study is 27 page(s) long and it was first published on : Mar 4, 2021
At Fern Fort University, we recommend Cedar Environmental adopt a comprehensive strategy to address the ethical and legal challenges it faces while maintaining its innovative spirit and commitment to environmental sustainability. This strategy will prioritize transparency, ethical leadership, and strong corporate governance to foster a culture of integrity and accountability.
2. Background
Cedar Environmental is a Lebanese company founded by the Azar family, known for its innovative approach to tackling environmental challenges. The company's success is threatened by a complex web of issues:
- Corruption: The company faces pressure from government officials seeking bribes and favors, creating a conflict between ethical business practices and survival in a corrupt environment.
- Family Business Dynamics: The Azar family's strong influence on the company's decisions can lead to nepotism and a lack of transparency.
- Lack of Institutionalized Ethics: Cedar Environmental lacks a formal code of conduct and a robust system for ethical decision-making, leaving employees vulnerable to unethical pressures.
3. Analysis of the Case Study
This case study highlights the complex interplay between business ethics, corporate social responsibility, and political realities in emerging markets. We can analyze the situation through the lens of stakeholder theory, which emphasizes the need to balance the interests of various stakeholders, including:
- Internal Stakeholders: Employees, the Azar family, and management.
- External Stakeholders: Customers, suppliers, the Lebanese government, NGOs, and the broader community.
Key Issues:
- Conflicts of Interest: The Azar family's involvement in government contracts creates a clear conflict of interest, potentially compromising ethical decision-making and transparency.
- Lack of Transparency: The company's internal operations are opaque, making it difficult to assess the ethical implications of their actions and leaving them vulnerable to accusations of corruption.
- Weak Corporate Governance: The absence of a formal code of conduct, independent oversight, and robust whistleblower protection mechanisms creates a fertile ground for unethical behavior.
4. Recommendations
1. Establish a Strong Ethical Framework:
- Develop a comprehensive Code of Conduct: This code should clearly define ethical principles, including anti-corruption policies, conflict of interest guidelines, and whistleblower protection mechanisms.
- Implement an Ethics Training Program: Regular training for all employees should be conducted to instill a culture of ethical decision-making and compliance.
- Create an Independent Ethics Committee: This committee should be composed of external experts and senior management representatives to provide impartial guidance and oversight.
2. Enhance Corporate Governance:
- Establish an Independent Board of Directors: The board should include diverse individuals with expertise in relevant fields, ensuring independent oversight and accountability.
- Implement a Robust Internal Audit Function: Regular audits should be conducted to assess compliance with ethical standards and identify potential risks.
- Develop a Whistleblower Protection Policy: This policy should provide a safe and confidential channel for employees to report unethical behavior without fear of retaliation.
3. Promote Transparency and Accountability:
- Publicly disclose financial information: Transparent reporting of financial data will enhance stakeholder trust and accountability.
- Publish a Corporate Social Responsibility Report: This report should detail the company's environmental and social impact, demonstrating its commitment to sustainable practices.
- Engage with stakeholders: Regular communication and dialogue with stakeholders will foster transparency and address concerns.
4. Build a Culture of Ethical Leadership:
- Lead by example: The Azar family and senior management should demonstrate a strong commitment to ethical principles and values.
- Promote ethical decision-making: Encourage employees to raise ethical concerns and provide support for ethical choices.
- Recognize and reward ethical behavior: Acknowledge and reward employees who uphold ethical standards.
5. Engage with Government and Civil Society:
- Advocate for anti-corruption reforms: Cedar Environmental can play a role in promoting transparency and accountability within the Lebanese government.
- Partner with NGOs: Collaborating with environmental and social justice organizations can help build trust and address broader societal issues.
- Support ethical business practices: Engage with industry peers to promote ethical standards and combat corruption.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core Competencies and Consistency with Mission: Strengthening ethical practices aligns with Cedar Environmental's mission of environmental sustainability and innovation.
- External Customers and Internal Clients: Building trust with customers, suppliers, and employees is crucial for long-term success.
- Competitors: By demonstrating ethical leadership, Cedar Environmental can differentiate itself from competitors and attract stakeholders who value sustainability and integrity.
- Attractiveness: A strong ethical reputation will enhance the company's attractiveness to investors, partners, and customers.
6. Conclusion
Cedar Environmental has the potential to become a leader in sustainable development, but it must address the ethical challenges it faces. By implementing a comprehensive strategy focused on transparency, ethical leadership, and strong corporate governance, the company can foster a culture of integrity and accountability, ensuring its long-term success while contributing to a more sustainable future for Lebanon.
7. Discussion
Alternatives:
- Ignoring the issue: This would be a short-sighted approach, leading to reputational damage and potential legal consequences.
- Minimizing the problem: This would create a culture of secrecy and undermine trust.
Risks:
- Resistance to change: Some stakeholders may resist the implementation of ethical reforms.
- Increased costs: Implementing ethical practices may require additional resources and investments.
- Negative impact on business relationships: Some existing business relationships may be affected by the company's commitment to ethical principles.
Key Assumptions:
- The Azar family is committed to ethical business practices.
- The Lebanese government is willing to address corruption issues.
- Stakeholders are willing to support Cedar Environmental's efforts to improve its ethical standards.
8. Next Steps
Timeline:
- Month 1: Establish an Ethics Committee and begin developing a Code of Conduct.
- Month 3: Implement ethics training for all employees.
- Month 6: Publicly disclose financial information and publish a Corporate Social Responsibility Report.
- Year 1: Establish an independent board of directors and implement a robust internal audit function.
Key Milestones:
- Increase in employee engagement: Improved employee morale and a stronger sense of shared values.
- Enhanced stakeholder trust: Increased confidence in the company's ethical practices.
- Improved financial performance: Attracting new investors and customers who value sustainability and integrity.
- Positive impact on the Lebanese environment: Contributing to a more sustainable future for Lebanon.
By taking these steps, Cedar Environmental can navigate the complex challenges it faces and emerge as a leading example of ethical and sustainable business practices in Lebanon and beyond.
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Case Description
The case follows Ziad Abi Chaker, founder and CEO of Cedar Environmental, as he weighs options for how to grow the company in the face of growing economic and political instability in Lebanon in 2019. Founded after the Lebanese civil war, Cedar Environmental was an engineering company whose primary business was designing, building and operating small-scale sorting and composting plants to recycle household waste. Refusing to participate in the political patronage and cronyism that were widespread in the industry (and had precipitated the garbage crisis in 2015), Abi Chaker found it difficult to expand his business. Following the garbage crisis, he had developed a new partnership model with a municipality to design, build and operate a recycling plant, but after a successful pilot project, he struggled to find another suitable partner. One option was to take the technology abroad in response to new opportunities that presented themselves, but Abi Chaker did not want to live outside Lebanon. Another option was to shift more into innovating new products, as he had with Eco-boards, a multipurpose building material made out of recycled plastics. Or should he be more flexible about dealing with corruption for the sake of realizing the dream of a zero-waste Lebanon?
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