Chapter 15: Channel Stuffing At McAfee Inc.
Identify ethical problems: This ethical situation focuses on the practice of producing extra
products and dispatching them into the sales channels often with special sales incentives. It
may be noted that in some cases such as Bausch & Lomb from chapter 1 and McAfee, Inc. these
actions end with unanticipated negative outcomes for the company as well as sales
intermediaries in the sales channels. Implicit in this situation is the question whether the
increase of products in the sales channel represents some short term market condition
requiring an immediate response (such as an increase in medications before expected health
pandemics) or whether the increase is an effort to report positive sales growth in the short
term. When the increased products in the sales channel represents a response to some
expected future event then there would not appear to be any ethical dilemma; however, there
is an ethical dilemma where the increase in the sales channel represents an effort to increase
short term sales without any underlying condition to expect those products to be in demand.
This ethical problem is open-ended (i.e., has no single correct solution) because of uncertainties
relating to the response of consumers to the special inducements offered by McAfee, Inc. For
example, we do not know the extent to which McAfee, Inc. expected the extra products to be
purchased by consumers within an acceptable period of time.
Objectively consider others: This section requests a critical evaluation of the practice of overproduction. This analysis is completed by looking at the two main possibilities in the issue and
the respective views of the practice. Many differing opinions will surface in this exercise;
however, the variance in opinion will serve to enrich and enlighten the debate on the issue.
The following are the perspectives of the over-production based on incorrect estimate of future
sales and over-production to increase short term sales.
 Incorrect estimate of future sales: Production decisions begin with expectations
regarding the level of future sales. In that future levels of sales are affected by a
plethora of factors which may affect either positively or negatively the experienced level
of sales, it is possible to make an error in estimating future sales that would lead to
either too much or too little inventory in the sales channel. In this case, the managers
make assumptions regarding the expected level of sales, the desired level of ending
inventories, and the availability of other inputs to produce the required products. If
those sales estimates are incorrect and the products are not in demand then some
remains in the sales channel to clear out by means of sales inducements or return. This
scenario does not readily lead us to salient conclusions regarding values employed by
decision makers as the outcome is largely due to an error and not choices of the
managers.
 Short term increase in sales: In this case, managers deliberately over-produce and push
the extra into the sales channel to show an increase in sales for the current period.
Some of the assumptions that lie behind this action is the short term increase in sales
will receive a reward that outweighs possible future negative repercussions of the
action, the existence of sales inducements and extra inventory may create extra sales,
and the long term viability and reputation of the organization will not be negatively
affected. The predominant value that these managers are using appears to be the
maximization of short term profits.
Investors’ viewpoint: Investors may be concerned with the rationale regarding the reason for
the over-production of products and stuffing of the sales channel. Where the over-production
is the result of inaccurate sales forecasts then the effects will likely be short term and corrected
in the following periods without significant impact upon long term share prices. Where overproduction represents an effort to increase sales, it may span a longer period of time (in
MacAfee, Inc.’s case from 1998 to 2000) and may end with corrections that have a significant
effect on share prices (from $11.75 to $3.25 in this case), significant penalties for offending
behaviour ($50 million US in this case), and loss of key personnel as the negative outcomes of
the actions become prominent.
Clarify and apply ethical values In this case there will be many different policy statements to
govern channel stuffing. Notwithstanding, most statements will likely have some language
regarding appropriate instances (for example, to meet expected short term spikes in demand)
and inappropriate instances (for example, to increase short term sales).
The values that one holds and espouses regarding channel stuffing will be important in helping
to determine where the bounds of acceptability in channel stuffing lies. Below are some
possible values that might be used to make such a decision.
 Value: Managers should take actions that maximize the organization’s profits. Under
this value, the production will be set to maximize profits.
 Value: Managers should take actions that are legal. Under this value, managers will limit
production setting to the level ensuring compliance with all relevant laws (competition,
securities, and other laws) surrounding the decision.
 Value: Managers should take actions that maximize the social benefit. Under this value,
managers would need to assess the effects of the over-production on others and society
as a whole and maximize the social benefits in a decision.
 Value: Managers should take actions that lead to long term viability and sustainability
of their organizations. Under this value, production considerations will need to be
weighed for their possible long-term effect upon the overall viability of the provision of
products and services.
Work toward ongoing improvement: The limitations of the policies will depend upon the
policies themselves; therefore, there are no universal sets of limitations that may be presented.
However, in light of the fact that any policy will have limitations, companies may limit the
behaviour of channel stuffing by ensuring that the reward and recognition system of the
organization does not reward the inappropriate use of the practice of channel stuffing.