Frank Hoffman is the CEO of Triple Plus, Inc, a group of four successful restaurants in the Southwest. One member of the Triple Plus board of directors, Sam Wasson, has a daughter, Chelsea Wasson, who has just started Chelsea's Cloths, a business that supplies restaurant linens. Wasson has approached Hoffman to explain Chelsea's business. Chelsea's Cloths has adopted an environmental emphasis in

Question

its operations as a way of countering the industry trend toward the use of paper products in restaurants. Sam Wasson initially recruited Hoffman as CEO, was instrumental in having the board select Hoffman, and is one of Hoffman's strong backers. Wasson supported Hoffman when other board members were impatient with his new procedures, policies, and changes. Ordinarily, when someone approaches Frank Hoffman with information on a new supplier, he takes the information and refers it to the purchasing/supply area or refers the person directly to the manager of purchasing. In this case, Frank personally presented the information to Triple's purchasing manager, Deidre Hall. Frank offered Deidre the Chelsea's Cloths brochure and card and explained, "She is Sam Wasson's daughter. She just graduated in marketing from State University last June and now has her own firm. See what you can do. Our contract with Lila's Linens is up for renewal. Maybe we can do something.". Deidre evaluated Chelsea's and Lila's proposals as well as that of an additional firm in making the purchasing decision. Although the pricing between Chelsea's and Lila's is equivalent, Chelsea's is too young a firm to have a track record, and Deidre is not convinced that Chelsea's can handle Triple's large account. Given Mr. Hoffman's interest, however, Deidre is confused about what recommendation to make.
a. Should Deidre recommend Chelsea's firm or offer her true recommendation?
b. Would it be ethical for Hoffman to change Deidre's decision?
c. What if Wasson had requested bid information so that his daughter could be competitive? Should Deidre supply it? Should Hoffman direct Deidre to supply it?
d. Can you solve the conflict without offending the director?
e. Does Hoffman need to be concerned about how his intervention would reflect the "tone at the top"? Could employees misinterpret his actions?

Answer 1

a. Deidre is in a tense spot with which students can identify. They know the correct decision to be made but may be feeling some pressure from a superior to make a different decision.

Deidre should make her recommendation as she has evaluated it and give her justifications. It is a business decision based on concerns about the viability and reliability of a new business. Deidre can also explain that Chelsea's is price-competitive and that she would be willing to consider Chelsea's once more references and a track record are available.

b. Hoffman should not reverse Deidre because it undermines her authority and confidence as the person responsible for purchasing. Also, Hoffman needs to consider the appearance of board presence and pressure being used to force the company to enter into contracts it would otherwise not choose. Troubles in the company at any time will bring a laundry list of these types of transactions that will prove damaging to Hoffman, Triple Plus and Chelsea's. Hoffman is in a position to explain to Wasson that his daughter's firm looks very good to them and that once she establishes a record with some smaller accounts, purchasing would be willing to have her work with them.

c. No bid information should be given to Chelsea's as a favor to Sam Wasson. See below.

d. Many corporations' ethics policies require directors to disclose conflicts of interest; i.e., situations in which they or a family member benefit through a contractual relationship with the corporation. Wasson may have that obligation here.

e. Hoffman's intervention would send a signal to employees about the way the company does business and how contracts are awarded. It may seem like a one-time intervention, but Hoffman would actually be establishing the tone for the company. Employees would learn that who you know is the standard for behavior and not what's best for the company. Hoffman's intervention would do damage to the ethical atmosphere of the firm.

Legal Issues

Both Sam Wasson and Frank Hoffman are fiduciaries of Triple Plus. The transactions they enter into must be in the best interest of the corporation. Since the purchasing manager's decision has been made, neither should use their authority or influence to change that decision. Further, the disclosure of bid information in advance would be a violation of those fiduciary duties.