Case Study 5: General Electric Prices
Clarence Burke began working for the heavy-equipment division of General Electric as soon as he graduated from college in 1926. Clarence was an energetic, hard-driving, and tenacious person and looked forward to a promising career at GE. The heavy electrical equipment division at GE was the oldest part of the company, around which the rest had been built, and it still accounted for a quarter of its sales. Moreover, GE dominated the heavy electrical equipment markets: It held 40 to 45 percent of the heavy equipment markets, followed by Westinghouse who held 30 to 35 percent, then Allis-Chalmers and Federal Pacific who held 10 percent apiece. By the 1950s, the combined sales of these companies would average $1,750,000,000 per year in the heavy electrical equipment markets alone.1 Long before Clarence Burke began working for GE, the company was involved in a series of antitrust suits that continued through the 1940s. These suits are summarized in Table 4.4. In November 1946, as a response to these suits, GE formulated an antitrust directive which stated that it "is the policy of this company to conform to the antitrust laws." The directive (which came to be known as "directive 20.5") was repeatedly revised and filled out until it eventually read: Directive Policy on the Compliance by the Company and its Employees with the Antitrust Laws No. 20.5 It is the policy of the company to comply strictly in all respects with the antitrust laws. There shall be no exception to this policy nor shall it be compromised or qualified by any employee acting for or on behalf of the company. No employee shall enter into any understanding, agreement, plan, or scheme, express or implied, formal or informal, with any competitor, in regard to prices, terms or conditions of sale, production, distribution, territories, or customers; nor exchange or discuss with a competitor prices, terms, or conditions of sale, or any other competitive information; nor engage in any other conduct that in the opinion of the company's counsel violates any of the antitrust laws.2 Every manager was periodically asked to indicate in writing that he was adhering to the policy. The standard written letter the manager would sign stated: I have received a copy of directive policy general No. 20.5, dated __________. I have read and understood this policy. I am observing it and will observe it in the future.3 The letter was not signed under oath nor was a manager responsible to his or her immediate local superior for adhering to the policy. The letter was sent out from GE's central offices, and was returned to the central offices by mail. Any disciplinary action taken to enforce the directive also had to originate at the home office. PHI445 Personal and Organizational Ethics Online 2 In 1945 Clarence Burke was promoted to Sales Manager of GE's distribution transformer department. Here he worked under H. L. "Buster" Brown, general manager in charge of sales for all transformer departments. In July 1945, a month after Clarence entered his new position as department sales manager, his superior, Mr. Brown, told him he would be expected to attend the regularly scheduled meetings of the National Electrical Manufacturers Association in Pittsburgh, meetings which were also attended by the sales managers of the other three or four major producers of electrical equipment. Conversations at the meetings gradually began to turn to prices and soon the managers were making informal agreements to quote "an agreed upon price" to all their customers. Clarence Burke went along and accepted the practice, especially after the managers were assured by "Buster" Brown that the company's antitrust directive did not refer to the sorts of informal agreements they were making: The only agreements that were illegal, according to Brown, were those which "gouged the public." Several years later Clarence Burke recalled that he and others had "understood" that what...
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