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Business Ethics Case Studies and Selected Readings

EIGHTH EDITION

MARIANNE MOODY JENNINGS Arizona State University

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Business Ethics: Case Studies and Selected Readings, Eighth Edition Marianne Moody Jennings

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Brief Contents Preface xiv Acknowledgments xxii

UNIT 1 Ethical Theory, Philosophical Foundations, Our Reasoning Flaws, and Types of Ethical Dilemmas 1

SECTION A Defining Ethics 2 SECTION B Resolving Ethical Dilemmas 33

UNIT 2 Solving Ethical Dilemmas and Personal Introspection 53 SECTION A Business and Ethics: How Do They Work Together? 54 SECTION B What Gets in the Way of Ethical Decisions in Business? 65 SECTION C Resolving Ethical Dilemmas in Business 79

UNIT 3 Business, Stakeholders, Social Responsibility, and Sustainability 109 SECTION A Business and Society: The Tough Issues of Economics,

Social Responsibility, and Business 110 SECTION B Applying Social Responsibility and Stakeholder Theory 126 SECTION C Social Responsibility and Sustainability 170 SECTION D Government as a Stakeholder 179

UNIT 4 Ethics and Company Culture 189 SECTION A Temptation at Work for Individual Gain and That Credo 190 SECTION B The Organizational Behavior Factors 194 SECTION C The Psychological and Behavior Factors 219 SECTION D The Structural Factors: Governance, Example, and Leadership 246 SECTION E The Industry Practices and Legal Factors 274 SECTION F The Fear-and-Silence Factor 303 SECTION G The Culture of Goodness 342

UNIT 5 Ethics and Contracts 357 SECTION A Contract Negotiations: All Is Fair and Conflicting Interests 358 SECTION B Promises, Performance, and Reality 368

UNIT 6 Ethics in International Business 387 SECTION A Conflicts Between the Corporation’s Ethics and

Business Practices in Foreign Countries 388 SECTION B Bribes, Grease Payments, and “When in Rome …” 415

UNIT 7 Ethics, Business Operations, and Rights 423 SECTION A Workplace Safety 424 SECTION B Workplace Loyalty 439 SECTION C Workplace Diversity and Atmosphere 455 SECTION D Workplace Privacy and Personal Lives 461

v Copyright 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).

SECTION E Workplace Confrontation 471 SECTION F Workplace and the Environment 482

UNIT 8 Ethics and Products 491 SECTION A Advertising Content 492 SECTION B Product Safety 503 SECTION C Product Sales 527 SECTION D Products and Social Issues 543

UNIT 9 Ethics and Competition 547 SECTION A Covenants Not to Compete 548 SECTION B All’s Fair, or Is It? 558 SECTION C Intellectual Property and Ethics 565

The Ethical Common Denominator (ECD) Index: The Common Threads of Business Ethics 573

Alphabetical Index 585 Business Discipline Index 591 Product/Company/Individuals Index 601 Topic Index 639

vi Brief Contents

Contents Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xiv Acknowledgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xxii

U N I T

1 Ethical Theory, Philosophical Foundations, Our Reasoning Flaws, and Types of Ethical Dilemmas

SECTION A Defining Ethics 2 Reading 1.1 You, Your Values, and a Credo 2 Reading 1.2 The Parable of the Sadhu: Pressure, Small Windows of Opportunity, and

Temptation 4 Reading 1.3 What Are Ethics? From Line-Cutting to Kant 9 Reading 1.4 The Types of Ethical Dilemmas: From Truth to Honesty

to Conflicts 17 Reading 1.5 On Rationalizing and Labeling: The Things We Do That Make Us

Uncomfortable, but We Do Them Anyway 23 Case 1.6 “I Was Just Following Orders”: The CIA, Interrogation, and the

Role of Legal Opinions 27 Reading 1.7 The Slippery Slope, the Blurred Lines, and How We Never Do Just

One Thing 30 Case 1.8 Hank Greenberg and AIG, and Steve Cohen and SAC Capital 31

SECTION B Resolving Ethical Dilemmas 33 Reading 1.9 Some Simple Tests for Resolving Ethical Dilemmas 33 Reading 1.10 Some Steps for Analyzing Ethical Dilemmas 38 Reading 1.11 On Plagiarism 39 Case 1.12 The Little Teacher Who Could: Piper, Kansas, and Term

Papers 40 Case 1.13 Dog Walkers and Scoopers 42 Case 1.14 Puffing Your Résumé 43 Case 1.15 Dad, the Actuary, and the Stats Class 46 Case 1.16 Wi-Fi Piggybacking 46 Case 1.17 Stuyvesant High School and the Cheating Culture of

Excellence 47 Case 1.18 Speeding: You Can’t Survive on the Road unless

You Do 48 Case 1.19 Hazing Drinking, and Campuses 50 Case 1.20 The Pack of Gum 51

vii Copyright 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).

U N I T

2 Solving Ethical Dilemmas and Personal Introspection

SECTION A Business and Ethics: How Do They Work Together? 54 Reading 2.1 What’s Different about Business Ethics? 54 Reading 2.2 The Ethics of Responsibility 55 Reading 2.3 Is Business Bluffing Ethical? 56

SECTION B What Gets in the Way of Ethical Decisions in Business? 65 Reading 2.4 How Leaders Lose Their Way: What Price Hubris? 65 Reading 2.5 Moral Relativism and the Either/or Conundrum 67 Reading 2.6 P = f(x) The Probability of an Ethical Outcome Is a Function of the Amount of

Money Involved: Pressure 68 Case 2.7 MF Global, Jon Corzine, and a Bankruptcy 69 Case 2.8 On Saying One Thing and Doing Another: Public Perception and Deception

Covering for the CEO 75

SECTION C Resolving Ethical Dilemmas in Business 79 Reading 2.9 Framing Issues Carefully: A Structured Approach for Solving Ethical Dilemmas

and Trying Out Your Ethical Skills on Some Business Cases 79 Case 2.10 Galleon Hedge Fund: Expert Networks, Friendly Discussions or Insider

Trading? 80 Case 2.11 What Was Up with Wall Street? The Goldman Standard and Shades of

Gray 82 Case 2.12 Making Believe We Are at Work or Being Loyal: The Alibis of Technology 93 Case 2.13 Make-Believe Reality TV: Storage Wars and Reconstructed Home Sales 94 Case 2.14 Travel Expenses: A Chance for Extra Income 95 Case 2.15 Do Cheaters Prosper? 96 Case 2.16 The Home Repair Contractor Tempted By Customers and Contracts 96 Case 2.17 Penn State: Framing Ethical Issues 97

U N I T

3 Business, Stakeholders, Social Responsibility, and Sustainability

SECTION A Business and Society: The Tough Issues of Economics, Social Responsibility, and Business 110 Reading 3.1 The Social Responsibility of Business Is to Increase Its Profits 110 Reading 3.2 A Look at Stakeholder Theory 115 Reading 3.3 Business with a Soul: A Reexamination of What Counts in Business

Ethics 118 Reading 3.4 Appeasing Stakeholders with Public Relations 121 Reading 3.5 Conscious Capitalism: Creating a New Paradigm for Business 122 Reading 3.6 Marjorie Kelly and the Divine Right of Capital 123 Reading 3.7 Schools of Thought on Social Responsibility 124

SECTION B Applying Social Responsibility and Stakeholder Theory 126 Case 3.8 Skittles, Trayvon Martin, and Social Responsibility 126 Case 3.9 Guns, Stock Prices, Safety, Liability, and Social Responsibility 127 Case 3.10 The Craigslist Connections: Facilitating Crime 133

viii Contents

Case 3.11 Planned Parenthood Backlash at Companies and Charities 133 Reading 3.12 The Regulatory Cycle, Social Responsibility, Business Strategy, and

Equilibrium 135 Case 3.13 Fannie, Freddie, Wall Street, Main Street, and the Subprime Mortgage Market:

Of Moral Hazards 139 Case 3.14 Cruises, Comfort, and Costs 150 Case 3.15 Ice-T, the Body Count Album, and Shareholder Uprisings 156 Case 3.16 Athletes and Doping: Costs, Consequences, and Profits 162 Case 3.17 Back Treatments and Meningitis in an Under-the-Radar Industry 168

SECTION C Social Responsibility and Sustainability 170 Reading 3.18 The New Environmentalism 170 Case 3.19 GM, the Volt, and Halted Sales and Production 172 Case 3.20 Buying Local: The Safety Issues in Farmers’ Markets 173 Case 3.21 Biofuels and Food Shortages in Guatemala 174 Case 3.22 The Dictator’s Wife in Louboutin Shoes Featured in Vogue Magazine 174 Case 3.23 Herman Miller and Its Rain Forest Chairs 175

SECTION D Government as a Stakeholder 179 Case 3.24 Solyndra: Bankruptcy of Solar Resources 179 Case 3.25 Stanford University and Government Payment for Research 180 Case 3.26 Minority-Owned Businesses and Reality 183 Case 3.27 Prosecutorial Misconduct: Ends Justifying Means? 183

U N I T

4 Ethics and Company Culture

SECTION A Temptation at Work for Individual Gain and That Credo 190 Reading 4.1 The Moving Line 190 Reading 4.2 Not All Employees Are Equal When It Comes to Moral Development 191

SECTION B The Organizational Behavior Factors 194 Reading 4.3 Why Corporations Can’t Control Chicanery 194 Case 4.4 Swiping Oreos at Work: Is It a Big Deal? 202 Reading 4.5 The Effects of Compensation Systems: Incentives, Bonuses, Pay, and

Ethics 202 Case 4.6 A Primer on Accounting Issues and Ethics and Earnings Management 206 Case 4.7 Law School Application Consultants 216 Case 4.8 The Daiquiri Concession and Ferragamo Shoes and the County

Supervisors 217

SECTION C The Psychological and Behavior Factors 219 Reading 4.9 The Layers of Ethical Issues: Individual, Organization, Industry, and

Society 219 Case 4.10 Rogues: Bad Apples or Bad Barrel: Jett and Kidder, Leeson and Barings Bank,

Kerviel and Société General, the London Whale and Chase, Kweku Adoboli and UBS, and LIBOR Rates for Profit 228

Case 4.11 FINOVA and the Loan Write-Off 239 Case 4.12 Inflating SAT Scores for Rankings and Bonuses 244 Case 4.13 Hiding the Slip-Up on Oil Lease Accounting: Interior Motives 244

Contents ix

SECTION D The Structural Factors: Governance, Example, and Leadership 246 Reading 4.14 Re: A Primer on Sarbanes-Oxley and Dodd-Frank 246 Case 4.15 WorldCom: The Little Company That Couldn’t After All 250 Case 4.16 Bank of America: The Merrill Takeover, the Disclosures, and

the Board 267 Reading 4.17 Getting Information from Employees Who Know to Those Who Can

and Will Respond 269 Case 4.18 Westland/Hallmark Meat Packing Company and the Cattle Standers 272

SECTION E The Industry Practices and Legal Factors 274 Reading 4.19 The Subprime Saga: Bear Stearns, Lehman, Merrill, and CDOs 274 Case 4.20 Enron: The CFO, Conflicts, and Cooking the Books with Natural Gas and

Electricity 281 Case 4.21 Arthur Andersen: A Fallen Giant 295 Case 4.22 The Ethics of Walking Away 302

SECTION F The Fear-and-Silence Factors 303 Case 4.23 HealthSouth: The Scrushy Way 303 Case 4.24 Royal Dutch and the Reserves 311 Case 4.25 Dennis Kozlowski: Tyco and the $6,000 Shower Curtain 313 Case 4.26 Bausch & Lomb and Krispy Kreme: Channel Stuffing and

Cannibalism 323 Reading 4.27 A Primer on Whistleblowing 328 Case 4.28 Beech-Nut and the No-Apple-Juice Apple Juice 328 Case 4.29 NASA and the Space Shuttle Booster Rockets 334 Case 4.30 Diamond Walnuts and Troubled Growers 337 Case 4.31 New Era: If It Sounds Too Good to Be True, It Is Too Good to

Be True 338

SECTION G The Culture of Goodness 342 Case 4.32 Bernie Madoff: Just Stay Away from the Seventeenth Floor 342 Case 4.33 Adelphia: Good Works via a Hand in the Till 344 Case 4.34 The Atlanta Public School System: Good Scores by Creative

Teachers 348 Case 4.35 The NBA Referee and Gambling for Tots 350 Case 4.36 Giving and Spending the United Way 351 Case 4.37 The Baptist Foundation: Funds of the Faithful 354

U N I T

5 Ethics and Contracts

SECTION A Contract Negotiations: All Is Fair and Conflicting Interests 358 Case 5.1 The Governor and Negotiations for Filling a President’s Senate

Seat 358 Case 5.2 Facebook and the Pre-IPO 359 Case 5.3 Finding a Way Around Government Regulations 361 Case 5.4 Subway: Is 11 Inches the Same as 12 Inches? 362 Case 5.5 Sears and High-Cost Auto Repairs 363

x Contents

SECTION B Promises, Performance, and Reality 368 Case 5.6 Payday Loans and Checking Account Deductions 368 Case 5.7 Pensions: Promises, Payments, and Bankruptcy 369 Case 5.8 Department Store Returns or Rentals 374 Case 5.9 Government Contracts, Research, and Double-Dipping 375 Case 5.10 Yale University and the Compensation of Professors for Government

Research: Double-Dipping or Confusion? 377 Case 5.11 When Corporations Pull Promises Made to Government 378 Case 5.12 Intel and the Chips: When You Have Made a Mistake 380 Case 5.13 Mortgage Foreclosure: Robo-Signatures and “Close Enough” 384 Case 5.14 Red Cross and the Use of Funds 385

U N I T

6 Ethics in International Business

SECTION A Conflicts Between the Corporation’s Ethics and Business Practices in Foreign Countries 388 Reading 6.1 Why an International Code of Ethics Would Be Good for Business 388 Case 6.2 Chiquita Banana and Mercenary Protection 392 Case 6.3 Pirates: The Bane of Transnational Shipping 395 Case 6.4 The Former Soviet Union: A Study of Three Companies and Values in

Conflict 397 Case 6.5 Product Dumping 399 Case 6.6 Bangladesh, Sweatshops, Suicides, Nike, Apple, Foxconn, Apple, and Campus

Boycotts 400 Case 6.7 Bhopal: When Safety Standards Differ 407 Case 6.8 Nestlé: Products That Don’t Fit Cultures 409 Case 6.9 The Internet, Censorship, and Human Rights in China 412

SECTION B Bribes, Grease Payments, and “When in Rome …” 415 Reading 6.10 A Primer on the FCPA 415 Case 6.11 Siemens and Bribery, Everywhere 418 Case 6.12 Walmart in Mexico 420 Case 6.13 Italy’s Freeway Corruption 421

U N I T

7 Ethics, Business Operations, and Rights

SECTION A Workplace Safety 424 Reading 7.1 Two Sets of Books on Safety 424 Case 7.2 Sleeping on the Job and on the Way Home 425 Case 7.3 Cintas and OSHA 425 Case 7.4 Massey Coal Mines, Fatalities, and Indictments 426 Case 7.5 BP and the Deepwater Horizon Explosion: Safety First? 427

SECTION B Workplace Loyalty 439 Case 7.6 Aaron Feuerstein and Malden Mills 439 Case 7.7 JCPenney and Its Wealthy Buyer 441 Case 7.8 The Trading Desk, Perks, and “Dwarf Tossing” 442

Contents xi

Case 7.9 The Analyst Who Needed a Preschool 443 Case 7.10 Taser and Stunning Behavior 447 Case 7.11 Boeing and the Recruiting of the Government Purchasing Agent 448 Case 7.12 Kodak, the Appraiser, and the Assessor: Lots of Backscratching on

Valuation 450 Case 7.13 Medtronics, Journal Articles, Consulting, and Ethics 451 Case 7.14 Cornell Researchers and Foundation Funding 454

SECTION C Workplace Diversity and Atmosphere 455 Case 7.15 English-Only Employer Policies 455 Case 7.16 Employer Tattoo and Piercing Policies 456 Case 7.17 On-the-Job Fetal Injuries 457 Case 7.18 Office Romances 458 Case 7.19 Employee Screening: Personality, Intelligence, and Disparate Impact 459

SECTION D Workplace Diversity and Personal Lives 461 Case 7.20 Julie Roehm: The Walmart Ad Exec with Expensive Tastes 461 Case 7.21 Facebook, YouTube, Instagram, LinkedIn, and Employer Tracking 462 Case 7.22 Tweeting, Blogging, Chatting, and E-Mailing: Employer Control 465 Case 7.23 Jack Welch and the Harvard Interview 468

SECTION E Workplace Confrontation 471 Reading 7.24 The Ethics of Confrontation 471 Reading 7.25 The Ethics of Performance Evaluations 474 Case 7.26 Ann Hopkins and Price Waterhouse 476 Case 7.27 The Glowing Recommendation 480

SECTION F Workplace and the Environment 482 Case 7.28 Exxon and Alaska 482 Case 7.29 Biofuels and Hunger in Guatemala 488

U N I T

8 Ethics and Products

SECTION A Advertising Content 492 Case 8.1 Skechers and the Muscle-Building Shoes 492 Case 8.2 Joe Camel: The Cartoon Character Who Sold Cigarettes and Nearly Felled an

Industry 493 Case 8.3 Cereal Claims of Health, Better Grades, Immunity, and Sugar Content 498 Case 8.4 Eminem vs. Audi 501

SECTION B Product Safety 503 Reading 8.5 From Shunning to Anonymity 503 Case 8.6 Peanut Corporation of America: Salmonella and Indicted Leaders 506 Case 8.7 Tylenol: The Swing in Product Safety 507 Case 8.8 Merck and Vioxx 512 Case 8.9 Ford and Its Pinto and GM and Its Malibu: The Repeating Exploding Gas Tank

Problem 516

xii Contents

Case 8.10 E. Coli, Jack-in-the-Box, and Cooking Temperatures 523 Case 8.11 Bucky Balls and Safety 524 Case 8.12 Energy Drinks: Healthy or Risky? 525

SECTION C Product Sales 527 Case 8.13 Cardinal Health, CVS, and Oxycodone Sales 527 Case 8.14 Pfizer, Pharmas, Fines, and Sales Tactics 528 Case 8.15 The Mess at Marsh McLennan 530 Case 8.16 Selling Your Own Products for Higher Commissions 533 Case 8.17 Frozen Coke and Burger King and the Richmond Rigging 533 Case 8.18 Slotting: Facilitation, Costs, or Bribery? 537

SECTION D Products and Social Issues 543 Case 8.19 The Mommy Doll 543 Case 8.20 Fast-Food Liability 543 Case 8.21 Barbie Doesn’t Like Math 545

U N I T

9 Ethics and Competition

SECTION A Covenants Not to Compete 548 Reading 9.1 A Primer on Covenants Not to Compete: Are They Valid? 548 Case 9.2 Boeing, Lockheed, and the Documents 549 Case 9.3 Starwood, Hilton, and the Suspiciously Similar New Hotel Designs 554

SECTION B All’s Fair, or Is It? 558 Reading 9.4 Adam Smith: An Excerpt from The Theory of Moral Sentiments 558 Case 9.5 Sabotaging Your Employer’s Information Lists before You Leave to Work for a

Competitor 559 Case 9.6 Bad-Mouthing the Competition: Where’s the Line? 560 Case 9.7 Online Pricing Differentials and Customer Questions 560 Case 9.8 Brighton Collectibles: Terminating Distributors for Discounting Prices 561 Case 9.9 Electronic Books and the Amazon War 562 Case 9.10 Mattel and the Bratz Doll 562

SECTION C Intellectual Property and Ethics 565 Case 9.11 Tiffany, Louis Vuitton, eBay, Landlords, and Knock-Offs 565 Case 9.12 The Little Intermittent Windshield Wiper and Its Little Inventor 569 Case 9.13 Copyright, Songs, and Charities 570

The Ethical Common Denominator (ECD) Index: The Common Threads of Business Ethics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .573

Alphabetical Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .585 Business Discipline Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .591 Product/Company/Individuals Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .601 Topic Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .639

Contents xiii

Preface

The Josephson Institute released its data for 2012 on cheating in high school andfound that 52 percent of the students surveyed say that they have cheated on anexam in the past year, and 82 percent say that they have lied to a teacher in the past year. A New York Times survey of high school students puts the cheating level at 90 percent.1 When the Josephson researchers asked the high school students if they had copied another’s homework, 76 percent said that they had but did not consider it cheat- ing. “Team work” was their label for this practice. The Center for Academic Integrity at Clemson University and Professor Donald McCabe of Rutgers report that college cheat- ing has grown from 11 percent in 1963 to 49 percent in 1993 to 75 percent in 2006.2

Another study puts the level at 85 percent.3 Professor McCabe also found that MBAs have the highest rate of self-reported academic dishonesty (57 percent) of all graduate disciplines. In the spring of 2013, Harvard expelled 60 students for cheating on an exam in their required course on Congress.4 Longitudinally, it would seem we have a decline. Many argue that there is no decline; rather, they offer, we are simply more hon- est about our ethical breaches. There is little comfort in this reassurance that we’re more honest about our cheating. And there remains a disconnect between this conduct and an understanding of what ethics is. The Josephson Institute also found that the high school students who report that they cheat feel very comfortable about their behavior, with 95 percent saying they are satisfied with their character and ethics. Perhaps we are more honest about our cheating. But perhaps that honesty results from our belief that cheating is not an ethical issue.

Research indicates that if students cheat in high school, they will bring the practices into college. And if they cheat in college, they will bring those practices into the work- place. A look at some of the events in business since the publication of the seventh edi- tion of this book tells us that we are not quite there yet in terms of helping business people understand when they are in the midst of an ethical dilemma and how those dilemmas should be resolved. Following the collapses of Enron and WorldCom, and the ethical lapses at Tyco and Adelphia, we entered the Sarbanes-Oxley era with funda- mental changes in the way we were doing business and audits. However, we did not make it even five years before we found ourselves in the midst of the collapse of the housing market and revelations about shoddy and undisclosed lending practices for mortgages. The end result was a dramatic drop in the stock market and a recession because of all the secondary instruments tied to the risky mortgages. The reforms enacted by the Dodd-Frank bill (Wall Street Reform and Consumer Protection Act) have not yet been implemented, and as the work of implementation proceeds, we find that British banks were fixing the LIBOR interest rate; MF Global was using funds from customer accounts to cover margin calls; and Bernie Madoff pulled off an 18-year, $50 billion Ponzi scheme. Government pension plans collapsed for lack of funding based on flawed

“Never trust the people you cheat with. They will throw you under the bus. Just ask Michael Vick.”

—Marianne M. Jennings

“Three people can keep a secret if two are dead.”

—Hell’s Angels (Quoting Ben Franklin)

“Ethical standards and practices in the workplace are the pillars of successful employment and ultimately the benchmark for a strong business.” —Franklin Raines, former CEO of

Fannie Mae (ousted in 2005); with a $6 billion restatement of

its financials, the board concluded that “[management

was] manipulating earnings and creating an ‘unethical and

arrogant culture.’”

“We are doing God’s work.” —Jeffrey Skilling, former CEO of

Enron (completing a 24.6-year sentence for fraud)’”

—Lloyd Blankfein, CEO of Goldman Sachs

1 “Main Street Woes,” Forbes, November 17, 2008, p. 20.

2The Center for Academic Integrity study has been conducted by Professor Donald McCabe on a regular basis over the years. This survey had 4,500 student respondents. For more information on Professor McCabe and his work on academic integrity and the Center for Academic Integrity, go to http://www.cai.org. 3Corey Ciochetti, “The Uncheatable Class,” Proceedings, Academy of Legal Studies in Business, August 2013 (unpublished paper). 4Richard Pérez-Peña, “Students Accused of Cheating Return Awkwardly to a Changed Harvard,” New York Times, September 17, 2013, p. A12.

xiv Copyright 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).

actuarial studies, and municipal bankruptcies have revealed that government officials received personal benefits for awarding everything from bond underwriting agreements to construction contracts. Insider trading charges affected more than a dozen traders at SAC Capital, with SAC agreeing to settle civil and criminal charges.

And then there are those events that fall short of criminal conduct or civil fines mis- conduct. These are the day-to-day ethical breaches that capture media headlines and cause continuing concerns about the ethical culture of business. There are the questions about television reality shows: Was the storage locker a setup, or were those things really in there? And why did Facebook not disclose the problems it knew about on its advertis- ing revenues before its IPO? Did Subway really cut us short with an 11-inch sub sand- wich when we thought we were buying a footlong? The world of sports brought us questions such as, “Is it really cheating if everyone does the same thing?” Lance Arm- strong’s admissions about his use of performance-enhancing drugs found us all debating that issue. BP’s spill from the Deepwater Horizon rig off the coast of Louisiana resulted in a $20 billion down payment by the company on damages, and resulting issues of fraud in claims against that fund.

From analysts not offering their true feelings about a company’s stock to the factory workers producing peanut base for cookies and crackers, pressure often got in the way of moral clarity in business decisions. Those pressures then translated into ethical lapses that involve everything from pushing the envelope on truth to earnings management that crosses over into cooking the books and fraud. Weak product designs and products’ defects often produce a chain of memos or e-mails in the company that reflect employee concerns about product safely. College sports, baseball, and politics all have their ethical issues. The cycles between major ethical and financial collapses seem to be growing shorter. Businesses do exist to make a profit, but business ethics exists to set parameters for earning that profit. Business ethics is also a key element of business decision processes and strategies, because the cases in this book teach us that the long-term perspective, not the short-term fix, serves businesses better in that profit role.

This book of readings and cases explores those parameters and their importance. This book teaches, through detailed study of the people and companies, that business con- ducted without ethics is a nonsustainable competitive model. Ethical shortcuts translate into a short-term existence. Initially, these shortcuts produce a phenomenon such as those seen with Lehman Brothers, Merrill Lynch, and Countrywide Mortgage. These companies are no longer viable entities because they crossed ethical lines. For a time, they were at the top of their game—flummoxing their competitors on how they were able to do what they were doing—and so profitably. But then that magnificent force of truth finds its way to the surface, and the company that does not factor in the ethics of its decisions, and conduct finds itself falling to the earth like a meteor’s flash. Long-term personal and business success demand ethics. This edition takes a look at everything from the subprime lending market, a market that brought easy pickings in terms of profit so long as real-estate values held firm, to the world of sports and the downfall of so many. This book connects the moral sentiments of markets with the wealth of nations. Business without ethics is self-destructive.

New to This Edition

A Slightly New Structure and Approach to Address the Chronic Repetition of the Ethical Lapses We’ve been down this road before, and the historic patterns are now emerging for study and insight. In 1986, before Ivan Boesky was a household name and Michael Douglas

Preface xv

was Gordon Gekko in Wall Street, I began teaching a business ethics course in the MBA program in the College of Business at Arizona State University. The course was an elec- tive. I had trouble making the minimum enrollments. However, two things changed: my enrollments and my fate. First, the American Association of Collegiate Schools of Business (AACSB) changed the curriculum for graduate and undergraduate business degree pro- grams and required the coverage of ethics. The other event actually was a series of events. Indictments, convictions, and guilty pleas by major companies and their officers—from E.F. Hutton to Union Carbide, to Beech-Nut, to Exxon—brought national attention to the need to incorporate values in American businesses and instill them in business leaders.

Whether out of fear, curiosity, or the need for reaccreditation, business schools and students began to embrace the concept of studying business ethics. My course went from a little-known elective to the final required course in the MBA program. In the years since, the interest in business ethics has only increased. Following junk bonds and insider trading, we rolled into the savings and loan collapses; and once we had that straightened out, we rolled into Enron, WorldCom, HealthSouth, Tyco, and Adelphia, and we even lost Martha Stewart along the way. We were quite sure—what with all the Sarbanes- Oxley changes and demands on boards, CEO, CFOs, and auditors—that we were through with that level of misconduct. We were, however, wrong. New Century Financial, one of the first of the subprime lenders to collapse, found one angry bankruptcy trustee. The trustee’s report concluded that he found astonishing the acquiescence of the auditor to the client’s refusal to write down the bad loans in what he called “the post-Enron era.” The Lehman Brothers bankruptcy trustee found a letter from a risk officer at the invest- ment banker who tried to warn the CEO and CFO that the firm’s financial reports vio- lated its code of ethics. The trustee also found that the risk officer was fired.

Three decades plus after Boesky, we have the SAC Capital insider trading web emerge in 2012 with a staggering repetitiveness that finds us wondering, “Do they not see the ethical and legal issues? Do they just not know that they are crossing these lines? Do they see the patterns from business history?” The good thing about repetitive patterns is that we gain insight into the paths, the reasoning, and the pressures of those involved. The key is to bring out those patterns and train our new business leaders to recognize them and, most importantly, to stop the train of self-destruction those patterns set off. This edition is reorganized to offer greater insights, knowledge, and perspective on these patterns for a new generation of leaders. Today, nearly 100 percent of the Fortune 500 companies have a code of ethics. We are up to over 75 percent of companies having some form of ethics training. But we are not quite there until our business leaders grasp the perspective of ethics and its relationship to economics, organizational behavior, company culture, reputation, and financial performance. This edition is structured to walk us through all aspects and types of ethical dilemmas and how we can cope with the pressures that often deprive us of good ethical analysis.

Unit 1: Our Ethics Unit 1 addresses the following questions: What is this ethics thing? How do I manage to work philosophy into my decision processes? How do I find solutions to ethical dilem- mas? How do I know when I am really analyzing as opposed to rationalizing or suc- cumbing to pressure? This unit begins with introspection, a right-out-of-the-blocks focus on developing a credo—a way of helping us to think about ethical issues in advance and decide what we would and would not do in a situation. If we think about issues in advance, then when the pressure hits, we at least have the cognitive dissonance of realiz- ing that we did see the issues differently when we were not under so much pressure.

xvi Preface

Unit 2: Solving Ethical Dilemmas and Personal Introspection Once we have focused on our ethical standards and ourselves, we move into analysis of ethical issues in business. This unit offers the introspection of this question: Are my per- sonal ethical standards different when I am at work? Should they be? Why are they dif- ferent? Further, the magnitude of the mistakes that business people continued to make, despite all the warnings from ongoing debacles, did not indicate that these were close calls. Something had gone awry in their ethics training in business school for them to drift so far from virtue. I continue to emphasize in teaching, consulting, and writing that helping students and business people see that personal ethics and business ethics are one and the same is critical to making virtue a part of business culture. Virtue is the goal for most of us in all aspects of our lives. Whether we commit to fidelity in a personal relationship or honesty in taking the laundry detergent back into the store to pay because we forgot it was on the bottom of our grocery cart, we show virtue. Ethics in business is no different, and we need not behave differently at work than we do in that grocery store parking lot as we make the decision to be honest and fair with the store owner. Substitute a shareholder and the disclosure of option dates and true costs, and we have our laundry detergent example with a stock market twist.

This unit also focuses on the patterns that interfere with good ethical analysis in busi- ness such as pressure, hubris, and a singular focus on moral relativism as opposed to a deeper look at the consequences of reliance on that model. This unit allows us to switch back and forth from personal dilemmas to business dilemmas so that we are able to see that the ethical issues are the same in our personal lives as they are in business—only the fact patterns change. We can see that honesty is important, whether studying the com- plexities of Goldman’s laddering sales structures or the simple questions contractors face when homeowners ask them to include additional repair work as part of a storm damage claim to their insurers. Instructors and students gain the ability to reduce the most com- plex of financial cases to the common denominators found in returning that laundry detergent to the store—is this honest? Is this fair? With this understanding of the com- mon denominators, we are free to focus on the psychology of our decision processes rather than on the details of the underlying transactions. The obligation of good faith in dealing with each other does not change simply because we are buying a CDO rather than Tide. This unit also includes the overarching theme of the book over all of its edi- tions: plenty of real-life examples from newspapers, business journals, and my experi- ences as a consultant and board member. Knowing that other instructors and students were in need of examples, I have turned my experiences into cases and coupled them with the most memorable readings in the field to provide a training and thought- provoking experience on business ethics.

Unit 3: Business, Stakeholders, Social Responsibility, and Sustainability Unit 3 offers us the bigger perspective—once we slog through the decision processes of fraud, embezzlement, puffing résumés, and cheating on our travel expenses, we move to discussion and understanding of the role of business in society. The cases in this unit are broken into an introduction to business and society, the obligations of business toward our moral ecology, and the issues of the environment and sustainability.

Unit 4: Ethics and Organizational Culture Unit 4 is the psychology section that tackles companies’ ethical lapses, with the realiza- tion that beyond individual ethical lapses (as with one bad apple), there are barrel factors

Preface xvii

that must be addressed to prevent ethical lapses. This section, through the finance cases and the weaving in of corporate governance, explores those barrel factors with the recog- nition that beyond individual lapses there are company, industry, and societal norms that do cause companies and individuals to move that line away from ethical standards to “everybody does it” here at the company, in our industry, and in society. The cases here explore how incentives, organizational behavior practices and processes, reporting mechanisms, industry practices, and societal norms contribute to poor ethical analysis, decisions, and that self-destructive behavior. Recognizing and addressing those barrel issues is the theme of Unit 4.

New to this edition is a restructuring that becomes clear in Unit 4. The cases on gov- ernment and nonprofit ethical lapses have been integrated into the other units. The cases in these two areas were set aside in separate units in previous editions. Through reviews and the study of ethical debacles in these two sectors, a realization brought about the structural change: The psychology of organizations and employee decision making in those organizations does not change because they work in a nonprofit or government agency. Nonprofit employees have the pressures of raising funds. Government employees experience the pressure of dealing with the powerful and the prospect of losing their jobs. The issues these employees and organizations face are the same as those in for-profit businesses. Indeed, the addition of their issues in an integrative fashion in this edition helps drive home the point that the questions and dilemmas are the same. The principles of ethics are universally applicable.

Unit 5: Ethics and Contracts Unit 5 is new to this edition, with a special focus on the ethics of contracts, from adver- tising through negotiations, to performance. Issues related to pension promises and cer- tification of minority status for government contracts are a part of this new unit. The ethical challenges in contract formation and performance, again, cross all sectors, so this unit has nonprofit and government examples integrated as well.

Unit 6: Ethics in International Business This unit helps students understand the need for better and deeper ethical analysis of the issues in international business and the importance of analyzing the countries and their ethical standards prior to doing business there. The section addresses the risks and costs of ethical lapses and succumbing to local standards as opposed to establishing company standards prior to those pressure points that occur in international competition. New to this edition is a discussion of the emerging safety issues in international production facil- ities. Fires, collapsing buildings, and unsafe working conditions have brought headlines, and a great deal of backlash toward companies that use these facilities for product manufacturing.

Unit 7: Ethics, Operations, and Rights This new unit is one that draws together all the cases on workplace issues that affect employees and managers: from safety to conflicts, to privacy, to diversity, to the lost art of confrontation about employee conduct, this section is the one for understanding how ethics bumps shoulders with production demands, technology, profits, and privacy. From honesty in letters of recommendations to office romances, all matters that affect employ- ers and employees are now in one unit.

xviii Preface

Unit 8: Ethics and Products Unit 8 includes all the issues related to product development, sales, safety, and advertising. From recalls to racy dolls, to advertising, to the contracts themselves, this section focuses on the ethical issues that involve the how, what, and where of sales of products. The issues of social responsibility and products are found here in cases that address everything from Barbie not liking math to Bucky Balls, the product that could not be made safe.

Unit 9: Ethics and Competition Unit 9 has the luxury of focusing entirely on competition. With the contracts issues grouped in Unit 7 on products, this unit has expanded coverage of the ever-growing concerns about covenants not to compete and employee breaches of those covenants. The societal issues of infringement are emphasized as students analyze cases that illus- trate the costs of not honoring intellectual property rights.

What’s New and What’s Back The eighth edition continues the features students and instructors embraced in the first seven editions, including both short and long cases, discussion questions, hypothetical situations, and up-to-the-moment current, ongoing, and real ethical dilemmas. Some of the long-standing favorites remain by popular demand—such as the Nestlé infant for- mula experience and Union Carbide in Bhopal, with their long-standing lessons in doing the right thing. There are so many “oldies but goodies” when it comes to ethics cases, but length constraints do not allow me to continue to include in this book all the oldies along with the new cases that promise to be “oldies but goodies.” Check out the availability of custom options noted at the end of this section in order to keep using those “oldies but goodies.” Now there are further opportunities to integrate cases from previous editions into your course.

The eighth edition continues the new training tool introduced in the previous edition to help business people who are working their way through an ethical dilemma. Following the discussion questions for many of the cases, the “Compare and Contrast” questions con- tinue. These are questions provide an example of a company making a decision different from the one made by management in the case at hand. For example, in the Tylenol case (Case 8.7—an “oldie but goodie” that has been updated for this edition to include the com- pany’s recent problems with metal flecks in its infant products), students find a question that highlights this company’s past conduct in comparison with its conduct in a current situation in which the FDA has accused the company of surreptitiously buying up tainted product in order to avoid a recall. There is a contrast between its recall of a product in the 1980s, which was so rapid and received so much acclaim, and its behavior in this event. Why do some companies choose one path, whereas others succumb to pressure? What was different about their decision-making processes? What did they see that the other com- panies and their leaders did not take into account? This feature is a response to those who worry that students are not given examples of “good companies.” The problem with tout- ing goodness is that it is impossible to know everything a company is or is not doing. For example, Fannie Mae was named the most ethical company in America for two years running. Yet it had to do a $7 billion restatement of earnings and is now defunct as a shored-up government entity. BP was an environmental darling for nearly a decade for its responsible environmental programs. However, recent events cast doubt on how much environmental and safety dedication the company had. There is a risk in learning of good- ness if that goodness is superficial or limited. Studying individual scenarios of contrasting

Preface xix

behavior is the learning tool, not the touting of a single company that can always have a lapse. There are no saints in this journey, and keeping the text credible requires a recogni- tion of that limitation but uses it to emphasize the vigilance we all need, as individuals and in business, to avoid lapses and progress in moral development.

Finding and Studying the Cases and Readings The eighth edition continues the classic readings in business ethics that provide insight into the importance of ethics in business and how to resolve ethical dilemmas. The eighth edition also continues the presence of integrated readings throughout the book to provide substantive thoughts on the particular areas covered in each section. The organizational structure and indexes, continued from the seventh edition, make material, companies, people, and products easy to locate. A case can be located using the table of contents, the alphabetical index, the topical index, the people index, or the product index, which lists both products and companies by name. An index for business disciplines groups the cases by accounting, management, and the other disciplines in colleges of business. A case can also be located using the Ethical Common Denominator Chart,” which is explained below.

How to Use the “Ethical Common Denominators Across Business Topics Chart” The Ethical Common Denominators Across Business Topics chart, or simply the ECD chart, is a tool that appears along with the indexes for the book, can be used to help students understand the point that only the facts change, but the ethical dilemmas remain the same. This chart provides some ease for that slight discomfort some instruc- tors have with the financial cases and helps students understand that underlying every ethical dilemma are the common patterns of psychology and pressure as well as the need for solid ethical analysis. The ECD chart provides instructors with the opportunity to structure their courses in a way that is comfortable for them. All an instructor needs to know is a general business term; that term can then be referenced in the ECD chart in various ways for instruction, according to instructor preference, needs, and time con- straints. The chart groups the cases by the usual business and ethics topics. If, for exam- ple, you wanted to cover the environmental cases all in one fell swoop, simply go to “environmentalism” or “sustainability,” and you find the cases and readings listed there. However, if you are looking for a variety of fact patterns to teach, for example, pressure’s role in ethical decision making, you could look under that topic and find the BP case (also an environmental case) as well as the financial factors in the Enron case. If you wanted students to see what pressure can do in the area of contracts, you can use the Facebook decision not to publicly disclose the realization of their losses of ad revenues on the eve of the company’s IPO. Students will learn that pressure affects all aspects of business operations. Adam Smith and his theories on markets appear in Section 9, but there is no reason this reading could not be shifted back to the coverage of the philo- sophical foundations.

An instructor can mix in cases from all the units in covering ethical analysis. The ECD includes a case from each unit under “Ethical Analysis,” because you can pick and choose what topics to cover as you teach how to analyze ethical issues. The ECD chart allows you to introduce that broad exposure to the pervasiveness of ethical issues early in your course, or you can simply use the cases in that unit and go on to topical areas. The chart also allows you to break up the finance cases into areas of discussion on psychology, culture, organizational behavior, hubris, and pressure. You need not focus on the

xx Preface

structure of CDOs and secondary instruments markets to understand the culture at Leh- man and how its culture led its sales force and managers down a path that proved to be self-destructive. Likewise, you can mix in a Ponzi scheme in a nonprofit with Bernie Madoff, to help students understand how similar the cases are in the issues missed as those running the organizations pursued a business model that could not be sustained over time. The case on the Medtronics and research funding and journal publication tea- ches students about conflicts, but it would fit well in Unit 1 as you ask students to deal with the importance of speaking up when they see an ethical dilemma. The ECD chart allows a mix-and-match approach or a straight topical approach—both of which allow us to see that the facts change, but good ethical analysis applies, always.

Supplements

Access to Companion Site Resources To access additional course materials and companion resources, please visit www .cengagebrain.com. At the CengageBrain.com home page, search for this book’s ISBN (found on the back cover of your book), using the search box at the top of the page. This will take you to this book’s product page, where free companion resources can be found. Instructors must go to login.cengage.com for access to instructor materials.

Instructor’s Manual with Test Bank The instructor’s manual with Test Bank is updated with more sample test objective- and essay-answer questions of varying lengths and structures. The questions have been coded for topic and even some for case-specific questions so that exams can be created by sub- ject area. The PowerPoint package, which includes illustrative charts to assist instructors in walking classes through the more complex cases, has been updated and expanded. Instructors can access the Instructor’s Manual with Test Bank at login.cengage.com.

PowerPoint Slides Developed by the author, Microsoft PowerPoint slides are available for use by students as an aid to note taking, and by instructors for enhancing their lectures. Instructors can access PowerPoint files at login.cengage.com.

Business Law Digital Video Library The Digital Library offers more than 90 videos and helps your students link their every- day experiences to legal ideas; sparks classroom discussion; and reinforces core concepts. The videos are available with on http://www.cengage.com/blaw/dvl.

The library is organized into five series: Legal Conflicts in Business (includes specific modern business and e-commerce scenarios); Ask the Instructor (presents straightfor- ward explanations of concepts for student review); Drama of the Law (features classic business scenarios that spark classroom participation); Real World Legal (explores con- flicts that arise in a variety of business environments); and LawFlix (contains clips from many popular films). Access for students is provided via a code when bundled with a new textbook, or it can be purchased at www.cengagebrain.com.

Customized Selections of Case Studies and Readings Instructors always have the option to customize your choice of cases and readings. Case studies and readings from both the sixth and seventh editions of Jennings’s Business Ethics are available by working with your learning consultant. Selections can be used to create an affordable course companion or to integrate material into your customized text- book. Visit www.compose.cengage.com.

Preface xxi

Acknowledgments

This book is not mine. It is the result of the efforts and sacrifices of many. I amgrateful to the reviewers for their comments and insights. Their patience, exper-tise, and services are remarkable. I have many colleagues around the world who continue to provide me with insights, input, and improvements, but my colleagues listed below provided the time and effort of a page-by-page review.

Bradford Anderson Cal Poly State University

Kay Biga University of Wisconsin – Superior

Joseph Bucci Philadelphia University

Julia Clark Brown Mackie College

Pat Creech Northeastern Oklahoma A&M College

Patrick Creehan Flagler College

Michael Cross Reinhardt University

Sally Dixon Skagit Valley College

Mary Doran Northcentral University

Ann Marie Dudek St. Thomas Aquinas College

CristenDutcher Kennesaw State University

De Vee Dykstra University of South Dakota

Teressa Elliott Northern Kentucky University

Johnica Ellis-Kiser Edgecombe Community College

Mac Forsyth University of Southern Mississippi

Ann Gibson Andrews University

Karen Gore Ivy Tech Community College

John P. Gray Faulkner University

Glenn Greenfield Lawrence Technological University

Diane Hagan Ohio Business College

Deborah Hedger Southeastern Community College

Eric Heiser Central Wyoming College

Phil Hupfer Benedictine University

Kent Kauffman Indiana University—Purdue University—Fort Wayne

Paul Kelbaugh Lynchburg College

Greg Lauer North Iowa Area Community College

Skip Maffei Northcentral University

John Malec Benedictine University

John McGee Texas State University

Joseph Miele Eastern University

Tom Mihok Eastern University

John Moran Wagner College

xxii Copyright 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).

Sam Myatt Union University

Gregory O’Connor Massachusetts College of Liberal Arts

S. Park University of Connecticut

Jeffrey D. Penley, J.D. Catawba Valley Community College

Jacqueline A. Perry West Virginia University, Institute of Technology

Joseph E. Potchen Michigan State University

Catherine Reynolds Remington College

Ruth Schaa Black River Technical College

Melissa Speck Ivy Tech Community College

Brad Trid Lipscomb University

Lori L. Wadsworth Brigham Young University

Edd Welsh Mesa Community College

Lorrie Willey Western Carolina University

Scott Williams Alaska Career College

R.G. Vanderpool Northwest Nazarene University

Jay Zortman Eastern University

I am grateful for the students and professors who continue to help me with ideas for new cases, corrections (those typos!), and insights that help me as I work on each edition.

I am fortunate to have Ted Knight as my content developer. He may be the only one who really understood the ECD index and helped me refine it so that the rest of the world could benefit from its use. It has been reassuring and a joy to work, once again, with Tamborah Moore as the production editor for this edition. Neither of us is quite sure how many years we have been working together, but long enough to be able to send one-word e-mail messages with the other fully comprehending the message. I am grateful to Vicky True-Baker and Mike Worls for their continuing support of all my work. I con- tinue to love editors. Where I see only deadlines, they see both the big picture of the book and its details: They have vision. I am grateful for their vision in supporting this book at a time when ethics was not a hot topic. They trusted me and understood the role of ethics in business and supported a project that was novel and risky. From the headlines, we now know that ethics instruction in business and business schools is a growth industry.

I am grateful to my parents for the values they inculcated in me. Their ethical perspec- tive has been an inspiration; a comfort; and, in many cases, the final say in my decision- making processes. I am especially grateful to my father for his continual research on and quest for examples of ethical and not-so-ethical behavior in action in the world of busi- ness. I am grateful for my family’s understanding and support. I am most grateful for the reminder their very presence gives me of what is truly important. In a world that mea- sures success by “stuff” acquired, they have given me the peace that comes from devo- tion, decisions, and actions grounded in a personal credo of “others first.” This road less taken offers so many rich intangibles that we can, with that treasure trove, take or leave “the stuff.” My hope is that those who use this book gain and use the same perspective on “stuff.”

Marianne M. Jennings Professor Emeritus of Legal and Ethical Studies in Business

W. P. Carey School of Business Arizona State University

marianne.jennings@asu.edu

Acknowledgments xxiii

Ethical Theory, Philosophical Foundations, Our Reasoning Flaws,

and Types of Ethical Dilemmas U N I T O N E

Before we begin the study of business ethics, we should do some introspection:What does ethics mean to you personally? The purpose of this unit is to provideyou with an introspective look at yourself and your views on ethics before we bring the business component to you and ethics.

This unit explains three things: what ethics are, why we should care about ethics, and how to resolve ethical dilemmas. The materials in this unit serve as the foundation for the study of issues in business ethics. We begin with a personal look at ethics, discuss why it matters, and then decide how to resolve ethical dilemmas.

In the 21st century will occur something worse

than the great wars, namely, the total eclipse of

all values. The pain the human beast will feel when he realizes he can believe in … nothing … will be

worse than any he has felt before.”

—Nietzsche

I respect them and think they have integrity.

They’re proud of their achievements in college, and sometimes the only

way you could have gotten there is to kind of botch

your ethics for a couple of things.

—Stuyvesant High School (elite New York

City high school) student on revelations

that seventy-one Stuyvesant students

cheated in most of their courses, a discovery

made after the students had gone on to elite

colleges1

1Vivian Yee, “The How and Why of Cheating,” New York Times, September 26, 2012, p. A1. 1

S E C T I O N A

Defining Ethics

Reading 1.1 You, Your Values, and a Credo We have a tendency to look at folks who get into ethical and legal trouble and say, “I know I would never behave like that.” You probably would not, but you are only see- ing them at their last step. You did not see the tiny steps that led to their eventual down- fall. Study how and why they made the decisions they made. The idea is to try to avoid feeling superior to those who have made mistakes; real learning comes with understand- ing how easily we can fall into ethical missteps through flaws in our analyses and reason- ing processes and because of pressures that allow us to feel justified in our actions. Your goal is to develop a process for analysis and reasoning, one that finds you looking at ethical issues more deeply instead of through the prism of emotions, desires, and pres- sures. You are not just studying ethics; you are studying business history. And you are also studying you. Try to relate your vulnerabilities to theirs. Remember as you read these cases that you are reading about bright, capable, and educated individuals who made mistakes. The mistakes often seem clear when you study them in hindsight. But the ethical analyses of those who made those mistakes were flawed whether through poor perspective; pressure; or sometimes, the stuff of Greek tragedies, hubris.

One of the goals of this text is to help you avoid the traps and pitfalls that consume some people in business. As you study the cases in this unit and the others that follow, try not to be too hard on the human subjects. Learn from them and try to discover the flaws in their ethical analyses.

One step that can give us greater clarity when we face ethical dilemmas is a credo. A credo is different from a code of ethics and does not consist of the virtues that compa- nies usually list in a code of ethics, such as, for example, “We are always honest; we fol- low the laws.” The credo demands more because it sets the parameters for those virtues. A credo is virtue in action. A credo defines you and your ethical boundaries.

You get your personal credo with introspection on two areas of questions:

1. Who are you? Many people define themselves by the trappings of success, such as how much money they have or make, the type of cars they drive, their clothes, and all things tangible and material. A credo grounds you and means that you need to find a way to describe yourself in terms or qualities that are part of you no matter what happens to you financially, professionally, or in your career. For example, one good answer to “Who are you?” might be that you have a talent and ability for art or writing. Another may be that you are kind and fair, showing those Solomon-like virtues to others around you. List those qualities you could have and keep regardless of all the outer trappings.

2. The second part of your credo consists of answering these questions: What are the things that you would never do to get a job? To keep a job? To earn a bonus? To win a contract or gain a client? The answers to these questions result in a list, one that you should be keeping as you read the cases and study the indivi- dual businesspeople who made mistakes. Perhaps the title of your list could be “Things I Would Never Do to Be Successful,” “Things I Would Never Do to Be Promoted,” or even “Things I Would Never Do to Make

2 Copyright 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).

Money.” One scientist reflected on the most important line that he would never cross, and after you have studied a few of the product liability cases, you will come to understand why this boundary was important to him, “I would never change the results of a study to get funding or promise anyone favorable results in exchange for funding.” A worker at a refinery wrote this as his credo: “I would never compromise safety to stay on schedule or get my bonus.” An auditor in a state auditor general’s office wrote, “I would never sign a document that I know contains false information.” The credo is a detailed list, gleaned from reading about the experiences of others, that puts the meat on Polonius’s immortal advice to his son, Laertes, in Shakespeare’s Hamlet: “To thine own self be true” (Hamlet, Act I, Scene III). We quote Polonius without really asking, “What does that mean?” The credo takes us from eloquent advice to daily action. The credo is a personal application of the lessons in the cases. You will spot the lack of definitive lines in these case studies and begin to understand how their decision processes were so shortsighted. The goal is to help you think more carefully, deeply, and fully about ethical issues.

A woman who had been a lawyer for thirty years reflected back on her career and rea- lized that she had conducted her professional life in line with two admonitions a senior partner had given to her on her first day as a young associate and new hire in a law firm. The senior partner came into her office and said, “I want you to remember two things: Don’t ever lie to a client. Don’t ever lie to the FBI.” She recalled wondering most of that first day, “What kind of firm am I working for that these are the only two rules? I would never lie to a client. I would never lie to the FBI.” Within days she would understand the senior partner’s wisdom, as well as that she had a credo. A client called and wondered how far along she was on a project for him. She had not even begun the project, but human tendency is to want to say, “Fine. Making progress. Coming along.” However, because of the credo parameters, she told the truth. “I have not started the project yet, but I have set aside two days next week to really get at it—could I call you then?” The client stayed with her and the firm.

She also noted that she came up short on her billable hours that first month and con- sidered adding a few minutes here and there to clients’ bills, but then reasoned, “That would be lying to a client!” She stopped herself over what might have been rationalized away as, “Oh, it’s such a little thing!” She then had a government agent (not FBI) visit her to ask questions about a classmate who had applied for a government job and had to be vetted. She recalled thinking that she should paint the best picture possible about the classmate, even though he had a checkered past. “Instead,” she explained, “I just told the truth.” As she reflected on her decades-long career she noted, “I can’t tell you how many times those two simple rules from that first day have saved me from mistakes.” That’s what a credo does for you.

As you think about your credo, especially who you are, keep the following thought from Jimmy Dunne III in mind. Mr. Dunne was the only partner who survived the near destruction of his financial firm, Sandler O’Neill, when the World Trade Center col- lapsed on September 11, 2001. Only seventeen of Sandler O’Neill’s eighty-three employ- ees survived the tower’s collapse. Mr. Dunne has been tireless in raising money for the families of the employees who lost their lives that day. When asked by Forbes magazine why he works so hard, Mr. Dunne responded, “Fifteen years from now, my son will meet the son or daughter of one of our people who died that day, and I will be judged on what that kid tells my son about what Sandler O’Neill did for his family.” His personal credo focuses on both the long-term reputation of his firm and the impact his choices can have on his children’s reputations.

Discussion Question Explain the role that “How do I want to be remembered?” plays in your credo?

Defining Ethics Section A 3

Reading 1.2 The Parable of the Sadhu: Pressure, Small Windows of Opportunity, and Temptation2

Bowen H. McCoy

[In 1982], as the first participant in the new six-month sabbatical program that Morgan Stanley has adopted, I enjoyed a rare opportunity to collect my thoughts, as well as do some traveling. I spent the first three months in Nepal, walking 600 miles through 200 villages in the Himalayas and climbing some 120,000 vertical feet. On the trip my sole Western companion was an anthropologist who shed light on the cultural patterns of the villages we passed through.

During the Nepal hike, something occurred that has had a powerful impact on my thinking about corporate ethics. Although some might argue that the experience has no relevance to business, it was a situation in which a basic ethical dilemma suddenly intruded into the lives of a group of individuals. How the group responded I think holds a lesson for all organizations, no matter how defined.

The Sadhu The Nepal experience was more rugged and adventuresome than I had anticipated. Most commercial treks last two or three weeks and cover a quarter of the distance we traveled.

My friend Stephen, the anthropologist, and I were halfway through the 60-day Himalayan part of the trip when we reached the high point, an 18,000-foot pass over a crest that we’d have to traverse to reach the village of Muklinath [sic], an ancient holy place for pilgrims.

Six years earlier I had suffered pulmonary edema, an acute form of altitude sickness, at 16,500 feet in the vicinity of Everest base camp, so we were understandably concerned about what would happen at 18,000 feet. Moreover, the Himalayas were having their wettest spring in 20 years; hip-deep powder and ice had already driven us off one ridge. If we failed to cross the pass, I feared that the last half of our “once in a lifetime” trip would be ruined.

The night before we would try the pass, we camped at a hut at 14,500 feet. In the photos taken at that camp, my face appears wan. The last village we’d passed through was a sturdy two-day walk below us, and I was tired.

During the late afternoon, four backpackers from New Zealand joined us, and we spent most of the night awake, anticipating the climb. Below we could see the fires of two other parties, which turned out to be two Swiss couples and a Japanese hiking club.

To get over the steep part of the climb before the sun melted the steps cut in the ice, we departed at 3:30 A.M. The New Zealanders left first, followed by Stephen and myself, our porters and Sherpas, and then the Swiss. The Japanese lingered in their camp. The sky was clear, and we were confident that no spring storm would erupt that day to close the pass.

At 15,500 feet, it looked to me as if Stephen were shuffling and staggering a bit, which are symptoms of altitude sickness. (The initial stage of altitude sickness brings a head- ache and nausea. As the condition worsens, a climber may encounter difficult breathing,

2Reprinted by permission of Harvard Business Review. From “The Parable of the Sadhu,” by Bowen H. McCoy, Harvard Business Review, 61 (September/October 1983), pp. 103–108. Copyright © 1983 by the Harvard Business School Publishing Corporation; all rights reserved.

4 Unit One Ethical Theory, Philosophical Foundations, Our Reasoning Flaws, and Types of Ethical Dilemmas

disorientation, aphasia, and paralysis.) I felt strong, my adrenaline was flowing, but I was very concerned about my ultimate ability to get across. A couple of our porters were also suffering from the height, and Pasang, our Sherpa sirdar (leader), was worried.

Just after daybreak, while we rested at 15,500 feet, one of the New Zealanders, who had gone ahead, came staggering down toward us with a body slung across his shoulders. He dumped the almost naked, barefoot body of an Indian holy man—a sadhu—at my feet. He had found the pilgrim lying on the ice, shivering and suffering from hypother- mia. I cradled the sadhu’s head and laid him out on the rocks. The New Zealander was angry. He wanted to get across the pass before the bright sun melted the snow. He said, “Look, I’ve done what I can. You have porters and Sherpa guides. You care for him. We’re going on!” He turned and went back up the mountain to join his friends.

I took a carotid pulse and found that the sadhu was still alive. We figured he had probably visited the holy shrines at Muklinath [sic] and was on his way home. It was fruitless to question why he had chosen this desperately high route instead of the safe, heavily traveled caravan route through the Kali Gandaki Gorge. Or why he was almost naked and with no shoes, or how long he had been lying in the pass. The answers wer- en’t going to solve our problem.

Stephen and the four Swiss began stripping off outer clothing and opening their packs. The sadhu was soon clothed from head to foot. He was not able to walk, but he was very much alive. I looked down the mountain and spotted below the Japanese clim- bers marching up with a horse.

Without a great deal of thought, I told Stephen and Pasang that I was concerned about withstanding the heights to come and wanted to get over the pass. I took off after several of our porters who had gone ahead.

On the steep part of the ascent where, if the ice steps had given way, I would have slid down about 3,000 feet, I felt vertigo. I stopped for a breather, allowing the Swiss to catch up with me. I inquired about the sadhu and Stephen. They said that the sadhu was fine and that Stephen was just behind. I set off again for the summit.

Stephen arrived at the summit an hour after I did. Still exhilarated by victory, I ran down the snow slope to congratulate him. He was suffering from altitude sickness, walk- ing fifteen steps, then stopping, walking fifteen steps, then stopping, walking fifteen steps, then stopping. When I reached them, Stephen glared at me and said: “How do you feel about contributing to the death of a fellow man?”

I did not fully comprehend what he meant. “Is the sadhu dead?” I inquired. “No,” replied Stephen, “but he surely will be!” After I had gone, and the Swiss had departed not long after, Stephen had remained

with the sadhu. When the Japanese had arrived, Stephen had asked to use their horse to transport the sadhu down to the hut. They had refused. He had then asked Pasang to have a group of our porters carry the sadhu. Pasang had resisted the idea, saying that the porters would have to exert all their energy to get themselves over the pass. He had thought they could not carry a man down 1,000 feet to the hut, reclimb the slope, and get across safely before the snow melted. Pasang had pressed Stephen not to delay any longer.

The Sherpas had carried the sadhu down to a rock in the sun at about 15,000 feet and had pointed out the hut another 500 feet below. The Japanese had given him food and drink. When they had last seen him he was listlessly throwing rocks at the Japanese party’s dog, which had frightened him.

We do not know if the sadhu lived or died. For many of the following days and evenings Stephen and I discussed and debated

our behavior toward the sadhu. Stephen is a committed Quaker with deep moral vision.

Defining Ethics Section A 5

He said, “I feel that what happened with the sadhu is a good example of the breakdown between the individual ethic and the corporate ethic. No one person was willing to assume ultimate responsibility for the sadhu. Each was willing to do his bit just so long as it was not too inconvenient. When it got to be a bother, everyone just passed the buck to someone else and took off. Jesus was relevant to a more individualist stage of society, and how do we interpret his teaching today in a world filled with large, impersonal orga- nizations and groups?”

I defended the larger group, saying, “Look, we all cared. We all stopped and gave aid and comfort. Everyone did his bit. The New Zealander carried him down below the snow line. I took his pulse and suggested we treat him for hypothermia. You and the Swiss gave him clothing and got him warmed up. The Japanese gave him food and water. The Sherpas carried him down to the sun and pointed out the easy trail toward the hut. He was well enough to throw rocks at a dog. What more could we do?”

“You have just described the typical affluent Westerner’s response to a problem. Throwing money—in this case food and sweaters—at it, but not solving the fundamen- tals!” Stephen retorted.

“What would satisfy you?” I said. “Here we are, a group of New Zealanders, Swiss, Americans, and Japanese who have never met before and who are at the apex of one of the most powerful experiences of our lives. Some years the pass is so bad no one gets over it. What right does an almost naked pilgrim who chooses the wrong trail have to disrupt our lives? Even the Sherpas had no interest in risking the trip to help him beyond a certain point.”

Stephen calmly rebutted, “I wonder what the Sherpas would have done if the sadhu had been a well-dressed Nepali, or what the Japanese would have done if the sadhu had been a well-dressed Asian, or what you would have done, Buzz, if the sadhu had been a well-dressed Western woman?”

“Where, in your opinion,” I asked instead, “is the limit of our responsibility in a situa- tion like this? We had our own well-being to worry about. Our Sherpa guides were unwilling to jeopardize us or the porters for the sadhu. No one else on the mountain was willing to commit himself beyond certain self-imposed limits.”

Stephen said, “As individual Christians or people with a Western ethical tradition, we can fulfill our obligations in such a situation only if (1) the sadhu dies in our care, (2) the sadhu demonstrates to us that he could undertake the two-day walk down to the village, or (3) we carry the sadhu for two days down to the village and convince someone there to take care of him.”

“Leaving the sadhu in the sun with food and clothing, while he demonstrated hand- eye coordination by throwing a rock at a dog, comes close to fulfilling items one and two,” I answered. “And it wouldn’t have made sense to take him to the village where the people appeared to be far less caring than the Sherpas, so the third condition is impractical. Are you really saying that, no matter what the implications, we should, at the drop of a hat, have changed our entire plan?”

The Individual vs. the Group Ethic Despite my arguments, I felt and continue to feel guilt about the sadhu. I had literally walked through a classic moral dilemma without fully thinking through the conse- quences. My excuses for my actions include a high adrenaline flow, a superordinate goal, and a once-in-a-lifetime opportunity—factors in the usual corporate situation, espe- cially when one is under stress.

Real moral dilemmas are ambiguous, and many of us hike right through them, una- ware that they exist. When, usually after the fact, someone makes an issue of them,

6 Unit One Ethical Theory, Philosophical Foundations, Our Reasoning Flaws, and Types of Ethical Dilemmas

we tend to resent his or her bringing it up. Often, when the full import of what we have done (or not done) falls on us, we dig into a defensive position from which it is very difficult to emerge. In rare circumstances we may contemplate what we have done from inside a prison.

Had we mountaineers been free of physical and mental stress caused by the effort and the high altitude, we might have treated the sadhu differently. Yet isn’t stress the real test of personal and corporate values? The instant decisions executives make under pressure reveal the most about personal and corporate character.

Among the many questions that occur to me when pondering my experience are: What are the practical limits of moral imagination and vision? Is there a collective or institutional ethic beyond the ethics of the individual? At what level of effort or commit- ment can one discharge one’s ethical responsibilities?

Not every ethical dilemma has a right solution. Reasonable people often disagree; otherwise, there would be no dilemma. In a business context, however, it is essential that managers agree on a process for dealing with dilemmas.

The sadhu experience offers an interesting parallel to business situations. An immedi- ate response was mandatory. Failure to act was a decision in itself. Up on the mountain we could not resign and submit our résumé to a headhunter. In contrast to philosophy, business involves action and implementation—getting things done. Managers must come up with answers to problems based on what they see and what they allow to influence their decision-making processes. On the mountain, none of us but Stephen realized the true dimensions of the situation we were facing.

One of our problems was that as a group we had no process for developing a consen- sus. We had no sense of purpose or plan. The difficulties of dealing with the sadhu were so complex that no one person could handle it. Because it did not have a set of precon- ditions that could guide its action to an acceptable resolution, the group reacted instinc- tively as individuals. The cross-cultural nature of the group added a further layer of complexity. We had no leader with whom we could all identify and in whose purpose we believed. Only Stephen was willing to take charge, but he could not gain adequate support to care for the sadhu.

Some organizations do have a value system that transcends the personal values of the managers. Such values, which go beyond profitability, are usually revealed when the organization is under stress. People throughout the organization generally accept its values, which, because they are not presented as a rigid list of commandments, may be somewhat ambiguous. The stories people tell, rather than printed materials, transmit these conceptions of what is proper behavior.

For twenty years I have been exposed at senior levels to a variety of corporations and organizations. It is amazing how quickly an outsider can sense the tone and style of an organization and the degree of tolerated openness and freedom to challenge management.

Organizations that do not have a heritage of mutually accepted, shared values tend to become unhinged during stress, with each individual bailing out for himself. In the great takeover battles we have witnessed during past years, companies that had strong cultures drew the wagons around them and fought it out, while other companies saw executives, supported by their golden parachutes, bail out of the struggles.

Because corporations and their members are interdependent, for the corporation to be strong the members need to share a preconceived notion of what is correct behavior, a “business ethic,” and think of it as a positive force, not a constraint.

As an investment banker I am continually warned by well-meaning lawyers, clients, and associates to be wary of conflicts of interest. Yet if I were to run away from every difficult situation, I wouldn’t be an effective investment banker. I have to feel my way

Defining Ethics Section A 7

through conflicts. An effective manager can’t run from risk either; he or she has to con- front and deal with risk. To feel “safe” in doing this, managers need the guidelines of an agreed-on process and set of values within the organization.

After my three months in Nepal, I spent three months as an executive-in-residence at both Stanford Business School and the Center for Ethics and Social Policy at the Gradu- ate Theological Union at Berkeley. These six months away from my job gave me time to assimilate twenty years of business experience. My thoughts turned often to the meaning of the leadership role in any large organization. Students at the seminary thought of themselves as antibusiness. But when I questioned them, they agreed that they distrusted all large organizations, including the church. They perceived all large organizations as impersonal and opposed to individual values and needs. Yet we all know of organiza- tions where people’s values and beliefs are respected and their expressions encouraged. What makes the difference? Can we identify the difference and, as a result, manage more effectively?

The word “ethics” turns off many and confuses more. Yet the notions of shared values and an agreed-on process for dealing with adversity and change—what many peo- ple mean when they talk about corporate culture—seem to be at the heart of the ethical issue. People who are in touch with their own core beliefs and the beliefs of others and are sustained by them can be more comfortable living on the cutting edge. At times, tak- ing a tough line or a decisive stand in a muddle of ambiguity is the only ethical thing to do. If a manager is indecisive and spends time trying to figure out the “good” thing to do, the enterprise may be lost.

Business ethics, then, has to do with the authenticity and integrity of the enterprise. To be ethical is to follow the business as well as the cultural goals of the corporation, its owners, its employees, and its customers. Those who cannot serve the corporate vision are not authentic business people and, therefore, are not ethical in the business sense.

At this stage of my own business experience I have a strong interest in organizational behavior. Sociologists are keenly studying what they call corporate stories, legends, and heroes as a way organizations have of transmitting the value system. Corporations such as Arco have even hired consultants to perform an audit of their corporate culture. In a company, the leader is the person who understands, interprets, and manages the corpo- rate value system. Effective managers are then action-oriented people who resolve con- flict, are tolerant of ambiguity, stress, and change, and have a strong sense of purpose for themselves and their organizations.

If all this is true, I wonder about the role of the professional manager who moves from company to company. How can he or she quickly absorb the values and culture of different organizations? Or is there, indeed, an art of management that is totally trans- portable? Assuming such fungible managers do exist, is it proper for them to manipulate the values of others?

What would have happened had Stephen and I carried the sadhu for two days back to the village and become involved with the villagers in his care? In four trips to Nepal my most interesting experiences occurred in 1975 when I lived in a Sherpa home in the Khumbu for five days recovering from altitude sickness. The high point of Stephen’s trip was an invitation to participate in a family funeral ceremony in Manang. Neither experience had to do with climbing the high passes of the Himalayas. Why were we so reluctant to try the lower path, the ambiguous trail? Perhaps because we did not have a leader who could reveal the greater purpose of the trip to us.

Why didn’t Stephen with his moral vision opt to take the sadhu under his personal care? The answer is because, in part, Stephen was hard-stressed physically himself and because, in part, without some support system that involved our involuntary and episo- dic community on the mountain, it was beyond his individual capacity to do so.

8 Unit One Ethical Theory, Philosophical Foundations, Our Reasoning Flaws, and Types of Ethical Dilemmas

I see the current interest in corporate culture and corporate value systems as a posi- tive response to Stephen’s pessimism about the decline of the role of the individual in large organizations. Individuals who operate from a thoughtful set of personal values provide the foundation of a corporate culture. A corporate tradition that encourages freedom of inquiry, supports personal values, and reinforces a focused sense of direction can fulfill the need for individuality along with the prosperity and success of the group. Without such corporate support, the individual is lost.

That is the lesson of the sadhu. In a complex corporate situation, the individual requires or deserves the support of the group. If people cannot find such support from their organization, they don’t know how to act. If such support is forthcoming, a person has a stake in the success of the group, and can add much to the process of establishing and maintaining a corporate culture. It is management’s challenge to be sensitive to indi- vidual needs, to shape them, and to direct and focus them for the benefit of the group as a whole.

For each of us the sadhu lives. Should we stop what we are doing and comfort him; or should we keep trudging up toward the high pass? Should I pause to help the derelict I pass on the street each night as I walk by the Yale Club en route to Grand Central Sta- tion? Am I his brother? What is the nature of our responsibility if we consider ourselves to be ethical persons? Perhaps it is to change the values of the group so that it can, with all its resources, take the other road.

Discussion Questions 1. In 2006, the Bowen McCoy phenomenon repeated

itself. Forty climbers passed by Briton David Sharp as he lay by the side of the path on an Everest trek. David Sharp died on the mountain. However, the following week, American guide Dan Mazur stayed with Australian Lincoln Hall until help could arrive. Mr. Hall survived, but Mr. Mazur had to forgo his climb and suffer the resulting financial losses from not being able to lead his group to the summit. What questions and analysis might affect the deci- sion processes in these two situations? Some grip- ping information to think about as you consider the issues: since Sir Edmund Hillary’s initial conquest of Everest in 1953, some 3,000 climbers have

made it to the top, and 200 have died trying; and the cost of a climb, at that time, was $60,000. Do you have some thoughts on your credo based on Mr. McCoy’s and Mr. Mazur’s experiences and actions?

2. Why do you think no one made sure the sadhu was going to be fine? What would they have had to do to be sure that the sadhu would live?

3. Are the rules of the mountain different from the rules of our day-to-day lives? Is it survival of the fittest on the mountain?

4. Why do you think Mr. McCoy wrote about his experience?

Reading 1.3 What Are Ethics? From Line-Cutting to Kant The temptation is remarkable. The run is long. The body screams, “No more!” So, when some runners in the New York City Marathon hit the Queensboro Bridge, temptation sets in, and rather than finishing the last 10 miles through Harlem and the Bronx, they hop a ride on the subway and head toward the finish line at Central Park. A total of forty- six runners used the subway solution to finish the race in the 2008 New York City Mara- thon. We look at this conduct and react, “That is really unfair.” Others, particularly the forty-six, respond, “So I skipped a few boroughs. I didn’t do anything illegal.” That’s where ethics come in; ethics apply where there are no laws, but our universal reaction is, “It just doesn’t seem right.”

We all don’t run marathons (or run partial marathons), but we do see ethical issues and lapses each day. A high school student was required to memorize the Preamble to

Defining Ethics Section A 9

the U.S. Constitution for an in-class quiz. When he reported to class, one of his class- mates, not known for his sartorial splendor, was wearing a suit and tie. When asked why he was so dressed up, the student lifted his tie to show the inside, where he had taped a copy of the Preamble. We call it cheating on a quiz, but there is no criminal act involved in cheating. However, the other students, who have taken the time to mem- orize the Preamble, look at this conduct and exclaim, “That’s not fair!”

In college, some students use apps to print out labels for their soda cans and chip bags that seem to be normal but have exam information embedded in everything from the bar code to the trademark. Students who study and rely on memory watch others use these unauthorized materials and think, “That’s cheating!” No one will be arrested, but it is not fair. And the grading system will not reflect accurately who really knows the material and who has skated through, although their GPAs will be virtually the same. That idea of self-policing, of stopping ourselves when we take advantage of others, even though our conduct does not violate a law, is the self-restraint that ethics brings.

We are probably unanimous in our conclusion that those in the examples cited all behaved unethically. We may not be able to zero in on what bothers us about their con- duct, but we know an ethics violation, or an ethical breach, when we see one.

But what is ethics? What do we mean when we say that someone has acted unethi- cally? Ethical standards are not the standards of the law. In fact, they are a higher stan- dard. A great many philosophers have gone round and round trying to define ethics and debated the great ethical dilemmas of their time and ours. They have debated everything from the sources of authority on what is right and what is wrong to finding the answers to ethical dilemmas. An understanding of their language and views might help you to explain what exactly you are studying and can also provide you with insights as you study the cases about personal and business ethics. Ethical theories have been described and evolved as a means for applying logic and analysis to ethical dilemmas. The theories provide us with ways of looking at issues so that we are not limited to concluding, “I think …” The theories provide the means for you to approach a dilemma to deter- mine why you think as you do, whether you have missed some issues and facts in reach- ing your conclusion, and if there are others with different views who have points that require further analysis.

Normative Standards as Ethics Sometimes referred to as normative standards in philosophy, ethical standards are the generally accepted rules of conduct that govern society. Ethical rules are both standards and expectations for behavior, and we have developed them for nearly all aspects of life. For example, with the exception of the laws covering lines for boarding the vehicle ferries in Washington, no statute makes it a crime for someone to cut in line in order to save the waiting time involved by going to the end of the line. But we all view those who “take cuts in line” with disdain. We sneer at those cars that sneak along the side of the road to get around a line of traffic as we sit and wait our turn. We resent those who tromp up to the cash register in front of us, ignoring the fact that we were there first and that our time is valuable too.

If you have ever resented a line-cutter, then you understand ethics and have applied ethical standards in life. Waiting your turn in line is an expectation society has. Waiting your turn is not an ordinance, a statute, or even a federal regulation. Waiting your turn is an age-old principle developed because it was fair to proceed with the first person in line being the first to be served. Waiting your turn exists because when there are large groups waiting for the same road, theater tickets, or fast food at noon in a busy

10 Unit One Ethical Theory, Philosophical Foundations, Our Reasoning Flaws, and Types of Ethical Dilemmas

downtown area, we found that lines ensured order and that waiting your turn was a just way of allocating the limited space and time allotted for the movie tickets, the traffic, or the food. Waiting your turn is an expected but unwritten behavior that plays a critical role in an orderly society.

So it is with ethics. Ethics consists of those unwritten rules we have developed for our interactions with each other. These unwritten rules govern us when we are sharing resources or honoring contracts. Waiting your turn is a higher standard than the laws that are passed to maintain order. Those laws apply when physical force or threats are used to push to the front of the line. Assault, battery, and threats are forms of criminal conduct for which the offender can be prosecuted. But these laws do not address the high school taunters who make life miserable for the less popular. In fact, trying to make a crime out of these too-cruel interactions in the teen years often finds the courts ruling that the statute is too vague. But ethical standards do come in to fill that gap. The stealthy line-cutter who simply sneaks to the front, perhaps using a friend and a conver- sation as a decoy for edging into the front, breaks no laws but does offend our notions of fairness and justice. One individual put him or herself above others and took advantage of their time and too-good natures.

Because line-cutters violate the basic procedures and unwritten rules for line forma- tion and order, they have committed an ethical breach. Ethics consists of standards and norms for behavior that are beyond laws and legal rights. We don’t put line-cutters in jail, but we do refer to them as unethical. There are other examples of unethical behavior that carry no legal penalty. If a married person commits adultery, no one has committed a crime, but the adulterer has broken a trust with his or her spouse. We do not put adul- terers in jail, but we do label their conduct with adjectives such as unfaithful and even use a lay term to describe adultery: cheating.

Speaking of cheating, looking at someone else’s paper during an exam is not a crim- inal violation. You may be sanctioned by your professor, and there may be penalties imposed by your college, but you will not be prosecuted by the county attorney for cheating. Your conduct was unethical because you did not earn your standing and grade under the same set of rules applied to the other students. Just like the line-cutter, your conduct is not fair to those who spent their time studying. Your cheating is unjust because you are getting ahead using someone else’s work.

In these examples of line-cutters, adulterers, and exam cheaters, there are certain common adjectives that come to our minds: “That’s unfair!” “That was dishonest!” and “That was unjust!” You have just defined ethics for yourself. Ethics is more than just common, or normative, standards of behavior. Ethics is honesty, fairness, and justice. The principles of ethics, when honored, ensure that the playing field is level, that we win by using our own work and ideas, and that we are honest and fair in our interac- tions with each other, whether personally or in business. However, there are other ways of defining ethical standards beyond just the normative tests of what most people “feel” is the right thing to do.

Divine Command Theory The Divine Command Theory is one in which the resolution of dilemmas is based upon religious beliefs. Ethical dilemmas are resolved according to tenets of a faith, such as the Ten Commandments for the Jewish and Christian faiths. Central to this theory is that decisions in ethical dilemmas are made on the basis of guidance from a divine being. In some countries the Divine Command Theory has influenced the law, as in some Muslim nations in which adultery is not only unethical but also illegal and sometimes punishable by death. In other countries, the concept of natural law runs in parallel with

Defining Ethics Section A 11

the Divine Command Theory. Natural law proposes that there are certain rights and conduct controlled by God, and that no matter what a society does, it should not drift from those tenets. For example, in the United States, the Declaration of Independence relied on the notion of natural law, stating that we had rights because they were given to us by our Creator.

Ethical Egoism Theory: Ayn Rand and Atlas Ethical Egoism holds that we all act in our own self-interest and that all of us should limit our judgment to our own ethical egos and not interfere with the exercise of ethical egoism by others. This view holds that everything is determined by self-interest. We act as we do and decide to behave as we do because we have determined that it is in our own self-interest.

One philosopher who believed in ethical egoism was the novelist Ayn Rand, who wrote books such as The Fountainhead and Atlas Shrugged about business and business leaders’ decisions in ethical dilemmas. These two famous books made Ms. Rand’s point about ethical dilemmas: the world would be better if we did not feel so guilty about the choices we make in ethical dilemmas and just acknowledged that it is all self-interest. Ms. Rand, as an ethical egoist, would maintain order by putting in place the necessary legal protections so that we did not harm each other.

“Hobbesian” Self-Interest and Government Philosopher Thomas Hobbes also believed that ethical egoism was the central factor in human decisions, that self-interest was part of human nature. However, Hobbes warned that there would be chaos because of ethical egoism if we did not have laws in place to control that terrible drive of self-interest. Hobbes felt we needed great power in govern- ment to control ethical egoism and that we all subscribe to that control through a social contract as outlined in his work Leviathan, a book that describes the chaos and confu- sion that would result without government.

Adam Smith, Self-Interest, and Moral Sentiments Although he too believed that humans act in their own self-interest, and so was a bit of an ethical egoist, Adam Smith, a philosopher and an economist, also maintained that humans define self-interest differently from the selfishness theory that Hobbes and Rand feared would consume the world if not checked by legal safeguards. Adam Smith wrote, in The Theory of the Moral Sentiments, that humans are rational and understand that, for example, fraud is in no one’s self-interest—not even that of the perpetrator, who does benefit temporarily until, as in the case of so many executives today, federal and state officials come calling with subpoenas and indictments. (For an excerpt from Adam Smith’s Moral Sentiments, see Reading 9.4.) That is, many believe that they can lie in business transactions and get ahead. Adam Smith argues that although many can and do lie to close a deal or get ahead, they cannot continue that pattern of selfish beha- vior because just one or two times of treating others this way results in a business com- munity spreading the word: Don’t do business with them because they cannot be trusted. The result is that they are shunned from doing business at least for a time, if not forever. In other words, Smith believed that there was some force of long-term self-interest that keeps businesses running ethically and that chaos only results in limited markets for lim- ited periods as one or two rotten apples use their ethical egoism in a selfish, rather than self-interest, sense, to their own temporary advantage.

12 Unit One Ethical Theory, Philosophical Foundations, Our Reasoning Flaws, and Types of Ethical Dilemmas

The Utilitarian Theory: Bentham and Mill Philosophers Jeremy Bentham and John Stuart Mill moved to the opposite end of ethical egoism and argued that resolution of ethical dilemmas requires a balancing effort in which we minimize the harms that result from a decision even as we maximize the ben- efits. Mill is known for his greatest happiness principle, which provides that we should resolve ethical dilemmas by bringing the greatest good to the greatest number of people. There will always be a few disgruntled souls in every ethical dilemma solution, so we just do the most good that we can.

Some of the issues to which we have applied utilitarianism include those that involve some form of rationing of resources in order to provide for all, such as with providing universal health care, even though some individuals may not be able to obtain advanced treatments, in the interest of providing some health care for all. There is a constant bal- ancing of the interests of the most good for the greatest number when the interests of protecting the environment are weighed against the need for electricity, cars, and fac- tories. Utilitarianism is a theory of balancing that requires us to look at the impact of our proposed solutions to ethical dilemmas, from the viewpoints of all those who are affected, and try to do the greatest good for the greatest number.

The Categorical Imperative and Immanuel Kant Philosopher Immanuel Kant’s theories are complex, but he is a respecter of persons. That is, Kant does not allow any resolution of an ethical dilemma in which human beings are used as a means by which others obtain benefits. That might sound confusing, so Kant’s theory reduced to simplest terms is that you cannot use others in a way that gives you a one-sided benefit. Everyone must operate under the same usage rules. In Kant’s words, “One ought only to act such that the principle of one’s act could become a universal law of human action in a world in which one would hope to live.” Ask yourself this question: If you hit a car in a parking lot and damaged it, but you could be guaranteed that no one saw you do it, would you leave a note on the other car with contact information? If you answered, “No, because that’s happened to me twelve times before, and no one left me a note,” then you are unhappy with universal behaviors but are unwilling to commit to universal standards of honesty and disclosure to remedy those behaviors.

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