BUSINESS ETHICS

PROGRAM

The Propmore Corporation Case

Management

This case was developed by Dr. Peter Madsen and Dr. John Flaming. Arthur Andersen & Co. SC
thanks the authors for their contributions to the Business Ethics Program.

Dr. Madsen is the Executive Director and Senior Lecturer at the Center for Advancement of
Applied Ethics, Carnegie Mellon University. Dr. Flaming is a Professor of Management at the
University of Southern California. Arthur Andersen & Co, SC also thanks Mr. Harry Goem, Vice
President of Procurement for Alcoa, for his input and thoughtful reviews.

Arthur Andersen & Co, SC has sponsored and funded this project to promote discussion and
awareness of ethical issues arising in the business world. Arthur Andersen & Co, SC takes no
positions and expresses no views with respect to the myriad of ethical issues reflected in this case
but hopes that users will facilitate and promote a dialogue on these important issues.

©1991 ARTHUR ANDERSEN & CO. SC

All rights reserved. 008889 A-008

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PROPMORE CORPORATION

Overview

Don Bradford was on the fast track at the Propmore Corporation. But he wished he could slow
things down a bit, given several hard choices he had to make. Propmore Corporation was a good
place to work. It had sales of about $500 million per year, a net profit margin of 5 percent, and a
return on equity of 15 percent. Propmore made several key components used by the aerospace
industry and consumer goods market. It was a leader in its field. The company was organized by
product divisions, each reporting to the Executive Vice-President. Its operations were
decentralized, with broad decision- making capability at the divisional level. However, at the
corporate level functional departments (Purchasing, R&D, Personnel, and Marketing) set
company policy and coordinated divisional activities in these areas. Propmore was financially
successful, and it treated its people well, as Don Bradford’s experience showed.

After earning his MBA four years ago from a respected state university, Don quickly rose through
the ranks in Purchasing. At age 31, he holds the prestigious position of Manager. (See
organizational chart.) Before joining Propmore, Don earned a B.S. in engineering and worked for
three years in the aerospace industry as a design engineer. During his first three years at
Propmore, Don was a buyer and received “excellent” ratings in all his performance appraisals.

As Purchasing Manager, Don enjoyed good working relationships with superiors and
subordinates. He was accountable directly to the Division General Manager and, functionally, to
the Corporate Vice-President of Procurement, Mr. Stewart. His dealings with these people were
always amiable and he came to count upon them for technical guidance, as he learned the role of
Divisional Purchasing Manager. Don had several staff assistants who knew the business of
buying and were loyal employees. He had done a good job of handling the resentment of those
passed over by his promotion to manager, and he had developed a good deal of trust with the
buying staff. At least he thought he had-until Jane Thompson presented him with the first in a
series of dilemmas.

Jane Thompson, age 34, had been with Propmore for ten years. She had a B.A. in English
Literature and two years experience as a material expediter before coming to Propmore. Initially
hired as a purchasing assistant, Jane became a buyer after two years. She enjoyed her job and the
people she worked with at Propmore. In four years of working with Don, Jane had come to
admire and respect his approach to management. She appreciated his sensitive yet strong
leadership and saw him as an honest person who could be trusted to look after the interests of his
subordinates.

But the dilemma with which Jane now presented Don made him wonder whether he had the skill
to be a manager in a major division.

PROPMORE CORPORATION

SITUATION I

A Luncheon Harassment

After a two hour purchasing meeting in the morning, Bill Smith, an Airgoods Corporation Sales
Representative, had invited Jane Thompson to lunch. They left at noon. An hour and a half later,

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Jane stormed into Don Bradford’s office, obviously upset. When Don asked what was wrong,
Jane told him in very strong terms that Bill Smith had sexually harassed her during and after the
luncheon. According to Jane, Bill made some sexual comments and suggestions toward the end of
the meal. She considered this to be offensive and unwelcome. Jane, however, told Bill to take her
back to the office. He attempted to make light of the situation and said he was only joking, but on
the way back he made some further comments and several casual physical contacts to which she
objected. When they arrived at the company, Bill was embarrassed and tried to apologize. But
Jane entered the office before he could finish.

Jane demanded that the Airgoods Corporation be taken off the bidder list for the raw material
contract and that Airgoods’ President be informed of the unseemingly and illegal behavior of one
of his salesmen. She would also consider taking legal action against Bill Smith through the Equal
Employment Opportunity Commission for sexual harassment. Also, Jane stated she would
investigate suing the Propmore Corporation for failure to protect her from this form of
discrimination while she was performing her duties as an employee of the company. At the end of
this outburst, Jane abruptly left Don’s office. Don was significantly troubled. Jane played a
critical role in getting bids for the raw material contract. He needed her. Yet he knew that if he
kept Airgoods on the bidder list, it might be difficult for her to view this vendor objectively. Don
was somewhat concerned about Jane’s threat to sue Propmore but doubted that she had a very
good case. Still, such an action would be costly in legal fees, management time, and damage to
the company’s image.

Don wasn’t sure what to do about the bidder list. Airgoods had an excellent record as a reliable
vendor for similar contracts. Propmore might be at a disadvantage if Airgoods was eliminated.
On the other hand, Don firmly believed in standing behind his subordinates. At this point, he
needed more information on what constitutes sexual harassment and what policy guidelines his
company had established. He examined two documents: the EEOC Definition of Sexual
Harassment (Appendix 1) and the Propmore Corporation's Policy HR-13, on Sexual Harassment
(Appendix 2).

APPENDIX 1
SITUATION I

EQUAL EMPLOYMENT OPPORTUNITY COMMISSION DEFINITION OF SEXUAL

HARASSMENT

“Unwelcome sexual advances, requests for sexual favors and other verbal or physical contact of a
sexual nature constitute sexual harassment when (1) submission to such conduct is made either
explicitly or implicitly a term or condition of an individual’s employment, (2) submission to or
rejection of such conduct by an individual is used as the basis for employment decisions affecting
such individual, or (3) such conduct has the purpose or effect of unreasonably interfering with an
individual’s work performance or creating an intimidating, hostile or offensive working
environment.”

“Applying general Title VII principles, an employer, employment agency, joint apprenticeship
committee or labor organization (hereinafter collectively referred to as ‘employer’) is responsible
for its acts and those of its agents and supervisory employees with respect to sexual harassment
regardless of whether the employer knew or should have known of their occurrence.”

-- EEOC guideline based on the Civil Rights Act of 1964, Title VII

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APPENDIX 2
SITUATION I

THE PROPMORE CORPORATION POLICY HR-13

POLICY AREA: Sexual Harassment

PURPOSE: The purpose of Policy HR-13 is to inform employees of the company that The
Propmore Corporation forbids practices of sexual harassment on the job and that disciplinary
action may be taken against those who violate this policy.

POLICY STATEMENT: In keeping with its long-standing tradition of abiding by pertinent

laws and regulations, The Propmore Corporation forbids practices of sexual harassment on the
job which violate Title VII of the Civil Rights Act of 1964. Sexual harassment on the job,
regardless of its intent, is against the law. Employees who nevertheless engage in sexual
harassment practices face possible disciplinary action which includes dismissal from the
company.

POLICY IMPLEMENTATION: Those who wish to report violations of Policy HR-13 shall
file a written grievance with their immediate supervisors within two weeks of the alleged
violation. In conjunction with the Legal Department, the supervisor will investigate the alleged
violation and issue his or her decision based upon the findings of this investigation within 30 days
of receiving the written grievance.

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PROPMORE CORPORATION
SITUATION II

Gathering More Information

Don Bradford had met Bill Smith, the Airgoods Corporation Salesman, on several occasions but
did not feel he really knew him. To learn more about Bill, Don talked with his other key buyer,
Bob Peters. Bob had dealt with Bill on many contracts in the past. After Don finished recounting
the incident concerning Jane, Bob smiled. In his opinion, it was just a “boys will be boys”
situation that got blown out of proportion. It may have been more than a joke, but Bob did not
think Bill would do something “too far out.” He pointed out that Bill had been selling for ten
years and knew how to treat a customer.

Don’s next step was a visit to the division personnel office. In addition to going through Jane’s
file, he wanted to discuss the matter with Ann Perkins, the division’s Human Resource Manager.
Fortunately, Ann was in her office and had time to see him immediately.

Don went over the whole situation with Ann. When he had finished his account, Ann was silent
for a minute. Then she pointed out that this was a strange sexual harassment situation: it did not
happen at the company, and the alleged harasser was not a member of the Propmore organization.
The extent of the company’s responsibility was not clear.

She had heard of cases where employees held their companies responsible for protecting them
from sexual harassment by employees of other organizations. But the harassment had taken place
on company premises, where some degree of direct supervision and protection could have been
expected.

Ann filled out a slip authorizing Don to see Jane’s personnel file. He took the file to an empty
office and went through its contents. There were the expected hiring and annual evaluation forms,
which revealed nothing unusual and only confirmed his own high opinion of Jane.

Then Don came to an informal note at the back of the file. It summarized a telephone reference
check with the personnel manager of Jane’s former employer. The note indicated that Jane had
complained of being sexually harassed by her supervisor. The personnel manager had “checked it
out” with the supervisor, who claimed “there was nothing to it.” The note also indicated that Jane
was terminated two months after this incident for “unsatisfactory work.”

Don returned to his office and called his functional superior, Mr. Stewart, to inform him of the
situation. Mr. Stewart was the Corporate Vice-President of Procurement. He had known Bill
Smith personally for a number of years. He told Don that Bill’s wife had abandoned him and their
three children several years ago. Although Bill had a reputation for occasional odd behavior, he
was known in the industry as a hard-working salesperson who provided excellent service and
follow-through on his accounts.

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PROPMORE CORPORATION
SITUATION III

A Telephone Call

Don felt he needed even more information to make a thorough investigation. He contemplated
calling Bill Smith. In fairness to Bill, he should hear his version of what happened during the
luncheon. But he knew he was not responsible for the actions of a non- employee. Furthermore,
he wondered if talking to Bill would upset Jane even more if she found out? And would it be a
proper part of an investigation mandated by company policy?

As Don considered his options, the phone rang. It was Bill Smith’s boss, Joe Maxwell. He and
Bill had talked about the luncheon, he said, and wanted to know if Jane had reported anything.
“Don, I don’t know what you know about that meeting,” said Joe, “but Bill has told me all the
facts, and I thought we could put our heads together and nip this thing in the bud.” Don wasn’t
sure if this call was going to help or hinder him in his decision making. At first, he felt Joe was
trying to unduly influence him. Also, he wasn’t sure if the call was a violation of Jane’s right to
confidentiality. “Joe, I’m not sure we should be discussing this matter at all,” said Don. “We
might be jumping the gun. And what if Jane…”

“Wait, wait,” Joe interrupted. “This thing can be put to rest if you just hear what really happened.
We’ve been a good supplier for some time now. Give us the benefit of the doubt. We can talk ‘off
the record’ if you want. But don’t close the door on us.”

“Okay,” said Don, “let’s talk off the record. I’ll hear Bill’s version, but I won’t reach a
conclusion over the phone. Our policy requires an investigation, and when that’s complete, I’ll let
you know our position.” “Gee, Don;” said Joe, “I don’t think you even need an investigation. Bill
says the only thing that went on at lunch was some innocent flirtation. Jane was giving him the
old ‘come on,’ you know. She was more than friendly to him, smiling a lot and laughing at his
jokes. Bill saw all the signals and just responded like a full blooded male.”

“You mean Jane was the cause of his harassing her?” Don asked.

“No, he didn't harass her,” Joe said with urgency in his voice. “He only flirted with her because
he thought she was flirting with him. It was all very innocent. These things happen every day. He
didn’t mean any harm. Just the opposite. He thought there was a chance for a nice relationship.
He likes her very much and thought the feeling was mutual. No need to make a federal case out of
it. These things happen—that’s all. Remember when you asked out one of my saleswomen, Don?
She said ‘no,’ but she didn’t suggest sexual harassment. Isn’t this the same thing?”

“I don’t know. Jane was really upset when she came to me. She didn’t see it as just flirting that
went on,” said Don.

“Come on, Don,” insisted Joe. “Give her some time to calm down. You know how women can be
sometimes. Maybe she has PMS. Why don’t you let things just settle down before you do
anything rash and start that unnecessary investigation? I bet in a couple days, you can talk to
Jane and convince her it was just a misunderstanding. I’ll put someone else on this contract, and
we’ll forget the whole thing ever happened. We’ve got to think about business first, right?”

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Joe Maxwell’s phone call put things in a new light for Don. if it was only innocent flirtation, why
should good relations between Propmore and Airgoods be damaged? Yet he knew he had an
obligation to Jane. He just wasn’t sure how far that obligation went.