Etch-a-Sketch Ethics

Was it ethical of the Ohio Art Company to move production to China? What were the economic and social costs and benefits of this decision? What would have happened if production had not been moved? The decision to close and move a plant raises important issues about the social responsibilities of a corporation. To make an ethical judgment, one must look at the impact the decision has on various stakeholders. On a macroeconomic level, both the US and China benefited. The US gained lower prices and subsequently an increase in disposable income; poor Chinese villagers gained higher paying jobs and were able to move from the countryside to the city. Social costs to domestic OAC workers were high. The city of Bryan, Ohio, population 8000, lost a key employment base; as a result, a community was destroyed. The former OAC workers were left jobless and had no income stream. They were unable to pay their mortgages, which resulted in many home foreclosures and auctions.

Many were forced to leave the town and look for work in other parts of the country. The city lost a steady tax stream. From a business perspective, OAC didn’t break any prevailing laws. OAC’s decision to offshore stemmed from an inability to lower production costs and reverse two years of losses and “sluggish sales” (p160). In the short term, OAC may have been able to preserve jobs, but eventually the losses would have amounted to a larger restructuring costing more job losses.

The issue behind the cuts was the fact that retailers wanted to keep the product under $10, this pressure in unison with high worker wages and operations costs forced the company into a hard decision. Raising the cost of the product would reduce demand from consumers and retailers, this hits the bottom line and we have a case of shrinking margins. The long term viability of the corporation comes to center stage. If it cannot survive (i.e. profit), job losses will inevitably occur. Thus it can be argued that OAC made the ethical decision in this case to maximize profit and shareholder value (p138), while also maintaining a sense or moral responsibility by gradually off shoring production activities. Though devastating to the town, these moves allowed people to move on and hopefully find other modes of employment. QUESTION 2:

Assuming that the description of working conditions given in the NY Times is correct, is it ethical for the Ohio Art Co. to continue using Kin Ki to manufacture Etch-A-Sketch toys? Given that the news from the NY Times is correct, OAC must weigh the situation from a broad spectrum of ethical and economic theories. The text highlights many different ethical paradigms. Two opinions seem to take pertinence: the naïve immoralist and the righteous moralist. Viewing the situation from the standpoint of a “naïve immoralist” one would argue that since Chinese factory owners as whole have been known to break laws and run sweatshops, it would be ethically okay for a foreign company such as OAC, to follow in suit and not follow local laws as “culture” prevails. A “righteous moralist” would argue that one’s “home country standards” are the right ones to follow.

Hence a company such as OAC should stop doing business with Kin Ki because of it gross human rights violations. I think that in either paradigm there are obvious flaws. The righteous moralist fails to take into account that by applying standards that are applicable in the developed nation may nullify the very reason for going into the developing nation. The naïve immoralist seems brazenly irresponsible and would lead to extremely poor publicity. Immanuel Kant highlighted the view that human rights are undeniable, “people should be treated as ends rather than purely a means” (p142). From a business standpoint we see that OAC made the decision to go into China was based on the “advertised” human rights conditions of Kin Ki; happy worker, good meals, pension, competitive wages, and these standards are the same for the region, and are widely accepted. Kin Ki’s failures to meet these minimum standards are unacceptable, as such; OAC should review and enforce its contract with Kin Ki and make sure the factory is being run in a legal manner, if not they should terminate their relationship.

QUESTION 3:
Is it possible, as Mr. Killgallon claims that the Ohio Art Co. had no knowledge of labor problems at Kin Ki? Do you think company executives had any knowledge of the working conditions? It is possible, but unlikely, that Mr. Killgallon and the other executives didn’t have knowledge of the labor problems at Kin Ki, if true, this admission shows gross negligence of the responsibilities entrusted to the executive board. The key decision makers would have had to be in the dark about the reasons behind the low costs, conditions, salary levels, costs to the subcontractor, etc. This can be understood if this was the companies first time in China, as business practices come through experience, but OAC’s move to China for the Etch-A-Sketch product was not their first time dealing with Kin Ki, in fact they had in business together for a decade producing a pocket sized version of the same product (p160).

This fact reveals that for almost a decade, OAC had been selling products produced through sweatshop labor. In this case, the executives at Ohio Art Company are to blame for not taking the appropriate steps to know all the information about a supplier prior to engaging in a business venture. They are to blame for not asking the right questions and all the necessary questions. They are also to blame for not investigating the supplier’s operations both prior to the start of operations and during operations. Further, the management of the company had a responsibility to make the best business, moral, and legal choice for all the companies’ stakeholders. In their hands lay the jobs of hundreds of OAC workers who were most likely convinced on the fact their layoff was inevitable but that the company that they had put so much hard work into would continue to represent their core values and beliefs. QUESTION 4:

What steps can executives at the Ohio Art Co. take to make sure they do not find the company profiled in the NY Times again as an enterprise that benefits from sweatshop labor? There are multiple steps OAC can take to improve its image and ensure that it is not profiled again in The NY Times or another major news source as a firm that profits from the use of sweatshop labor. First and foremost, the company needs to clean up its act at Kin Ki and make its improvements known to the public. This damage control, at the very least, should include:

•Increasing worker salaries to at least minimum wage
•Enforcing 40-hour work weeks
•Providing pension plans, medical coverage and employment contracts to all workers
•Allowing at least four breaks per day in addition to lunch and dinner
•Improving worker meals and accommodations

•Allowing freedom of expression and workers to unionize

The company should establish a code of conduct for all subcontractors and institute, at the very least, annual monitoring by independent investigators and auditors of all subcontractors. The company should also employ in-house regional managers to be in charge of subcontractor relations and reviews. These managers should be trained in local cultural practices and be well-versed in typical contract infringements in their review areas. This review should not be limited to employment conditions. Mangers should be aware of environmental practices, accounting methods, and any other possible violation areas. They should establish a zero tolerance policy. Although improvements are not limited to the aforementioned amendments, these changes will clearly help eliminate the fear of public damage by the press.