Contemporary agency theory dictates that managers only act in the interest of maximizing shareholder (owner) wealth (Roberts, 2004). This standard can be reasonably viewed as the minimum ethical standard that the president of a company should have. Taking this view, Thomas Koltun is essentially in damage control mode. Because of the mistakes of the company in the past, Koltun is faced with significant downside risk from mishandling this situation. It could also be reasonably argued that Thomas Koltun still bears responsibility for the original ethical imperatives that the company has had all along as the result of bringing the Travel-Lite to market. If three-quarters of these products are as yet unaccounted for, then the company still bears ethical obligations as defined by the CPSC with regards in particular to consumers.

There are serious implications associated with a mishandling of these obligations. The company has suffered ethical failures in relation to its obligations to most stakeholders. The most pressing concern is the ongoing threat to life, especially given that the company is fully aware of the problem and has already issued a recall. That the company has not followed sound recall procedure only adds to the risk that the company now faces to the company's brand and reputation. The company faces the risk of legal action in civil court, possible criminal proceedings from the CPSC if the agency comes under pressure to re-open the file, and legal action from Hasbro. Any of these actions, if realized, could result in the company being bankrupted. They make $30 million per year in revenues -- civil cases of infant death could yield awards of much higher figures than that. The company could fight the award but may be required to put the award in escrow during the proceedings. For all intents and purposes, Thomas Koltun now faces the risk that the company will be wiped out, should be mishandle the current situation.

There is little benefit to the company of attempting to hide behind the Playskool brand. The Kolcraft name may not resonate as much with the public, but it will resonate with potential branding partners and with regulators. If Kolcraft tries to throw Hasbro under the bus by hiding behind the Playskool brand, the company will lose whatever goodwill remains in the industry. It will be near impossible for Kolcraft to engage in any such licensing deals in the future.

Furthermore, the company uses its own brand on many products, and does to this day. Yet, the aftermath of the botched recall is still readily available -- indeed a Google search for Kolcraft brings up the Travel-Lite on the first page of hits. Damage to a company's reputation in light of such ethical lapses can be ongoing, in particular on the Internet. Most of the costs to the company's reputation may have been realized by the time that Thomas took the reins of the company, but the opportunity to restore some goodwill and disassociate the company from the errors of the previous regime was still there. Instead, the company still suffers reputation damage as a result of this incident. The case was even cited in a journal article investigating the state of the nation's produce recall system (Felcher, 2003).

Ethical Considerations

The continuing danger presented by the Travel-Lite places Thomas Koltun at an ethical crossroads. While he is new management, the company retains all of its original ethical obligations. Thomas in his professional capacity is an agent of the corporation and must behave accordingly. The company has to this point failed to live up to its obligations to its stakeholders. Thomas can choose to continue that legacy or he can choose to begin living up to his ethical obligations.

There are two additional points worth considering in discussing the ethical crossroads at which Thomas finds himself and his company. The CPSC bears a degree of culpability at this point. It is charged with the oversight of the industry and as such it essentially sets the moral imperative for ethical action. The company's previous ethical failures were in direct relation to that imperative. At this point, the CPSC has closed the file on the Travel-Lite. It could be interpreted that the agency has now ceded the previous imperative. There is no new imperative from the agency. Indeed, the agency's lack of follow through in the Travel-Lite case has been considered to be an example of regulatory failure as much as it is considered an example of corporate ethical failure (Felcher, 2003).

According to agency theory, his responsibility to the company would mean that he upholds the former ethical obligations in order to prevent the possibility of civil suits. This new ethical guidance will yield the same result as if Thomas adheres to the old ethical standards, but is rooted in different concerns. For example, if the Keysar suit does not yield a large judgment against Kolcraft, the downside risk to the company would be all but eliminated, meaning that Thomas has very little ethical imperative to act if he believes that such a civil lawsuit is unlikely to succeed.
The other point to consider is the degree to which the company will be impacted. Similar products from multiple manufacturers had similar problems, with similar outcomes. The V problem and the deaths that resulted from it were not unique to Kolcraft. This mitigates the potential damage to the company vis-a-vis its competitors, who care essentially in the same position. If no competitor can gain moral high ground, then the issue of goodwill deterioration is if not moot then at least of reduced relevance.

In the most basic economic sense, agency theory suggests that the company only need comply with the law (Roberts, 2004). The law provides sufficient ethical guidepost, given that the role of the agent is to enhance shareholder wealth. At the intellectual root of the agency theory of enhancing shareholder wealth, however, is the work of Milton Friedman. While Friedman's work has been distilled to this singular concept, it is sometimes misunderstood in the context of corporate ethics. The theory of agency as understood by Roberts fails to account for Friedman's full theory regarding social responsibility. The modern understanding of agency theory and the obligation of business to simply produce profit without any other ethical consideration is essentially a straw man. What Freidman (1970) wrote was that the role of free enterprise is "to make as much money as possible while con-forming to the basic rules of the society, both those embodied in law and those embodied in ethical custom." That ethical custom was left undetermined. Thus, even the advocates of a strict application of agency theory must consider that there is at least an obligation to some form of societal ethical norm. It is not a stretch to suggest that in American society undertaking actions that could reasonably be predicted to result in the deaths of toddlers violates the societal ethical norm.

Since the issue of specific ethical custom is ill-defined, a company does need to come to some understanding of the ethical customs before marketing its products. Of specific interest in this case is the fact that Kolcraft produces goods of which the end user will be an infant or toddler. The reaction of Sanfred to the death of the first child hints at a view that the parent is the end user and is therefore ultimately responsible for the use of the product. That the Travel-Lite case became a cause celebre for overhaul of the product recall system indicates that Sanfred's understanding of American society's ethical custom was incorrect. Indeed, while the parents are responsible to some degree for the usage of the product, they are not the ones who pay the highest consequence for its defect. The child, if killed, bears the ultimate cost for the defect and therefore ethical custom would dictate that the company owes a duty of care towards the child. A company marketing to adults may owe very little duty of care over a joint that bends too easily -- an adult is unlikely to be injured let alone killed and moreover can understand the cause-and-effect consequences of his or her actions. A toddler less than a year old has no such cognitive faculty and faces far greater risk to health in the event of misadventure, necessitating a higher degree of duty of care on the part of the manufacturer to the end user.

Lost in the firestorm surrounding the inaction or inadequate action of Kolcraft and the CPSC is the responsibility of Hasbro. That company is not the end manufacturer, so there are limits to its responsibility towards the end customer by virtue of the fact that it has a lower degree of control over the condition of the final product. However, it bears the same if not more responsibility in terms of the agency agreement. The Playskool brand is more exposed than the Kolcraft brand, so in order to protect shareholder interest, Hasbro has a substantial ethical obligation to…