Caterpillar Inc
Caterpillar Inc (CAT) is a large OEM based in the US, making construction and mining equipment for the Heavy Duty Market all over the world. Daniel Schlicksup, a former employee of Caterpillar had turned into a corporate whistleblower when he decided to send documents to the IRS, showing proof that Caterpillar, with the help of its auditor, PWC, had devised a way to shift billions in profits to Switzerland to avoid U.S. taxes. Daniel made this decision after repeated attempts by him to warn the management at CAT after which a systematic effort was made to shut him down. The IRS with the help of these documents, in 2013, concluded that Caterpillar employed an “abusive” tax strategy which resulted in a demand for over $2 billion in back taxes and penalties. Later in early 2014 a U.S. Senate investigative committee, with input from Schlicksup, grilled executives and concluded the company had avoided taxes on more than $8 billion in revenue.
The issue at hand is a direct noncompliance towards its code of conduct and a direct attack on integrity by CAT’s executives. They have violated the rules of integrity by not acting honestly, not competing fairly and not ensuring accuracy ; completeness of financial reports ; accounting records. These lapses in the code of conduct costs billions in loss to the U.S. government, damaged the brand image, costs hard working Americans their jobs and also dents the morale of its employees. The right thing to do for Caterpillar was to avoid increasing profits through such an abusive tax strategy and device other methods to work with suppliers to reduce production costs or come up with innovative technology to remain competitive.
The major stakeholders in this case would be the Caterpillar executives and its employees, the American tax payer, the IRS and FDIC agencies. To understand utilitarianism, looking at this case from the executives and employees point of view, they probably enjoyed a short term happiness due to higher profit margins which sends the stock price soaring. However, when the IRS and FDIC find out about this scheme, which they eventually did, heavy fines are imposed and the reputation damaged which sends the stock stumbling and hence causing grief to these very same executives and employees. Many such corporations in the US are seeking similar strategies to avoid U.S. taxes which eventually effects the American Tax payer as reduced taxes will crumble the infrastructure and increase national debt to unprecedented heights. Hence a utilitarian would review this case and say CAT was very unethical in its actions.
The five virtues that every person needs to possess are truth, compassion, courage, temperance and justice. In this case, I believe it was only Daniel Schlicksup, who was after doing the right thing and complying with all these virtues, whereas CAT executives and its auditor, PWC were acting against it. Daniel was able to defy the corporate culture in the attempt to do the right thing and expose the abusive tax strategy, while the executives continued to funnel billions to offshore accounts and tried to cover it up instead of showing the courage to do the right thing by identifying the issue and fixing it. From the CAT executives point of view, they could argue that, had they not followed such an aggressive strategy, they could have lost market share and hence hurt the company stock in any way. However, the strategy from a virtues standpoint should be deemed unethical and the executives should have devised other by the book strategies, like lobbying for lower corporate tax rate by the US government or focusing on improving its technology and innovations to help compete better in the marketplace.
In the end, the unethical actions did catch up with the company with an ongoing legal case being fought by CAT against the government which has damaged its brand image and reputation among the American people. CAT will now need to own up to its unethical decisions in the past and help rectify the error by imposing a strict code of conduct with training and examples showcasing the implications of any breach against it. An independent ethics committee needs to be set up who can review such claims from both internal employees or external public, so they never land in such a situation that can tarnish the brand and its reputation in the marketplace. CAT will also need to invest heavily in technology and innovation to find legitimate ways to fight the competition and continue to remain the largest construction and mining equipment manufacturer in the world.
