Organizational Performance Analysis and Recommendations- Part 1
You have been hired by a midsize copper smelting company in northern Canada to act as a consultant and help the executive team determine its best course of action on a major decision. Due to some recent changes to the local environmental air quality laws, the company’s large coal-fueled smelting furnace is now operating out of compliance due to high levels of pollutants in the exhaust gases. The regulatory agency has given the company 12 months to demonstrate compliance, after which it will be fined $1,000 per day until the operations meet the regulation. The company has two alternatives. The first alternative is to install air scrubbers to reduce the output pollutant levels. The second alternative is to convert the smelting furnace from coal to natural gas. Both alternatives will meet the current regulatory requirements, but there is a slight concern that the air scrubber solution may not meet future regulatory restrictions. The executive team wants you to perform a financial performance analysis on both alternatives using several different capital budgeting methodologies. The team also is seeking guidance on non-financial considerations regarding the company’s ethical and social responsibilities related to this decision.
The product of your financial performance analysis will be a report for the executive team. In addition to the requirements that follow, be sure to incorporate references to appropriate academic sources, such as those found in this week’s Learning Resources or in the Walden Library.
Part 1 of your report to the executive team, as well as the accompanying Excel file. Part 1 of your report should be approximately 2 pages in length (excluding title page and references) and should address the following:
Ethical and Social Responsibilities in Decision-Making
While financial metrics like NPV and IRR are critical, a major decision involving environmental compliance and the local community requires a comprehensive review of the company’s ethical and social responsibilities, a concept often framed within Corporate Social Responsibility (CSR).
1. Environmental Stewardship and Compliance
The core ethical duty is to protect the local environment and community health. Operating a coal-fueled furnace out of compliance is a direct violation of this duty, which justifies the regulatory pressure.
Legal vs. Ethical Compliance: The company's primary obligation is to comply with the law (as defined by the $$$1,000/day fine threat). However, true ethical responsibility extends beyond the minimum legal threshold. The concern that the air scrubber solution may not meet future regulatory restrictions raises an ethical red flag regarding long-term environmental commitment.
Recommendation: Ethically, the company should favor the alternative that offers the highest degree of pollution reduction and future sustainability, which may be the natural gas conversion. This choice demonstrates a commitment to being a proactive environmental steward, rather than a reactive complier (Carroll, 1991).
2. Stakeholder Impact and Transparency
The decision will impact various stakeholders who must be considered beyond just the shareholders.
Community and Employees: Continued high pollutant levels directly affect the health and quality of life of the local Northern Canadian community and the company’s workforce. The choice to convert to natural gas signals a higher level of social responsibility toward the local population's well-being.
Sample Answer
Introduction and Scope
This report provides a preliminary analysis for the executive team of the midsize copper smelting company regarding the mandatory compliance decision on the coal-fueled furnace. Due to new environmental air quality laws, the company must choose between installing air scrubbers or converting the furnace to natural gas within 12 months. Failure to comply will result in a $$$1,000 per day fine. This initial report focuses on the recommended capital budgeting methodologies and the essential non-financial considerations of ethical and social responsibility that must inform this decision.