Management - Ethical Leadership and Decision Making - Chipotle Case Study - Assessment Help

Management Assignment

Assignment Task

Ethical Leadership and Decision Making: Chipotle Case Study

In an ideal world, it is often clear what is right or wrong but in the real world, things are mostly unclear. A person’s wrong can be another person’s right, which means that the latter’s right will at some point be the former’s wrong. In most instances, the right choices can be subjective and this often leads to ethical dilemmas. According to Razik, Swanson, and Razik (2010), ethical dilemmas mostly termed as moral dilemmas are circumstances in which a choice has to be made between two alternatives with neither of the options able to resolve the circumstance in an ethically satisfactory manner. In such instances, personal and societal ethical directives offer minimal satisfactory result for the chooser. Several leaders in organizations and companies face ethical dilemmas in their careers where they are forced to make tricky moral decisions. The approach used and the decision made by the leaders is what differentiates one company from the other (Gatignon, 2003). Those who make the right ethical decisions irrespective of how tricky the situation is often stand out. However, some leaders make poor ethical decisions in quest to maximize profits even if it means putting the lives of the stakeholders at risk. A good example of a company that has been in news since mid-2015 because of the decisions it made is Chipotle Mexican Grill. It is a chain of restaurant in the US that has over 1000 branches in more than 30 different states. Recently, Chipotle was linked to offering customers unhealthy food that caused massive crisis between July and November 2015 (Money & Rodriguez, 2016). The focus is to demonstrate how Chipotle faced an ethical dilemma to serve its customers with a healthy menu and make average returns or use cheap unhealthy menu and maximize profits, as well as the choice the leadership made and the consequences they faced.

Ethical Dilemma at Chipotle

Chipotle Mexican Grill refers to a chain of fast food eateries in the US and beyond. It opened the initial restaurant in early 1993 and because of offering its customers with high quality raw ingredients, distinctive interior design, and classic cooking methods, the company managed to rise faster (Datamonitor, 2010). By 2000, Chipotle had opened about 200 fast food restaurants in at least 22 States in the US. Presently, Chipotle has expanded beyond the US borders with about 17 restaurant chains in Canada and the UK. Things were working effectively in Chipotle’s favor with millions of customers in the US and overseas trusting its meals. However, at some point, the company took advantage of its popularity and competitive advantage to make wrong ethical decisions. The company never received any complaints since its initiation in 1993 to 2010 (Datamonitor, 2010). However, the management wanted to maximize its profit margins and at the same time, serve its customers with high-quality meals full of raw ingredients. It was difficult to achieve both goals because attainment of high-quality raw ingredients was quite expensive and would mean that the company fails to maximize profits. Chipotle failed to consider the involved consequences as it made decision to acquire cheap and unhealthy raw ingredients that led to unforgettable outcomes.

Since the beginning of 2016, Chipotle was in crisis because for months, a sequence of health panic sent its stock plummeting, mired sales, and activated a federal investigation. In early February 2016, Chipotle mentioned that it would close all its fast food chains to allow its workers to learn about the seriousness of its foodborne disease outbreak (Money & Rodriguez, 2016). A person would ask, what really happened that led to the crisis? In evidence to the vicious brand loyalty that Chipotle was committed to caring for its devoted customers, the initial signs of food safety issues showed up at its fast food chains in mid-2015. Nevertheless, the indications had minimal impact on the brand image and share prices of the company. In July of the same year, five individuals from the Seattle region contracted E. coli after taking meals at a local Chipotle. As was the case with the first incident, the cases drew minimal attention and thus, the executives did not take any action because they were enjoying the profits. In fact, the same month, Chipotle made returns of a record of $757.77 million (Money & Rodriguez, 2016). The rates stayed high through October and by that time, the company was valued at $24 billion. Nevertheless, the joy was transitory because the situation started going sour the same month – October. At least 200 customers and workers at Chipotle Simi Valley in California reported cases of norovirus, which is the leading cause of diseases associated with contaminated food in America. On 23rd of October, Chris Collins ordered a plate of chicken at Chipotle in Lake Oswego (Krier, 2016). The following day, his body was aching intensively with a constant stomach upset. He started experiencing diarrhea and cramping and shortly after, his stomach bloated to the extent that he could not move as he felt agonizing pain when he tried to walk. On 25th, Collin’s diarrhea became bloody and had to be rushed to the nearby clinic where the nurse immediately sent him to the emergency room, as she was frightened the patient might have colon cancer.

After examination, Collins was diagnosed of Shiga-toxin producing E.coli026, which he had acquired from one of the 21 ingredients that were in the meal he took at Chipotle (Powell, Chapman, & Powell, 2015). Two weeks later, when he had partially recovered, Collins sued the company for the damages. To make the situation worse, 53 other people from nine states across the US were diagnosed with the similar strain of E. coli. According to the Center for Disease Control and Prevention, at least 20 of them were hospitalized, as their conditions were serious. The outbreak attracted public attention as the news was all over the media. Chipotle had to close at least 43 of its chains in Washington and Oregon in mid-November in an effort to discover the source of the E. coli and clean its reputation that had already been maddened by the media (Powell, Chapman, & Powell, 2015). Its income went down from a record earning to a record loss in December 2015. The shareholders of the company threatened to withdraw their shares if they did not receive a satisfactory explanation of what had happened. In an investor conference held in mid-January, 2016 in Florida, the company’s executives attempted to calm the panic-stricken shareholders and publicly apologized to the customers for the mess that had happened (Krier, 2016). The court is yet to decide the charges that the company will pay the victims for the damages caused.

There is no doubt that Chipotle will incur extra losses when they compensate the victims for the damages. Presently, the company is trying to lure its customers back by offering free food but the strategy seems not to be working in their favor as customers are not showing up. If the situation continues this way, Chipotle will have to permanently closed down some of its fast food restaurants and lay down more than 1000 employees (Krier, 2016). The Chipotle health disaster is a clear indication that fresh food comes at a price and that making wrong ethical decisions leads to costly consequences.

Theoretical Concepts

Management and organizational leadership are critical because it involves a large population. The decisions made can build or destroy the organization because a good reputation attracts customers and leads to a strong competitive advantage. Chipotle Mexican Grill has struggled to grow its brand over the years and it had reached a point where its competitors were just admiring its progress (Datamonitor, 2010). Nevertheless, the decisions made by the management in 2015 to maximize profits were ethically wrong and went against the theoretical concepts related to management and leadership. Some of the theoretical concepts that are applicable in managerial ethics are explained below.

Utilitarian or Rule-Based Ethical Theory

Jeremy Bentham initially framed the rule-based theory in the 18th century and Stuart Mill later refined it. Utilitarian is a theoretical concept that looks beyond selfishness to integrate impartially the interests of all individuals affected by an action (Thannhuber, 2005). The theory stresses on the consequences of an action on the stakeholders. In this case, the stakeholders are individuals affected by the results of an action. The theory relates to the scenario at Chipotle Mexican Grill where the actions of the executives affected both the employees and the consumers. The management led by Steve Ells acted selfishly but their actions highly affected the consumers (Krier, 2016). They acquired cheap food products in the name of ‘fresh raw ingredients’ led to widespread contamination of food supplied to customers. The outcome was hospitalization of at least 200 customers from different regions across the US. The management failed to observe the rules of the business because it wanted to make maximum returns. According to the utilitarian theory, the decisive rule to follow is integration of the ‘greatest good for the greatest number’ (Gatignon, 2003).

The action taken by Chipotle’s management does not serve any greater good. The employees were still earning what they used to earn which means that the only beneficiaries of maximizing returns in an illegal way were the management. According to Krier (2016), the shareholders were not aware of what was going on which means that they were also not involved. In a business like food chain restaurants, the greatest number is the customers who visit the eateries, order meals and pay. Note that Chipotle has about 1,900 branches in at least three continents in the world. It means that the company serves more than one million consumers in a month (Powell, Chapman, & Powell, 2015). To make a decision that could heart 1 million individuals for the interest of less than 100 individuals in the management is beyond selfishness – its greediness and an extreme demonstration of egotism. Therefore, as far as utilitarian theory is concerned, Chipotle Mexican Grill failed to apply the rule of ‘greatest good for the greatest number.’

Virtue-Based Ethical Theory

Virtue-based ethical theory was initiated in the ancient Greece and is believed to have been formed by great philosophers particularly Aristotle and Plato. Virtue-based believes that judgment is practiced through possession of virtues as opposed to set of rules because the former enables people to make choices concerning what is good and to keep off other desires that may hinder achieving this objective (Bush, Bell, & Middlewood, 2010). It means that virtue-based ethics stresses on some qualities that describe suitable behavior and the correct action to undertake. Contrary to other typical ethical theories, virtue theory does not develop a specific set of criteria to assess potential decision. Instead, virtue-based stresses on the internal attributes of a person with whom people would want to enter into an interaction of trust (Bush, Bell, & Middlewood, 2010). The management of Chipotle lacked virtues that could enable them to make decisions on what is good. According to them, the decision to use cheap ingredients from unhealthy sources would maximize their profits. They believed this was a good decision because it could help them fulfill their objectives.

However, the management of Chipotle failed to factor in the good of others because in any given business, the customer is king. Without customers, business cannot run effectively as is the case now at Chipotle. No one trusts their foods and thus, they do not get customers despite their efforts to give free food. The decisive objective of the virtue-based theory is for the decision maker to undertake the right thing at the appropriate place and time, and in the right manner. Evidently, the decision makers who are the management team at Chipotle did the wrong thing at the wrong place with poor timing. The action they took to maximize profit was wrong because they should not have done it at the expense of their loyal customers. The place was wrong because the organization belongs to the shareholders and they should have involved them before making such a poor decision. Therefore, the company made wrong ethical decision that failed to observe the principles of virtue-based theory.

Rights-Based Ethical Theory

The development of rights theory leads to the 17th century in writings of John Locke and Thomas Hobbes. Contemporary rights theory is related to the 18th century philosopher Immanuel Kant. Rights theory presumes that people have particular prerogatives that should be respected such as the right to privacy, freedom of speech, and due process. Kant’s model creates a person’s responsibility as a moral agent toward others who hold certain rights (Thannhuber, 2005). It is centered on an ethical principle that he terms as the definite imperative. One form of the categorical imperative stresses the universality of ethical actions. According to this theory, it is the responsibility of every person to integrate moral principles in their actions (Razik, Swanson, & Razik, 2010). The Chipotle Mexican Grill’s management led by Steve Ells was expected to take on the mantle and integrate moral principles in their actions. Contrary, the team decided to cater for their selfish interests by acquiring cheap and unhealthy food products so that it could make more profits than usual. They achieved their goal of maximizing profits because they managed to hit a record worth of $24 billion (Powell, Chapman, & Powell, 2015). However, it was short-lived because the consequences of their actions suppressed profit generation. According to Kant, people should follow the principle that they should only act in a manner that would make them happy if everyone else in that situation would act in a similar manner. What would Tim Cook, the head of Apple Inc. have done in such a situation? What would the CEO of McDonald’s Steve Easterbrook done in the same situation? What would Kant, a great philosopher have done in such a situation? Evidently, all these people would have made a different decision than putting the lives of customers at stake in the name of making more returns than normal (Chhokar, et al., 2007). McDonald’s is also in the same food industry and is among the world’s leading fast food restaurants. Even though it faces some challenges in the marketing field, it has never compromised the health of its customers just to maximize profits (Krier, 2016). Therefore, there is no doubt that Chipotle violated the principles of virtue-based theory with their greediness.

Connecting Ethics, Leadership and Decision-Making

Ethics and leadership are inseparable because a leader without moral values is dysfunctional. An organization can hardly grow with leaders who do not uphold ethical principles and values. The key to have an ethically driven organization is hiring morally upright leaders. Linda Fisher Thornton (2013) writes in her book Learning the Principles and Practices of Ethical Leadership that the organizations that prosper in leading morally not only advance their business operations and culture, but also play a role in making a difference in the world. In most cases, effective leaders concentrate on what is morally right and demonstrate to their people that they are available for any kind of assistance that does not lead to exploitation of the vulnerabilities of other people (Thornton, 2013). Their organizations normally respond to their example and their wish to serve other individuals and make a good impression.

One of the key significance of ethics in leadership is observed when making critical decisions in the organization. The significance of ethics to an organization is because the standards that it uses to build and govern the organization have to be rooted in ethical strategies and decisions. It should be noted that all ethical questions concentrates on decision-making. First, an individual has to acknowledge that ethical issues exist (Razik, Swanson, & Razik, 2010). They may be lawful issues or judgment call but in both instances, the question of what is the ultimate good for all the involved stakeholders must be asked and response given (Sinha, 2008). This is in line with Utilitarian theory, which emphasizes on undertaking action that supports the greatest good.

In establishing the difference between the right and the wrong, leaders have to keep in mind that those phrases are subjective. Once such an understanding is made, the definition of ethics becomes clear because it becomes easy to rely on the available code of ethics (Schein, 2004). Nevertheless, when a leader fails to integrate ethics into an organization, it becomes difficult to command respect and make the right decisions (Thannhuber, 2005). This was the case at Chipotle Mexican Grill where the leaders who had demonstrated high levels of corporate code of ethics failed to integrate them when it was very crucial.

Steve Ells and his team had upheld corporate code of ethics for at least two decades and all their decisions were rooted in ethical values. They were highly concerned with the aspect of the greatest good for all the stakeholders and that is why they attracted millions of customers in their fast food restaurants. However, in mid-2015, the leaders decided to prioritize their selfish interest and forgot about the greatest good for the larger number (Powell, Chapman, & Powell, 2015). They put aside the moral values and codes of ethics that they had maintained for years and made unethical decision. They decided to maximize profits at the expense of the health of the customers. The result was a health crisis associated with the food ingredients offered at Chipotle. Therefore, from this example it is clear that ethics and leadership are inseparable especially when it comes to decision making.

Conclusion

Leadership is important in the world because it gives direction and ensures there is order in every aspect of life. Leadership is significant in demonstrating the difference between right and wrong and enforcing the right in the society. It means that leaders must possess moral values in order to enforce the right actions in the society. Moreover, leaders are appointed or hired to lead others and since one cannot lead blindly, he or she often has some guiding principles and standards that have to be exemplified and enforced. At least 70 percent of organizations in the world have codes of ethics that help them run and ensure that they make a difference in the world. Nevertheless, few organizations fail to integrate ethics of greater good for the greater number and end up messing the world. Chipotle Mexican Grill is a good example where unethical decisions were made in the mid-2015 and since then, the company has been all over the media for the wrong reasons. The leaders decided to maximize profits by purchasing cheap and unhealthy food ingredients that endangered the lives of the customers.