Digital Learning & Online Textbooks – Cengage



Online Appendix 2

Business Law

Video Case: Purpose of the Corporation: Stakeholder Focus— Customers and Dangerous Products

The video showcases the concept of ethics in the workplace and the role of business law in organizations. The scenario depicted is a conversation that takes place between three company executives who are debating the pros and cons of recalling a possibly faulty product. The company manufactures ceiling fans, and the discussion revolves around one particular model, the TF-300.

Ann, one of the executives, explains to her colleague Mark that the problem lies in the remote control that controls the TF-300. The firm was quick to recognize the fact that many customers preferred to change the direction of the fan’s spinning motion depending on the season. For example, in summer, a customer would want the fan to blow air in a downward motion so as to cool the room, whereas in winter they would prefer the fan drawing air up to the ceiling, effectively making the room warmer. Although initial models of the TF-300 required a customer to turn the fan off and then reach up and flip a switch that reverses the fan’s spinning direction, the new versions come with a remote control that allows the user to change the fan’s direction while it is in motion.

However, during the TF-300’s testing phase, it was found that if the reverse switch was engaged while the fan was on a high setting, it began to cause discrepancies in the fan’s functioning. A majority of the cases showed that the fan made clicking noises or ceased to operate when the reverse switch was engaged repeatedly, while a few of the tests showed sparks emitting from the fan. Mark, although initially unperturbed by the results, shows concern over the one test that resulted in a piece of metal flying off of the fan at “considerable velocity” and its possible repercussions in a real-life scenario. Ann mentions that damage control has been conducted by communicating to designers that future models be made to automatically kill power every time the reverse switch is engaged.

Mark is also concerned about the negative effect this faulty product may have on an upcoming contract called Rooms-to-Go that the organization is vying for. The Rooms-to-Go contract could potentially double the firm’s business and Mark calls in another executive, Ernie, to get his opinion on the issue. Ernie provides Mark with information on the number of TF-300s sold in the market and how none of them have been reported as malfunctioning, as well as details regarding the number of job opportunities that the company will be subject to if the firm lands the Rooms-to-Go contract. Mark goes on to ask Ernie about the possible legal repercussions of a malfunction and how it could affect the firm financially.

The three executives then begin to go over the pros and cons of a product recall and whether it will prove most cost effective than having to deal with multiple lawsuits from unhappy customers. On the one hand, the firm could get charged up to $200,000 per unfortunate injury or incident that takes place, and on the other, it would take a lot of lawsuits to add up to the cost of a single recall.

Critical Thinking Questions

Using information from the case and the video, answer the following questions:

1. With regard to the discussion shown in the video, what are the possible ethical issues that manufacturers of the TF-300 electric fan are likely to face if the product goes into production?

2. Considering that 80 percent of the initial tests run on the TF-300 were without incident, is the company shown in the video justified in allowing the production of the TF-300 to commence?

3. In what ways can customers protect themselves from unethical practices such as the one implied in the video?

Lecture Launcher: Urban Farmz –No, We Aren’t Going to Be Patient

Thalia, the lawyer for Urban Farmz, in contacting the lawyer of Whittendale Markets, which has filed for chapter 11 bankruptcy and still owe Urban Farmz $35,000. Urban Farmz feels they’ve been taken advantage of by extending the line of credit and still not being paid by Whittendale Markets.

Thalia states that Urban Farmz will not take a reduced payment, since they’re a small business and are paying interested on the line of credit given to Whittendale Markets. The conversation between Thalia and the other lawyer ends by her saying, “We'll just have to see what the bankruptcy court decides.”

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