Business Regulation: Alumina Inc.
Since the creation of the Environmental Protection Agency in the 1970s, businesses in the US have been required to adhere to stringent federal environmental regulations. (Reed, 2005) Alumina Inc., a US-based aluminum manufacturing company, is not the exception. Alumina is faced with the challenge of remaining financially viable, while meeting EPA expectations, as well as stockholder expectations. The following is an analysis of those issues and opportunities as well as a proposed solution to the problems that face Alumina Inc. (University of Phoenix, 2008)
Issue Identification and Overview
Alumina Inc. is a USA-based aluminum maker with revenues in excess of $4 billion. Although 70% of Alumina’s sales derive from the USA, the company also boasts a substantial global reach with business ventures in eight countries worldwide. The company has customers, and other business interests, in the automotive components sector, manufacturing of packing materials, bauxite mining, alumina refining, and aluminum smelting.
Due to the nature of Alumina’s business, and the proximity of the company’s factory to Lake Dira, in the State of Erehwon, the company is heavily regulated by the Environmental Protection Agency (EPA). The EPA’s goal is to “protect human health and environment.” (EPA, 2008) In this instance, the agency’s primary purpose is to ensure that Alumina maintains its responsibility to the environment and community by regulating, and monitorying the amount of harmful chemicals released into the surrounding water, air, and soil.
Five years ago, during a routine inspection, the EPA discovered that Alumina Inc. was in violation of environmental discharge norms. The agency’s report stated that Alumina discharged, into Lake Dira, higher than prescribed Polycyclic Aromatic Hydrocarbons (PAH). However, following an EPA mandated clean up, subsequent evaluations determined that appropriate corrective actions were implemented and completed.
The company’s woes did not end there. Recently, a local woman claimed that Alumina continuously discharged unacceptable levels of PAH into the lake, and years of consuming this water resulted in her daughter’s leukemia. Enacting her “citizen enforcement rights” bestowed to all citizens by the EPA, the woman brought suit again Alumina for what she deemed to be unethical and irresponsible behavior resulting in her daughter’s illness. (Reed, 2005) Fortunately, through mediation the company was able to come to a win-win settlement. The woman and her family received payment for all medical bills and a trust was established for the daughter for future expenses. While the company was required to pay a substantial amount to the family, Alumina was able to avoid the cost of a legal battle which could “easily run into the tens of thousands of dollars for an organization. These costs often include expert witness fees, attorneys’ fees, lost employee productivity, and court fees. In addition, there is the uncertainty and risk associated with the outcome of the litigation.” (University of Phoenix, 2008) Moreover, choosing Alternative Dispute Resolution (ADR) to settle the woman’s claim allowed the company to avoid public scrutiny, as often times, court battles become front-page fodder. Additionally, “the publicity generated from a court battle, especially one brought about by a citizen, could cause significant harm to the organization and its reputation, especially if the organization is defeated in court.” (University of Phoenix, 2008) The cost of negative publicity can often be more detrimental than those of monetary value.
Stakeholder Perspectives/Ethical Dilemmas
All organizations have groups, or stakeholders, to whom they are responsible. These stakeholders are keenly aware of all, or most, of the decisions, financials, and ethical behavior of the corporation and its senior leadership, as these elements directly affect them. In the case of Alumina, there are many groups with certain stakes in how the company behaves and performs. For the purpose of this exercise, the focus will be on senior leadership, employees, customers, and community.
The first group to mention is Alumina’s senior leadership. This group has been called upon to enact their rights and responsibilities to direct the company in a way that will ultimately result in increased profits, larger revenues, and a greater competitive advantage for the company. Additionally, the group has a personal stake in the successful outcome of the company, as it would reflect negatively on them otherwise. The senior leadership team has the responsibility to act ethically in all business dealings. In doing so, the company will likely continue to be successful as “some of the most profitable businesses have also historically been the most ethical.” (Reed, 2005. pg 50)
Another group, with a significant stake in the business, is the employees of Alumina. This hardworking group has been the backbone of the organization. Primarily a blue-collar and manufacturing oriented workforce, they value being treated fairly by the company, and seem to trust the decisions of senior leadership. The group values job stability and expects the company to act in a fiscally responsible and environmentally ethical manner as not to jeopardize their positions with the firm.
One must also consider the company’s customers as stakeholders. The company’s customers, those who receive Alumina’s services and products, value the best product or service at the best price. The group also values new, innovative products with the utmost quality. This group has the right to, and expects the best customer service possible. Additionally, Alumina customers expect to be informed of changes in the company’s products and services.
Lastly, and seemingly at the heart of the issue, is the community which surrounds Alumina’s factory. This group is comprised of members from the aforementioned groups. This group sees little value in revenues and stock prices, but rather expects the company to be environmentally ethical above all. They expect the company to conduct business in a safe manner. Additionally, they expect the company to be honest and open regarding EPA regulations and infractions in that regard.
As evidenced above, these groups have different expectation for the company, as well as different ethical values and standards. Most striking is the ethical dilemma between Alumina and the community within which the organization operates. The company has accepted the discharge of “acceptable” amounts of PAH into the neighboring lake as a cost of doing business. From their perspective, it would be cost prohibitive to attempt to eliminate all PAH discharge from the company’s daily operations. Conversely, members of the community regard any discharge of PAH as unethical and potentially deadly. They believe that PAH should be eliminated at any cost.
Risk Assessment and Mitigation Techniques
In order to be considered a truly ethical company, Alumina’s senior management must “recognize and take into account the various stakeholders whose interests the corporation impacts,” especially those of the community. (Reed, 2005. pg 49) The following is a risk assessment of alternative solutions to the ethical dilemma facing Alumina.
The first alternative solution examined is the possibility of maintaining status quo. While this solution, at first glance, seems callus and malicious, the company desires to avoid the added costs of decreased discharge levels or monitoring current levels, and it is therefore very appealing to senior leadership. However, this solution is wrought potential risks as it does not parallel the values and expectations of the community. By selecting this solution, the company is at risk of further litigation from the members of the community. Associated with more litigation are court costs, negative public image, and probability of decreased business. If senior management chooses to maintain the status quo, the company will risk future financial stability.
The second alternative, and optimal, solution is derived from the subscription that “an ethical organization is a basic business asset.” (Reed, 2005, pg 50) To become recognized as an ethical business, Alumina’s senior management must hold the company to higher standards and only allow much lower than acceptable levels of PAH discharge. Additionally, to demonstrate to the community, customers, employees, and other stockholders the company’s commitment to ensuring a safe and healthy environment, the company will establish a new internal EPA standards office. The newly formed department will create company policy regarding work practices vis-à-vis environment protection. Also, this group will be responsible for conducting bi-annual evaluations of the company’s compliance to corporate environmental policies, as well as EPA policies. To offset the cost of this new venture, senior management will seek community funding to decrease the levels of PAH discharge from both the factory and the increased traffic. This solution results in a win-win scenario for all stakeholders, especially between the company and the community.
Not unlike many companies doing business in today’s environmentally conscious world, Alumina Inc. is faced with the challenge of balancing the goal of financial viability with the ethical commitments to its stakeholders. The future state of the company depends solely on Alumina’s senior leadership’s ability to effectively manage that balancing act. By implementing a community conscious environmental protection strategy, Alumina will be able to fulfill its financial goals while also securing their community’s confidence.
EPA. 2008. About EPA – US EPA. www.epa.gov. Retrieved on September 13, 2008 from http://www.epa.gov/epahome/aboutepa.htm
Reed, O.L., Shedd, P.J., Morehead, J.W., & Corley, R.N. (2004). The legal and regulatory environment of business (13th ed.). New York: The McGraw-Hill Companies.
University of Phoenix . ( 2007). Business Regulation Simulaton [Computer Software]. Retrieved September 14, 2008, from University of Phoenix, Simulation, MBA560 – Enterprise Risk Web site
Risk Analysis Matrix
Alternative Solution Risks and Probability Consequence and Severity Mitigation Techniques and Strategies
Continue to discharge “acceptable” levels of PAH…status quo • More litigation
• Negative public image
• Accidental discharge of higher than acceptable levels
• High • Increased costs associated with legal battles
• Decreased business due to negative image
• Overall decrease in revenue as a result of the above points
• High • Provide evaluation reports to the public to show the lack of danger
• Seek other ADR methods to avoid public scrutiny
Hold the company to higher standards and allow much lower than acceptable levels of PAH discharge • Inability to effectively decrease levels
• Cost prohibitive
• Medium • Increase cost=decreased revenue
• Displeased community
• Medium • Perform bi-annual audits with newly formed internal EPA standards team
• Seek community funds to assist in decreasing PAHs from both the company and increased traffic
Business Regulation: Alumina Inc.