Business ethics concepts and cases by manuel velasquez pdf

Business Ethics Concepts and Cases

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Business Ethics Concepts and Cases Eighth Edition

Manuel G. Velasquez Santa Clara University

330 Hudson Street, NY, NY 10013

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Names: Velasquez, Manuel G., author. Title: Business ethics : concepts & cases/Manuel G. Velasquez, Santa Clara University. Description: Eighth Edition. | New York : Pearson, [2017] | Revised edition of the author’s Business ethics, c2012. Identifiers: LCCN 2017004207| ISBN 9780133832396 (pbk.) | ISBN 0133832392 (pbk.) Subjects: LCSH: Business ethics. | Business ethics—Case studies. Classification: LCC HF5387 .V44 2017 | DDC 174/.4—dc23 LC record available at https://lccn.loc.gov/2017004207

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Preface ix

1 Ethics and Business 1 1.1 The Nature of Business Ethics 2

1.1.1 Merck & Co., Inc. 2 1.1.2 Clarifying Ethical Issues 3

Ethical Application: Analyzing Merck’s Decision 4

1.2 Moral Reasoning and Moral Decision Making 4 1.2.1 BFGoodrich 4 1.2.2 Moral and Nonmoral Standards

and Norms 5 1.2.3 Refining the Concept of Ethics 7

Ethical Application: Returning to BFGoodrich 7 Ethical Application: BFGoodrich: Conclusion 10

1.2.4 Applying Ethical or Moral Concepts to Corporations 10

1.2.5 Objections to Business Ethics 12 Ethical Application: Following Orders at WorldCom 12

1.2.6 The Case for Ethics in Business 14 1.2.7 Business Ethics and Corporate Social

Responsibility 14

1.3 Ethical Issues in International Business 18 1.3.1 Technology and Business Ethics 18 1.3.2 Globalization and Business Ethics 20

On the Edge: A Traditional Business 23 1.3.3 Integrative Social Contracts Theory 24

1.4 Foundations of Moral Reasoning 26 1.4.1 Moral Development 26 1.4.2 The Structure of Moral Reasoning 31 1.4.3 Impediments to Ethical Behavior 35

1.5 Moral Responsibility and Blame 39 Ethical Application: BFGoodrich and Moral

Responsibility 40 1.5.1 When Is a Person Morally Responsible? 40

Ethical Application: Nike in Developing Countries 41 1.5.2 Mitigating Factors 42 1.5.3 Moral Responsibility: Essential Points 42 1.5.4 Responsibility for Corporate Actions 44

On the Edge: Gun Manufacturers and Responsibility 45

Web Resources 45 Case Study 1.1: Slavery in the Chocolate Industry 46 Case Study 1.2: Aaron Beam and the

HealthSouth Fraud 49

Summary 52

2 Ethical Principles in Business 54 2.1 Approaches to Moral Decision-Making 55

2.1.1 Unocal and Burma 55

2.2 Utilitarianism: Weighing Social Costs and Benefits 58 2.2.1 Utilitarianism and Ford Motor

Company’s Pinto 59 2.2.2 Traditional Utilitarianism 60

Ethical Application: Four Steps in Utilitarian Reasoning and Ford’s Decision 61

2.2.3 The Advantages of Utilitarianism 63 2.2.4 Utilitarianism’s Measurement Problems 65 2.2.5 Utilitarian Replies to Measurement

Objections 66 2.2.6 Utilitarian Problems with Rights

and Justice 67 Ethical Application: Counterexample:

The Murderous Heir 68 Ethical Application: Counterexample:

Subsistence Wages 68 2.2.7 Utilitarian Replies to Objections on Rights

and Justice 69 Ethical Application: Price-Fixing and

Rule-Utilitarianism 69 Ethical Application: Back to the Murderous Heir

and Subsistence Wages Counterexamples 69

2.3 Rights and Duties 70 2.3.1 Human Rights and Walt Disney Company’s

Supplier 71 2.3.2 The Concept of a Right 72

On the Edge: Working for Eli Lilly & Company 72 Ethical Application: Two Violations of Rights

without Injury 73 2.3.3 A Basis for Moral Rights:

Immanuel Kant 77 2.3.4 Robert Nozick and the Libertarian

Objection 81

2.4 Justice and Fairness 82 2.4.1 Wages in the Fast Food Industry 83 2.4.2 Standards of Justice and Fairness 84 2.4.3 Distributive Justice 85

Ethical Application: Distributive Justice and Pay 85 On the Edge: ExxonMobil, Amerada Hess,

and Marathon Oil in Equatorial Guinea 88 2.4.4 Retributive Justice 94 2.4.5 Compensatory Justice 94

Ethical Application: What Compensatory Justice Can There Be in the Pinto Case? 94

2.5 An Ethic of Care 95 2.5.1 Malden Mills Company 96 2.5.2 Partiality and Care 97

Ethical Application: Preserving Relationships 97 2.5.3 Criticisms of an Ethic of Care 99

Contents

vi Contents

2.6 Integrating Utility, Rights, Justice, and Caring 99 2.6.1 The Four Moral Considerations

and Behavior 100 2.6.2 Relating the Moral Standards to Each Other 101

2.7 An Alternative to Moral Principles: Virtue Ethics 103 2.7.1 Vices, Virtues, and the CEO of Qwest

Communications 103 2.7.2 Virtue Ethics and Action-Based Ethics 103 2.7.3 Moral Virtues 104 2.7.4 Virtues, Actions, and Institutions 107 2.7.5 Studying Virtue Theory in the Real World 108

Ethical Application: The Prison Study 109 2.7.6 Virtues and Principles 109

2.8 Unconscious and Conscious Moral Decisions 110 2.8.1 X-System and C-System Processes 111 2.8.2 The Legitimacy of Unconscious Moral

Decision-Making 112 2.8.3 Cultural Influences and Intuition 112

Web Resources 116

Case Study 2.1: Triodos Bank and Roche’s Clinical Trials in China 116

Case Study 2.2: Testing Drugs in the Developing World 118

Summary 121

3 The Business System: Government, Markets, and International Trade 123

3.1 Globalization and the Business System 124 3.1.1 Economic Systems 124 3.1.2 Market Theory and Market Practice 126

3.2 Free Markets and Rights: John Locke 129 3.2.1 Interpreting John Locke 130

Ethical Application: Abbott Labs and Locke 130 3.2.2 Criticisms of Lockean Rights 131

Ethical Application: Expanding Inequality 133

3.3 Free Markets and Utility: Adam Smith 135 3.3.1 The Invisible Hand of Market Competition 135 3.3.2 Government Plays No Role 136

Ethical Application: Government Intervention 137 3.3.3 Interpreting Adam Smith 137 3.3.4 Criticisms of Smith’s Free Markets 138

Ethical Application: Monopoly and High Prices 139 3.3.5 Social Darwinism 141

3.4 Free Trade and Utility: David Ricardo 142 3.4.1 Ricardo’s Argument for Comparative

Advantage 143 3.4.2 Comparative Advantage and Globalization 143 3.4.3 Criticisms of Ricardo 144

Ethical Application: Non-transferability of Jobs 145 Ethical Application: International Rules and Balance 145

3.5 Karl Marx and Justice: A Critique of Free Markets and Free Trade 145 3.5.1 Alienation 147

On the Edge: Marx’s Children 148 3.5.2 Historical Materialism 149 3.5.3 Immiseration of Workers 149 3.5.4 Critics’ Views on Karl Marx’s Criticisms 151

3.6 The Mixed Economy, New Forms of Property, and the End of Marxism 152 3.6.1 The Mixed Economy 152 3.6.2 Property Systems and New Technologies 153

On the Edge: Napster’s Lost Revolution 155 3.6.3 The End of Marxism? 155

Web Resources 156

Case Study 3.1: The GM Bailout 156

Case Study 3.2: Accolade versus Sega 160

Summary 161

4 Ethics in the Marketplace 163 4.1 Applying Ethics to Market Competition 164

Ethical Application: Anticompetitive Practices 164 4.1.1 Three Economic Models 164

4.2 Perfect Competition 165 4.2.1 The Equilibrium Point and

Moral Outcomes 166 4.2.2 The Mechanics of Perfectly Competitive

Markets 166 4.2.3 Ethics and Perfectly Competitive Markets 169

4.3 Monopoly Competition 173 Ethical Application: The Operating System

Monopoly Market 173 4.3.1 Monopoly Control and Profit 173 4.3.2 Monopolists as Utility Maximizers 175

On the Edge: Drug Company Monopolists and Profits 175

4.3.3 Monopoly Competition and Ethics 176

4.4 Oligopolistic Competition 178 4.4.1 Highly Concentrated Markets 178 4.4.2 How Oligopolies Form 178

Ethical Application: The Airline Oligopoly 178 4.4.3 Effects of Oligopoly on Consumers

and Markets 180 On the Edge: Fixing the Computer Memory Market 181

4.4.4 Anticompetitive Strategies 182 Ethical Application: Bundling Software 182 Ethical Application: Rockefeller and

Predatory Pricing 184

4.5 Oligopolies and Public Policy 186 4.5.1 Interpretations of Sherman Antitrust Act 187

On the Edge: Oracle and PeopleSoft 188

Web Resources 189

Case Study 4.1: Intel’s Rebates and Other Ways It “Helped” Customers 189

Case Study 4.2: Archer Daniels Midland and the Friendly Competitors 193

Summary 197

Contents vii

On the Edge: Mr. Trump’s University 256 6.3.5 Problems with the Contractual View 257

Ethical Application: Broadened Indirect Contractual Relationships 258

6.4 The Due-Care View of the Manufacturer’s Duties to Consumers 259 6.4.1 Components of Due Care 260

On the Edge: Tobacco Companies and Product Safety 260 6.4.2 Difficulties with Due Care 262

6.5 The Social Costs View of the Manufacturer’s Duties to Consumers 262 6.5.1 Utilitarian Arguments Underlying

the Social Costs View 262 On the Edge: Selling Personalized Genetics

Directly to Consumers 263 6.5.2 Criticisms and Defense of the Social

Costs View 264

6.6 Advertising Ethics 264 6.6.1 Distinguishing Advertising from Other

Communication 265 6.6.2 The Social Effects of Advertising 266

On the Edge: Advertising Death to Kids? 267 6.6.3 Advertising and the Creation of

Consumer Desires 270 6.6.4 Advertising and Its Deceptive Effects on

Consumer Beliefs 271

6.7 Consumer Privacy 271 Ethical Application: British Intelligence and the U.S.

Medical Information Bureau 271 6.7.1 Defining the Right to Privacy 274 6.7.2 Privacy within a Business Context 275

Web Resources 276

Case Study 6.1: Promoting Infant Formula in the Twenty-First Century 277

Case Study 6.2: Reducing Debt at Credit Solutions of America 282

Summary 286

7 The Ethics of Job Discrimination 288 7.1 Divided over Discrimination 289

7.1.1 A Key Legal Case: Grutter v. Bollinger 289 7.1.2 Continuing Debates over Diversity

in Business 290

7.2 The Nature of Job Discrimination 291 Ethical Application: Same Qualifications,

Different Offers 292 7.2.1 Discrimination Is Not Morally Neutral 292 7.2.2 Forms of Discrimination: Intentional and

Institutional Aspects 293 On the Edge: Work Environment at Plainfield

Healthcare Center 298

7.3 The Extent of Discrimination in the United States 299 7.3.1 Average Income Comparisons: Race

and Gender 300

5 Ethics and the Environment 198 5.1 The Dimensions of Pollution and Resource Depletion 199

5.1.1 Essential Questions and Issues 199 5.1.2 Air Pollution 200

On the Edge: Ford’s Toxic Wastes 203 5.1.3 Water Pollution 206

Ethical Application: Oil Spills 207 5.1.4 Land Pollution 209 5.1.5 Depletion of Species and Habitats 212 5.1.6 Depletion of Fossil Fuels 212 5.1.7 Depletion of Minerals 214

5.2 The Ethics of Pollution Control 216 Ethical Application: Ignoring Environmental Impact 216

5.2.1 Consumer Responsibility 216 On the Edge: The Auto Industry and Its Effects in China 216

5.2.2 Ecological Ethics 218 Ethical Application: Ecological Ethics and Activism 219

5.2.3 Environmental Rights and Absolute Bans 221

5.2.4 Markets and Partial Controls 222

5.3 Remedies and Duties of the Firm 225 Ethical Application: Union Oil and Internalized Costs 226

5.3.1 Remedies and Justice 226 5.3.2 Costs and Benefits of Remedies 227 5.3.3 Social Ecology, Ecofeminism, and

the Demands of Caring 228

5.4 The Ethics of Conserving Resources 229 5.4.1 The Rights of Future Generations 231 5.4.2 Justice for Future Generations 232

On the Edge: Exporting Poison 233 5.4.3 Economic Growth and Environmental Ethics 236

Web Resources 237

Case Study 5.1: The Ok Tedi Copper Mine 238

Case Study 5.2: Gas or Grouse? 242

Summary 247

6 The Ethics of Consumer Production and Marketing 248

6.1 Everyday Consumer Risks 249 Ethical Application: Inflating Mobile Phone Bills 249

6.2 Markets and Consumer Protection 251 6.2.1 The Market Approach to Protecting

Consumers 252 6.2.2 Criticisms of the Market Approach

to Protecting Consumers 252 6.2.3 Beyond Market Forces 253

6.3 The Contractual View of the Manufacturer’s Duties to Consumers 253 6.3.1 The Duty to Comply 254 6.3.2 The Duty of Disclosure 254 6.3.3 The Duty Not to Misrepresent 256 6.3.4 The Duty Not to Coerce 256

On the Edge: Insider Trading, or What Are Friends for? 347

8.1.2 The Employer’s Obligations to the Employee 348

On the Edge: Beyoncé’s Gym Clothes 350

8.2 The Political Organization 354 8.2.1 Where Is the Power? 355 8.2.2 Employee Rights and the

Similarity Argument 356 8.2.3 Employees’ Right to Privacy 357

On the Edge: Sergeant Quon’s Text Messages 357 8.2.4 Employees’ Right to Freedom

of Conscience 361 Ethical Application: An Inspector Is Thwarted 361

8.2.5 Employees’ Right to Participate in Decisions That Affect Them 364

8.2.6 The Right to Due Process versus Employment at Will 366

Ethical Application: Corporate Justice 366 8.2.7 The Right to Work 368 8.2.8 Employees’ Right to Organize 373

8.3 Informal Power Relationships in Organizations 373 8.3.1 Organizational Politics 374

Ethical Application: Political Tactics in Action 375 8.3.2 The Ethical Dilemma of

Organizational Politics 375 Ethical Application: Bendix Corporation 375

8.3.3 Ways to Look at the Ethics of Politics in Organizations 376

8.4 The Caring Organization 379 8.4.1 Characteristics of the Caring

Organization 379 Ethical Application: W. L. Gore & Associates 380

8.4.2 Key Ethical Issues of the Caring Organization 381

Web Resources 382

Case Study 8.1: Death at Massey Energy Company 382

Case Study 8.2: Who Should Pay? 388

Summary 389

Glossary 391

Notes 396

Credits 423

Index 428

7.3.2 Lowest Income Group Comparisons: Poverty 302

7.3.3 Desirable Occupation Comparisons 302 7.3.4 A Reasonable Conclusion about

Employment Discrimination 307

7.4 Discrimination: Utility, Rights, and Justice 308 7.4.1 Utilitarian Arguments against

Discrimination 308 7.4.2 Rights-Based Arguments against

Discrimination 308 7.4.3 Justice-Based Arguments against

Discrimination 309 7.4.4 Recognizing Discriminatory Practices 310 7.4.5 Specifics of Sexual Harassment 311

On the Edge: Driving for Old Dominion 312 7.4.6 Difficult Questions about the Hostile

Workplace Guideline 312 Ethical Application: Hostile Workplace 313

7.4.7 Beyond Race and Gender: Other Groups 315

7.5 Affirmative Action 316 7.5.1 Legal Aspects of Affirmative Action 316 7.5.2 Societal Aspects of Affirmative Action 317 7.5.3 Compensation Arguments for Affirmative

Action 318 7.5.4 Affirmative Action as an Instrument for

Increasing Utility 320 7.5.5 Equal Justice Argument for

Affirmative Action 321 7.5.6 Implementing Affirmative Action and

Managing Diversity 322

Web Resources 325

Case Study 7.1: Should Kroger Pay Now for What a Ralphs’ Employee Did in the Past? 325

Case Study 7.2: Wal-Mart’s Women 328

Summary 332

8 Ethics and the Employee 334 8.1 The Rational Organization 335

8.1.1 The Employee’s Obligations to the Employer 336

Ethical Application: Two Variations of Conflicts of Interest 337

Ethical Application: Eliminating a Conflict of Interest 340 Ethical Application: Moving to a Competitor 343 On the Edge: Hewlett-Packard’s Secrets and

Oracle’s New Hire 344

viii Contents

ix

Thoughtful Organization This text is organized into four theoretical parts, each con- sisting of two chapters. The text begins with an introduc- tion to basic ethical theory. Chapter 1 develops the fundamental perspective of ethical behavior and business success. It also indicates how we come to develop ethical principles and how such principles can be incorporated into our moral reasoning processes. The chapter also reviews some key findings in the psychology of ethical behavior, or what is now sometimes called behavioral ethics. Chapter 2 critically examines four kinds of moral princi- ples: utilitarian principles, principles based on moral rights, principles of justice, and the principles of an ethic of care. These four kinds of moral principles, it is argued, can provide a framework for resolving most of the kinds of ethical dilemmas and issues that arise in business. In addi- tion, the text explains virtue theory as an alternative to a principles-based approach and discusses automatic moral decision-making and casuistry.

Having defined the nature and significance of ethical standards and identified four basic ethical standards for resolving moral issues in business, the resulting theory is brought to bear on specific ethical issues in business. Chap- ters 3 and 4 examine the ethics of markets and prices. Chapters 5 and 6 look at environmental and consumer issues, respectively. Chapter 7 explores issues related to job discrimination. Chapter 8 covers general employee issues that are relevant and meaningful to anyone in the work world.

I assume throughout that in order to apply a moral theory to the real world, we must have some information (and theory) about what that world is really like. Conse- quently, each chapter, in all four parts, includes the theo- ries and empirical information that decision makers must have if they are to apply morality to reality. The chapter on market ethics, for example, provides a neoclassical analysis of market structure; the chapter on discrimination presents several statistical and institutional indicators of discrimi- nation; and the chapter on employees in the organization relies on three models of organizations.

Each chapter contains two kinds of materials. The main text of the chapter sets out the conceptual materials needed to understand and address the type of ethical issues dis- cussed in the chapter. In addition, each chapter includes short cases in the main body of the chapter and longer cases at the end of the chapter, both of which describe real busi- ness situations in which moral issues are raised. I have

Business Ethics: Concepts and Cases remains one of the most widely used texts in the field of business ethics. It contin- ues to be popular among students and is valued by instruc- tors because of its accessible style and lucid explanations of complex theories and concepts. As instructors know, pro- viding clear explanations of ideas without oversimplifying them is a major challenge in this field. Those who have used previous editions of this text have said that it does an outstanding job of meeting this challenge, while also pro- viding an excellent balance of ethical theory and manage- rial practice. However, the world does not stand still. Not only have new moral issues arisen to challenge business, but also advances and innovations in the textbook industry have resulted in exciting new forms of publication. So, it is a pleasure to say that this newly revised edition is now available in Revel.

Perspective and Goals Business Ethics: Concepts and Cases is founded on a compre- hensive explanation of ethical theory and its relationship to business practices. Its fundamental perspective is the view that ethical behavior is the best long-term business strategy for a company. By this, I do not mean that ethical behavior is never costly. Nor do I mean that ethical behavior is always rewarded or that unethical behavior is always pun- ished. It is obvious, in fact, that unethical behavior some- times pays off, and that ethical behavior can impose serious losses on a company. When I argue that ethical behavior is the best long-range business strategy, I mean merely that over the long run, and for the most part, ethical behavior can give a company important competitive advantages over companies that are not ethical.

The primary aims of this text remain the same as in earlier versions. They are as follows:

• To introduce the reader to the ethical concepts that are relevant to resolving moral issues in business

• To impart the reasoning and analytical skills needed to apply ethical concepts to business decisions

• To identify the moral issues involved in the manage- ment of specific problem areas in business

• To provide an understanding of the social, technologi- cal, and natural environments within which moral issues in business arise

• To explore case studies of moral dilemmas faced by businesses and business people

Preface

x Preface

provided these discussion cases on the pedagogical assumption that a person’s ability to reason about moral matters will improve if the person attempts to think through several concrete moral problems and allows him- self or herself to be challenged by others who resolve the issue on the basis of different moral standards. These kinds of challenges, when they arise in dialogue and discussion with others, force us to confront the adequacy of our moral norms and motivate us to search for more adequate prin- ciples when our own are shown to be inadequate. Some of the rationale for these pedagogical assumptions is dis- cussed in Chapter 1 in the sections on moral development and moral reasoning. I hope that I have provided sufficient materials to allow the reader to develop, in discussion and dialogue with others, a set of ethical norms that they can accept as adequate.

Features and Learning Aids Although this edition significantly updates the format of its predecessor, it retains both the basic organization and the conceptual framework of previous editions.

Shorter, more readable modules, each with fresh explanatory headings, allow the reader to progress through complex exposition and reasoning processes one step at a time, building knowledge and applying concepts.

The text’s robust case approach, featuring detailed end-of-chapter Case Studies and briefer On the Edge in- chapter cases, remains the signature feature. Some cases are new, others have been revised and updated, and many are illustrated.

The learning aids included in each chapter are as follows:

• Learning Objectives allow students to know what they are expected to master in the chapter.

• Journals conclude On the Edge brief cases and longer Case Study offerings. These writing exercises encour- age students to examine the connections between ethical problems within business organizations, the foundational ethical concepts that are involved in an analysis of these situations, and their personal moral values.

• Interactive visuals include graphs, charts, and media galleries.

• Key terms show instant definitions for easy reference.

• Ethical Applications take case and example content that has been presented, enrich it with increasing detail as necessary, and connect it to the chapter’s developing narrative.

• Quick Reviews summarize the basic ideas, philosophical viewpoints, and ethical arguments examined.

• Shared Writing assessments promote debate, discussion, and critical thinking as they further test conceptual understanding.

• Each Chapter Summary provides a refresher on essential concepts and ties the material together.

New to This Edition The eighth edition of Business Communication: Concepts and Cases incorporates the following refreshed coverage:

• an emphasis on the growing global environment and its interconnected business practices, which continue to present complex ethical issues

• new and updated research and examples from corpora- tions and smaller organizations

• a focus on evolving views in business ethics

• clear viewpoints on increasingly complex arguments

• an emphasis on critical thinking through journaling

• a renewed focus on the ethics of environmental issues

Numerous large and detailed revisions have been made to all the chapters of this edition. However, the fol- lowing specific changes from the previous edition’s text should be noted:

Chapter 1: Ethics in Business Chapter 1 includes a new On the Edge case “Blowing the Whistle on JCPenney’s ‘Fake’ Sales.” Case Studies “Slavery in the Chocolate Industry” and “Aaron Beam and the HealthSouth Fraud” have both been updated.

Chapter 2: Ethical Principles in Business Chapter 2 has a wholly revised introduction. Specifically, the previous edition’s introductory discussion of business responses to the South African apartheid regime was removed and replaced with a discussion of Unocal’s activities in Burma under a military regime. Several small but important revisions have been made to the discussion of Ford and its decision to produce and market the Pinto. The discussion of utilitarianism has been revised at sev- eral points to emphasize that utilitarianism requires com- paring the benefits and costs of every available course of action. The introduction to the section on justice and fair- ness now opens with a discussion of wages in the fast food industry. The introduction to the section on virtue ethics now opens with a discussion of Joe Nacchio, for- mer chairman and CEO of Qwest Communications. “Test- ing Drugs in the Developing World” is a new Case Study in this edition.

Preface xi

and the Case Study “Death at Massey Energy Company” has been updated.

About the Author Manuel Velasquez is the author of Business Ethics: Concepts and Cases, the most widely used business ethics textbook in the world.

Known as the father of academic business ethics, Velasquez is the Charles J. Dirksen Professor of Business Ethics at Santa Clara University, where he holds appoint- ments in the department of Management and the depart- ment of Philosophy and teaches courses in business ethics and in business and public policy.

The author of numerous articles and case studies on business ethics, he has provided consulting and training in business ethics for several companies, as well as work- shops on teaching business ethics to more than 2,000 busi- ness school faculty.

Velasquez received his undergraduate and master’s degrees from Gonzaga University and earned his Ph.D. from the University of California, Berkeley.

REVEL™ Educational technology designed for the way today’s stu- dents read, think, and learn When students are engaged deeply, they learn more effectively and perform better in their courses. This simple fact inspired the creation of REVEL: an immersive learning experience designed for the way today’s students read, think, and learn. Built in col- laboration with educators and students nationwide, REVEL is the newest, fully digital way to deliver respected Pearson content.

REVEL enlivens course content with media interac- tives and assessments—integrated directly within the authors’ narrative—that provide opportunities for students to read about and practice course material in tandem. This immersive educational technology boosts student engage- ment, which leads to better understanding of concepts and improved performance throughout the course.

Learn more about REVEL - http://www.pearson- highered.com/revel

Available Instructor Resources The following resources are available for instructors. These can be downloaded at http://pearsonhighered.com/irc. Login required.

• PowerPoint—provides a core template of the content covered throughout the text. Can easily be added to, to customize for your classroom.

Chapter 3: The Business System: Government, Markets, and International Trade In Chapter 3, the statistics related to inequality in the dis- cussion of Locke have been updated, and the discussion of Marx has been revised.

Chapter 4: Ethics in the Marketplace Chapter 4 has a revised introduction. In addition, the dis- cussion of oligopoly markets has been revised.

Chapter 5: Ethics and the Environment The introduction to Chapter 5 has been revised, and the graphs, statistics, and other data in the section discussing the dimensions of pollution and resource depletion have all been updated. In addition, the discussion of nuclear wastes has been revised to include a comparison of the human costs of nuclear power plants with the human costs of fossil fuel-based power plants, and the discussion of the depletion of oil reserves has been updated to take into account the development of technologies such as fracking. The On the Edge case “Ford’s Toxic Wastes” has been revised and updated, and so has the Case Study entitled “Gas or Grouse?”

Chapter 6: The Ethics of Consumer Production and Marketing The introduction to Chapter 6 has been revised. A new On the Edge case entitled “Mr. Trump’s University” has been included, the brief case on selling personalized genetics direct to consumers has been updated and slightly expanded, and the On the Edge case “Advertising Death to Kids?” has been expanded to include a brief dis- cussion of e-cigarettes. The chapter also includes a new Case Study entitled “Promoting Infant Formula in the Twenty-First Century.”

Chapter 7: The Ethics of Job Discrimination In Chapter 7, all the statistical data, graphs, and tables in the section “Extent of Discrimination” have been updated.

Chapter 8: Ethics and the Employee In Chapter 8, the statistics have been updated. A new On the Edge case entitled “Beyoncé’s Gym Clothes” is included,

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Acknowledgments Like every textbook author, I owe a very large debt of grati- tude to the numerous colleagues and scholars around the world from whom I have shamelessly borrowed ideas and materials. They all, I hope, have been duly recognized in the text and in the notes.

Manuel G. Velasquez, Soquel, California

• Instructor ’s Manual—includes lecture support, chapter overviews, and classroom activities for each chapter.

• Test Bank—includes additional questions beyond the REVEL course in multiple choice and open-ended— short and essay response—formats.

• MyTest—an electronic format of the Test Bank to customize in-class tests or quizzes. Visit http://www. pearsonhighered.com/mytest.

xii Preface

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1

Chapter 1

Ethics and Business

Learning Objectives 1.1 Analyze the basic nature of business ethics

1.2 Emphasize the importance of moral reasoning and moral decision-making in business ethics

1.3 Examine ethical issues arising from globalization and international business connections and practices

In business the handshake is an expression of trust, and ethical behavior is the foundation of trust.

1.4 Explain the deep foundations and structure of moral reasoning

1.5 Assess the factors that define and refine the concept of moral responsibility

Business ethics is applied ethics. It is the application of our understanding of what is good and right to that assortment of institutions, technologies, transactions, activities, and pursuits that we call business. A discussion of business eth-

ics must begin by providing a framework of basic princi- ples for understanding what is meant by the terms good and right; only then can one proceed to profitably discuss the implications these have for our business world. This

2 Chapter 1

expensive, had severe side effects, and required lengthy hospital stays. In many countries, young people fled the areas along the rivers, abandoning large tracts of rich fer- tile land. Villagers who stayed to live along the rivers accepted the nodules, the torturous itching, and eventual blindness as an inescapable part of life.

Having looked at how Merck dealt with its discovery of a cure for river blindness, let us now turn to the relation- ship between ethics and business. Pundits sometimes quip that the phrase business ethics is a contradiction in terms because there is an inherent conflict between ethics and the pursuit of profit. When ethics conflicts with profits, they imply, businesses always choose profits over ethics. Yet, the case of Merck suggests a different perspective—a per- spective that many companies are increasingly taking. Merck’s managers spent $200 million developing a prod- uct they knew had little chance of ever being profitable. They did so because they felt they had an ethical obligation to make its potentially great benefits available to people. In this case, at least, a large and very successful business seems to have chosen ethics over profits. Moreover, the comments of Dr. Vagelos at the end of the case suggest that, in the long run, there may be no inherent conflict between ethical behavior and the pursuit of profit. His comments suggest that ethical behavior creates the kind of goodwill and reputation that expand a company’s oppor- tunities for profit.

LONG-TERM BUSINESS STRATEGY Not all companies operate like Merck, and Merck itself has made decisions that were not ethical. Many—perhaps most—companies will not invest in a project that will probably be unprofit- able even if it will benefit humanity. Every day newspapers announce the names of companies that choose profits over ethics or that, at least for a time, profited through unethical behavior: Enron, WorldCom, Global Crossing, Rite-Aid, Oracle, ParMor, Adelphia, Arthur Andersen, Louisiana- Pacific, and Qwest are but a few of these. In 2004, even Merck was accused of failing to disclose heart problems associated with its drug Vioxx, and in 2010 the company put $4.85 billion into a fund to compensate patients who said they had suffered heart attacks or strokes because they had used Vioxx. In spite of its significant lapse in regard to Vioxx, Merck has remained committed to operate ethically. It has continued to win dozens of awards for its ethically responsible operations.1

Although many companies engage in unethical behavior, habitually unethical behavior is not necessarily a good long-term business strategy. Ask yourself whether, as a customer, you prefer buying from a business that you know is honest and trustworthy or one with a repu- tation for being dishonest and crooked. As an employee, are you more likely to loyally serve a company that treats you with fairness and respect or one that habitually treats

chapter provides such a framework. This chapter intro- duces you to some methods of moral reasoning and some of the obstacles that can get in the way of thinking clearly about ethical issues. We begin by discussing the nature of business ethics and some of the issues it raises and con- tinue by examining moral reasoning, moral decision mak- ing, and moral responsibility.

1.1: The Nature of Business Ethics OBJECTIVE: Analyze the basic nature of business ethics

The best way to introduce a discussion of business ethics is by looking at how real companies have—or have not— incorporated ethics into operations. Consider how Merck & Co., Inc., a U.S. drug company, dealt with the issue of river blindness.

1.1.1: Merck & Co., Inc. River blindness, or onchocerciasis, is a debilitating para- sitic disease. It affects about 17 million impoverished peo- ple living in remote villages along the banks of rivers in tropical regions of Africa and Latin America. The disease is endemic in 30 African countries, 6 Latin American countries, and Yemen. River blindness is caused by a tiny parasitic worm that is passed from person to person by the bite of the black fly, which breeds in fast-flowing river waters. The tiny worms burrow under a person’s skin, where they grow as long as 2 feet curled up in colonies inside ugly round nodules half an inch to an inch in diam- eter. Male worms move between the colonies to mate with the females. After mating, the female worms each day release thousands of microscopic offspring called microfi- lariae. These tiny worms wriggle their way throughout the body moving beneath the skin, discoloring it as they migrate. The worms cause lesions on the skin and such intense itching that victims sometimes commit suicide. Eventually, the microfilariae invade the eyes and blind the victim. Toward the end of the twentieth century, in some West African villages, the parasite had blinded more than 60 percent of adults older than 55. The World Health Organization (WHO) reported that the disease had blinded 270,000 people and left another 800,000 with impaired vision. It is estimated that worldwide more than 100 million people were at risk of infection and 37 million people had been infected.

Pesticides no longer stop the black fly because it has developed immunity to them. Moreover, until the events described below, the only drugs available to treat the para- site in humans were impractical for the destitute victims who lived in isolated rural villages. The drugs were

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costly to a company. Such occasions are common in the life of a company, and we will see many examples in this text. Nor does it mean that ethical behavior is always rewarded or that unethical behavior is always punished. On the con- trary, unethical behavior sometimes pays off, and the good guy sometimes loses. To say that ethical behavior is the best long-range business strategy just means that, over the long run and for the most part, ethical behavior can give a com- pany significant competitive advantages over companies that are not ethical. The example of Merck suggests that being ethical is a good business strategy. A bit of reflection on how consumers and employees respond to companies that behave unethically shows that unethical behavior leads

you and other workers unjustly and disrespectfully? Clearly, when companies compete for customers and for the best workers, the company with a reputation for ethi- cal behavior has an advantage over one with a reputation for being unethical.

1.1.2: Clarifying Ethical Issues This text takes the view that ethical behavior is the best long-term business strategy for a company—a view that has become increasingly accepted during the last few years.7 Acceptance of this view does not mean that occa- sions never arise when doing what is ethical will prove

The Cure for River Blindness In 1980, Dr. Bill Campbell and Dr. Mohammed Aziz, research scientists working for Merck, had discovered evidence that one of the company’s best-selling animal drugs, Ivermectin, might kill the parasite that causes river blindness. Aziz, who had once worked in Africa and was familiar with river blindness, traveled to Dakar, Senegal, where he tested the drug on villagers who had active infections. He found that a single small dose of the drug killed all the microfilariae, made the female worms sterile, and made the person immune to new infections for months.2, 3, 4, 5, 6

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cure for river blindness. Before you even start working for a company, you will be faced with ethical decisions about how “creative” your resume should be. Later, you may have to decide whether to cut corners just a little in your job. Or whether to give your relative or friend a company contract. Or whether to put a little extra into the expenses you report for a company trip you made. Maybe you will catch a friend stealing from the company and have to decide whether to turn him in. Maybe you will find out your company is doing something illegal and have to decide what you are going to do about it. Maybe your boss will ask you to do something you think is wrong. Ethical choices confront everyone in business, and this text should give you some ways of think- ing through these choices.

1.2: Moral Reasoning and Moral Decision Making OBJECTIVE: Emphasize the importance of moral

reasoning and moral decision-making in business ethics

According to the dictionary, the term ethics has several meanings. One of the meanings given to it is as follows: “the principles of conduct governing an individual or a group.”8 We sometimes use the term personal ethics when referring to the rules by which an individual lives his or her personal life. We use the term accounting ethics when referring to the code that guides the professional conduct of accountants.