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Business Ethics Case Studies and Selected Readings

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Business Ethics Case Studies and Selected Readings

EIGHTH EDITION

MARIANNE MOODY JENNINGS Arizona State University

Australia • Brazil • Japan • Korea • Mexico • Singapore • Spain • United Kingdom • United States

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

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Brief Contents Preface xiv Acknowledgments xxii

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

SECTION A Defining Ethics 2 SECTION B Resolving Ethical Dilemmas 33

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

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

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

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

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

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

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

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

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

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

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

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

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

vi Brief Contents

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

U N I T

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

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

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

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

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

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

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

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

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

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

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

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U N I T

2 Solving Ethical Dilemmas and Personal Introspection

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

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

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

Covering for the CEO 75

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

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

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

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

U N I T

3 Business, Stakeholders, Social Responsibility, and Sustainability

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

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

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

viii Contents

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

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

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

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

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

U N I T

4 Ethics and Company Culture

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

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

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

Supervisors 217

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

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

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

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

Contents ix

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

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

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

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

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

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

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

Be True 338

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

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

U N I T

5 Ethics and Contracts

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

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

x Contents

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

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

U N I T

6 Ethics in International Business

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

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

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

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

U N I T

7 Ethics, Business Operations, and Rights

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

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

Contents xi

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

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

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

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

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

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

U N I T

8 Ethics and Products

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

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

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

Problem 516

xii Contents

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

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

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

U N I T

9 Ethics and Competition

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

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

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

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

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

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

Contents xiii

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Preface

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

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