Joeco - Flying Blind

JoeCo has hired Hector as its new operations manager. Hector represented that he could improve JoeCo's margins because of his experience in dealing with parts suppliers in Europe. One day, Joe overhears Hector on the phone say, "O.K., 3,000 power supplies at $80 per. You've got yourself a deal. Thanks a lot." When Hector hangs up, Joe is furious, yelling, "I told you not to make a deal on those Swedish power supplies without my permission! I want to know more before we start dealing with different suppliers." "Relax, Joe," replies Hector. "I wanted to lock them in, to be sure we had some in case your sources fell through. It's just an oral contract, so we can always raise the statute of frauds defense if we want to back out."

* Is this ethical? How far can a company go to protect its interests? Does it matter that another business might make serious financial plans based on the discussion?

* More importantly, is Hector's conduct smart based on international contract law?

:

#2. Flying Blind

Background

A JoeCo employee entered into an oral agreement with a Swedish parts supplier. JoeCo does not need the parts. They have already been ordered from another supplier. The agreement was made to protect against the possibility of the original supplier failing to deliver.

Dilemma

Is the company bound to the agreement, either ethically or legally? What can it do to protect itself from the original supplier failing to deliver?

The ethics of the situation are pretty clear. JoeCo is ethically bound to the agreement. Reviewing the ethical check list provided in Chapter 2 of the text:

1. What are the facts? - An empowered employee of the company agreed to purchase $240,000 in parts from an international supplier.

2. What are the critical issues? - In addition to the simple fact that the company made an agreement, there are several larger potential issues. For one, there could be significant reputational risk associated with reneging on the agreement. For instance, this may be an important supplier to other areas of JoeCo. Secondly, the amount could be a significant portion of revenue and accepting the agreement may be beyond JoeCo's ability to pay. It may bankrupt the company. Third, there is the possibility that our existing supplier does fail to meet their obligations and as a result, JoeCo might fail to deliver to on a critical contract. This event may also bankrupt the company. Of course, there any number of scenarios to consider, and without more information, we are left to ponder the spectrum.

3. Who are the stakeholders? - The stakeholders include JoeCo, the customer, the supplier, and the employee (Hector). If JoeCo accepts the agreement, the supplier and the customer will benefit. The supplier makes the sale and the customer is more likely to get the product from us (If one of the parts provider fails, JoeCo has a backup). JoeCo will take on the cost and have excess inventory and excess costs of $240,000. If JoeCo opts not to honor the agreement, the opposite holds true.

4. What are the alternatives? - The facts of the case provide for two alternatives, either accept the agreement or default on the agreement. A middle ground may be found by working with the supplier.

5. What are the ethical implications of each alternative? - By defaulting on the contract, JoeCo is injuring the