Harvard Case - Las Vegas Construction: Ethical Contracting
"Las Vegas Construction: Ethical Contracting" Harvard business case study is written by Won-Yong Oh, Youngkyun Chang. It deals with the challenges in the field of Business Ethics. The case study is 5 page(s) long and it was first published on : Mar 21, 2017
At Fern Fort University, we recommend that Las Vegas Construction (LVC) implement a comprehensive ethics and compliance program to address the ethical challenges presented in the case. This program should prioritize transparency, accountability, and stakeholder engagement to restore trust and ensure long-term sustainability.
2. Background
This case study revolves around Las Vegas Construction (LVC), a family-owned business operating in the highly competitive construction industry. The company faces ethical dilemmas stemming from a culture of 'getting the job done' at any cost, leading to instances of bribery, kickbacks, and environmental negligence. The case highlights the conflict between short-term profit maximization and long-term ethical conduct, particularly in the context of a family business where personal relationships often intertwine with business decisions.
The main protagonists are:
- Michael: The CEO of LVC, facing pressure to maintain the company's success while navigating ethical concerns.
- David: Michael's brother and the company's CFO, struggling with the ethical implications of their practices.
- The Construction Inspector: A representative of the regulatory body, highlighting the potential consequences of LVC's actions.
3. Analysis of the Case Study
The case study can be analyzed through the lens of Stakeholder Theory, which emphasizes the importance of considering the interests of all stakeholders, including employees, customers, suppliers, investors, and the community. LVC's actions have negatively impacted several stakeholders:
- Employees: The culture of 'getting the job done' at any cost can create a stressful and unethical work environment for employees, potentially leading to burnout and moral distress.
- Customers: Bribery and kickbacks undermine the fairness and transparency of the bidding process, potentially leading to subpar quality and inflated costs for customers.
- Suppliers: LVC's unethical practices can create pressure on suppliers to engage in similar behavior, perpetuating a cycle of unethical conduct throughout the supply chain.
- Investors: The company's reputation and financial performance can be negatively impacted by ethical scandals, potentially leading to decreased investor confidence and reduced investment.
- Community: Environmental negligence can harm the local ecosystem and public health, leading to negative consequences for the community.
Furthermore, the case study highlights the importance of Corporate Governance in ensuring ethical conduct within organizations. LVC's lack of clear ethical guidelines, oversight mechanisms, and accountability structures has contributed to the ethical lapses.
4. Recommendations
To address the ethical challenges faced by LVC, the following recommendations are proposed:
Develop a Comprehensive Ethics and Compliance Program:
- Establish a Code of Conduct: Clearly define ethical principles and expectations for all employees, including specific guidelines on bribery, kickbacks, environmental practices, and conflict of interest.
- Implement a Whistleblower System: Create a safe and confidential channel for employees to report ethical concerns without fear of retaliation.
- Conduct Regular Ethics Training: Provide ongoing training to all employees on ethical decision-making, conflict of interest management, and compliance with relevant laws and regulations.
- Establish an Ethics Committee: Create an independent committee to review ethical concerns, provide guidance, and monitor compliance with the code of conduct.
Promote Transparency and Accountability:
- Publicly disclose ethical policies and practices: Demonstrate commitment to ethical conduct by publicly sharing the company's code of conduct and compliance program.
- Implement robust internal controls: Establish clear processes for financial reporting, procurement, and environmental management to minimize opportunities for unethical behavior.
- Conduct regular audits and assessments: Regularly assess the effectiveness of the ethics and compliance program and make necessary adjustments to ensure ongoing compliance.
Foster a Culture of Ethical Leadership:
- Lead by example: Michael and David need to demonstrate a strong commitment to ethical conduct by consistently upholding the company's code of conduct and encouraging ethical behavior among employees.
- Empower employees: Create an environment where employees feel comfortable raising ethical concerns and speaking up against unethical practices.
- Recognize and reward ethical behavior: Publicly acknowledge and reward employees who demonstrate ethical conduct, reinforcing the importance of ethical behavior within the organization.
Engage with Stakeholders:
- Communicate openly and transparently: Proactively communicate with stakeholders about the company's ethical commitment, including any past transgressions and the steps being taken to address them.
- Seek stakeholder feedback: Regularly solicit feedback from stakeholders on the company's ethical performance and use this feedback to improve its ethical practices.
- Partner with stakeholders: Collaborate with stakeholders, including suppliers, customers, and community organizations, to promote ethical practices and sustainable development.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core competencies and consistency with mission: The recommendations align with LVC's core competencies in construction and its commitment to delivering quality projects. By promoting ethical conduct, LVC can enhance its reputation and build trust with stakeholders, ultimately contributing to its long-term success.
- External customers and internal clients: The recommendations address the concerns of external customers by ensuring fair and transparent bidding processes and the delivery of high-quality projects. They also address the concerns of internal clients, including employees, by creating a more ethical and supportive work environment.
- Competitors: By demonstrating a strong commitment to ethical conduct, LVC can differentiate itself from competitors and attract customers who value ethical business practices.
- Attractiveness ' quantitative measures if applicable: While quantifying the impact of ethical conduct can be challenging, the recommendations are expected to improve LVC's reputation, customer loyalty, and employee morale, ultimately leading to increased profitability and long-term sustainability.
6. Conclusion
LVC faces a critical juncture where its future success hinges on its commitment to ethical conduct. By implementing a comprehensive ethics and compliance program, promoting transparency and accountability, fostering a culture of ethical leadership, and engaging with stakeholders, LVC can restore trust, enhance its reputation, and ensure long-term sustainability. This approach aligns with the principles of corporate social responsibility, ethical leadership, and stakeholder theory, creating a more responsible and sustainable business model.
7. Discussion
Alternative approaches to addressing the ethical challenges faced by LVC include:
- Ignoring the ethical concerns: This approach carries significant risks, including reputational damage, legal penalties, and loss of customer trust.
- Minimizing the ethical concerns: This approach may lead to short-term gains but ultimately fails to address the root causes of the ethical issues.
The recommendations presented in this case study solution offer a more proactive and sustainable approach to ethical management. However, it's essential to acknowledge the risks and key assumptions associated with this approach:
- Resistance to change: Employees may resist changes to the company's culture and practices, particularly if they are accustomed to operating in an unethical manner.
- Cost of implementation: Implementing a comprehensive ethics and compliance program requires significant investment in resources, training, and infrastructure.
- Effectiveness of implementation: The effectiveness of the program depends on the commitment of leadership and the willingness of employees to embrace ethical conduct.
8. Next Steps
To implement the recommendations, LVC should:
- Develop a detailed implementation plan: Outline specific actions, timelines, and responsibilities for each recommendation.
- Secure buy-in from leadership: Ensure that Michael and David are fully committed to the ethical transformation of the company.
- Communicate the changes to employees: Clearly explain the rationale for the changes and the benefits of embracing ethical conduct.
- Monitor progress and make adjustments: Regularly track the implementation of the program and make necessary adjustments to ensure its effectiveness.
By taking these steps, LVC can transform its culture, enhance its ethical performance, and build a more sustainable and responsible future.
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Case Description
In December 2015, the head of supply chain management (SCM) at Las Vegas Construction Inc. was tasked with reducing operating costs by 25 per cent in order to deal with the fallout in Nevada's construction industry from the global economic downturn. The SCM head had engaged the manager in charge of subcontracting to help with cost reductions. The subcontracting manager did find a way to reduce costs, but it turned out to be a questionable way. He had tipped off the three subcontractors with whom he had been working closely by providing them with confidential information regarding a target bid price for the labour sourcing process. When the bid prices were disclosed, even though Las Vegas Construction Inc. had reached its original cost savings goal, the SCM head had mixed feelings about the process. He wondered how to address this potentially unethical situation, and whether he should inform his superiors about it.
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