The Recalcitrant Director at Byte Products, Inc.:
Corporate Legally versus Corporate Responsibility
Background of the Company Byte Products Incorporated is a ficticious company and as a result, information regarding the company itself and the environment, at the time of the case, is not available for research. This case, prepared by Professors from Indiana Universty and Cornell Uuniversity, conceals the true identity of the name of the firm, individuals, location and financial information for anonymity.
Summary
The case of the recalcitrant director at Byte's Products Inc, brings to focus a conflict between Archie Carroll's proposed theory of responsibilities of a business firm, namely legal responsibility and social responsiblity. Byte Products Incorporated, a publicly traded company, headquartered in Midwest United States of America, is primarily involved in the local production of electronic components for computers used in sophisticated businesses and engineering applications. A publicly traded company, the majority of stockholders are the initial owners of Byte when it was a private company. O perated by a hierachy structure with the Board of Directors ( 4 inside members and 7 outside members) at the top level; Jim Elliott is the Chief Executive Officer and Chairman of the Board. Regarded as one of the largest-volume suppliers of specialized components, this firm, performing at a consistent revenue-increase level for the past six years holds some 32% market share and is easily the leader in this industry inspite of dramatic surge in demand, limited entry barrires and increasing competition. Although Byte curently operates three plants at full capacity (24/7) and boast $265 million total annual sales, shareholders and management are gravely concerned about the company's inability to meet the escalating demand for these components. With the mission to be the leader in this industry, a three year plan was established to materialize a new state of the art manufacturing plant that will adequately supply their customers need. Unfortunately this initiative will not solve the immediate demand crisis. Solution to stem the tide of the current problem proposed by Elliott's staff included (1) license Byte products and technology to other manufacturers in the United States of America (2) use overseas facilities and licensing and (3) leasing an abandon plant in Plainville for three years and concealing the fact from the Plainville community that this employment is only temporary. The first two proposals were dismissed because they went against company policy and philosophy. The third option though posed many disadvantages seem to be the most feasible to deal with this serious present problem. On taking Plainville proposal to the board however, these disadvantages of poor location, high labor cost and low profitability were not even highlighted but accepted by all the board members except one; T. Kevin Williams. Williams an outside director, feverently opposed hiding the temprory nature of the facility. Stating the adverse impact this would have on the town, he challenged Elliott of Byte's coporate responsibility to the community and also reiteriated the effect this plant had on the town eight years ago when it closed. The dilemma ended after a short recess, Elliott pleaded to Williams for a comprise, (since he wanted a unanimous decision) to this William responded "If we are less than candid in this respect, we do grave damage to the community as well as to our image. I dont see a middle ground." William concluded that it is not a legal issue but a moral responsibility. STRATEGIC AUDIT - BYTE INC PRODUCTS EXTERNAL ENVIRONMENT OPPORTUNITIES AND THREATS A. NATURAL ENVIRONMENT
• Energy availability a growing problem (T)
• High use of fossil fuel resulting in climate change (T)
• Business practice to reduce impact on the environment - "highly efficient means of product development" (performing in the best possible manner with least waste of time, resources and effort) (O) B. Societal Environment Economic a. Dramatic surge in demand for product (O) b. High profitability (O) c. Relative ease of entry of new firms into the industry (T) d. Increased number of competing firms (T) e. Robust competition (T) f. threat to lose market share (T) g. Inability to meet present demand (T) g. 32% market share (O) Technological
a. Domestic production (O)
b. New plant in three years with state-of-the-art technology(O)
c. Patent protection (O)
Political – Legal
a. Laws on pollution and energy use – environment (USA) (T)
b. Outsourcing policy (O)
Sociocultural
Sophisticated businesses and highly skilled users of engineering applications need specialized electronic components (O)
EFAS Table
(See attached EFAS Table)
Conclusion
In conclusion, Byte's Products Inc. mission, objectives, strategies and policies though not clearly stated are implied in their performance and in their challenge to deal with the demand problem. While they have been afront in the market in terms of their volume supply and financial performance clearly there are some weaknesses in Byte's coropate governance. There is a lack of forsight and vision for the firm's long term growth as demonstrated by their present crisis; maximum production capacity is reached before the problem is recognized. Reputational risk is high - willingness to bring firm's good name into disrupute by providing temporary employment unknowing to the Plainville community Supply chain risk is high - willingness to use Plainville location in spite of the inadequate transportation links to their major markets and suppliers The role of the Board of directors in monitoring developments inside and outside the company failed to foresee the demand problem. The tone of the board meeting suggest the low involvement and nominal participation of the board members to even make other suggestions than that brought by Elliott the CEO. Finally the good news is that the weighted score in the EFAS table is 4.9. Since the weighted score for an average industry is 3.0, Byte's 4.9 score is in sync with their claim of being the leader in the industry with 32% market share. It should be noted though that the corelation between corpoate governance and the company's performance has not yet manifested itself since the problem is relatively new. If however this situation is left unchecked the EFAS would reflect a lower score. Social responsibility is relatively low and if possible non exixtence on the EFAS table.