Shake Shack and USAA’s Business Ethics

Businesses regularly have to make decisions where ethical issues are at play. This
paper examines ethical issues that are related to the manner in which businesses received and
used money meant to support individuals, families, and businesses battling the effects of
Covid-19 pandemic. It will examine these ethical issues from a utilitarian and Kantian
viewpoint and then provide recommendations for the most appropriate actions that the
businesses should have taken.

Ethical Issues

In the case of USAA, there were two main ethical issues. First, the organization used
Covid-19 stimulus money that was channeled through it to offset negative balances in the
accounts of some of its members. While this action was legal, it was unethical because it
defeated the purpose of the stimulus package. The goal of the stimulus package was to help
individuals and families cope with the economic difficulties resulting from the negative
impact that Covid-19 had had on the economy. By using the relief money to offset negative
balances in the accounts of members, USAA in effect withheld some of the relief money
from its members who probably were in desperate need of the money. Thus, the actions of
USAA were not only unethical but they also violated the spirit of the relief package.

Secondly, USAA acted unethically when it failed to disclose to some of its members
that it would be using their Covid-19 relief money to offset their negative account balances.
Many members expected to receive the relief money and had probably budgeted for it. The
withholding of their relief money must have been distressing to them.

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As for Shake Shack, the main ethical issue is that it is a large restaurant chain that
applied for a loan that was meant for small businesses. Granted, its actions were legal as
many of its individual restaurants are technically small businesses with less than 500
employees as the application requirements specified (Small Business Administration, 2020).
However, the fact still remains that as a business entity, Shake Shack is a large corporation
that is valued at $2.06 billion and has more than 8,000 employees. Thus, its actions were
unethical because they denied more deserving small businesses access to the government
loans. Unlike Shake Shack whose large size means that it could easily access financial
resources from other sources, the only hope for the small restaurants was the government
loan.

Stakeholder Implications

The stakeholders involved in the actions of USAA are the organization itself, its
members, and the government. The government is a stakeholder because it is the one that
issued the relief money. The intention of the money was to help individuals and families to
cope better with the economic difficulties resulting from the effects of coronavirus. The
action of USAA meant that this purpose was only partially fulfilled as the company withheld
some of the money from its intended recipients.

The other stakeholder in the actions of USAA was the members of the organization
whose relief money was withheld by the company in order to offset their negative bank
balances. As a result of the actions of the bank, these members could not access their relief
money. The fact that they had overdrawn from their accounts probably means that they had
financial problems. Their inability to access the relief money from the government could
have worsened their already bad situation.

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In addition to the government and USAA’s members, USAA itself was a stakeholder
in its actions. From its point of view, its actions were perfectly legal. However, they defeated
the purpose of the government’s relief package and worsened the financial situation of its
members. Moreover, the fact that it did not inform its members about its intention to use the
relief money to offset negative balances of some of its members may have negatively affected
its reputation, especially among the affected members.

As for Shake Shack, the main stakeholders in its actions were the government and
small restaurants. The actions of Shake Shack prevented many small businesses from
accessing government loans that would have helped them to cover their operational costs and
keep them from shutting down. The actions also prevented the government from achieving its
goal of helping small businesses weather the economic storms resulting from coronavirus.

Kantian Viewpoint

Kant’s theory holds that people have a moral rulebook that they need to follow (Crash
course). Under no circumstances should one violate the moral rules (Crash Course, 2016). To
determine these moral rules, Kant developed the principle of categorical imperative. The first
version of categorical imperative states that one should act in a way that the rules of their
action could be applied by everyone at all times or could be universalized (Sailor, 2012, p.
61). Based on Kantian viewpoint, determining whether USAA acted in an ethical or unethical
manner depends on whether or not it obeyed duties that could be universalized. Thus, the
company acted in an ethical manner when it decided to use relief money to offset negative
bank balances of some members. However, it did not act in an ethical manner when it chose
not to inform members that it would use their relief money to offset their negative balances.

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From a Kantian viewpoint, the actions of Shake Shack were not unethical. The
company did not break any law as it qualified for the loans that the government provided.
Being legal, the actions that Shake Shack took could be taken by other organizations and in
different times. Thus, they were in line with Kantian ethics.

Utilitarian Viewpoint

According to utilitarianism, the ethics of an action depends on its outcome. It
recommends that people make a decision that bring the greatest good to the greatest number
(Sailor, 2012, p. 107). Thus, an action is considered to be ethical if it leads to more people
getting happier. The actions of USAA prevented many of its members from accessing
government-provided relief money. Its failure to inform the affected members that it would
be withholding some of their relief funds also led to the member’s anguish. Thus, from a
utilitarianism point of view, the actions of USAA were not ethical.

The actions of Shake Shack were also not ethical from a utilitarian point of view. By
applying for loans meant for small businesses and getting the loan at the expense of smaller,
less financially stable restaurants, Shake Shack’s actions only benefited it. It brought no
benefits to a large number of small restaurants and their employees. Since utilitarianism
requires an action to lead to the greatest good for the greatest number, the actions of Shake
Shack were not ethical. According to Crash Course (2016), utilitarianism involves taking one
for the team, not pursuing one’s interests. Shake Shack pursued its own interests rather than
making decisions that would bring the greatest happiness or benefits to the largest number of
small businesses.

Recommended Actions

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USAA should have allowed members who had negative bank balances to withdraw
their relief money. With many people out of work because of the effects of Covid-19,
USAA’s members desperately needed the relief to meet basic needs. Thus, even if its actions
were legal, they were nonetheless heartless. Shake Shack too should not have applied for
loans meant for small businesses. Granted, many of its restaurants can be considered small
businesses. However, unlike the small businesses, Shake Shack had many alternative sources
of capital, such as banks. It would have utilized these sources instead of also going for loans
that small businesses need to stay afloat.

Conclusion

Understanding ethical issues associated with a given decision helps businesses to
make decisions that are ethical. From both a utilitarian and Kantian point of view, the
decisions that USAA and Shake Shack made were not ethical. USAA should not have
withheld some of the relief money meant for hard-pressed families and Shake Shack should
not have applied for loans meant for small businesses.

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References

Crash Course. (2016). Utilitarianism: Crash Course Philosophy #36. Retrieved from
https://www.youtube.com/watch?v=-a739VjqdSI
Saylor (2012). The Business Ethics Workshop. Washington, DC: The Saylor Foundation
Small Business Administration. (2020) Retrieved from https://www.sba.gov/funding-
programs/loans/coronavirus-relief-options/paycheck-protection-program