The building of Caltex plant in 1977 in South Africa was meant to increase the company’s production capacity. The increase in production capacity would then result into higher revenue and a larger market share for the company. However, the laws of the country at that time violated the basic human rights of the black population.
The labor laws used in the country were biased and led to discrimination at the work place. This means that the oppression of the black population especially at the work place would increase as more international companies invested in South Africa. These two scenarios led to the debate as to whether Caltex should terminate its operations in South Africa or to expand its operations.
The proposed building of a new Caltex plant in South Africa would lead to the following benefits. First, it would lead to higher revenue since the project was expected to generate an annual return of 20% on the initial investment. Consequently, the company’s market share in the oil industry was expected to increase.
Second, the project was expected to create more jobs both to the white and the black population in the country. By employing more workers, the welfare of the population would improve (Ferrell, Fraedrich, & Ferrell, 2009). Finally, the project would promote the country’s economic growth through higher tax revenue and higher level of oil supply in the country.
The possible violation of moral rights associated with the project includes increased levels of segregation as the company was expected to establish different facilities for its black and white employees. Besides, the black employees would be paid discriminatory wages due to apartheid laws.
More black workers were to be separated from their families since the law prohibited them from staying with their families at work places. The project would also provide more tax revenue that would be used by the government to oppress the blacks through arrests and killings (Valasquez, 2006).
The possible violation of moral rights was more important than the possible utilitarian benefits associated with the building of the Caltex plant due to the following reasons. First, the project created more jobs and the company increased its wage rate. However, the employees and the general public were still unsatisfied. This is because they were interested in political and social change rather than increases in wages and jobs.
Second, contrary to the expectation of the company’s management the project did not succeed in improving the economy. By 1985 the economy was in recession and unemployment rate rose to 35%. This means that the company should have focused in encouraging the government to facilitate political and social change as this would create the best environment for business activities in the country (Valasquez, 2006).
I would vote for the resolution that proposes the implementation of the Tutu’s principles. The situation in the country at that time led to disagreement between the management and the stockholders. The management was interested in expanding the company’s operations by building a new plant.
The stockholders on the other hand were concerned about the plight of the black population. Hence they proposed termination of the company’s operations as a way of compelling the government to change its governance policies. A policy that would lead to a “win win” situation for both parties was therefore necessary to solve the problem (Ferrell, Fraedrich, & Ferrell, 2009). Tutu’s principles provide a framework for formulating and implementing a “win win” policy.
The principles would encourage the company to continue its operations while facilitating social and political change. The principles encourage the protection of the workers’ rights to form unions, enforcement of fair labor practices and education of the blacks. This will motivate the workers who will then be more productive (Ferrell, Fraedrich, & Ferrell, 2009).
In the social context, the principles will enable the black workers to live with their families as well as enjoy more freedom in making decisions related to their terms of employment. These principles propose moderate but effective changes in the country. Thus they are likely to be approved by the government as well as succeeding in addressing the plight of the black population in the country (Valasquez, 2006).
The first stockholders’ resolution was to ask Caltex to terminate its operations in South Africa. The managers’ response was against this resolution due to the fact that it would undermine the company’s expansion strategy.
However, the implementation of the expansion strategy did not succeed in the long-term. This is because the country went into recession in 1985. Besides, there were increased cases of violence and black boycott in businesses in the country. This situation discouraged productivity and thus the company did not realize the expected high revenue.
Thus the best response to this resolution was to conduct a macro-environmental analysis in the economy. This analysis would have helped the company to predict the future political trends in the country and its implication to the company’s operations (Ferrell, Fraedrich, & Ferrell, 2009). Thus the company could have avoided the setbacks that were occasioned by the political and economic crisis.
The second resolution was to ask Caltex not to sell to the military or the police. The managers rejected this resolution on the ground that it would lead to violation of the law. However, rejecting this resolution also meant that the company would operate under price control and interference by the government.
This would undermine its efforts to make decisions concerning prices and market segmentation. Therefore, rejecting this resolution in order to obey the law is not enough (Ferrell, Fraedrich, & Ferrell, 2009). The management should also consider lobbying for elimination of price control by the government. This would enable the company to set its own prices and to choose who to sell to in order to ensure higher revenue.
The last resolution proposed the implementation of Tutu’s principles. The management should have considered Tutu’s principles as a guide for its operations. Adopting Tutu’s principles would benefit the company due to the fact that they encourage the improvement of the workers’ welfare (Valasquez, 2006).
As the welfare of the workers improves, their productivity is also likely to increase and this will lead to higher revenue (Valasquez, 2006). Besides, the principles require moderate modification of the law and thus can be easily accepted by the government.
A part form ensuring high return for stockholders, the management of any company has the moral responsibility of improving the welfare of the members of the community that they operate in (Ferrell, Fraedrich, & Ferrell, 2009). The company depends on the community for the supply of capital such as labor and raw materials. This means that if the company does not play a role in protecting the rights of the community it operates in, then it might not be able to get a consistent supply of the capital that is provided by the community.
The companies in South Africa did not fight for the rights of their black employees. This led to black boycotts in businesses thereby affecting their operations negatively. Thus all companies have moral responsibilities (Ferrell, Fraedrich, & Ferrell, 2009). This is achieved through sound corporate responsibility initiatives that address the felt needs of the community.
The management of a company should not look primarily at the law and rate of return as the ultimate determinants of what investments it should make due to the following reasons. First, every business is affected by macro-environmental factors such as politics, technology, social, environment and legal factors. Second, the success of the investment depends on the strength and weaknesses of the company.
Finally, the market trends also determine the returns of the investment. This means that the macro-environmental factors must be considered in making investment decisions (Ferrell, Fraedrich, & Ferrell, 2009). The company must also do SWOT analysis to determine its weaknesses, strength, threats and opportunities in the market. Finally, a company must analyze the market trends in order to verify the success of the investment.
Ferrell, S., Fraedrich, F., & Ferrell, L. (2009). Business ethics: ethical decision making and cases. New York: cengage Learning.
Valasquez, M. (2006). Business ethics: concepts and cases. Upper Saddle River : Pearson Prentice Hall.