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Assignment Essay 2

Identify Theories/Principles of Ethics and Articulate how such theories and models are associated with ethics and leadership.

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BUSINESS ETHICS

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BUSINESS ETHICS A Stakeholder and Issues Management Approach

SIXTH EDITION

Joseph W. Weiss

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Business Ethics Copyright © 2014 by Joseph W. Weiss

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Sixth Edition

Paperback print edition ISBN 978-1-62656-140-3 PDF e-book ISBN 978-1-62656-141-0 IDPF e-book ISBN 978-1-62656-142-7

2014-1

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Indexer: Robert Swanson

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Brief Contents

Chapter 1 Business Ethics, the Changing Environment, and Stakeholder Management

Chapter 2 Ethical Principles, Quick Tests, and Decision-Making Guidelines

Chapter 3 Stakeholder and Issues Management Approaches

Chapter 4 The Corporation and External Stakeholders: Corporate Governance: From the Boardroom to the Marketplace

Chapter 5 Corporate Responsibilities, Consumer Stakeholders, and the Environment

Chapter 6 The Corporation and Internal Stakeholders: Values-Based Moral Leadership, Culture, Strategy, and Self-Regulation

Chapter 7 Employee Stakeholders and the Corporation

Chapter 8 Business Ethics and Stakeholder Management in the Global Environment

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Contents

Preface

Acknowledgments

Case Authorship Chapter 1 Business Ethics, the Changing Environment, and Stakeholder Management

1.1 Business Ethics and the Changing Environment

Seeing the “Big Picture”

Point/CounterPoint

Environmental Forces and Stakeholders

Stakeholder Management Approach

1.2 What Is Business Ethics? Why Does It Matter?

What Is Ethics and What Are the Areas of Ethical Theory?

Unethical Business Practices and Employees

Ethics and Compliance Programs

Why Does Ethics Matter in Business?

Working for the Best Companies

1.3 Levels of Business Ethics

Asking Key Questions

Ethical Insight 1.1

1.4 Five Myths about Business Ethics

Myth 1: Ethics Is a Personal, Individual Affair, Not a Public or Debatable Matter

Myth 2: Business and Ethics Do Not Mix

Myth 3: Ethics in Business Is Relative

Myth 4: Good Business Means Good Ethics

Myth 5: Information and Computing Are Amoral

1.5 Why Use Ethical Reasoning in Business?

1.6 Can Business Ethics Be Taught and Trained?

1.7 Plan of the Book

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Chapter Summary

Questions

Exercises

Real-Time Ethical Dilemma

Cases

1. Bernard L. Madoff Investment Securities LLC: Wall Street Trading Firm

2. Cyberbullying: Who’s to Blame and What Can Be Done?

Notes

Chapter 2 Ethical Principles, Quick Tests, and Decision-Making Guidelines

2.1 Ethical Reasoning and Moral Decision Making

Three Criteria in Ethical Reasoning

Moral Responsibility Criteria

2.2 Ethical Principles and Decision Making

Ethical Insight 2.1

Utilitarianism: A Consequentialist (Results-Based) Approach

Universalism: A Deontological (Duty-Based) Approach

Rights: A Moral and Legal Entitlement-Based Approach

Justice: Procedures, Compensation, and Retribution

Virtue Ethics: Character-Based Virtues

The Common Good

Ethical Relativism: A Self-Interest Approach

Immoral, Amoral, and Moral Management

2.3 Four Social Responsibility Roles

2.4 Levels of Ethical Reasoning and Moral Decision Making

Personal Level

Organizational Level

Industry Level

Societal, International, and Global Levels

2.5 Identifying and Addressing Ethical Dilemmas

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Ethical Insight 2.2

Moral Creativity

Ethical Dilemma Problem Solving

12 Questions to Get Started

2.6 Individual Ethical Decision-Making Styles

Communicating and Negotiating across Ethical Styles

2.7 Quick Ethical Tests

2.8 Concluding Comments

Back to Louise Simms . . .

Chapter Summary

Questions

Exercises

Real-Time Ethical Dilemma

Cases

3. Ford’s Pinto Fires: The Retrospective View of Ford’s Field Recall Coordinator

4. Jerome Kerviel: Rogue Trader or Misguided Employee? What Really Happened at the Société Générale?

5. Samuel Waksal at ImClone

Notes

Chapter 3 Stakeholder and Issues Management Approaches

3.1 Stakeholder Theory and the Stakeholder Management Approach Defined

Stakeholders

Stakes

3.2 Why Use a Stakeholder Management Approach for Business Ethics?

Stakeholder Theory: Criticisms and Responses

3.3 How to Execute a Stakeholder Analysis

Taking a Third-Party Objective Observer Perspective

Role of the CEO in Stakeholder Analysis

Summary of Stakeholder Analysis

3.4 Negotiation Methods: Resolving Stakeholder Disputes

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Stakeholder Dispute Resolution Methods

3.5 Stakeholder Management Approach: Using Ethical Principles and Reasoning

3.6 Moral Responsibilities of Cross-Functional Area Professionals

Marketing and Sales Professionals and Managers as Stakeholders

R&D, Engineering Professionals, and Managers as Stakeholders

Accounting and Finance Professionals and Managers as Stakeholders

Public Relations Managers as Stakeholders

Human Resource Managers as Stakeholders

Summary of Managerial Moral Responsibilities

3.7 Issues Management, Integrating a Stakeholder Framework

What Is an Issue?

Ethical Insight 3.1

Other Types of Issues

Stakeholder and Issues Management: “Connecting the Dots”

Moral Dimensions of Stakeholder and Issues Management

Types of Issues Management Frameworks

3.8 Managing Crises

How Executives Have Responded to Crises

Crisis Management Recommendations

Chapter Summary

Questions

Exercises

Real-Time Ethical Dilemma

Cases

6. The BP Deepwater Horizon Explosion and Oil Spill: Crisis and Aftermath

7. Mattel Toy Recalls

8. Genetic Discrimination

Notes

Chapter 4 The Corporation and External Stakeholders: Corporate Governance: From the Boardroom to the Marketplace

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4.1 Managing Corporate Social Responsibility in the Marketplace

Ethical Insight 4.1

Free-Market Theory and Corporate Social Responsibility

Problems with the Free-Market Theory

Intermediaries: Bridging the Disclosure Gap

Point/CounterPoint

4.2 Managing Corporate Responsibility with External Stakeholders

The Corporation as Social and Economic Stakeholder

The Social Contract: Dead or Desperately Needed?

Balance between Ethical Motivation and Compliance

Covenantal Ethic

The Moral Basis and Social Power of Corporations as Stakeholders

Corporate Philanthropy

Managing Stakeholders Profitably and Responsibly: Reputation Counts

Ethical Insight 4.2

4.3 Managing and Balancing Corporate Governance, Compliance, and Regulation

Ethical Insight 4.3

Best Corporate Board Governance Practices

Sarbanes-Oxley Act

Pros and Cons of Implementing the Sarbanes-Oxley Act

The Federal Sentencing Guidelines for Organizations: Compliance Incentive

4.4 The Role of Law and Regulatory Agencies and Corporate Compliance

Why Regulation?

Laws and U.S. Regulatory Agencies

Laws Protecting Consumers

Laws Protecting the Environment

4.5 Managing External Issues and Crises: Lessons from the Past (Back to the Future?)

Chapter Summary

Questions

Exercises

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Real-Time Ethical Dilemma

Cases

9. Conscious Capitalism: What Is It? Why Do We Need It? Does It Work?

10. Goldman Sachs: Hedging a Bet and Defrauding Investors

11. Google Books

Notes

Chapter 5 Corporate Responsibilities, Consumer Stakeholders, and the Environment

5.1 Corporate Responsibility toward Consumer Stakeholders

Corporate Responsibilities and Consumer Rights

Consumer Protection Agencies and Law

5.2 Corporate Responsibility in Advertising

Ethics and Advertising

The Federal Trade Commission and Advertising

Pros and Cons of Advertising

Ethical Insight 5.1

Advertising and Free Speech

Paternalism, Manipulation, or Free Choice?

5.3 Controversial Issues in Advertising: The Internet, Children, Tobacco, and Alcohol

Advertising and the Internet

The Thin Line between Deceptive Advertising, Spyware, and Spam

Advertising to Children

Protecting Children

Tobacco Advertising

The Tobacco Controversy Continues

Alcohol Advertising

Ethical Insight 5.2

5.4 Managing Product Safety and Liability Responsibly

How Safe Is Safe? The Ethics of Product Safety

Ethical Insight 5.3

Product Liability Doctrines

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Legal and Moral Limits of Product Liability

Product Safety and the Road Ahead

5.5 Corporate Responsibility and the Environment

The Most Significant Environmental Problems

Causes of Environmental Pollution

Enforcement of Environmental Laws

The Ethics of Ecology

Green Marketing, Environmental Justice, and Industrial Ecology

Rights of Future Generations and Right to a Livable Environment

Recommendations to Managers

Chapter Summary

Questions

Exercises

Real-Time Ethical Dilemma

Cases

12. For-Profit Universities: Opportunities, Issues, and Promises

13. Fracking: Drilling for Disaster?

14. Neuromarketing

15. WalMart: Challenges with Gender Discrimination

16. Vioxx, Dodge Ball: Did Merck Try to Avoid the Truth?

Notes

Chapter 6 The Corporation and Internal Stakeholders: Values-Based Moral Leadership, Culture, Strategy, and Self-Regulation

6.1 Leadership and Stakeholder Management

Defining Purpose, Mission, and Values

Ethical Insight 6.1

Leadership Stakeholder Competencies

Example of Companies Using Stakeholder Relationship Management

Ethical Insight 6.2

Spiritual Values, Practices, and Moral Courage in Leading

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Failure of Ethical Leadership

Ethical Dimensions of Leadership Styles

How Should CEOs as Leaders Be Evaluated and Rewarded?

6.2 Organizational Culture, Compliance, and Stakeholder Management

Organizational Culture Defined

High-Ethics Companies

Weak Cultures

6.3 Leading and Managing Strategy and Structure

Organizational Structure and Ethics

Boundaryless and Networked Organizations

6.4 Leading Internal Stakeholder Values in the Organization

6.5 Corporate Self-Regulation and Ethics Programs: Challenges and Issues

Ethical Insight 6.3

Organizations and Leaders as Moral Agents

Ethics Codes

Codes of Conduct

Problems with Ethics and Conduct Codes

Ombuds and Peer-Review Programs

Is the Organization Ready to Implement a Values-Based Stakeholder Approach? A Readiness Checklist

Chapter Summary

Questions

Exercises

Real-Time Ethical Dilemmas

Cases

17. Kaiser Permanente: A Crisis of Communication, Values, and Systems Failure

18. Social Networking and Social Responsibility

Notes

Chapter 7 Employee Stakeholders and the Corporation

7.1 Employee Stakeholders in the Changing Workforce

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The Aging Workforce

Generational Differences in the Workplace

Steps for Integrating a Multigenerational Workforce

Ethical Insight 7.1

Women in the Workforce

Same-Sex Marriages, Civil Unions, Domestic Partnerships, and Workforce Rights

The Increasing Cultural Mix: Minorities Are Becoming the Majority

Educational Weaknesses and Gaps

Point/CounterPoint

Mainstreaming Disabled Workers

Balancing Work and Life in Families

7.2 The Changing Social Contract between Corporations and Employees

Good Faith Principle Exception

Public Policy Principle Exception

Implied Contract Exception

7.3 Employee and Employer Rights and Responsibilities

Moral Foundation of Employee Rights

The Principle of Balance in the Employee and Employer Social Contract and the Reality of Competitive Change

Rights from Government Legislation

Employer Responsibilities to Employees

Employee Rights and Responsibilities to Employers

Employee Rights in the Workplace

Other Employee Rights and Obligations to Employers

Ethical Insight 7.2

7.4 Discrimination, Equal Employment Opportunity, and Affirmative Action

Discrimination

Equal Employment Opportunity and the Civil Rights Act

Age and Discrimination in the Workplace

Comparable Worth and Equal Pay

Affirmative Action

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Ethics and Affirmative Action

Reverse Discrimination: Arguments against Affirmative Action

Ethical Insight 7.3

7.5 Sexual Harassment in the Workplace

What Is Sexual Harassment?

Who Is Liable?

Tangible Employment Action and Vicarious Liability

Sexual Harassment and Foreign Firms in the United States

7.6 Whistle-Blowing versus Organizational Loyalty

When Whistle-Blowers Should Not Be Protected

Factors to Consider before Blowing the Whistle

Managerial Steps to Prevent External Whistle-Blowing

Chapter Summary

Questions

Exercises

Real-Time Ethical Dilemma

Cases

19. Preemployment Screening and Facebook: Ethical Considerations

20. Women on Wall Street: Fighting for Equality in a Male-Dominated Industry

Notes

Chapter 8 Business Ethics and Stakeholder Management in the Global Environment

8.1 The Connected Global Economy and Globalization

Ethical Insight 8.1

Globalization and the Forces of Change

8.2 Managing and Working in a “Flat World”: Professional Competencies and Ethical Issues

Shared Leadership in Teams’ Competency

Ethical Insight 8.2

Global Ethical Values and Principles

Know Your Own Cultural and Core Values, Your Organization’s, and Those with Whom You Are Working

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Cross-Cultural Business Ethical Issues Professionals May Experience

8.3 Societal Issues and Globalization: The Dark Side

International Crime and Corruption

Economic Poverty and Child Slave Labor

The Global Digital Divide

Westernization (Americanization) of Cultures

Loss of Nation-State Sovereignty

8.4 Multinational Enterprises as Stakeholders

Power of MNEs

8.5 Triple Bottom Line, Social Entrepreneurship, and Microfinancing

The Triple Bottom Line

Social Entrepreneurs and Social Enterprises

Microfinancing

8.6 MNEs: Stakeholder Values, Guidelines, and Codes for Managing Ethically

Employment Practices and Policies

Consumer Protection

Environmental Protection

Political Payments and Involvement

Basic Human Rights and Fundamental Freedoms

8.7 Cross-Cultural Ethical Decision Making and Negotiation Methods

External Corporate Monitoring Groups

Individual Stakeholder Methods for Ethical Decision Making

Four Typical Styles of International Ethical Decision Making

Hypernorms, Local Norms, and Creative Ethical Navigation

Chapter Summary

Questions

Exercises

Real-Time Ethical Dilemmas

Cases

21. Google in China: Still “Doing No Evil”?

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22. Sweatshops: Not Only a Global Issue

23. The U.S. Industrial Food System

Notes

Index

About the Author

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Preface

The sixth edition of Business Ethics: A Stakeholder and Issues Management Approach continues the mission of providing a practical, easy-to-read, engaging and contemporary text with detailed real-time contemporary and classic cases for students. This text updates the previous edition, adding fourteen new cases in addition to other new features discussed below.

We continue our quest to assist colleagues and students in understanding the changing environment from combined stakeholder and issues management approaches, based on the theory and practice that firms depend on stakeholders as well as stockholders for their survival and success. Acting morally while doing business is no longer a joking or even questionable topic of discussion. With the near shutdowns of the U.S. government, the subprime lending crisis, global climate changes, the fading middle class in America and other countries, China’s continuing economic expansion, and India’s inroads into the global economy, the stakes for the global economy are not trivial. Ethical behaviors are required, not optional, for this and future generations. Learning to think and reason ethically is the first step.

Business ethics is concerned with doing what is right over what is wrong, while acting in helpful over harmful ways, and with seeking the common good as well as our own welfare. This text addresses this foundational way of thinking by asking why does the modern corporation exist in the first place? What is its raison d’être? How does it treat its stakeholders? Business ethics engages these essential questions, and it is also about the purpose, values, and transactions of and between individuals, groups, and companies and their global alliances. Stakeholder theory and management, in particular, are what concern nonfinancial as well as the financial aspects of business behavior, policies, and actions. A stakeholder view of the firm complements the stockholder view and includes all parties and participants who have an interest—a stake—in the environment and society in which business operates.

Students and professionals need straightforward frameworks to thoughtfully and objectively analyze and then sort through complex issues in order to make decisions that matter—ethically, economically, socially, legally, and spiritually. The United States and indeed the whole world are different after the 9/11 attacks. Terrorism is a threat to everyone, everywhere, as the Boston bombings showed. Also threatening are the ongoing corporate scandals, the consequences of the Arab Spring, security issues worldwide, immigration problems, the inequalities in income distribution and wealth, the decay of the middle classes—all of these affect graduating students and those who wish to attend a university or college but cannot afford to. Business ethics affects our professional and personal relationships, careers, and lives, and this text attempts to identify and help analyze many of these issues and opportunities for change, using relevant ethical frameworks and reasoning.

The New Revised Sixth Edition: Why and How This Text Is Different

This edition builds on previous success factors to provide:

1. A competent, contemporary text grounded in factual and detailed research, while being easy to read and

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applying concepts and methods to real-time business-related situations.

2. Interesting and contemporary news stories, exercises, and examples.

3. In-depth, real-time customized cases (twenty-three in this edition) specifically designed for this book.

4. Ethical dilemmas experienced by real individuals, not hypothetical stories.

5. A detailed chapter on both stakeholder and issues management methods, with step-by-step explanations, not summarized or theoretical abstractions.

6. A straightforward business and managerial perspective supported by the latest research—not only a philosophical approach.

7. One of the most comprehensive texts on the topics of workforce and workplace demographics, generational trends, and issues relating to ethical issues.

8. Comprehensive coverage of the Sarbanes-Oxley Act, federal sentencing guidelines, and codes of conduct.

9. Personal, professional, organizational, and global perspectives, and information and strategies for addressing ethical dilemmas.

10. A decision-maker role for students in exercises and examples.

This edition adds features that enhance your ethical understanding and interest in contemporary issues in the business world. It also aligns even more closely with international Association to Advance Collegiate Schools of Business (AACSB) requirements to help students, managers, and leaders achieve in their respective fields. Additions and changes include:

• A Point/CounterPoint exercise has been added to several chapters to challenge students’ thinking and arguments on contemporary issues. Topics include “too big to fail” (TBTF) institutions; advertising on the Boston bomber; student loan debt; and file sharing and other forms of online sharing.

• Twenty-three cases, of which fourteen are new and three updated, dealing with national and international issues.

• Updated national ethics survey data is included throughout the text.

• New perspectives on generational differences and ethical workplace issues have been added.

• Each chapter has new and updated lead-off cases and scenarios to attract students’ attention.

• Updated data on global and international issues.

• Updated research and business press findings and stories have been added to each chapter to explain concepts and perspectives.

• Chapter 1 includes a section on personal ethics with Covey’s maturity continuum and cases on cyberbullying and Madoff’s Ponzi scheme.

• Chapter 2 now covers more material on personal ethics and has a section explaining the foundations of ethics with cases on Jerome Kerviel, rogue trader, Sam Waksal (ImClone), and the Ford Pinto.

• Chapter 3 is now the stakeholder and issues management chapter with a section explaining stakeholder theory in more depth with a lead-in case on the BP oil spill and aftermath in the Gulf of Mexico. Cases include genetic discrimination and the Mattel toy recalls.

• Chapter 4 has updated research throughout with new Ethical Insight inserts and cases on conscious

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capitalism, Goldman Sachs, and Google Books.

• Chapter 5 includes cases on fracking, for-profit education, neuromarketing, and gender discrimination.

• Chapter 6 includes new cases on Kaiser Permanente, and social networking and social responsibility.

• Chapter 7 remains a leader in the field on depth and coverage of current trends on generational differences, gender, and population changes. Cases include Facebook and Preemployment, and women on Wall Street.

• Chapter 8 features new research on skills and ethical capacities in international/global management and leadership. The “dark side” of globalization is updated with research on ethical issues in developing and underdeveloped countries. Cases include sweatshops and the U.S. industrial food system.

An Action Approach

The sixth edition puts the students in the decision-maker role when identifying and addressing ethical dilemmas with thought-provoking cases and discussion questions that ask, “What would you do if you had to decide a course of action?” Readers are encouraged to articulate and share their decision-making rationales and strategies. Readers will also learn how to examine changing ethical issues and business problems with a critical eye. We take a close look at the business reporting of the online editions of the Wall Street Journal, 60 Minutes, the New York Times, Businessweek, the Economist, and other sources.

Stakeholder and Issues Management Analysis

Stakeholder analysis is one of the most comprehensive approaches for identifying issues, groups, strategies, and outcomes. In the sixth edition, these methods are presented in an updated and more integrative Chapter 3. This chapter offers a useful starting point for mapping the who, what, when, where, why, and how of ethical problems relating to organizations and their stakeholders. Issues and crisis management frameworks are explained and integrated into approaches that complement the stakeholder analysis. Quick tests and negotiation techniques are presented in Chapters 2 and 8.

• A new instructor’s manual and PowerPoints.

• Streamlined case teaching notes.

• Suggested videos and web sites for each chapter.

Objectives and Advantages of This Textbook

• To use an action-oriented stakeholder and issues management approach for understanding the ethical dimensions of business, organizational, and professional complex issues, crises, and events that are happening now.

• To introduce and motivate students about the relevance of ethical concepts, principles, and examples through actual moral dilemmas that are occurring in their own lives, as well as with known national and international people, companies, and groups.

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• To present a simple, straightforward way of using stakeholder and issues management methods with ethical reasoning in the marketplace and in workplace relationships.

• To engage and expand readers’ awareness of ethical and unethical practices in business at the individual, group, organizational, and multinational levels through real-time—not hypothetical— ethical dilemmas, stories, and cases.

• To instill self-confidence and competence in the readers’ ability to think and act according to moral principles. The classroom becomes a lab for real-life decisions.

Structure of the Book

• Chapter 1 defines business ethics and familiarizes the reader with examples of ethics in business practices, levels of ethical analysis, and what can be expected from a course in business ethics. A Point/CounterPoint exercise engages students immediately.

• Chapter 2 has exchanged positions in the text with the former Chapter 3. This chapter engages students in a discussion of ethics at the personal, professional, organizational, and international levels. The foundations of ethical principles are presented in context with contemporary ethical decision- making approaches. Individual styles of moral decision making are also discussed in this section. Although the approach here is a micro-level one, these principles can be used to examine and explain corporate strategies and actions as well. (Executives, managers, employees, coalitions, government officials, and other external stakeholder groups are treated as individuals.)

• Chapter 3 introduces action-oriented methods for studying social responsibility relationships at the individual employee, group, and organizational levels. These methods provide and encourage the incorporation of ethical principles and concepts from the entire book.

• Chapter 4 presents ethical issues and problems that firms face with external consumers, government, and environmental groups. How moral can and should corporations be and act in commercial dealings? Do corporations have a conscience? Classic and recent crises resulting from corporate and environmental problems are covered.

• Chapter 5 explains ethical problems that consumers face in the marketplace: product safety and liability, advertising, privacy, and the Internet. The following questions are addressed: How free is “free speech”? How much are you willing to pay for safety? Who owns the environment? Who regulates the regulators in an open society?

• Chapter 6 presents the corporation as internal stakeholder and discusses ethical leadership, strategy, structure, alliances, culture, and systems as dominant themes regarding how to lead, manage, and be a responsible follower in organizations today.

• Chapter 7 focuses on the individual employee stakeholder and examines the most recent, new and changing workforce/workplace trends, moral issues, and dilemmas employees and managers face and must respond to in order to survive and compete in national and global economies. This chapter has been described as a “must-read” for every human resource professional.

• Chapter 8 begins by asking students if they are ready for professional international assignments. Ethical and leadership competencies of new entrants into the global workforce are introduced, before

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moving the discussion to global and multinational enterprises (MNEs) and ethical issues between MNEs, host countries, and other groups. Issues resulting from globalization are presented along with stakeholders who monitor corporate responsibility internationally. Negotiation techniques for professionals responsibly doing business abroad are presented.

Cases

Twenty-three cases are included in this edition, fourteen of which are new and three thoroughly updated.

Chapter 1

1. Bernard L. Madoff Investment Securities LLC: Wall Street Trading Firm

2. Cyberbullying: Who’s to Blame and What Can Be Done?

Chapter 2

3. Ford’s Pinto Fires: The Retrospective View of Ford’s Field Recall Coordinator

4. Jerome Kerviel: Rogue Trader or Misguided Employee? What Really Happened at the Société Générale?

5. Samuel Waksal at ImClone

Chapter 3

6. The BP Deepwater Horizon Explosion and Oil Spill: Crisis and Aftermath

7. Mattel Toy Recalls

8. Genetic Discrimination

Chapter 4

9. Conscious Capitalism: What Is It? Why Do We Need It? Does It Work?

10. Goldman Sachs: Hedging a Bet and Defrauding Investors

11. Google Books

Chapter 5

12. For-Profit Universities: Opportunities, Issues, and Promises

13. Fracking: Drilling for Disaster?

14. Neuromarketing

15. WalMart: Challenges with Gender Discrimination

16. Vioxx, Dodge Ball: Did Merck Try to Avoid the Truth?

Chapter 6

17. Kaiser Permanente: A Crisis of Communication, Values, and Systems Failure

18. Social Networking and Social Responsibility

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Chapter 7

19. Preemployment Screening and Facebook: Ethical Considerations

20. Women on Wall Street: Fighting for Equality in a Male-Dominated Industry

Chapter 8

21. Google in China: Still “Doing No Evil”?

22. Sweatshops: Not Only a Global Issue

23. The U.S. Industrial Food System

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Acknowledgments

This book continues the practice that has endured over the last several years that I have been teaching business ethics to MBA students and executives. My consulting work also informs this edition in numerous ways. I would like to thank all my students for their questions, challenges, and class contributions, which have stimulated the research and presentations in this text. I also thank all the professional staff at Berrett-Koehler who helped make this edition possible and the faculty and staff at Bentley University who contributed resources and motivation for this edition. I am grateful to Michael Hoffman and his staff at Bentley University’s Center for Business Ethics, whose shared resources and friendship also helped with this edition.

I also recognize and extend thanks to those whose reviews of previous editions were very helpful, and whose comments on this edition were instructive as well: Anna Pakman, Ohio Dominican University; Buck Buchanan, Defiance College; Francine Guice, Indiana University-Purdue University Fort Wayne; Lois Smith, University of Wisconsin; Ross Mecham, Virginia Polytechnic Institute and State University; Christina Stamper, Western Michigan University.

Special thanks go to Laura Gray, Lu Bai, and Matt Zamorski, former and current graduate students at Bentley University, without whose help this edition would not have been possible.

Joseph W. Weiss Bentley University

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Case Authorship

Editing help was provided by Laura Gray, Lu Bai, and Matt Zamorski.

Case 1 Bernard L. Madoff Investment Securities LLC: Wall Street Trading Firm

Alba Skurti, Bentley University, under the direction of Professor Joseph W. Weiss, Bentley University.

Case 2 Cyberbullying: Who’s to Blame and What Can Be Done?

Roseleen Dello Russo and Lauren Westling, Bentley University, under the direction of Professor Joseph W. Weiss, Bentley University.

Case 3 Ford’s Pinto Fires: The Retrospective View of Ford’s Field Recall Coordinator

Dennis A. Gioia, Professor of Organizational Behavior, Smeal College of Business, Pennsylvania State University, provided the personal reflections in this case. Michael K. McCuddy, Valparaiso University, provided background information and discussion questions.

Case 4 Jerome Kerviel: Rogue Trader or Misguided Employee? What Really Happened at the Société Générale?

Steve D’Aquila, Bentley University, under the direction of Professor Joseph W. Weiss, Bentley University.

Case 5 Samuel Waksal at ImClone

Amy Vensku, MBA Bentley student under the direction of Professor Joseph W. Weiss, and edited and adapted for this text by Michael K. McCuddy, Valparaiso University and Matt Zamorski, Bentley University.

Case 6 The BP Deepwater Horizon Explosion and Oil Spill: Crisis and Aftermath

Jill Stonehouse and Bianlbahen Patel, Bentley University, under the direction of Professor Joseph W. Weiss, Bentley University.

Case 7 Mattel Toy Recalls

Mike Ladd, Bentley University, under the direction of Professor Joseph W. Weiss, Bentley University.

Case 8 Genetic Discrimination

Jaclyn Publicover, Bentley University, under the direction of Professor Joseph W. Weiss, Bentley University.

Case 9 Conscious Capitalism: What Is It? Why Do We Need It? Does It Work?

John Warden, Bentley University, edited by Professor Joseph W. Weiss.

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Case 10 Goldman Sachs: Hedging a Bet and Defrauding Investors

Dean Koutris and Jess Sheynman, Bentley University, under the direction of Professor Joseph W. Weiss, Bentley University.

Case 11 Google Books

Steve D’Aquila, Bentley University, under the direction of Professor Joseph W. Weiss, Bentley University.

Case 12 For-Profit Universities: Opportunities, Issues, and Promises

Alicia Cabrera and Nate Pullen, Bentley University, under the direction of Professor Joseph W. Weiss, Bentley University.

Case 13 Fracking: Drilling for Disaster?

Lauren Casas and Ned Coffee, MBA Bentley students, under the direction of Professor Joseph W. Weiss, Bentley University, with editorial revisions made by Laura Gray, Matt Zamorski, and Lu Bai.

Case 14 Neuromarketing

Eddy Fitzgerald and Jennifer Johnson, Bentley University, under the direction of Professor Joseph W. Weiss, Bentley University.

Case 15 WalMart: Challenges with Gender Discrimination

Michael K. McCuddy, the Louis S. and Mary L. Morgal Chair of Christian Business Ethics and Professor of Management, College of Business Administration, Valparaiso University.

Case 16 Vioxx, Dodge Ball: Did Merck Try to Avoid the Truth?

Sean Downey, Bentley University, under the direction of Professor Joseph W. Weiss, Bentley University.

Case 17 Kaiser Permanente: A Crisis of Communication, Values, and Systems Failure

Sarah O’Neill, Bentley University, under the direction of Professor Joseph W. Weiss, Bentley University.

Case 18 Social Networking and Social Responsibility

Adam Schilke, Kimberly Benevides, and Eden Kyne, Bentley University, under the direction of Professor Joseph W. Weiss, Bentley University.

Case 19 Preemployment Screening and Facebook: Ethical Considerations

Carl Forziati, Bentley University, under the direction of Professor Joseph W. Weiss, Bentley University.

Case 20 Women on Wall Street: Fighting for Equality in a Male-Dominated Industry

Monica Meunier, under the direction of Professor Joseph W. Weiss, and adapted and edited for this text by

29

Michael K. McCuddy, Valparaiso University.

Case 21 Google in China: Still “Doing No Evil”?

Professor Joseph W. Weiss, Bentley University, edited by Lu Bai.

Case 22 Sweatshops: Not Only a Global Issue

Michael K. McCuddy, the Louis S. and Mary L. Morgal Chair of Christian Business Ethics and Professor of Management, College of Business Administration, Valparaiso University.

Case 23 The U.S. Industrial Food System

Brenda Pasquarello, Bentley University, under the direction of Professor Joseph W. Weiss, Bentley University.

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1 BUSINESS ETHICS, THE CHANGING ENVIRONMENT,

AND STAKEHOLDER MANAGEMENT

1.1 Business Ethics and the Changing Environment

Point/CounterPoint

1.2 What Is Business Ethics? Why Does It Matter?

1.3 Levels of Business Ethics

Ethical Insight 1.1

1.4 Five Myths about Business Ethics

1.5 Why Use Ethical Reasoning in Business?

1.6 Can Business Ethics Be Taught and Trained?

1.7 Plan of the Book

Chapter Summary

Questions

Exercises

Real-Time Ethical Dilemma

Cases

1. Bernard L. Madoff Investment Securities LLC: Wall Street Trading Firm

2. Cyberbullying: Who’s to Blame and What Can Be Done?

Notes

OPENING CASE

Blogger: “Hi. i download music and movies, limewire and torrent. is it illegal for me to download or is it just illegal for the person uploading it. does anyone know someone who was caught and got into trouble for it, what happened them. Personally I dont see a difference between

downloading a song or taping it on a cassette from a radio!!”1

The Recording Industry Association of America (RIAA), on behalf of its member companies and copyright owners, has sued more than 30,000 people for unlawful downloading. RIAA detectives log on to peer-to-peer networks where they easily identify illegal activity since users’ shared folders are visible to all. The majority of these cases have been settled out of court for $1,000—$3,000, but fines per music track can go up to $150,000 under the Copyright Act.

The nation’s first file-sharing defendant to challenge an RIAA lawsuit, Jammie Thomas-Rasset, reached the end of the appeals process to overturn a jury-determined $222,000 fine in 2013. She was ordered to pay

31

this amount, which she argued was unconstitutionally excessive, for downloading and sharing 24 copyrighted songs using the now-defunct file-sharing service Kazaa. The Supreme Court has not yet heard a file-sharing case, having also declined without comment to review the only other appeal following Thomas-Rasset’s. (In that case, the Court let stand a federal jury-imposed fine of $675,000 against Joel Tenenbaum for downloading and sharing 30 songs.) “As I’ve said from the beginning, I do not have now, nor do I anticipate in the future, having $220,000 to pay this,” Thomas-Rasset said. “If they do decide to try and collect, I will

file for bankruptcy as I have no other option.”2

Students often use university networks to illegally distribute copyrighted sound recordings on unauthorized peer-to-peer services. The RIAA has issued subpoenas to universities nationwide, including networks in Connecticut, Georgia, Kansas, Michigan, Minnesota, New Jersey, Pennsylvania, Rhode Island, Texas, Virginia, and Washington. Most universities give up students’ identities only after offering an opportunity to stop the subpoena with their own funds. As in earlier rounds of lawsuits, the RIAA is utilizing the “John Doe” litigation process, which is used to sue defendants whose names are not known.

RIAA president Cary Sherman has discussed the ongoing effort to reach out to the university community with proactive solutions to the problem of illegal file-sharing on college campuses: “It remains as important as ever that we continue to work with the university community in a way that is respectful of the law as well as university values. That is one of our top priorities, and we believe our constructive outreach has been enormously productive so far. Along with offering students legitimate music services, campus-wide educational and technological initiatives are playing a critical role. But there is also a complementary need for enforcement by copyright owners against the serious offenders—to remind people that this activity is illegal.”

He added: “Illegally downloading music from the Internet costs everyone—the musicians not getting compensated for their craft, the owners and employees of the thousands of record stores that have been forced to close, legitimate online music services building their businesses, and consumers who play by the rules and purchase their music legally.”

On the other hand, once the well-funded RIAA initiates a lawsuit, many defendants are pressured to settle out of court in order to avoid oppressive legal expenses. Others simply can’t take the risk of large fines that juries have shown themselves willing to impose.

New technologies and the trend toward digital consumption have made intellectual property both more critical to businesses’ bottom lines and more difficult to protect. No company, big or small, is immune to the intellectual property protection challenge. Illegal downloads of music are not the only concern. A new wave of lawsuits is being filed against individuals who illegally download movies through sites like Napster and BitTorrent. In 2011, the U.S. Copyright Group initiated “the largest illegal downloading case in US history” at the time, suing over 23,000 file sharers who illegally downloaded Sylvester Stallone’s movie The Expendables. This case was expanded to include the 25,000 users who also downloaded Voltage Pictures’ The Hurt Locker, which increased the total number of defendants to approximately 50,000, all of whom used peer- to-peer downloading through BitTorrent. The lawsuits were filed based on the illegal downloads made from an Internet Protocol (IP) address. The use of an IP address as identifier presents ethical issues—for example, should a parent be responsible for a child downloading a movie through the family’s IP address? What about a landlord who supplied Internet to a tenant?

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Digital books are also now in play. In 2012, a lawsuit was filed in China against technology giant Apple for sales of illegal book downloads through its App Store. Nine Chinese authors are demanding payment of $1.88 million for unauthorized versions of their books that were submitted to the App Store and sold to consumers for a profit. Again, the individual IP addresses are the primary way of determining who performed the illegal download. Telecom providers and their customers face privacy concerns, as companies are being asked for the names of customers associated with IP addresses identified with certain downloads.

Privacy activists argue that an IP address (which identifies the subscriber but not the person operating the computer) is private, protected information that can be shown during criminal but not civil investigations. Fred von Lohmann, senior staff attorney with the Electronic Frontier Foundation, has suggested on his organization’s blog that “courts are not prepared to simply award default judgments worth tens of thousands

of dollars against individuals based on a piece of paper backed by no evidence.”3

1.1 Business Ethics and the Changing Environment

The Internet is changing everything: the way we communicate, relate, read, shop, bank, study, listen to music, get news and “TV,” and participate in politics. Of course the last “third billion” of people in undeveloped

countries are not participating on broadband as is the rest of the world,4 but they predictably will, first through mobile phones. Businesses and governments operate in and are disrupted by changing technological, legal, economic, social, and political environments with competing stakeholders and power claims, as many Middle Eastern countries in particular are experiencing. Also, as this chapter’s opening case shows, there is more than one side to every complex issue and debate involving businesses, consumers, families, other institutions, and professionals. When stakeholders and companies cannot agree or negotiate competing claims among themselves, the issues generally go to the courts.

The RIAA, in the opening case, does not wish to alienate too many college students because they are also the music industry’s best customers. At the same time, the association believes it must protect those groups it represents. Not all stakeholders in this controversy agree on goals and strategies. For example, not all music artists oppose students downloading or even sharing some of their copyrighted songs. Offering free access to some songs is a good advertising tactic. On the other hand, shouldn’t those songwriters and recording companies who spend their time and money creating, marketing, distributing, and selling their intellectual property protect that property? Is file sharing, without limits or boundaries, stealing other people’s property? If not, what is this practice to be called? If file sharing continues in some form, and ends up helping sales for many artists, will it become legitimate? Should it? Is this just the new way business models are being changed by 15–26 year olds? While the debate continues, individuals (15 year olds and younger in many cases) who still illegally share files have rights as private citizens under the law, and recording companies have rights of property protection. Who is right and who is wrong, especially when two rights collide? Who stands to lose and who to gain? Who gets hurt by these transactions? Which group’s ethical positions are most defensible?

Stakeholders are individuals, companies, groups, and even governments and their subsystems that cause and respond to external issues, opportunities, and threats. Corporate scandals, globalization, deregulation, mergers, technology, and global terrorism have accelerated the rate of change and brought about a climate of uncertainty in which stakeholders must make business and moral decisions. Issues concerning questionable

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ethical and illegal business practices confront everyone, as the following examples illustrate:

• The subprime lending crisis in 2008 involved stakeholders as varied as consumers, banks, mortgage companies, real estate firms, and homeowners. Many companies that sold mortgages to unqualified buyers lied about low-risk, high-return products. Wall Street companies, while thriving, are also settling lawsuits stemming from the 2008 crisis. In 2013, “Hundreds of thousands of subprime borrowers are still struggling. Subprime securities still pose a significant legal risk to the firms that packaged them, and they use up capital

that could be deployed elsewhere in the economy.”5 In 2011, Bank of America announced that it would “take a whopping $20 billion hit to put the fallout from the subprime bust behind it and satisfy claims from

angry investors.”6 The ethics and decisions precipitating the crisis contributed to tilting the U.S. economy toward recession, with long-lasting effects.

• The corporate scandals in the 1990s through 2001 at Enron, Adelphia, Halliburton, MCI WorldCom, Tyco, Arthur Andersen, Global Crossing, Dynegy, Qwest, Merrill Lynch, and other firms that once jarred shareholder and public confidence in Wall Street and corporate governance may now seem like ancient history to those with short-term memories. Enron’s bankruptcy with assets of $63.4 billion defies imagination, but WorldCom’s bankruptcy set the record for the largest corporate bankruptcy in U.S. history (Benston, 2003). Only 22% of Americans express a great deal or quite a lot of confidence in big business,

compared to 65% who express confidence in small business.7 Confidence in big business reached its highest point in 1974 at 34%, and even during the dot-com boom in the late 1990s it hovered at 30%. The lowest rating of 16% was polled in 2009 after the subprime lending crisis, and although public confidence has slightly increased, the significant differential in American confidence between big and small business belies a

public mistrust of big business that may not be easily repaired.8

• The debate continues over excessive pay to those chief executive officers (CEOs) who posted poor corporate performance. Large bonuses paid out during the financial crisis made executive pay a controversial topic, yet investors did little to solve the issue. “Investors had the opportunity to provide advisory votes on executive pay at financial firms that received TARP funds in 2009, and they gave thumbs up to pay packages at every single one of those institutions. This proxy season, with advisory votes now widely available (thanks to the Dodd-Frank Act), only five companies’ executive compensation packages have received a thumbs down from

shareholders.”9 The Bureau of Labor Statistics noted that while median CEO salaries grew at 27% in 2010, overall worker pay only increased by 2.1%. “It’s been almost three years since Congress directed the Securities and Exchange Commission to require public companies to disclose the ratio of their chief executive officers’ compensation to the median of the rest of their employees’. The agency has yet to produce

a rule.”10 An independent 2013 analysis by Bloomberg showed that “Across the Standard & Poor’s 500 Index of companies, the average multiple of CEO compensation to that of rank-and-file workers is 204, up

20 percent since 2009.”11

• Some critics on the right of the political spectrum argue that companies are becoming overregulated since the scandals. Others argue there is not sufficient regulation of the largest financial companies. The Sarbanes- Oxley Act of 2002 is one response to those scandals. This act states that corporate officers will serve prison time and pay large fines if they are found guilty of fraudulent financial reporting and of deceiving

34

shareholders. Implementing this legislation requires companies to create accounting oversight boards,

establish ethics codes, show financial reports in greater detail to investors, and have the CEO and chief financial officer (CFO) personally sign off on and take responsibility for all financial statements and internal controls. Implementing these provisions is costly for corporations. Some claim their profits and global

competitiveness are negatively affected and the regulations are “unenforceable.”12

• U.S. firms are outsourcing work to other countries to cut costs and improve profits, work that some argue could be accomplished in the United States. Estimates of U.S. jobs outsourced range from 104,000 in 2000 to 400,000 in 2004, and to a projected 3.3 million by 2015. “Forrester Research estimated that 3.3 million U.S. jobs and about $136 billion in wages would be moved to overseas countries such as India, China, and Russia by 2015. Deloitte Consulting reported that 2 million jobs would move from the United States and Europe to overseas destinations within the financial services business. Across all industries the emigration of

service jobs can be as high as 4 million.”13 Do U.S. employees who are laid off and displaced need protection, or is this practice part of another societal business transformation? Is the United States becoming part of a global supply chain in which outsourcing is “business as usual” in a “flat world,” or is the working middle class in the United States and elsewhere at risk of predatory industrial practices and ineffective

government polices?14

• Will robots, robotics, and artificial intelligence (AI) applications replace humans in the workplace? This interesting but disruptive development poses concerns. “The outsourcing of human jobs as a side effect of globalization has arguably contributed to the current unemployment crisis. However, a growing trend sees humans done away with altogether, even in the low-wage countries where many American jobs have

landed”.15 What will be the ethical implications of the next wave of AI development, “where full-blown autonomous self-learning systems take us into the realm of science fiction—delivery systems and self-driving

vehicles alone could change day-to-day life as we know it, not to mention the social implications.”16 AI also extends into electronic warfare (drones), education (robot assisted or led), and manufacturing (a Taiwanese company replaced a “human force of 1.2 million people with 1 million robots to make laptops, mobile

devices and other electronics hardware for Apple, Hewlett-Packard, Dell and Sony”).17 One futurist predicted that as many as 50 million jobs could be lost to machines by 2030, and even 50% of all human jobs by 2040.

These large macro-level issues underlie many ethical dilemmas that affect business and individual decisions among stakeholders in organizations, professions, as well as individual lives. Before discussing stakeholder theory, and the management approach that it is based on, and how these perspectives and methods can help individuals and companies better understand how to make more socially responsible decisions, we take a brief look at the broader environmental forces that affect industries, organizations, and individuals.

Seeing the “Big Picture” Pulitzer Prize-winning journalist Thomas Friedman, continues to track megachanges on a global scale. His 2011 book, That Used to Be Us: How America Fell Behind in the World It Invented and How We Can Come Back, suggests an agenda for change to meet larger challenges. His books, The World Is Flat 3.0, and The Lexus and

35

the Olive Tree, vividly illustrate a macroenvironmental perspective that provides helpful insights into

stakeholder and issues management mind-sets and approaches.18 Friedman notes, “Like everyone else trying to adjust to this new globalization system and bring it into focus, I had to retrain myself and develop new lenses to see it. Today, more than ever, the traditional boundaries between politics, culture, technology, finance, national security, and ecology are disappearing. You often cannot explain one without referring to the others, and you cannot explain the whole without reference to them all. I wish I could say I understood all this when I began my career, but I didn’t. I came to this approach entirely by accident, as successive changes in my

career kept forcing me to add one more lens on top of another, just to survive.”19

After quoting Murray Gell-Mann, the Nobel laureate and former professor of theoretical physics at Caltech, Friedman continues, “We need a corpus of people who consider that it is important to take a serious and professional look at the whole system. It has to be a crude look, because you will never master every part or every interconnection. Unfortunately, in a great many places in our society, including academia and most bureaucracies, prestige accrues principally to those who study carefully some [narrow] aspect of a problem, a trade, a technology, or a culture, while discussion of the big picture is relegated to cocktail party conversation. That is crazy. We have to learn not only to have specialists but also people whose specialty is to spot the

strong interactions and entanglements of the different dimensions, and then take a crude look at the whole.”20

POINT/COUNTERPOINT File Sharing: Harmful Theft or Sign of the Times?

This exercise provides a more complete case with student interaction.

“I watch some of my favorite shows on hulu.com for free and I buy others on Amazon or iTunes. I pay a fee to use Pandora for ad-free internet radio, or Spotify for specific music playlists. But like many of my friends, I don’t own a TV, so when there is no other way to access a show, I will download it from a torrent [file-sharing] site.”

—Interview with a Generation Y “Millennial”

The Recording Industry Association of America (RIAA), on behalf of its member companies and copyright owners, has sued more than 30,000 people for unlawful downloading. RIAA detectives log on to peer-to-peer networks where they easily identify illegal activity since users’ shared folders are visible to all. The majority of these cases have been settled out of court for $1,000—$3,000, but fines per music track can go up to $150,000 under the Copyright Act.

The nation’s first file-sharing defendant to challenge an RIAA lawsuit, Jammie Thomas-Rasset, in 2013 reached the end of the appeals process to overturn a jury-determined $222,000 fine. She was ordered to pay this amount, which she argued was unconstitutionally excessive, for downloading and sharing 24 copyrighted songs using the now-defunct file-sharing service Kazaa. The Supreme Court has not yet heard a file-sharing case, having also declined without comment to review the only other appeal following Thomas-Rasset’s.

Students often use university networks to illegally distribute copyrighted sound recordings on unauthorized peer-to-peer services. The RIAA issues subpoenas to universities nationwide, including networks in Connecticut, Georgia, Kansas, Michigan, Minnesota, New Jersey, Pennsylvania, Rhode Island, Texas, Virginia, and Washington. Most universities give up students’ identities only after offering an opportunity to stop the subpoena with their own funds. As in earlier rounds of lawsuits, the RIAA is utilizing the “John Doe”

36

http://hulu.com
litigation process, which is used to sue defendants whose names are not known.

RIAA President Cary Sherman cites the ongoing effort to reach out to the university community with proactive solutions to the problem of illegal file sharing on college campuses, saying, “It remains as important as ever that we continue to work with the university community in a way that is respectful of the law as well as university values. . . . Along with offering students legitimate music services, campus-wide educational and technological initiatives are playing a critical role. But there is also a complementary need for enforcement by copyright owners against the serious offenders—to remind people that this activity is illegal and . . . costs everyone.”

On the other hand, once the well-funded RIAA initiates a lawsuit, many defendants are pressured to settle out of court in order to avoid oppressive legal expenses. Others simply can’t take the risk of large fines that juries have shown themselves willing to impose.

New technologies and the trend toward digital consumption have made intellectual property both more critical to businesses’ bottom line and more difficult to protect. No company, big or small, is immune to the IP protection challenge. Illegal downloads of music are not the only concern. A new wave of lawsuits is being filed against individuals who illegally download movies through sites like Napster and BitTorrent.

In 2011, the U.S. Copyright Group initiated “the largest illegal downloading case in U.S. history” at the time, suing over 23,000 file sharers who illegally downloaded Sylvester Stallone’s movie, The Expendables. This case was expanded to include the 25,000 users who also downloaded Voltage Pictures’ The Hurt Locker, which increased the total number of defendants to approximately 50,000 who used peer-to-peer downloading through BitTorrent. The lawsuits are filed based on the illegal downloads made from an IP address.

Digital books are also now in play. In 2012, a lawsuit was filed in China against technology giant Apple for sales of illegal book downloads through the App Store. Nine Chinese authors are demanding payment of $1.88 million for unauthorized versions of their books that were submitted to the App Store and sold to consumers for a profit. Again, the individual IP addresses are the primary way of determining who performed the illegal download. Telecom providers and their customers face privacy concerns, as companies are being asked for the names of customers associated with IP addresses identified with certain downloads.

Privacy activists argue that an IP address (which identifies the subscriber but not the person operating the computer) is private, protected information that can be shown during criminal but not civil investigations. Fred von Lohmann, senior staff attorney with the Electronic Frontier Foundation, has suggested on his organization’s blog that “courts are not prepared to simply award default judgments worth tens of thousands of dollars against individuals based on a piece of paper backed by no evidence.”

Instructions: (1) Each student team individually adopts either the Point or CounterPoint argument and justifies their reasons (arguments using this case and other evidence/opinions). (2) Then, either in teams or designated arrangements, each shares their reasons. (3) The class is debriefed and insights shared.

POINT: File sharing is theft, and endangers the entire structure of incentives that allows the creation of digital media. Downloading even one song illegally has severe costs for the musicians and the owners and employees of the companies that produce songs, and legitimate online music services, not to mention consumers who purchase music legally. Those responsible, even peripherally, for illegal file sharing should be tracked down by any means possible and held accountable for these costs and damages.

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COUNTERPOINT: The generation that grew up with the advent of digital media has a well-cultivated expectation of ease and freedom when it comes to accessing music, television, and books using the Internet. Companies are willing to capitalize on that ease to boost their profits. It is unethical to use technology and the legal system to “make examples” of those (possibly innocent bystanders whose IP addresses were used by others) who are simply showing the flaws and gaps in distribution strategies.

SOURCES The exercise was authored by Taya Weiss and draws on the following sources:

Brian, M. (January 7, 2012). Apple facing $1.88 million lawsuit in China over sales of illegal book downloads. http://thenextweb.com/apple/2012/01/07/apple-facing-1-88-million-lawsuit-in-china-over-sales-of- illegal-book-downloads/, accessed March 7, 2012.

Kravets, David. (March 18, 2013). Supreme Court OKs $222K verdict for sharing 24 songs. Wired.com. http://www.wired.com/threatlevel/2013/03/scotus-jammie-thomas-rasset/, accessed January 8, 2014.

Kirk, Jeremy. (2008). U.S. judge pokes hole in file-sharing lawsuit. Court ruling could force the music industry to provide more evidence against people accused of illegal file sharing, legal experts say. InfoWorld.com. http://www.infoworld.com/article/08/02/26/US-judge-pokes-hole-in-file-sharing- lawsuit_1.html, accessed March 7, 2012.

McMillan, G. (May 10, 2011). Are you one of 23,000 defendants in the U.S.’ biggest illegal download lawsuit? Time.com. http://techland.time.com/2011/05/10/are-you-one-of-23000-defendants-in-the-us- biggest-illegal-download-lawsuit/, accessed March 7, 2012.

Pepitone, J. (June 10, 2011). 50,000 BitTorrent users sued for alleged illegal downloads. CNNMoney.com. http://money.cnn.com/2011/06/10/technology/bittorrent_lawsuits/index.htm, accessed March 7, 2012.

Recording Industry Association of America. (March 2008). New wave of illegal file sharing lawsuits brought by RIAA. RIAA.com. http://www.riaa.com/newsitem.php? news_year_filter=2004&resultpage=10&id=D119AD49-5C18-2513-AB36-A06ED24EB13D, accessed March 7, 2012.

von Lohmann, F. (February 25, 2008). RIAA File-Sharing Complaint Fails to Support Default Judgment. Electronic Frontier Foundation. https://www.eff.org/deeplinks/2008/02/riaa-file-sharing-complaint-fails- support-default-judgment, accessed February 19, 2014.

Environmental Forces and Stakeholders Organizations and individuals are embedded in and interact with multiple changing local, national, and international environments, as the above discussion illustrates. These environments are increasingly merging into a global system of dynamically interrelated interactions among businesses and economies. We must “think globally before acting locally” in many situations. The macro-level environmental forces shown in Figure 1.1 affect the performance and operation of industries, organizations, and jobs. This framework can be used as a starting point to identify trends, issues, opportunities, and ethical problems that affect people and stakes in different levels. A first step toward understanding stakeholder issues is to gain an understanding of environmental forces that influence stakes. As we present an overview of these environmental forces here,

38

http://thenextweb.com/apple/2012/01/07/apple-facing-1-88-million-lawsuit-in-china-over-sales-of-illegal-book-downloads/
http://www.wired.com/threatlevel/2013/03/scotus-jammie-thomas-rasset/
http://www.infoworld.com/article/08/02/26/US-judge-pokes-hole-in-file-sharing-lawsuit_1.html
http://techland.time.com/2011/05/10/are-you-one-of-23000-defendants-in-the-us-biggest-illegal-download-lawsuit/
http://money.cnn.com/2011/06/10/technology/bittorrent_lawsuits/index.htm
http://www.riaa.com/newsitem.php?news_year_filter=2004&resultpage=10&id=D119AD49-5C18-2513-AB36-A06ED24EB13D
https://www.eff.org/deeplinks/2008/02/riaa-file-sharing-complaint-fails-support-default-judgment
think of the effects and pressures each of the forces has on you.

Figure 1.1 Environmental Dimensions Affecting Industries, Organizations, and Jobs

The economic environment continues to evolve into a more global context of trade, markets, and resource flows. Large and small U.S. companies are expanding businesses and products overseas. Stock and bond market volatility and in-terdependencies across international regions are unprecedented, including the European market and the future of the euro, which is challenged by some defaulting economies. The rise of China and India presents new trade opportunities and business practices, if human rights problems can be solved in those countries. Do you see your career and next job being affected by this round of globalization?

The technological environment has ushered in the advent of electronic communication, online social networking, and near-constant connectivity to the Internet, all of which are changing economies, industries, companies, and jobs. U.S. jobs that are based on routine technologies and rules-oriented procedures are vulnerable to outsourcing. Online technologies facilitate changing corporate “best practices.” Company supply chains are also becoming virtually and globally integrated online. Although speed, scope, economy of scale, and efficiency are transforming transactions through information technology, privacy and surveillance issues continue to emerge. The boundary between surveillance and convenience also continues to blur. Has the company or organization for which you work used surveillance to monitor Internet use?

Electronic democracy is changing the way individuals and groups think and act on political issues. Instant web surveys broadcast over interactive web sites have created a global chat room for political issues. Creation of online communities in the 2004, 2008, and 2012 presidential campaigns have proved an effective political strategy for both U.S. parties’ fundraising programs and mobilizing of new voters. Have you used the Internet

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to participate in a national, local, or regional political process?

The government and legal environments continue to create regulatory laws and procedures to protect consumers and restrict unfair corporate practices. Since Enron and other corporate scandals, the Sarbanes- Oxley Act of 2002 and the revised 2004 Federal Sentencing Guidelines were created to audit and constrain corporate executives from blatant fraudulence on financial statements. The Dodd-Frank Act of 2010 established the Consumer Financial Protection Bureau, whose mission is to protect consumers by carrying out federal consumer financial laws, educating consumers, and hearing complaints from the public, and more

recently that Bureau has been functioning to help citizens with credit card abuses in particular.21

Several federal agencies are also changing—or ignoring—standards for corporations. The U.S. Food and Drug Administration (FDA), for example, has sped up the required market approval time for new drugs sought by patients with life-threatening diseases, but lags behind in taking some unsafe drugs off the market.

Uneven regulation of fraudulent and anticompetitive practices affects competition, shareholders, and consumers. Executives from Enron and other large U.S. firms involved in scandals have been tried and sentenced. Should the banks that loaned them funds also be charged with wrongdoing? Should U.S. laws be enforced more evenly? Who regulates the regulators? The subprime lending crisis raises some of the same questions. Who can the public trust for advice about mortgages and substantial loans? Who is responsible and accountable for educating and constraining the public in such transactions in a democratic, capitalist society?

Legal questions and issues affect all of these environmental dimensions and every stakeholder and investor. How much power should the government have to administer laws to protect citizens and ensure that business transactions are fair? Also, who protects the consumer in a free-market system? These issues, which are exemplified in the file-sharing controversy as summarized in this chapter’s opening case, question the nature and limits of consumer and corporate laws in a free-market economy.

The demographic and social environment continues to change as national boundaries experience the effects of globalization and the workforce becomes more diverse. Employers and employees are faced with aging and very young populations; minorities becoming majorities; generational differences; and the effects of downsizing and outsourcing on morale, productivity, and security. How can companies effectively integrate a workforce that is increasingly both younger and older, less educated and more educated, technologically sophisticated and technologically unskilled?

In this book these environmental factors are incorporated into a stakeholder and issues management approach that also includes an ethical analysis of actors external and internal to organizations. The larger perspective underlying these analytical approaches is represented by the following question: How can the common good of all stakeholders in controversial situations be realized?

Stakeholder Management Approach How do companies, the media, political groups, consumers, employees, competitors, and other groups respond in socially ethical and responsible ways when they effect and are affected by an issue, dilemma, threat, or opportunity from the environments just described? The stakeholder theory expands a narrow view of corporations from a stockholder-only perspective to include the many stakeholders who are also involved in how corporations envision the future, treat people and the environment, and serve the common good for the

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many. Implementing this view starts with understanding the ethical imperatives and moral understandings that corporations that use natural resources and the environment must serve, as well as providing for those who buy their products and services. This view and accompanying methods are explained in more detail in Chapters 2 and 3 especially and inform the whole text.

The stakeholder theory begins to address these questions by enabling individuals and groups to articulate collaborative, win—win strategies based on:

1. Identifying and prioritizing issues, threats, or opportunities.

2. Mapping who the stakeholders are.

3. Identifying their stakes, interests, and power sources.

4. Showing who the members of coalitions are or may become.

5. Showing what each stakeholder’s ethics are (and should be).

6. Developing collaborative strategies and dialogue from a “higher ground” perspective to move plans and interactions to the desired closure for all parties.

Chapter 3 lays out specific steps and strategies for analyzing stakeholders. Here, our aim is to develop awareness of the ethical and social responsibilities of different stakeholders. As Figure 1.2 illustrates, there can be a wide range of stakeholders in any situation. We turn to a general discussion of “business ethics” in the following section to introduce the subject and motivate you to investigate ethical dimensions of organizational and professional behavior.

Figure 1.2 Primary vs. Secondary Stakeholder Groups

1.2 What Is Business Ethics? Why Does It Matter?

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Business ethicists ask, “What is right and wrong, good and bad, harmful and beneficial regarding decisions and actions in organizational transactions?” Ethical reasoning and logic is explained in more detail in Chapter 2, but we note here that approaching problems using a moral frame of reference can influence solution paths as well as options and outcomes. Since “solutions” to business and organizational problems may have more than one alternative, and sometimes no right solution may seem available, using principled ethical thinking provides structured and systematic ways of decision making based on values, not only perceptions that may be distorted, pressures from others, or the quickest and easiest available options—that may prove more harmful.

What Is Ethics and What Are the Areas of Ethical Theory? Ethics derives from the Greek word ethos—meaning “character”—and is also known as moral philosophy, which is a branch of philosophy that involves “systematizing, defending and recommending concepts of right

and wrong conduct.”22 Ethics involves understanding the differences between right and wrong thinking and actions, and using principled decision making to choose actions that do not hurt others. Although intuition and creativity are often involved in having to decide between what seems like two “wrong” or less desirable choices in a dilemma where there are no easy alternatives, using ethical principles to inform our thinking before acting hastily may reduce the negative consequences of our actions. Classic ethical principles are presented in more detail in the next chapter, but by way of an introduction, the following three general areas constitute a framework for understanding ethical theories: metaethics, normative ethics, and descriptive

ethics.23

Metaethics considers where one’s ethical principles “come from, and what they mean.” Do one’s ethical beliefs come from what society has prescribed? Did our parents, family, religious institutions influence and shape our ethical beliefs? Are our principles part of our emotions and attitudes? Metaethical perspectives address these questions and focus on issues of universal truths, the will of God, the role of reason in ethical

judgments, and the meaning of ethical terms themselves.24 More practically, if we are studying a case or observing an event in the news, we can inquire about what and where a particular CEO’s or professional’s ethical principles (or lack thereof) are and where in his/her life and work history these beliefs were adopted.

Normative ethics is more practical; this type of ethics involves prescribing and evaluating ethical behaviors— what should be done in the future. We can inquire about specific moral standards that govern and influence right from wrong conduct and behaviors. Normative ethics also deals with what habits we need to develop, what duties and responsibilities we should follow, and the consequences of our behavior and its effects on others. Again, in a business or organizational context, we observe and address ethical problems and issues with individuals, teams, leaders and address ways of preventing and/or solving ethical dilemmas and problems.

Descriptive ethics involves the examination of other people’s beliefs and principles. It also relates to presenting—describing but not interpreting or evaluating—facts, events, and ethical actions in specific situations and places. In any context—organizational, relationship, or business—our aim here is to understand, not predict, judge, or solve an ethical or unethical behavior or action.

Learning to think, reason, and act ethically helps us to become aware of and recognize potential ethical problems. Then we can evaluate values, assumptions, and judgments regarding the problem before we act. Ultimately, ethical principles alone cannot answer what the late theologian Paul Tillich called “the courage to

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be” in serious ethical dilemmas or crises. We can also learn from business case studies, role playing, and discussions on how our actions affect others in different situations. Acting accountably and responsibly is still a choice.

Laura Nash defined business ethics as “the study of how personal moral norms apply to the activities and goals of commercial enterprise. It is not a separate moral standard, but the study of how the business context poses its own unique problems for the moral person who acts as an agent of this system.” Nash stated that business ethics deals with three basic areas of managerial decision making: (1) choices about what the laws should be and whether to follow them; (2) choices about economic and social issues outside the domain of

law; and (3) choices about the priority of self-interest over the company’s interests.25

Unethical Business Practices and Employees The seventh (2011) National Business Ethics Survey (NBES), which obtained 4,800 responses representative

of the entire U.S. workforce,26 reported an ethical environment unlike any we have seen before in America: “American employees are doing the right thing more than ever before, but in other ways employees’

experiences are worse than in the past.”27 The survey findings are summarized below in terms of the “bad” and “good” news found in the workforce:

The “Bad” News

• Retaliation is on the rise against employee whistle-blowers, with 22% of employees who reported misconduct experiencing some form of retaliation.

• More employees (13%) feel pressure to compromise their ethical standards in order to do their jobs.

• The number of companies with weak ethical cultures has grown to near-record highs, now at 42%.

The “Good” News

• The workplace is experiencing the lowest levels of misconduct, with only 45% of employees witnessing misconduct.

• A record high (65%) of those employees now report misconduct.

• Management is improving its oversight and increasing efforts to raise awareness about ethics—34% of employees felt more closely watched by management, and 42% of employees recognized increased ethical awareness efforts.

The authors of the survey note that an ethical downturn is on the horizon. The economic decline and high unemployment have created a unique ethical environment fueled by other modern factors like social networking. “Research has revealed a significant ethics divide between those who are active on social networks

and those who are not.”28

Specific Types of Ethical Misconduct Reported The top five most frequently observed types of misconduct were: misuse of company time (33%), abusive behavior (21%), lying to employees (20%), company resource abuse (20%), and violating company Internet use policies (16%). Types of misconduct with the largest increases included: sexual harassment, substance abuse,

insider trading, illegal political contributions, stealing, and environmental violations.29

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Many employees still do not report misconduct that they observe, and fear of retaliation is increasingly valid. “When all employees are asked whether they could question management without fear of retaliation, 19 percent said it was not safe to do so.” The most common forms of retaliation include: exclusion by management from decision and work activity (64%), cold shoulder attitudes from other employees (62%), verbal abuse from management (62%), not given promotions or raises (55%), and cut pay or hours (46%). This retaliation can lead to instability in the workplace by driving away talented employees. “About seven of 10

employees who experienced retaliation plan to leave their current place of employment within five years.”30

Ethics and Compliance Programs Ethical components of company culture include: “management’s trustworthiness, whether managers at all levels talk about ethics and model appropriate behavior, the extent to which employees value and support ethical conduct, accountability and transparency.” Eleven percent of companies in 2011 had weak ethical cultures. Companies can reduce ethics risks by investing in a strong ethics and compliance program: “86% of

companies with a well-implemented ethics and compliance program also have a strong ethics culture.”31

The Retaliation Trust/Fear/Reality Disconnect Of the 65% of employees who reported witnessing misconduct in the 2011 NBES, 22% (or approximately 9 million employees) experienced retaliation. These victims of retaliation are far more likely to report misconduct to an outside source, rather than to a member of management. This can have many negative

consequences for stakeholders involved.32

Reporting rates are much higher in companies that have well-implemented ethics and compliance programs; only 6% of employees in companies with strong ethics and compliance programs did not report observed misconduct.

It is interesting to note the impact of social networking on the ethical environment of a company. According to the 2011 NBES:

• “Active social networkers report far more negative experiences of workplace ethics. As a group, they are almost four times more likely to experience pressure to compromise standards and about three times more likely to experience retaliation for reporting misconduct than co-workers who are less active with social networking. They also are far more likely to observe misconduct.” Seventy-two percent of active social networkers surveyed observed misconduct; 42% felt pressure to compromise standards; and 56% experienced retaliation after reporting misconduct.

• Active social networkers, as discussed in this chapter’s opening case, are also more likely to believe that questionable behaviors are acceptable. Forty-two percent of active social networkers felt that it was acceptable to blog or tweet negatively about their company or colleagues; 42% felt that it was acceptable to buy personal items on a company credit card as long as it was paid back; 51% felt it was acceptable to do less work as payback for cuts in pay or benefits; 50% felt it was acceptable to keep a copy of confidential work documents in case you need them in your next job; and 46% felt that it was acceptable to take a copy of work software home for use on their personal computer. Only about 10% of non-active social networkers felt that

these activities were acceptable.33 Are you an active social networker? Do these results resonate with you?

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These findings suggest that any useful definition of business ethics must address a range of problems in the workplace, including relationships among professionals at all levels and among corporate executives and external groups.

Why Does Ethics Matter in Business? “Doing the right thing” matters to firms, taxpayers, employees, and other stakeholders, as well as to society. To companies and employers, acting legally and ethically means saving billions of dollars each year in lawsuits, settlements, and theft. One study found that the annual business costs of internal fraud range between the annual gross domestic profit (GDP) of Bulgaria ($50 billion) and that of Taiwan ($400 billion). It has also been estimated that theft costs companies $600 billion annually, and that 79% of workers admit to or think about stealing from their employers. Other studies have shown that corporations have paid significant

financial penalties for acting unethically.34 The U.S. Department of Commerce noted that “as many as one- third of all business failures annually can be attributed to employee theft.” Experts have estimated that

approximately 40% of fraud and theft losses to American businesses are internal.35

Relationships, Reputation, Morale, and Productivity Costs to businesses also include deterioration of relationships; damage to reputation; declining employee productivity, creativity, and loyalty; ineffective information flow throughout the organization; and absenteeism. Companies that have a reputation for unethical and uncaring behavior toward employees also have a difficult time recruiting and retaining valued professionals.

Integrity, Culture, Communication, and the Common Good Strong ethical leadership goes hand in hand with strong integrity. Both ethics and integrity have a significant impact on a company’s operations. “‘History has often shown the importance of ethics in business – even a single lapse in judgment by one employee can significantly affect a company’s reputation and its bottom line.’ Leaders who show a solid moral compass and set a forthright example for their employees foster a work

environment where integrity becomes a core value.”36 A study of the 50 best companies to work for in Canada (based on survey responses from over 100,000 Canadian employees at 115 organizations, with input from 1,400 leaders and human resources professionals) found that integrity and ethics matter in the following ways: there is more flexibility and balance; values have changed; and organizations are valuing new employees more

since the demographics have changed.37 These changes are explained next.

Integrity/Ethics What is the degree to which coworkers, managers, and senior leaders display integrity and ethical conduct? Eighty-eight percent of employees at the top 10 best employers agreed or strongly agreed that coworkers displayed integrity and ethical conduct at all times, whereas only 60% felt that way at the bottom 10 organizations. With respect to managers, the numbers were 90% at the top 10 and 63% at the bottom 10 organizations. A bigger difference existed with regard to whether senior leadership displayed integrity and ethical conduct at all times, with 89% of employees at the top 10 best employers agreeing or strongly agreeing,

whereas less than half—48%—felt that way at the bottom 10 employers.38

The same study found that “engagement is higher at organizations where employees feel they share the same values as their employer” and that “sense of ‘common purpose’ can increase employee commitment,

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especially amongst older workers.” The authors also noted that “a perceived lack of integrity on the part of co- workers, managers and leaders has, as expected, a detrimental effect on engagement. What was perhaps unanticipated in the study findings, however, was the really negative opinion of the ethics of senior leadership at low-engagement organizations.”

Working for the Best Companies Employees care about ethics because they are attracted to ethically and socially responsible companies. Fortune magazine regularly publishes the 100 best companies for which to work

(http://money.cnn.com/magazines/fortune/best-companies).39 Although the list continues to change, it is instructive to observe some of the characteristics of good employers that employees repeatedly cite. The most frequently mentioned characteristics include profit sharing, bonuses, and monetary awards. However, the list also contains policies and benefits that balance work and personal life and those that encourage social responsibility. Consider these policies described by employees:

• When it comes to flextime requests, managers are encouraged to “do what is right and human.”

• There is an employee hotline to report violations of company values.

• Managers will fire clients who don’t respect its security officers.

• Employees donated more than 28,000 hours of volunteer labor last year.

The public and consumers benefit from organizations acting in an ethically and socially responsible manner. Ethics matters in business because all stakeholders stand to gain when organizations, groups, and individuals seek to do the right thing, as well as to do things the right way. Ethical companies create investor

loyalty, customer satisfaction, and business performance and profits.40 The following section presents different levels on which ethical issues can occur.

1.3 Levels of Business Ethics

Because ethical problems are not only an individual or personal matter, it is helpful to see where issues originate, and how they change. Business leaders and professionals manage a wide range of stakeholders inside and outside their organizations. Understanding these stakeholders and their concerns will facilitate our understanding of the complex relationships between participants involved in solving ethical problems.

Ethical and moral issues in business can be examined on at least five levels. Figure 1.3 illustrates these five

levels: individual, organizational, association, societal, and international.41 Aaron Feuerstein’s now classic story as former CEO of Malden Mills exemplifies how an ethical leader in his seventies turned a disaster into an opportunity. His actions reflected his person, faith, allegiance to his family and community, and sense of social responsibility.

On December 11, 1995, Malden Mills in Lawrence, Massachusetts—manufacturer of Polartec and Polarfleece fabrics and the largest employer in the city—was destroyed by fire. Over 1,400 people were out of work. Feuerstein stated, “Everything I did after the fire was in keeping with the ethical standards I’ve tried to maintain my entire life, so it’s surprising we’ve gotten so much attention. Whether I deserve it or not, I guess I became a symbol of what the average worker would like corporate America to be in a time when the American

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http://money.cnn.com/magazines/fortune/best-companies
dream has been pretty badly injured.” Feuerstein announced shortly after the fire that the employees would stay on the payroll while the plant was rebuilt for 60 days. He noted, “I think it was a wise business decision, but that isn’t why I did it. I did it because it was the right thing to do.”

Figure 1.3 Business Ethics Levels

Source: Carroll, Archie B. (1978). Linking business ethics to behavior in organizations. SAM Advanced Management Journal, 43(3), 7. Reprinted with permission from Society for Advancement of Management, Texas A&M University, College of Business.

Feuerstein could have taken the $300 million in insurance and retired, or even offshored the entire operation. Instead, he paid out $25 million to his employees and rebuilt the plant. Feuerstein spent the insurance funds, borrowed $100 million more, and built a new plant that is both environmentally friendly and worker-friendly. It is also unionized. Feuerstein was invited to President Clinton’s State of the Union address and serves as an icon in the business ethics and leadership community, regardless of the fate of Malden Mills

going forward.42

Asking Key Questions It is helpful to be aware of the ethical levels of a situation and the possible interaction between these levels when confronting a question that has moral implications. The following questions can be asked when a problematic decision or action is perceived (before it becomes an ethical dilemma):

Figure 1.4 A Framework for Classifying Ethical Issues and Levels

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Source: Matthews, John B., Goodpaster, Kenneth E., and Laura L. Nash. (1985). Policies and persons: A casebook in business ethics, 509. New York: McGraw-Hill. Reproduced with permission from Kenneth E. Goodpaster.

• What are my core values and beliefs?

• What are the core values and beliefs of my organization?

• Whose values, beliefs, and interests may be at risk in this decision? Why?

• Who will be harmed or helped by my decision or by the decision of my organization?

• How will my own and my organization’s core values and beliefs be affected or changed by this decision?

• How will I and my organization be affected by the decision?

Figure 1.4 offers a graphic to help identify the ethics of the system (i.e., a country or region’s customs, values, and laws), your organization (i.e., the written formal and informal acceptable norms and ways of doing business), and your own ethics, values, and standards.

In the following section, popular myths about business ethics are presented to challenge misconceptions regarding the nature of ethics and business. You may take the “Quick Test of Your Ethical Beliefs” before reading this section.

Ethical Insight 1.1 Quick Test of Your Ethical Beliefs

Answer each question with your first reaction. Circle the number, from 1 to 4, that best represents your beliefs, if 1 represents “Completely agree,” 2 represents “Often agree,” 3 represents “Somewhat disagree,” and 4 represents “Completely disagree.”

1. I consider money to be the most important reason for working at a job or in an organization. 1 2 3 4

2. I would hide truthful information about someone or something at work to save my job. 1 2 3 4

3. Lying is usually necessary to succeed in business. 1 2 3 4

4. Cutthroat competition is part of getting ahead in the business world. 1 2 3 4

5. I would do what is needed to promote my own career in a company, short of committing a serious crime. 1 2 3 4

6. Acting ethically at home and with friends is not the same as acting ethically on the job. 1 2 3 4

7. Rules are for people who don’t really want to make it to the top of a company. 1 2 3 4

8. I believe that the “Golden Rule” is that the person who has the gold rules. 1 2 3 4

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9. Ethics should be taught at home and in the family, not in professional or higher education. 1 2 3 4

10. I consider myself the type of person who does whatever it takes to get a job done, period. 1 2 3 4

Add up all the points. Your Total Score is:_______

Total your scores by adding up the numbers you circled. The lower your score, the more questionable your ethical principles regarding business activities. The lowest possible score is 10, the highest 40. Be ready to give reasons for your answers in a class discussion.

1.4 Five Myths about Business Ethics

Not everyone agrees that ethics is a relevant subject for business education or dealings. Some have argued that “business ethics” is an oxymoron, or a contradiction in terms. Although this book does not advocate a particular ethical position or belief system, it argues that ethics is relevant to business transactions. However, certain myths persist about business ethics. The more popular myths are presented in Figure 1.5.

A myth is “a belief given uncritical acceptance by the members of a group, especially in support of existing

or traditional practices and institutions.”43 Myths regarding the relationship between business and ethics do not represent truth but popular and unexamined notions. Which, if any, of the following myths have you accepted as unquestioned truth? Which do you reject? Do you know anyone who holds any of these myths as true?

Myth 1: Ethics Is a Personal, Individual Affair, Not a Public or Debatable Matter This myth holds that individual ethics is based on personal or religious beliefs, and that one decides what is right and wrong in the privacy of one’s conscience. This myth is supported in part by Milton Friedman, a well-known economist, who views “social responsibility,” as an expression of business ethics, to be unsuitable for business professionals to address seriously or professionally because they are not equipped or trained to do

so.44

Figure 1.5 Five Business Ethics Myths

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Although it is true that individuals must make moral choices in life, including business affairs, it is also true that individuals do not operate in a vacuum. Individual ethical choices are most often influenced by discussions, conversations, and debates, and made in group contexts. Individuals often rely on organizations and groups for meaning, direction, and purpose. Moreover, individuals are integral parts of organizational cultures, which have standards to govern what is acceptable. Therefore, to argue that ethics related to business issues is mainly a matter of personal or individual choice is to underestimate the role organizations play in shaping and influencing members’ attitudes and behaviors.

Studies indicate that organizations that act in socially irresponsible ways often pay penalties for unethical

behavior.45 In fact, the results of the studies advocate integrating ethics into the strategic management process because it is both the right and the profitable thing to do. Corporate social performance has been found to increase financial performance. One study notes that “analysis of corporate failures and disasters strongly suggests that incorporating ethics in before-profit decision making can improve strategy development and

implementation and ultimately maximize corporate profits.”46 Moreover, the popularity of books, training, and articles on learning organizations and the habits of highly effective people among Fortune 500 and 1000 companies suggests that organizational leaders and professionals have a need for purposeful, socially

responsible management training and practices.47

Myth 2: Business and Ethics Do Not Mix This myth holds that business practices are basically amoral (not necessarily immoral) because businesses operate in a free market. This myth also asserts that management is based on scientific, rather than religious

or ethical, principles.48

Although this myth may have thrived in an earlier industrializing U.S. society and even during the 1960s, it has eroded over the past two decades. The widespread consequences of computer hacking on individual, commercial, and government systems that affect the public’s welfare, like identity theft on the Internet (stealing others’ Social Security numbers and using their bank accounts and credit cards), and kickbacks, unsafe products, oil spills, toxic dumping, air and water pollution, and improper use of public funds have contributed to the erosion. The international and national infatuation with a purely scientific understanding of U.S. business practices, in particular, and of a value-free marketing system, has been undermined by these events. As one saying goes, “A little experience can inform a lot of theory.”

The ethicist Richard DeGeorge has noted that the belief that business is amoral is a myth because it ignores the business involvement of all of us. Business is a human activity, not simply a scientific one, and, as such, can be evaluated from a moral perspective. If everyone in business acted amorally or immorally, as a pseudoscientific notion of business would suggest, businesses would collapse. Employees would openly steal from employers; employers would recklessly fire employees at will; contractors would arrogantly violate obligations; and chaos would prevail. In the United States, business and society often share the same values: rugged individualism in a free-enterprise system, pragmatism over abstraction, freedom, and independence. When business practices violate these American values, society and the public are threatened.

Finally, the belief that businesses operate in totally “free markets” is debatable. Although the value or desirability of the concept of a “free market” is not in question, practices of certain firms in free markets are.

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At issue are the unjust methods of accumulation and noncompetitive uses of wealth and power in the formation of monopolies and oligopolies (i.e., small numbers of firms dominating the rules and transactions of certain markets). The dominance of AT&T before its breakup is an example of how one powerful conglomerate could control the market. Microsoft and WalMart are examples. The U.S. market environment can be characterized best as a “mixed economy” based on free-market mechanisms, but not limited to or explained only by them. Mixed economies rely on some governmental policies and laws for control of deficiencies and inequalities. For example, protective laws are still required, such as those governing minimum wage, antitrust situations, layoffs from plant closings, and instances of labor exploitation. In such mixed economies in which injustices thrive, ethics is a lively topic.

Myth 3: Ethics in Business Is Relative In this myth, no right or wrong way of believing or acting exists. Right and wrong are in the eyes of the beholder.

The claim that ethics is not based solely on absolutes has some truth to it. However, to argue that all ethics is relative contradicts everyday experience. For example, the view that because a person or society believes something to be right makes it right is problematic when examined. Many societies believed in and practiced slavery; however, in contemporary individuals’ experiences, slavery is morally wrong. When individuals and firms do business in societies that promote slavery, does that mean that the individuals and firms must also condone and practice slavery? The simple logic of relativism, which is discussed in Chapter 2, gets complicated when seen in daily experience. The question that can be asked regarding this myth is: Relative to whom or what? And why? The logic of this ethic, which answers that question with “Relative to me, myself, and my interests” as a maxim, does not promote community. Also, if ethical relativism were carried to its logical extreme, no one could disagree with anyone about moral issues because each person’s values would be true for him or her. Ultimately, this logic would state that no right or wrong exists apart from an individual’s or society’s principles. How could interactions be completed if ethical relativism was carried to its limit? Moreover, the U.S. government, in its vigorous pursuit of Microsoft, certainly has not practiced a relativist style of ethics.

Myth 4: Good Business Means Good Ethics This myth can translate to “Executives and firms that maintain a good corporate image, practice fair and equitable dealings with customers and employees, and earn profits by legitimate, legal means are de facto ethical.” Such firms, therefore, would not have to be concerned explicitly with ethics in the workplace. Just do

a hard, fair day’s work, and that has its own moral goodness and rewards.49

The faulty reasoning underlying this logic obscures the fact that ethics does not always provide solutions to technical business problems. Moreover, as Buchholz argued, no correlation exists between “goodness” and

material success.50

It also argued that “excellent” companies and corporate cultures have created concern for people in the workplace that exceeds the profit motive. In these cases, excellence seems to be related more to customer service, to maintenance of meaningful public and employee relationships, and to corporate integrity than to

profit motive.51

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The point is that ethics is not something added to business operations; ethics is a necessary part of operations. A more accurate, logical statement from business experience would suggest that “good ethics means good business.” This is more in line with observations from successful companies that are ethical first and also profitable.

Finally, the following questions need to be asked: What happens, then, if what should be ethically done is not the best thing for business? What happens when good ethics is not good business? The ethical thing to do may not always be in the best interests of the firm. We should promote business ethics, not because good ethics is good business, but because we are morally required to adopt the moral point of view in all our dealings with other people—and business is no exception. In business, as in all other human endeavors, we must be prepared to pay the costs of ethical behavior. The costs may sometimes seem high, but that is the risk

we take in valuing and preserving our integrity.52

Myth 5: Information and Computing Are Amoral This myth holds that information and computing are neither moral nor immoral—they are amoral. They are in a “gray zone,” a questionable area regarding ethics. Information and computing have positive dimensions, such as empowerment and enlightenment through the ubiquitous exposure to information, increased efficiency, and quick access to online global communities. It is also true that information and computing have

a dark side: information about individuals can be used as “a form of control, power, and manipulation.”53

The point here is to beware the dark side: the misuse of information, social media, and computing. Ethical implications are present but veiled. Truth, accuracy, and privacy must be protected and guarded: “Falsehood, inaccuracy, lying, deception, disinformation, misleading information are all vices and enemies of the Information Age, for they undermine it. Fraud, misrepresentation, and falsehood are inimical to all of

them.”54

Logical problems occur in all five of the above myths. In many instances, the myths hold simplistic and even unrealistic notions about ethics in business dealings. In the following sections, the discussion about the nature of business ethics continues by exploring two questions:

• Why use ethical reasoning in business?

• What is the nature of ethical reasoning?

1.5 Why Use Ethical Reasoning in Business?

Ethical reasoning is required in business for at least three reasons. First, many times laws do not cover all

aspects or “gray areas” of a problem.55 How could tobacco companies have been protected by the law for decades until the settlement in 1997, when the industry agreed to pay $368.5 billion for the first 25 years and then $15 billion a year indefinitely to compensate states for the costs of health care for tobacco-related illnesses? What gray areas in federal and state laws (or the enforcement of those laws) prevailed for decades? What sources of power or help can people turn to in these situations for truthful information, protection, and compensation when laws are not enough?

Second, free-market and regulated-market mechanisms do not effectively inform owners and managers how to respond to complex issues that have farreaching ethical consequences. Enron’s former CEO Jeffrey

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Skilling believed that his new business model of Enron as an energy trading company was the next big

breakthrough in a free-market economy. The idea was innovative and creative; the executive’s implementation of the idea was illegal. Perhaps Skilling should have followed Enron’s ethics code; it was one of the best available.

A third argument holds that ethical reasoning is necessary because complex moral problems require “an intuitive or learned understanding and concern for fairness, justice, [and] due process to people, groups, and

communities.”56 Company policies are limited in scope in covering human, environmental, and social costs of doing business. Judges have to use intuition and a kind of learn-as-you-go approach in many of their cases. In Microsoft’s previous alleged monopoly case, for example, there were no clear precedents in the software industry—or with a company of Microsoft’s size and global scope—to offer clear legal direction. Ethics plays a role in business because laws are many times insufficient to guide action.