Topic: Undercounter Sales
Characters: Maryanne, a divisional manager for a large restaurant chain; Paul, one of Maryanne’s store managers
Maryanne, a divisional manager for a major restaurant chain had heard rumors about one of her unit managers, Paul. Paul is her best manager, by any performance measure. His store has the highest sales volume and growth, positive customer feedback, excellent cost control, and consistently does well on inspections. In fact, Paul consistently is rated higher than the other restaurant managers of the chain’s restaurants. Because of this, Paul is often mentioned as a candidate for promotion.
Maryanne was concerned, however, about reports that Paul was taking in money from customers without ringing the sales into the cash register. As a result, she sent some friends to the restaurant at a number of times, and a few of them reported back that the manager took their money, but, indeed, did not enter the payment into the register.
In the meantime, Maryanne has also discovered that Paul did not seem to be pocketing the money himself, but was using it as unrecorded payments to his crew as performance bonuses, overtime incentives, and off-hours cleaning wages. Though this was clearly in violation of the company’s procedures, he wasn’t actually taking the money out of the store for personal gain, but was using it to achieve the high performance which had become his trademark On the other hand, because the funds are not accounted for as income, the extra “wages” to Paul’s employees have no payroll taxes taken out. This means the company is at risk for a tax liability action by the IRS. Should Maryanne take action against Paul?
Author: G. Scott Erickson, Lehigh University
What Are the Relevant Facts?
- Paul is the best manager in the division.
- Paul is almost certainly skimming money from the register.
- Paul does not appear to be using the money for personal benefit.
What Are the Ethical Issues?
- Does superior performance justify low-level theft?
- Does Paul “deserve” the money?
- Does Paul’s crew “deserve” the money?
- Since the money is being used for the benefit of the store, can Paul’s actions be considered simply an unauthorized redistribution of the store’s cash flows?
- Are the manager’s actions serious enough to warrant disciplinary action? Termination? Theft charges?
Who Are the Primary Stakeholders?
- Other managers within the division
- The company and its shareholders
What Are the Possible Alternatives?
- Have Paul arrested for theft.
- Fire Paul for theft.
- Discipline Paul for theft (short of termination).
- Confront Paul, but do it unofficially.
- Do nothing.
- Reprimand Paul, but initiate plans to change company policy to work out this kind of incentive program for restaurant employees.
What Are the Ethics of the Alternatives?
- What are the costs of Paul’s actions to the company? What are the benefits?
- What costs might there be if other managers become aware of Paul’s actions?
- What costs will accrue if Maryanne stops Paul’s skimming? Will his crew continue to do the same job?
- Will he, or a replacement, be able to run this store “by the rules?”
- Does Paul have a right to accomplish the performance levels the company wants, regardless of the means? If he was really doing something wrong, wouldn’t the activities be apparent in his sales figures and his controls?
- Does the company have a right to establish broad-based procedural rules in order to ensure that all stores are run in a similar manner? Can such an organization afford to give this amount of discretion to individual managers?
- Other managers in the division “compete” with Paul in terms of performance. Do the other managers (and Paul’s future subordinates) have a right to expect Paul to follow the same rules in seeking this promotion?
- Which alternative best achieves the goals of the company? In Paul’s store? In Maryanne’s division?
- Which alternative best achieves “social” justice?
What Are the Practical Constraints?
- Theft is very difficult to prove, and Maryanne must be prepared to prove theft in court.
- The skimmed money is being collected without sales tax or income tax paid to the government. This leaves the company wide open for a tax liability action by the IRS. Maryanne should probably take this into account.
What Actions Should Be Taken?
- What actions should Maryanne take?
- How severe should her action be?
- What action would you take?
- How public should Maryanne be with her eventual decision?
- Which ethical theory seems to fit the situation best?