Business Regulation Simulation
University of Phoenix Alumina Inc. is a $4 billion aluminum maker based in the United States (U.S.) and operates in eight other countries around the world. The company has business interests in automotive components and the manufacture of packaging materials, bauxite mining, alumina refining, and aluminum smelting (University of Phoenix, 2008). The U.S. market constitutes 70% of the company’s sales.
A crisis has arisen from allegations of environmental damages which have led to a person’s illness (University of Phoenix, 2008). This paper will identify key facts, regulations, and legal issues; identify several of Alumina’s values and stakeholders; identify conflicts which constitute ethical dilemmas; summarize legal counsel’s advice on the issues; and evaluate alternative solutions in the context of Alumina’s legal position.

Key Facts, Regulations and Legal Issues

Five years ago, a routine EPA compliance inspection revealed higher than acceptable levels of a carcinogenic substance, polycyclic aromatic hydrocarbons (PAH), to which Alumina promptly responded with a cleanup. The subsequent environmental audit reported the violation as corrected and the company has maintained a good compliance record since then (University of Phoenix, 2008). Alumina has made every effort to be compliant with environmental regulations.

Administering environmental laws at the federal level is the Environmental Protection Agency. Since many of the laws provide for both federal and state enforcement, the states also have strong environmental agencies. As is stated in The Legal and Regulatory Environment of Business (2005), “Policies are set at the federal level, and the states devise plans to implement them. States, and even local governments, also enforce their own laws that affect the environment and control pollution” (Reed, Sheed, Morehead, and Corley, 2005, pp. 507-508).

Unfortunately, businesses are one of the major sources of water pollution in the United States with almost one-half of all water usage being for industrial cooling and condensing purposes. In addition to thermal effluents, there are also discharges of chemical and other effluents (Reed, et al., 2005). The principal federal law regulating water pollution is the Clean Water Act of 1972 (CWA Summary, 2008). The Clean Water Act (CWA) is administered primarily by the states in accordance with EPA standards. “If the states do not fulfill their responsibilities, however, the federal government, through the EPA, can step in and enforce the law” (Reed, et al., 2005, p. 519).
Recently, a local resident, Kelly Bates, has publicly accused Alumina of continually contaminating the waters of Lake Dira and that the consumption of contaminated water is the proximate cause of her 10-year-old daughter’s leukemia. Upon the recommendation of the company’s chairman, Roger Lloyd, an independent site study was conducted which revealed PAH levels lower than the EPA standards. This news temporarily blunted the Bates’ accusation of Alumina “repeatedly contaminating the waters of Lake Diva” (University of Phoenix, 2008).

A leading American scientific society reports in its quarterly journal that increased traffic in the heavily industrialized state of Erehwon is poisoning the waters of Lake Dira. The PAH levels are found to be 100 times greater than pre-urban conditions (University of Phoenix, 2008). These facts may help prove Alumina is not the sole cause of the little Bates girl’s leukemia.

The Freedom of Information Act (FOIA, 2008) provides citizens with the means to obtain information that has been acquired by a governmental agency, or has been reported to a governmental agency by a company. The EPA notifies Alumina that Ms. Bates is requesting information on the previous Alumina violation. Alumina agrees, in accordance with the tenants of the law, to a partial release of information. The partial release will protect Alumina’s proprietary industrial processes while still providing details on the CWA violation. This shows the company’s efforts to maintain a clean record.

Finally, with the assistance of the American Arbitration Association, Alumina secured a confidential settlement with the Bates family. The settlement included reimbursement for past medical expenses, a lump sum for future medical treatment, and a college fund should the child recover from her illness. In exchange, Ms. Bates signed a release of all claims and also signed a strict confidentiality agreement.

Alumina’s Values, the Stakeholders, and Conflict

Alumina values profits, its trade secret processes, its public image, adhering to appropriate regulations, a clean environment, and the public’s safety (University of Phoenix, 2008). The Chairman of Alumina, Roger Lloyd, also values arbitration over court battles.
The stakeholders involved in this scenario are Kelly Bates and her 10-year-old daughter, the executive management of Alumina, the stockholders of Alumina, the public community, the EPA, and the local newspaper. Each stakeholder has a different value in the outcome. While Alumina stockholders and management are concerned with making profits, they also want to make sure their image is not tarnished and their business operations are not impacted. Ms. Bates appears to want financial compensation for her child’s illness and perceives Alumina is at fault.

The community is concerned about the high level of pollutants and what effect they will have on their families. The EPA is charged with protecting the public and enforcing, or making sure the states enforce, the Clean Water Act per EPA standards. The local newspaper needs to report significant news of the community which affects the community.

The ethical dilemma is whether Alumina should legally fight the allegations of Ms. Bates, or acquiesce to the demands of an individual who perceives the company is at fault for her child’s disease. There is also the ethical dilemma of the company’s responsibility to the community. There is the conflict of whether to proceed with a costly litigation, with a possibly unfavorable outcome, or submit to arbitration to reduce the impact to the company and secure a confidential agreement.

Summary of Advice of Legal Counsel

The company must proceed systematically to gather all relevant information that it reasonably can obtain (University of Phoenix Q&A, 2008). Evaluating this material establishes how the company will make further decisions, how it will respond to the allegations, and how it will defend itself, if necessary. The company must be committed to handling the results of such an investigation in an appropriate and ethical manner.

Concerning the FOIA notification, the company’s first efforts should be focused on ascertaining in a realistic manner what truly “confidential” information is contained in the agency’s report. The company should focus on narrowly tailoring its objections to only those aspects the disclosure of which would subject the company to a demonstrable competitive injury should such information become generally known. Once that is completed, it is prudent to allow the government agency to disclose the remainder of the report.
Concerning whether to proceed with litigation or not, the cost of a protracted legal battle can easily run into tens of thousands of dollars. There is uncertainty and risk associated with the outcome because of the possibility of a large monetary judgment being assessed against the company. Litigation will undoubtedly take months, if not years, for a judgment. Would the time and resources necessary for a lengthy legal battle be in the best interests of the company? A trial is public and the company’s sensitive information could be revealed. In addition, the publicity generated from the court battle could cause significant harm to the company’s reputation.
Alternative dispute resolution (ADR) offers an alternative to litigation with several advantages. Costs of ADR are generally much less. ADR generally results in a more expeditious process. The parties have more input and control over the progression of the case. ADR can also be binding or non-binding (mediation). Through the ADR process the parties can agree to keep matters confidential and private (University of Phoenix Q&A, 2008).

Evaluation of Alternatives

Alumina can choose to do nothing and ignore the allegations. This would undoubtedly provoke Ms. Bates to escalate the problem by not only going forward with the litigation, but also gathering support for a class action suit, as well as making the situation as public as possible. The potential risks to Alumina’s reputation are high. The potential risk of an unfavorable judgment against Alumina is also high in addition to the costs in time and money of a protracted court battle. It is not recommended that Alumina ignore the allegations.

Alumina could issue press releases extolling the effectiveness of its processes to reduce pollutants and its perfect record over the last five years. It could also issue a press release emphasizing the findings of the scientific study conducted by the American scientific society that an increase in traffic is a greater contributor to the higher levels of pollutants. Unfortunately, this would not solve the problem of the community’s perception the company’s processes are polluting the water. Ms. Bates will still go forward with her litigation costing the company time and money as well as damaging the company’s reputation.

Another alternative would be to proceed with the litigation. As has already been outlined by the advice of counsel, the cost in time and money would be high and not guarantee a favorable outcome. There is also the possibility the company’s operations would be impacted due to interim legal injunction brought by Ms. Bates’ attorney.

Conclusion

Companies must be good neighbors. They must act responsibly and exercise due care and caution in their business dealings. They must consider the interest of all stake holders when making business decisions. Although not all litigation is avoidable, the company must be willing to use alternate dispute resolution methods to reduce the overall adverse impact to the company’s business and reputation. References
CWA Summary. (2008). Summary of the Clean Water Act, 33 U.S.C. §1251 et seq. (1972). U.S. Environmental Protection Agency – laws, regulations, guidance, and dockets. Retrieved September 28, 2008, from http://www.epa.gov/lawsregs/laws/cwa.html

FOIA. (2008). Freedom of Information Act, 5 U.S.C. § 552. U.S. Department of Justice. Retrieved September 28, 2008, from http://www.usdoj.gov/oip/foia_updates/Vol_XVII_4/page2.htm

Reed, O.L., Shedd, P.J., Morehead, J.W., and Corley, R.N. (2005). The legal and regulatory environment of business. (13th Ed.) New York, NY: McGraw-Hill/Irwin, a business unit of The McGraw-Hill companies, Inc.

University of Phoenix. (2008). Business regulation [Computer Software]. Retrieved September 26, 2008, from University of Phoenix, rEsource, Simulation, MBA560 – Enterprise Risk Management Web site.

University of Phoenix Q&A. (2008). Alumina legal process Q&A. Retrieved September 29, 2008, from University of Phoenix, Week Three, rEsource, MBA560 – Enterprise Risk Management Web site. MBA/560

Week Three Risk Analysis Matrix

Risk Analysis Matrix
Alternative Solution Risks and Probability Consequence and Severity Mitigation Techniques and Strategies
Do nothing. • Bates would move forward with lawsuit and may win (medium).
• Potential lawsuits by others (medium).
• Damage to corporate reputation (high).
• Escalation of problem (high). Expensive litigation; expensive settlement; damage to reputation; injunctions against operations; relatively severe. • Negotiation.
• Out of court settlement.
• Arbitration.
Issue a press release admitting prior violation and current clean record. • Will merely add fuel to the fire (high).
• Will prejudice community (high).
• Bates will move forward with lawsuit anyway (high). Expensive litigation; expensive settlement; damage to reputation; relatively severe. • Negotiation.
• Out of court settlement.
• Arbitration.
Issue press release emphasizing scientific study showing other causes of high levels of PAH. • Will not dissuade Bates from moving forward with lawsuit (high).
• Will not dissuade public opinion Alumina is still not responsible in some way (high).
• Problem will escalate (high). Expensive litigation; expensive settlement; damage to reputation; relatively severe. • Negotiation.
• Out of court settlement.
• Arbitration.
Go through with lawsuit. • Might lose (medium).
• Judgment may be greater if lawsuit is lost (high).
• May take years to litigate and reach judgment (high).
• There may be interim injunctions filed to stop operations until suit settled. Expensive litigation; expensive settlement; damage to reputation; relatively severe. • Amass as much favorable documentation as possible.
• Issue a flood of favorable press releases and reports.
• Legally block any injunctions.
• Negotiate a favorable out of court settlement.
• Arbitration.