1. What are the facts of the case?
The facts of the case are that there are two investment options and each has a different ethical and risk profile although
the AAA model is mainly concerned with the ethical aspects. The ability to operate the necessary internal controls for
Hayho manufacturing also differs between the two options. Only one option can be pursued and both are capable of
making an acceptable level of return.
2. What are the ethical issues?
The ethical issues are over the potential complicity of Hayho in supporting a corrupt regime in Jayland, in paying what
appears to be a bribe to Mr Popo under the Jayland option and in operating under less stringent regulatory conditions
in Jayland compared to Pealand. Another issue to consider is that it is alleged the president of Jayland maintains order
by abusing the rights of the people. The company is very sensitive to allegations of human rights abuses after criticisms
of Hayho were made in Arrland recently and it is reluctant to expose itself to similar criticisms again.
A further ethical issue is whether there is a corporate social obligation for companies to invest in developing or
transitional economies to help stimulate these economies. However, these disadvantages have to be weighed against
the likelihood of making twice the return for shareholders in Jayland against the option of operating sustainably in a
more stable Pealand. In Pealand, there may be ethical issues concerning taking over an existing workforce and changing
working terms and conditions, perhaps in terms of changed expectations, contractual issues and redundancies.
3. What are the norms and principles that apply?
The norms and principles that apply in this situation are that business investment decisions should be taken on a sound
commercial basis with risk, return and ethical considerations fully taken into account.
The case says that the company seeks to ‘always uphold the highest standards of integrity, human rights and
environmental protection whilst at the same time ‘responsibly’ supporting developing countries by providing jobs and
opportunities to enable greater social and economic development.’
This would tend to favour decisions that do not involve bribery (against integrity), human rights abuses (perhaps through
supporting corrupt governments), but at the same time seeking, where possible, to use investments to support local
economic development (perhaps by investing in developing countries, all other things being equal).
4. What are the alternatives?
The first alternative is to invest in Jayland, where a ‘new-build’ factory would enable Hayho to implant its culture and
systems but where there is a poorly developed education system, a potentially unstable political environment and an
absence of internal control and corporate governance regulations.
The other alternative is the Pealand option, to take over an existing plant and an inherited workforce in a more highly
regulated business environment.
5. Which option is most consistent with norms and principles?
Both options have strengths and weaknesses, depending upon how the different factors are evaluated. The Jayland
option would meet the criteria for financial acceptability and would be favourable through supporting economic growth
and by providing net additional employment in a developing country.
9The option most consistent with stated norms and principles is the Pealand option. This option has the benefit of
inheriting a trained and competent workforce and avoids the reputation risk of providing credibility for the Popo regime
and of being exposed, perhaps by a whilstleblower, for paying the ‘royalty’ (which is effectively a bribe to Mr Popo). The
Jayland option would provide a greater financial return and provide net additional employment in a developing country.
But it also would violate the principle of sound risk management because investing in an unstable and potentially hostile
political environment could expose Hayho to unacceptable levels of long-term operational, financial and reputational risk.
6. What are the consequences of each option?
In Jayland, as opposed to Pealand, a completely new factory would be built providing new additional employment,
although there could be an issue with sourcing the appropriate staff, given the poor levels of education and training. The
Jayland option would provide a higher potential return to shareholders, but at a greater risk. It would make implementing
the internal controls potentially easier but would risk reputation-damaging allegations of supporting Mr Popo’s regime.
Were the ‘royalty’ to be made public, it would have severe consequences for the trustworthiness of the Hayho board,
having given the reassurances it did after the Arrland incident.
The Pealand option would make a smaller return and involve lower risk, but could introduce potential problems with
implementing the necessary internal controls. This option would be more ethically acceptable. Hayho would be severely
criticised for supporting a corrupt regime if it invested in Jayland. But if it invested in Pealand, no bribery would be
necessary and it could publicise the fact that it chose to invest in Pealand over Jayland because it is seeking to honour
its commitments made after the previous Arrland incident.
7. What is the decision?
The decision most aligned to the company’s stated norms and principles is the Pealand option. Other powerful
countervailing factors would also have an influence, however, as risk and internal control considerations would also be
taken into account.
