Fluent Essays

1) Identify and discuss the ethical dilemma faced by CEO of Carnival Arnold Donald. Apply and discuss Donald’s situation following Ferrell & Gresham’s Contingency Framework focusing on the 3 variables impacting ethical decision making.  2) Identify the sustainability dilemma and discuss the sustainability implications faced by Donald. 3) Stakeholders are directly or indirectly affected by an organizations actions. Provide 3 specific stakeholders affected by the situation and briefly explain the effect(s). 4) Discuss the challenges in addressing the ethical dilemma faced by Donald by identifying at least 2 key issues and their subsequent implications/ramifications.  5) If you were Donald, how would you have responded to the ethical dilemma?  6) If you were part of Carnival’s top management, how would you implement a solution to respond to the ethical dilemma? O. C. Ferrell & Larry G. Gresham A Contingency Framework for Understanding Ethical Decision Making in Marketing This article addresses a significant gap in the theoretical literature on marketing ethics. This gap results from the lack of an integrated framework which clarifies and synthesizes the multiple variables that ex- plain how marketers make ethical/unethical decisions. A contingency framework is recommended as a starting point for the development of a theory of ethical/unethical actions in organizational environments. This model demonstrates how previous research can be integrated to reveal that ethical/unethical de- cisions are moderated by individual factors, significant others within the organizational setting, and op- portunity for action. OST people agree that a set of moral principles or values should govern the actions of market- ing decision makers, and most marketers would agree that their decisions should be made in accordance with accepted principles of right and wrong. However, consensus regarding what constitutes proper ethical behavior in marketing decision situations diminishes as the level of analysis proceeds from the general to the specific (Laczniak 1983a). For example, most people would agree that stealing by employees is wrong. But this consensus will likely lessen, as the value of what is stolen moves from embezzling com- pany funds, to padding an expense account, to pil- fering a sheet of poster board from company supplies for a childs homework project. In fact, a Gallup poll found that 74\% of the business executives surveyed had pilfered homework supplies for their children and 78\% had used company telephones for personal long- distance calls (Ricklefs 1983a). O. C. Ferrell is Associate Professor, and Larry G. Gresham is Assistant Professor, Department of Marketing, Texas A&M University. The au- thors wish to thank Patrick E. Murphy, Gene R. Laczniak, Mary Zey- Ferrell, Charles S. Madden, Steven Skinner, Terry Childers, and two anonymous reviewers for their helpful suggestions and constructive comments. Journal of Marketing Vol. 49 (Summer 1985), 87-96. Because of the lack of agreement concerning eth- ical standards, it is difficult to find incidents of de- viant behavior which marketers would agree are unethical. For example, in the Gallup poll cited above, 31\% had ethical reservations in accepting an expen- sive dinner from a supplier, but most of the respon- dents indicated that bribes, bid rigging, and price col- lusion had become more common in recent years (Ricklefs 1983a, 1983b). Dishonesty is reportedly perverting the results of market tests (Hodock 1984). Obviously, there is a wide-ranging definition of what is considered to be ethical behavior among marketing practitioners. Absence of a clear consensus about what is ethical conduct for marketing managers may lead to delete- rious results for a business. Due to faulty test mar- keting results, potentially successful products may be scrapped and unwise market introductions may be made. In either case, both the consumer and the cheated firm are losers. Productivity and other mea- sures of efficiency may be low because employees maximize their own welfare rather than placing com- pany goals as priorities. Absence of a clear consensus about ethical con- duct among marketers has resulted in much confusion among academicians who study marketing ethics. These academicians have resorted to analyzing various lists Understanding Ethical Decision Making in Marketing / 87 This content downloaded from ��������������68.232.1.8 on Mon, 10 Aug 2020 16:45:00 UTC��������������� All use subject to https://about.jstor.org/terms of activities to determine if marketing practitioners feel specific behaviors are ethical or unethical. This re- search seems unenlightened by evidence that ethical standards are constantly changing and that they vary from one situation/organization to another. Individ- uals have different perceptions of ethical situations and use different ethical frameworks to make decisions. Thus, no attempt is made here to judge what is ethical or unethical (the content of the behavior). Our con- cern is with the determinants of decision-making be- havior which is ultimately defined as ethical/unethi- cal by participants and observers. Rather than advocate a particular moral doctrine, we examine contexts and variables that determine ethical decisions in the man- agerial process. This article intends to fill a significant gap in the theoretical literature related to marketing ethics. The conceptual framework developed and discussed fo- cuses on a multistage contingency model of the vari- ables that impact on ethical decisions in an organi- zational environment. The articles specific objectives are (1) to review empirical research and logical evi- dence useful in creating a contingency framework to explain ethical decisions of marketers, (2) to defend the contingency framework with existing empirical re- search and logical evidence, and (3) to suggest ad- ditional research to test portions of the contingency framework. Definitions and Approach We assume that the operating exigencies of the firm bring the marketer into contact with situations that must be judged as ethical or unethical (right or wrong). Such situations may include placing marketers in positions to use deceptive advertising, fix prices, rig bids, fal- sify market research data, or withhold product test data. The opportunity variable is especially salient since the marketer performs a boundary spanning role for the organization. That is, the marketer links the task en- vironment to the organization by defining consumer needs and satisfaction. As Osborn and Hunt (1974) note, those parts of the organization most exposed to the environment will be under more pressure to de- viate. Therefore, many of the ethical questions de- veloping in any firm are related to marketing deci- sions. The model described is equally applicable to other functional areas of the organization, such as ac- counting, management, etc. However, the opportu- nity to deviate from ethical behavior may be less prev- alent in nonmarketing areas, due to a lower frequency of boundary spanning contacts. The proposed framework for examining ethical/ unethical decision making is multidimensional, pro- cess oriented, and contingent in nature. The variables in the model can be categorized into individual and organizational contingencies. The individual variables consist of personal background and socialization char- acteristics, such as educational and business experi- ences. The organizational characteristics consist of the effects of organizations external to the employing or- ganization (customers, other firms) and intraorgani- zational influences (e.g., peers and supervisors). These variables are interdependent as well as ultimately af- fecting, either directly or indirectly, the dependent variable-ethical/unethical marketing behavior. The general framework is a contingency approach to individual decision making, which suggests that we can observe wide variations in ethical decision mak- ing, but this variation is not random. Theoretical and practical contributions are achieved through identify- ing important contingency variables that distinguish between contexts in which decisions are made. This simply means that the decision making of marketers is dependent on contingencies external to the deci- sion-making process. These contingency factors may be found within the individual, in the organizational context, or external to both the individual and the or- ganization (i.e., in the interorganizational environ- ment). The contingency framework presented in Figure 1 demonstrates that multifaceted factors affect the like- lihood of ethical actions by individual decision mak- ers. Individual factors (including knowledge, values, attitude, and intentions) are posited as interacting with organizational factors (including significant others and opportunity factors) to influence individuals involved in an ethical/unethical decision-making dilemma. The societal/environmental criteria used to define an eth- ical issue are treated as exogenous variables in this theoretical framework and are, therefore, beyond the scope of this analysis. Constructs in the Contingency Framework Individual Factors It is impossible to develop a framework of ethical de- cision making without evaluating normative ethical standards derived from moral philosophy. Based on the emphasis of normative approaches in the litera- ture, it is assumed that marketers develop guidelines and rules for ethical behavior based on moral philos- ophy. Various philosophies related to utilitarianism, rights, and justice explain how individuals create eth- ical standards. The oldest approach to ethics is based on the study of moral philosophy. It is assumed that, knowingly or unknowingly, individuals may use a set of philosoph- ical assumptions as a basis for making ethical deci- sions. This assumption about the influence of cultural 88 / Journal of Marketing, Summer 1985 This content downloaded from ��������������68.232.1.8 on Mon, 10 Aug 2020 16:45:00 UTC��������������� All use subject to https://about.jstor.org/terms FIGURE 1 A Contingency Model of Ethical Decision Making in a Marketing Organization ETHICAL ISSUE OR DILEMMA -advertising deception -falsifying research data -price collusion -bribes -bid rigging I I I I I I I I I -I I L. . . .._ . i _ _ _ _ _ _ _J- i m - / --/ -l and group norms/values on individual decision-mak- ing processes is soundly based in marketing literature (cf. Engel and Blackwell 1982, Fishbein and Ajzen 1975). Philosophy divides assumptions about ethics into two basic types-teleological and deontological (Beauchamp and Bowie 1979). These two approaches differ radically in terms of judging ethical behavior. Teleological philosophies deal with the moral worth of behavior determined totally by the consequences of the behavior. Ones choice should be based on what would be best for all affected social units. For many marketing decision makers, ethical action is tied into the business and their ability to meet company per- formance objectives (Sherwin 1983). The assumption is that the economic success of a firms marketing ac- tivities should benefit employees, management, stockholders, consumers, and society. Utilitarianism is a teleological philosophy that attempts to establish morality not in the motives or intentions of marketers decisions but in the consequences of such decisions (Velasquez 1982). Utilitarianism. The act is ethical only if the sum total of utilities produced by the act is greater than the sum total of utilities produced by any other act. That is when the greatest possible balance of value for all persons is affected by the act. Under utilitarianism, it is unethical to select an act that leads to an inefficient use of resources. Also, it is unethical to engage in an act which leads to personal gain at the expense of so- ciety in general. Implicit in the utilitarian principle is the concept of utility and the measurement and com- parison of value. For example, it may cost the public more through higher prices to redesign an automobile than to pay damages to a few people who are injured from a safety defect in the automobile. Deontological philosophies stress the methods or intentions involved in a particular behavior. This fo- cus on intentions is consistent with marketing theories of consumer choice (cf. Engel and Blackwell 1982, Howard 1977), which specify behavioral intentions as a cognitive precedent of choice behavior. Results of action are the focus of deontological philosophies. Standards to defend personal ethics are often devel- oped from the types of deontological philosophies de- scribed in the following summaries (Velasquez 1982). Rights principle. This principle specifies mini- mum levels of satisfaction and standards, independent Understanding Ethical Decision Making in Marketing / 89 SOCIAL and CULTURAL ENVIRONMENT I m ~= m m I i m -, i ~,--an I I I I I This content downloaded from ��������������68.232.1.8 on Mon, 10 Aug 2020 16:45:00 UTC��������������� All use subject to https://about.jstor.org/terms of outcomes. Moral rights are often perceived as uni- versal, but moral rights are not synonymous with legal rights. The rights principle is based on Kants cate- gorical imperative which basically incorporates two criteria for judging an action. First, every act should be based on a reason(s) that everyone could act on, at least in principle (universality). The second crite- rion is that action must be based on reasons the actor would be willing to have all others use, even as a basis of how they treat the actor (reversibility). For example, consumers claim that they have a right to know about probable defects in an automobile that relate to safety. Justice principle: This principle is designed to protect the interests of all involved. The three cate- gories are distributive, retributive, and compensatory. Basically, distributive justice holds that equals should be treated equally and unequals should be treated un- equally. Retributive justice deals with blaming and punishing persons for doing wrong. The person must have committed the act out of free choice and with knowledge of the consequences. The punishment must be consistent with or proportional to the wrongdoing. Compensatory justice is concerned with compensation for the wronged individual. The compensation should restore the injured party to his/her original position. Corporate hierarchies and executive prerogatives are examples of distributive justice in practice. Antitrust legislation allowing criminal prosecution of corporate officials is based on the notion of retributive justice. Class action suits embody compensatory principles. It is important to note that all of these philosophies produce standards to judge the act itself, the actors intentions, or the consequences of the act. Also, these philosophies are based on assumptions about how one should approach ethical problems. Standards devel- oped from utilitarianism, justice principles, and rights principles are used to socialize the individual to act ethically and may be learned with no awareness that the standards are being used. The precise impact of these philosophies on ethical behavior is unknown, but there is widespread acceptance in the marketing lit- erature that such culturally derived standards impact on the decision-making process. Ethical decision making may be influenced by the Individual Factors identified in Figure 1. Beliefs may serve as inputs affecting attitude formation/change and intentions to resolve problems. Also, evaluation or in- tention to act (or even think about an ethical dilemma) may be influenced by cognitive factors that result from the individuals socialization processes. It is at this stage that cultural differences would influence per- ceptions of problems. For example, variations in eth- ical standards are illustrated by what Mexicans call la mordida-the bite. The use of payoffs and bribes are commonplace to business and government officials and are often considered tips for performing required functions. U.S. firms often find it difficult to compete in foreign environments that do not use American moral philosophies of decision making. Organizational Factors The preceding discussion explored philosophies that have an impact on individuals knowledge, values, at- titudes, and intentions toward ethical issues. In this section, recognition is given to the fact that ethics is not only a matter of normative evaluation, but is also a series of perceptions of how to act in terms of daily issues. From a positive perspective, success is deter- mined by managers everyday performances in achieving company goals. According to Cavanaugh (1976, p. 100), Pressure for results, as narrowly measured in money terms, has increased. Laczniak (1983a) suggests that this pressure to perform is par- ticularly acute at levels below top management be- cause areas of responsibility of middle managers are often treated as profit centers for purposes of evalu- ation. Consequently, anything that takes away from profit-including ethical behavior-is perceived by lower level management as an impediment to orga- nizational advancement and recognition (p. 27). Thus, internal organizational pressures seem to be a major predictor of ethical/unethical behavior. Significant Others Figure 1 posits Significant Others as a contingency variable in individual decision making. Individuals do not lear values, attitudes, and norms from society or organizations but from others who are members of disparate social groups, each bearing distinct norms, values, and attitudes. Aspects of differential associ- ation theory and role-set theory provide theoretical ra- tionales for including organizational factors in the de- cision framework. These theories, and empirical tests of their relevance to the ethical decision-making pro- cess, are discussed in the following sections. Differential association theory. Differential asso- ciation theory (Sutherland and Cressey 1970) assumes that ethical/unethical behavior is learned in the pro- cess of interacting with persons who are part of inti- mate personal groups or role sets. Whether or not the learning process results in unethical behavior is con- tingent upon the ratio of contacts with unethical pat- terns to contacts with ethical patterns. Cloward and Ohlin (1960) are responsible for incorporating an op- portunity variable (discussed in a later section) in the differential association model of deviant behavior. Thus, as posited in our model, it is expected that as- sociation with others who are perceived to be partic- 90 / Journal of Marketing, Summer 1985 This content downloaded from ��������������68.232.1.8 on Mon, 10 Aug 2020 16:45:00 UTC��������������� All use subject to https://about.jstor.org/terms ipating in unethical behavior, combined with the op- portunity to be involved in such behavior oneself, are major predictors of unethical behavior. In the Zey-Ferrell, Weaver, and Ferrell (1979) study of marketing managers, differential association with peers and opportunity were found to be better predic- tors of ethical/unethical behavior than the respon- dents own ethical belief system. This finding contra- dicts DeFleur and Quinncys (1966) reformulation of Sutherlands differential association model, which specifies internalization of group norms as a necessary second step in the development of deviant behavior. The Zey-Ferrell, Weaver, and Ferrell (1979) conclu- sion that an individual may act in compliance with group pressure without internalizing group norms is, however, congruent with the value/behavior incon- sistency noted by Newstrom and Ruch (1975) in their survey of marketing practitioners. Empirical support for the impact of superiors on the ethics of their subordinates is provided by a va- riety of studies of business ethics spanning the last two decades. For example, more than 75\% of the manager/respondents (n = 1200) to Baumharts (1961) ethics survey reported experiencing conflict between personal standards and what was expected of them as managers. In Brenner and Molanders (1977) repli- cation of the Baumhart research, 57\% of those re- sponding (n = 1227) indicated similar role conflict situations. Carroll (1975) found that young managers in business indicated they would go along with their superiors to demonstrate loyalty in matters related to judgment of morality. Almost 60\% of the respondents (n = 236) agreed that young managers in the business world would have done just what junior members of Nixons re-election committee had done. In Bow- mans (1976) follow-up, an even higher percentage (70\%) of public officials expressed this same opinion. Central to the application of differential associa- tion theory to the model of ethical/unethical market- ing behavior is the identification of referent others in the decision process. This perspective is provided via a consideration of the decision makers (focal per- sons) role-set configuration. Role-set theory. A role set refers to the comple- ment of role relationships which focal persons have by virtue of their social status in an organization (Merton 1957). A role-set configuration is defined as the mixture of characteristics of referent others who form the role set, and may include their location and authority, as well as their perceived beliefs and be- haviors. Previous evidence (Merton 1957, Miles 1977) suggests that role-set characteristics provide clues for predicting behaviors of a focal person. One important dimension of role-set configuration appears to be the organizational distance between the referent other and the focal person. Organizational distance in this context is defined as the number of distinct intra- and interorganizational boundaries that separate the focal person and the referent other. Per- sons in the same department as the focal person tend to be least differentiated. They are hired and social- ized within the same immediate organizational con- text and share the focal persons functional special- ization and knowledge base. People in different departments within the same organization are more similar than people separated by organizational boundaries. Those in other organizations have differ- ent socialization and reinforcement under systems which pursue separate and sometimes varying objectives with different personnel selection criteria. Boundaries within and between departments serve to reduce the focal persons knowledge of referent others attitudes and behaviors. Further, referent others outside the focal persons own organization are likely to differ from the focal person in orientation, goals, interests, and mo- dus operandi. Thus, one would expect that the greater the distance between the focal person and the referent other, the less likely their influence on the focal per- sons ethical/unethical behavior. In the only reported direct test of the distance hy- pothesis, Zey-Ferrell and Ferrell (1982) compared re- sponses from ad agency account executives with those from their corporate clients. The expectation that nei- ther of those groups would be perceived by the other as influencing their own behavior (due to the inter- organizational distance involved) was confirmed. Fur- ther support for the distance proposition came from the ad agency respondent type. Peer group, the refer- ent other closest to the focal person, was the strongest predictor of ethical/unethical behavior. But, for the corporate respondent, top management, rather than peer group, was the most influential. The latter finding does not support the distance hypothesis but is consistent with predictions deriving from the relative authority dimension of the role configuration. The relative authority dimension is a measure of the amount of legitimate authority referent others have, relative to the focal person, on issues requiring con- tact between them. Kahn et al. (1964) view powerful referent others in a role set as those capable of re- stricting the range of behavior available to the focal person. They posit the status and powers of referent others as directly related to the amount of pressure they can exert on the focal person to conform to their role expectations. Thus a role set configured with ref- erent others who are superior in authority relative to the focal person would be in a position to exert strong role pressures for compliance to their expectations. Applying this logic to business settings, one would anticipate that top management, as referent others with greater authority, would have more influence than peer Understanding Ethical Decision Making in Marketing / 91 This content downloaded from ��������������68.232.1.8 on Mon, 10 Aug 2020 16:45:00 UTC��������������� All use subject to https://about.jstor.org/terms groups on the focal persons ethical/unethical behav- ior. The Baumhart (1961) and Brenner and Molander (1977) surveys support this relative authority propo- sition-behavior of superiors was perceived by re- spondents in both studies as the number one factor influencing ethical/unethical decisions. Similar re- sults are also reported in a study by Newstrom and Ruch (1975). Hunt, Chonko, and Wilcox (1984) found the actions of top management to be the single best predictor of perceived ethical problems of marketing researchers. Ferrell and Weaver (1978) suggest that top management must assume at least part of the re- sponsibility for the ethical conduct of marketers within their organization. In addition, the general conclusion that the ethical tone for an organization is set by upper management is common to most attempted syntheses of ethics research (cf. Dubinsky, Berkowitz, and Ru- delius 1980; Laczniak 1983a; Murphy and Laczniak 1981). Responses from the Zey-Ferrell and Ferrell (1982) ad agency executive sample do not support the au- thority proposition-this group was influenced by peers, rather than top management. The authors spec- ulate that this unexpected outcome may have been at- tributable to the high frequency of contact among ad agency account executives and their relatively infre- quent associations with superiors. Such an explana- tion is congruent with differential association theory and appears to indicate that frequency of contact with referent others is a more powerful predictor (than rel- ative authority) of ethical/unethical behavior. Corpo- rate client responses from the same survey also sup- port a differential association explanation of the results obtained-top management, rather than peers, was perceived as the relevant referent other. In a corpo- ration, the advertising director does not have a num- ber of individuals at the same level with whom to in- teract. Thus, the frequency of interaction with upper management levels is usually higher for advertisers in corporations because the advertising director does not have anyone else performing the same job tasks. Opportunity Figure 1 depicts opportunity as having a major impact on the process of unethical/ethical decision making. Opportunity results from a favorable set of conditions to limit barriers or provide rewards. Certainly the ab- sence of punishment provides an opportunity for unethical behavior without regard for consequences. Rewards are external to the degree that they bring social approval, status, and esteem. Feelings of good- ness and worth, internally felt through the perfor- mance of altruistic activities, for example, constitute internal rewards. External rewards refer to what an individual in the social environment expects to receive from others in terms of values externally generated and provided on an exchange basis. It is important to note that deontological frameworks for marketing eth- ics focus more on internal rewards, while teleological frameworks emphasize external rewards. Cloward and Ohlin (1960) are responsible for in- corporating an opportunity variable in the differential association model of ethical/unethical behavior. Zey- Ferrell and Ferrell (1982) empirically confirm that the opportunity of the focal person to become involved in ethical/unethical behavior will influence reported be- havior. In this study, opportunity for unethical be- havior was found to be a better predictor of behavior than personal or peer beliefs. Therefore, we can con- clude that professional codes of ethics and corporate policy are moderating variables in controlling oppor- tunity. Weaver and Ferrell (1977) suggest that codes of ethics or corporate policy on ethics must be estab- lished to change individual beliefs about ethics. Their research indicates that beliefs are more ethical where these standards exist. Also, it was found that the en- forcement of corporate policy on ethical behavior is necessary to change the ethical behavior of respon- dents. Their research discovered a poor correlation between ethical beliefs and … Just Social Distance And 40 Bloomberg Businessweek April 20, 2020 This The news, when it reached the Grand Princess early on March 4, barely registered at first. In a letter slipped under passenger cabin doors, Grant Tarling, Carnival Corp.’s chief medical officer, announced that the U.S. Centers for Disease Control had begun “investigating a small cluster” of Covid-19 cases in California that might have been linked to the ship. Thirteen days after leaving San Francisco for Hawaii, the ves- sel would be skipping a scheduled stop in Mexico on its return voyage and sailing back early to its Bay Area port. That day, passengers noticed new hand sanitizer stations and crew members wearing gloves, but life on the Grand Princess, which advertises 1,301 cabins, 20 restaurants and lounges, about a dozen shops, and four freshwater swimming pools, otherwise went on as normal. Guests prepared for a ukulele concert, played bridge at shared tables, and took line- dancing classes. That night, Laurie Miller and her husband, John, attended True or Moo, a show featuring an emcee in a cow costume; the following morning, John joined about 200 TryJust Social Distance And 41 Bloomberg Businessweek April 20, 2020 Carnival’s cruise executives knew earlier than most that they had a Covid-19 problem. They kept the party going as long as possible other passengers in the ship’s Broadway-style theater for a lecture on Clint Eastwood movies. “I’m surprised they’re even letting this event happen,” he whispered to a nearby friend. “This is a big crowd.” Around lunchtime on March 5, the ship’s captain, John Smith, announced a quarantine over the ship’s public address system. All 2,422 passengers needed to go to their cabins to shelter in place. Laurie Miller was in the Da Vinci dining room eating chocolate peanut butter ice cream. “Oh my God,” she remembers thinking. “This is real.” Then she ordered more ice cream. Other passengers ambled to the ship’s stores and dining areas, too, to take advantage of the perks while they could. “Evvverrrybody went to the buffet,” recalls 61-year-old Debbi Loftus, who was traveling with her parents. “I just thought, Oh, crap, the ukulele concert is going to be canceled.” Crowds of elderly guests filed to their cabins through narrow hallways and down the stairs of the ship’s 17 decks. Sixty-nine-year-old This By Austin Carr and Chris Palmeri 42 Karen Dever tried an elevator only to find it packed with fellow passengers. “So much for social dis- tancing!” she joked aloud. As the lockdown progressed, the ship became a fixture on cable news and social media around the world, livestreamed by frustrated, scared passengers as if it were the Titanic of the TikTok age. Of the first 46 crew and passengers who were tested for the virus, 21 were positive. President Trump suggested they should be prevented from disembarking. At the time the number of confirmed cases in the U.S. was still low, and Trump implied that the vessel’s caseload would make it look like the U.S. was doing a poor job of handling the pandemic. “I don’t need to have the numbers double because of one ship,” he said. But this wasn’t Carnival’s first outbreak, nor its last. In February, another of its ocean liners, the Diamond Princess, accounted for more confirmed Covid-19 infections than any nation except for China. Since then no cruise operator has been hit harder than Carnival. At least seven more of the company’s ships at sea have become virus hot spots, resulting in more than 1,500 positive infections and at least 39 fatalities. Carnival notes that “other cruise companies have been impacted.” Carnival’s ships have become a floating testament to the viciousness of the new coronavirus and raised questions about corporate negligence and fleet safety. President and Chief Executive Officer Arnold Donald says his company’s response was reasonable under the circumstances. “This is a generational global event—it’s unprecedented,” he says. “Nothing’s perfect, OK? They will say, ‘Wow, these things Carnival did great. These things, 20/20 hindsight, they could’ve done better.’ ” Donald says that if his company failed to prepare for the pandemic, it failed in the same way that many national and local governments failed, and should be judged accordingly. “Each ship is a mini-city,” he says, and Carnival’s response shouldn’t be condemned before “analyzing what New York did to deal with the crisis, what the vice president’s task force did, what the Italians, Chinese, South Koreans, and Japanese did. We’re a small part of the real story. We’re being pulled along by it.” In the view of the CDC, however, Carnival helped fuel the crisis. “Maybe that excuse flies after the Diamond Princess, or maybe after the Grand Princess,” says Cindy Friedman, the experienced epidemiologist who leads the CDC’s cruise ship task force. “I have a hard time believing they’re just a victim of happenstance.” While it would have been tough to get every- one aboard the ships back to their home ports without infect- ing more people, Friedman says several of the plagued Carnival ships didn’t even begin their voyages until well after the com- pany knew it was risky to do so. She says its actions created a “huge strain” on the country. “Nobody should be going on cruise ships during this pandemic, full stop,” she says. Donald and his team say they’re making every effort to protect and treat their remaining passengers. The com- pany has attempted to dock its fleet until the pandemic subsides. All but about 3,200 passengers and crew are back on shore. Carnival’s future is less clear. Australian police have launched a criminal probe into whether the com- pany’s Princess Cruises subsidiary misled authorities about an outbreak aboard a ship docked in Sydney, and its Costa Cruises sub- sidiary is facing multiple passenger lawsuits regarding its Covid-19 response. (Princess says it’s cooperating with the investigation, while Costa says: “We are prepared to vigor- ously defend ourselves.”) Carnival canceled all its cruises in mid-March, and its share price is down 75\% so far this year. Its executives speak about their next moves in militaristic terms. They’re setting up “situation rooms,” cutting through the “fog of war,” countering the virus on “the front lines.” Says John Padgett, Carnival’s chief experience and innovation offi- cer: “The cruise space is as bad as it gets. It’s Armageddon.” One side effect of an Armageddon is to render the recent past faintly ridiculous. Last September, in Brooklyn, Padgett boarded another docked ship to show off his company’s new MedallionClass badges. The electronic fobs were meant to double as cabin keys and credit cards, while also tracking passengers’ locations as they moved around the ship. The offering was part of a big digital overhaul to be introduced on at least six ships in 2020. “We’re trying to eliminate guest friction,” Padgett said. Carnival’s business had experienced a remarkable turn- around after Donald became CEO in 2013. Over the next five years, the company’s market value roughly doubled, to $51 billion. In 2017, Donald invested in building a 180,000-ton megacruiser called the Mardi Gras, Carnival’s largest ship ever, which cost about $1 billion and is supposed to begin sailing in 2020 with the seas’ first onboard roller coaster. Before the Covid-19 crisis began, the company’s nine cruise brands employed 150,000 people. Carnival was founded in 1972 by Ted Arison, an Israeli- American who wanted to transform the image of the cruise industry from stuffy ultraluxury to a middle-class splurge with a party atmosphere. Arison’s first ship, also named Mardi Gras, had only 300 passengers and got stuck 20 minutes after leav- ing Miami on a sandbar where it remained for 28 hours. In the 1980s and ’90s, Arison’s son Micky bought up a string of com- petitors, took the company public, and made his family one of the wealthiest in America. By the turn of the century, Carnival owned 36\% of the North American market. Micky Arison bought the Miami Heat and became friendly with Donald Trump. (Carnival sponsored The Apprentice more than once.) After the Great Recession crippled the cruise business, Arison began to look like a less capable steward. In 2012, PRE V IO U S S P R E A D : R U T H P E T E R K IN /S H U T T E R S T O C K . D O N A L D : R IC K W IL K IN G /R E U T E R S “Nothing’s perfect , OK?” Donald 43 Carnival’s Costa Concordia crashed into a rock formation and sank in the calm seas off Tuscany, killing 32 people, including a child, while the captain abandoned ship. The following year, a fire in the engine room of the Carnival Triumph, now better known as the “poop cruise,” left hundreds of guests stranded in the Gulf of Mexico without air conditioning or working toilets for several days. During both the Tuscany crash and the poop cruise, Arison was spotted at Heat games. Arison was facing a shareholder revolt by the time he announced he was stepping down as CEO in favor of Donald, a board member and former Monsanto Co. executive. (Arison remains Carnival’s chairman.) Donald positioned himself as a reformer set on improving coordination between the com- pany’s various management teams, but he didn’t manage to clean up its record. In 2017 the U.S. Department of Justice fined Carnival’s Princess line a record $40 million for dumping oil-contaminated waste at sea and falsifying official discharge records to cover it up. Last June, Donald himself entered a guilty plea on behalf of Carnival for violating the terms of its settle- ment after authorities discovered that its ships kept on dumping even after the 2017 ruling. “We acknowledge the shortcomings,” Donald told a Miami judge. “I am here today to formulate a plan to fix them.” He would head into 2020 committed, he said, to changing the company’s tendency to cut corners on safety. At 11:12  p.m. Japan Standard Time on Feb.  1, more than a month before the outbreak on the Grand Princess, the Diamond Princess was skimming around Asia on a multiweek cruise. One of its sanitation vendors, Wallem Group, emailed an alert to the vessel’s chief administrative officer and a guest services inbox. A Wallem representative said a passenger was being treated for Covid-19 in Hong Kong. “Would kindly inform the ship related parties and do the necessary disinfection,” the alert read. Unfortunately, and somewhat inexplicably, accord- ing to Roger Frizzell, Carnival’s chief communications officer, nobody was monitoring those inboxes. He first says the mes- sages hadn’t been read for “at least days,” then later emails that, actually, an employee had read them much sooner. In Carnival’s latest version of the timeline, which it revised repeatedly during various interviews over the past several weeks, Nancy Chung, a Hong Kong-based director for the Princess line, learned of the positive test a few hours later, after seeing a report from Now News TV about a hospital- ized corona virus patient who was understood to have trav- eled to Hong Kong on a cruise. Chung texted an executive in California, who requested she connect Hong Kong health officials with Tarling, the company’s chief medical officer, according to screenshots of the messages viewed by Bloomberg Businessweek. The company says these messages show it acted promptly. But Carnival didn’t tell passengers they might have been exposed to the virus until the evening of Feb. 3, about 43 hours after the initial alert from Wallem was sent. There are other inconsistencies that suggest Carnival wasn’t entirely on the ball. The Hong Kong health depart- ment put out a press release announcing the Covid-19 case late on Feb. 1, and at 11:33 a.m. on Feb. 2, Tarling sent an “Nothing’s perfect , OK?” 2/1 4/14 Ships with one or more Covid-19 cases* Ships with passengers Ships cleared of passengers * FOR CONFIRMED CORONAVIRUS CASES AS OF 4/15, MEASURED FROM THE START OF A VOYAGE ON WHICH A PERSON WAS LATER DIAGNOSED WITH COVID-19 Diamond Princess, 706 infections Costa Magica, 7 Costa Favolosa, 10 Grand Princess, 103 Ruby Princess, 660 Costa Luminosa, 60 Costa Victoria, 3 Zaandam, 9 Coral Princess, 12 9 6 s h ip s D A T A : C A R N IV A L , C R U IS E M A P P E R , C R E W C E N T E R , N E W S R E P O R T S Bloomberg Businessweek April 20, 2020 email to Hong Kong health authorities with the subject line “Confirmed Coronavirus Case” that included the passen- ger’s name, age, and ward location at Princess Margaret Hospital. But Carnival says this was a mistake. “The subject line should’ve had ‘question mark, question mark, question mark,’ because he was asking if it’s confirmed,” says Frizzell, the Carnival spokesman, adding that Tarling didn’t get official confirmation until 6:44 p.m. on Feb. 2. Tarling says he didn’t see the previous day’s press release. A spokesman for the Hong Kong health department notes that in addition to the press release, it immediately informed “the shipping agent in Hong Kong of the cruise concerned.” Another 24 hours elapsed before Captain Gennaro Arma informed passengers and crew on the Diamond Princess of the Covid-19 case. In his announcement, at 6:33 p.m. on Feb. 3, he tried to project calm as the ship cruised toward Yokohama, Japan. The guest hadn’t reported feeling ill during his time 44 on board, Arma said over the loudspeaker, but passengers should avoid close contact with any- one suffering respiratory illness, wash their hands for 20 seconds, and seek treatment from the ship’s nurses if they had fever, chills, or a cough. “Rest assured, there will be no charge for this service,” he said. Upon arrival in Yokohama that evening, Japanese health officials started medical screen- ings. Arma added: “The situation is under control, and therefore there are no reasons for concerns.” Even after Carnival became aware of the potential corona virus case, passengers say staff tried to keep the fun going. Guests con- tinued eating and drinking at buffets and bars, hanging out in saunas, and attending shows, including an operatic performance called Bravo. Carnival distributed itineraries (known as “Princess Patter”) guiding guests to trivia contests and other group activities on Feb. 3. “They were encouraging us to mingle,” says Gay Courter, who, after get- ting her temperature taken by a Japanese official the next day, went for a walk on deck and saw tables of as many as 30 people playing mahjong. A Carnival spokesman says the staff discon- tinued “most” scheduled activities on Feb. 4, though Japanese officials didn’t institute a ship- wide quarantine requiring passengers to stay in their cabins until Feb. 5. The president of Carnival’s Princess Cruises division, Jan Swartz, says the company was deferring to Japanese health officials. She says the crew followed government guidelines, delivering the passengers food and pre- scription refills as the quarantine at Yokohama’s port wore on. Carnival CEO Donald says he was aware of the situation but didn’t personally take control of the response efforts until Feb. 5. “We have a nice chain of command,” he says. “As it became a bigger issue, I’m dialing into the situation updates.” It was an increasingly chaotic period for Carnival. Shortly before the Diamond Princess problem, there had been a corona virus scare aboard one of its ships near Italy, and a second in mid-February on another Carnival cruise in Asia. (Carnival says these were false alarms.) Countries around the world began refusing to allow the com- pany’s boats to dock, fearing they’d spread the virus, creating novel challenges for Donald and his team. “It wasn’t like there were protocols, and that this was established. You’re at sea, you’re moving people around, and the rules are changing as you go,” he says. He adds that by early March, when the virus hit the Grand Princess, Carnival had systems in place to take better care of its guests. Some Grand Princess passengers had to fill out a ques- tionnaire asking if they’d recently been to China, though there were no questions about whether they had symptoms consistent with Covid-19. On March 5, after the ship’s crew canceled the ukulele concert and any further games of True or Moo, the Grand Princess went into a holding pattern off the San Francisco coast while the White House and state and local officials fig- ured out what to do. Passengers were stuck in their cabins for almost two weeks as helicopters delivered provisions and test kits. The Grand Princess pulled into port on March 9 in Oakland, Calif., where the CDC mostly took over. Like those aboard the Diamond Princess, the passengers endured an additional 14-day quarantine after dis- embarking before being allowed to travel home. Between the Diamond Princess and Grand Princess, 850 people tested positive for Covid-19 and 14 have died. More would fol- low from outbreaks on other ships. Asked why Carnival didn’t act sooner to ini- tiate stringent shipwide quarantines, and why so many passengers reported being able to stroll about the ships following alerts of possi- bly deadly infections, Swartz says the company was following the direction of health authorities. “It’s very easy and Monday morning, you know, 20/20 hindsight, to say what’s the view of what should have been occurring,” she says. “We did our best to take care of people.” Carnival executives say they’re proud of how they served the customers aboard these cruises. They refunded everyone’s tick- ets and onboard purchases, provided free internet access during the quarantines, and assisted with post-cruise travel accommo- dations. Swartz, who notes she’s had “many tours of duty in crisis management” during her 20 years at Carnival, says she expects the experience to make customers more likely to cruise with the company, not less. “There are many loyal Princess guests who have told us that this has actually cemented Princess as their No. 1 vacation choice,” she says. During Bloomberg Businessweek’s March 27 phone interview with Swartz, reports sur- faced that four more people had died and at least 138 passengers were sick aboard another Carnival ship, the Zaandam, part of its Holland America line. Over the following days, the ship lingered near the coast of Fort Lauderdale wait- ing for government permission to dock at Port 1, 3 , 5 : C O U R T E S Y K A R E N D E V E R . 2 : C O U R T E S Y D E B B I L O F T U S . 4 : C O U R T E S Y M IL L L E R F A M IL Y Photographs from passengers aboard the Grand Princess ① A helicopter flies over the Grand Princess preparing to drop supplies. ② Crew members wear masks during the quarantine. ③ Containers of food are delivered to the guests being kept isolated in their cabins. (“I wouldn’t have fed it to my worst enemies,” says passenger Karen Dever.) ④ Passengers Laurie and John Miller leave the ship. ⑤ The typical quarters guests were confined to weren’t especially roomy. ① ② ③ ④ ⑤ 45 Bloomberg Businessweek April 20, 2020 Everglades, Fla. Yadira Garza, who embarked on the Zaandam for her honey moon, says from the ship that she and her hus- band are terrified. “The crew are sick and getting sicker. It’s a matter of time before it gets to us and we’re infected,” she says. “For some people, it will be the last trip of their lives.” As of early April, Carnival still had passengers at sea, nearly a month after the CDC issued a March 8 public advisory to “defer all cruise ship travel worldwide.” Spokesperson Frizzell says Carnival wasn’t under any legal obligation to follow the CDC’s advice. “The advisory is not an edict,” he says. Donald and Swartz say there’s nothing they could’ve done to halt further infections in February, when, they say, the world still didn’t grasp how much the virus was spreading outside China. But the U.S. declared a public health emergency and restricted travel to China on Jan. 31, even as Carnival ships con- tinued to sail around Asia. There were other early warnings: Padgett, the innovation chief, says that in January—after he’d communicated with a manufacturer in Wuhan, the origin of the pandemic, about making batteries for the digital badge sys- tem—the leadership, including Arnold Donald, all knew about the scale of the corona virus outbreak. Padgett says he became aware of the problem’s magnitude on Jan. 25—he remembers the exact date because it was the day before Kobe Bryant died. “The biggest thing about that—it’s a learning I don’t think I’ll ever forget, and we shared it with Arnold when we were talking— is that we actually had insight into the global situation much earlier than most,” Padgett says. Carnival canceled cruises set to embark from mainland Chinese ports, but these measures don’t appear to have altered anything for ships making mid- cruise stops around Hong Kong or other parts of Asia. Carnival executives also make the highly questionable asser- tion that cruise ships don’t spread disease more easily than it would spread elsewhere. “Nothing to do with cruise ships,” Donald says. Covid-19 spreads the same in “an airport ter- minal, a subway station, a restaurant, a theater, a stadium.” That’s misleading, says Friedman, from the CDC’s cruise ship task force. Her team has seen coronavirus infection rates approaching 20\% on two of Carnival’s ships, she says, much higher than the spread in a supermarket or subway. Part of the problem, she says, is that cruises are often populated with people at greater-than-average risk for the disease. (More than two-thirds of the Zaandam’s passengers are older than 65, she says.) Crew members sleep in bunk beds and usually share bath- rooms. “If these ships had stopped sailing, our large team could all be working on helping states and local public health author- ities with their community outbreaks,” she says. In apparent response to these discrepancies, Frizzell emails a BuzzFeed arti- cle reporting that multiple people had died from a Covid-19 out- break at a family burial service —his point being that viruses spread on Carnival’s ships just as they do at funerals. Since 2016 the company has failed 3\% of CDC ship health inspections—three times worse than rival Royal Caribbean Cruises Ltd., which fails 1\% of inspections. In an interview, these statistics seem to surprise Donald. “What? We fail health inspections?” he says when asked about them. After gathering his thoughts, he adds, “I would say, though, that we do not have a record in any shape, form, or fashion of being unhealthy, of guests on our ships being more ill than in other travel venues, period, let alone other cruises.” Why didn’t Carnival simply dock every ship immediately after their initial crises? “In effect, that’s what people have been trying to do. But what happened was, ports close, airports close, borders close, and even now, we have tens of thousands of crew on our ships that we can’t get home,” Donald says. “It’s not because we want them all on the ships. It’s because things close down and we couldn’t get them off.” As of publication, Carnival had two of its 100 ships still at sea. Donald, who’s working remotely from his home in Florida, says he’s under constant stress from nonstop conference calls. “The days go by so quickly,” he says. “Sometimes it’s hard to leave the bedroom, because the calls start so early you haven’t gotten dressed or showered yet, and then you’re waiting for a break in the calls so you can do that. It’s so crazy.” Along with overseeing the fleet, he’s been working the phones to raise money, including a fresh $575 million in equity for a bargain $8 a share. He says these funds will give Carnival enough liquidity to survive an extended pause in its operations. “Obviously, we’re hurting,” he says. “If we don’t bring capital in, we wouldn’t have a company.” Although Arison has spoken with Trump during the cri- sis, Carnival and its rivals were left out of a federal bailout of U.S. businesses, in part because they aren’t, legally speaking, U.S. businesses. Carnival paid $71 million in taxes on $208 bil- lion in revenue last year to Panama, where it’s technically incorporated. “There was very strong bipartisan opposition to a cruise industry bailout, and there will continue to be,” says Democratic Senator Richard Blumenthal of Connecticut. “They have flown under international flags, and abated or skirted taxes, with a record of predatory conduct. They need to prove that they’re going to follow American norms and  laws.” Donald acknowledges that his company doesn’t pay the IRS like a typical company. “It’s true that as a corporation, we don’t pay income tax,” he says. But he says Americans benefit from the port and harbor fees that Carnival pays in accordance with the demands of the maritime industry. While the fleet is out of service, Padgett is continuing to invest in technology upgrades, and Swartz says she’s working to “dramatically improve our san- itation protocols.” Donald says it will take some time for all the “negative noise” about cruising to go away, but there are indi- cations people still want to cruise. On that point, he may be right. According to a recent Carnival filing with the U.S. Securities and Exchange Commission, half of customers who sought cancellations between March 2 and March 15 for upcoming bookings opted to take credit for future cruises instead of a full refund. Almost all the passengers inter- viewed for this story say they’d cruise with the company again. After all, Carnival offered many of them free vouchers for future trips. “The more you travel with them, the more goodies they give you,” says Courter, a survivor of the Diamond Princess. “It’s like rats and cocaine.” <BW> �With Jonathan Levin, Michael Smith, and K. Oanh Ha Copyright of Bloomberg Businessweek is the property of Bloomberg, L.P. and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holders express written permission. However, users may print, download, or email articles for individual use.