Your meatless burger company’s brand was a rising star before a criminal tampered with the product in grocery stores. Now three people who ate the burgers are dead, and you are faced with the difficult task of deciding what to do in response. What’s the most ethical strategy you can devise to save your company and balance the interests of customers, investors and employees?

Businesses frequently struggle to make ethically-responsible decisions that minimize legal risk for their organizations, employees, and customers. Choosing among legally-compliant options while balancing stakeholder interests is often complex and challenging. Ideally, business leaders hope that their decisions are both legal and ethical, and will also create value in the company that ultimately benefits all stakeholders.

Constance E. Bagley, Founder and CEO of Bagley Strategic Advisors LLC and a Senior Research Fellow at Yale University, developed a decision tree intended to help business leaders navigate the relationship between law, value creation and ethics. Bagley suggests that determining the “right thing to do” in any situation begins with asking if the proposed action is legal. If your strategy complies with the law, you then ask whether the decision will maximize shareholder value. The definition of shareholder value is not limited to just increasing business profits, but also considers the broader best interest of the company, including benefits to other stakeholders. Effects on all stakeholders are contemplated when asking the next question in the decision tree—is the proposed action ethical? If the answer to this prong of the tree is “no”, then you are in the same position with the proposed action as you would be if the strategy was illegal—you shouldn’t do it!

Although the typical ideal path that Professor Bagley’s decision tree envisions is the progression from legal compliance, to maximization of shareholder value, and finally to an ethical decision, there are derivations. Looking back at the video and James Burke’s response on behalf of Johnson & Johnson to the Tylenol murders, we can see that the strategy to pull capsules from store shelves world-wide—with a loss of over $250 million--was not an option that initially increased shareholder value. However, this decision potentially saved human lives, and therefore this realization must be weighed against the dollars lost. Many would agree that Burke’s decision in this case clearly met the standard for “doing the right thing.”

As you can see from the Meatless Burger and Tylenol Poisoning scenarios, decision making is both a science and an art, and as such requires you to strike a delicate balance among strategic, legal, and ethical considerations. It’s tough to get just one aspect right, much less all three, especially when the decision maker faces financial, time, and other resource constraints. Yet there are methods and models that can guide your decision process. One such analytic tool is the Three Pillar Model designed by George Siedel, a Professor Emeritus of the Ross School of Business at the University of Michigan who designed the Meatless Burger scenario with Professor Christine Ladwig. Siedel’s model, which parallels Professor Bagley’s decision tree, is adapted from a required course on leadership that is taught in the MBA program at Harvard Business School. The model focuses on the key foundations for decisions in business, politics, non-profit organizations, and everyday life: strategy, law and ethics (the Three Pillars).

The Three Pillar model is especially valuable when making business decisions, and you begin the process by devising a strategy that aligns with value creation for your company. You should think about these questions: What is the real issue here, and how is it affecting the business and stakeholders? What is the best solution/approach to this situation? What strategy will create value for the business and its stakeholders?

After devising your strategy, you should examine the related law. This may be a rule or regulation, or even proposed legislation, that will affect the strategy you’ve developed.  After devising a legally-compliant strategy, you next conduct an ethics analysis. To do this, work through these four steps of ethical decision making: (1) describe theethical dilemma, (2) identify the stakeholders involved, (3) analyze options (including how each group of stakeholders will be affected—the stakeholder analysis), and (4) make a decision based on your analysis. To help you in examining the ethics of a potential decision, you may apply the tests included in the video, such as the Utilitarian Test, the Newspaper Test, the Family Test, and the Mentor Test.

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