its a business law assignment
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CHAPTER 5: ETHICSCHAPTER 5: ETHICS
UNIVERSITY OF TOLEDO LEGAL AND ETHICAL ENVIRONMENT OF BUSINESS Cohen
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De�nition Sources Ethical Dilemma Categories Due Diligence and Solving Ethical Dilemmas Conclusion
DEFINITION Many de�nitions exist for the term “Ethics,” but more meaningful examinations of the word will often involve
context or situational elements1. So the context or setting wherein the ethical issue resides may have as much importance as the de�nition of the word “ethics.” In this chapter, the discussion will examine personal, group, and societal ethics while considering the context and evaluating ethical decision-making given various theories in practice today. From a high level, when discussing individual ethics, a synonym to the word might be morals. Morals can be more easily described as personal beliefs related to right and wrong. For example, most American drivers agree that it’s wrong to park in a spot reserved for the disabled without the appropriate license or permit. But, if most American drivers agree that it’s wrong to park in those spots without the correct license or permit, then why are the parking �nes for those spaces $200? Seemingly it takes a big �ne to keep American drivers from illegally parking in disabled spots, otherwise there would be no �nes. And what do you think would happen if the �ne were changed to $10? Would all of those empty disabled parking spaces at the mall now �ll up, even though most
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Americans think its wrong to park in those disabled parking spots? The above example highlights almost all business dilemmas – risk v. reward. Some people would never park in a disabled parking spot without the right license or permit. This is personal moral code. But some people don’t park in those spaces when there is the risk of a penalty – they don’t want to pay a �ne and the risk of getting caught is too great. Now imagine speci�c context where the driver of the car has a pregnant passenger in labor but does not have the appropriate license or permit to park in an open disabled spot. What would you do as that driver? Drop the pregnant passenger o� at the front door of the hospital and go �nd a parking spot, or would you park in the disabled parking spot to guarantee that she can make it safely into the hospital before going back out and moving the car? And lastly, as the car’s owner and driver what drives your actions: moral compass, parking �ne, misplacing a handicapped driver from that spot, or getting your passenger into the hospital. Does your motive matter if you do the right thing?
SOURCES In the larger social context, ethics are closely tied into laws. If society deems that an action is legal, then the action is most likely considered ethical. This brings up the �rst ethical theory: Positive law suggests that which is legal is also ethical. To some, a disabled parking sign only matters if there is a legal penalty. To others, a disabled parking sign is all that is necessary to seek out another open spot. A student of critical thinking might ask the following two questions however:
1. Can an act be legal and unethical? 2. Can an act be illegal and ethical?
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The Honorable Justice Potter Stewart who served on the U.S. Supreme Court from 1958 to 1981 once said that “… there is a big di�erent between what we have the right to do and what is right.” This chapter focuses on ethical decision-making, and how ethical dilemmas can be solved applying di�erent ethical theories. Now as an example, imagine you are at home at night and a window breaks on the �rst �oor. You are a parent with multiple children and a wife. You own a gun. You go downstairs and �nd a burglar in your house with a �ashlight. You can clearly see the intruder. The intruder turns and begins to run away out the front door. And then, you shoot the intruder in the back and kill him. Or as the case with Joe Horn in Pasadena, TX, Mr. Horn went to his neighbor’s house in the middle of the day with a gun, shot and killed two intruders when the neighbor was not
even home.2 A grand jury refused to indict Mr. Horn under the state’s Castle Doctrine/Stand Your Ground Law. Many states (such as Texas) have the “Castle Doctrine” which allow homeowners to use deadly force when defending the home. These same states have also enacted “Stand Your Ground” laws, which allow people like George Zimmerman to use deadly force without retreating when in self-defense situations. The Horn and Zimmerman cases in Texas and Florida bring no clarity to the argument. Clearly, the law in Texas and Florida provide Horn and Zimmerman with legal justi�cation for their actions. However, three (3) men were left for dead in these two separate shootings. If Horn or Zimmerman had a di�erent ethical code, then these three men, two undocumented illegal aliens and Trayvon Martin, could still be alive. Or conversely, consider the case of a poor hunter who lives in the wilderness of Alaska. The hunter needs to feed his family. The hunter does not have the money to buy a hunting license. The hunter kills a bear for the fur and the
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meat to eat, but gets arrested by gaming authorities for poaching because he does not have a hunting license. So in the �rst example, a neighbor goes next door, shoots and kills two intruders when no one is in danger. This person does not get indicted and is free to live his life. In the second example, a hunter kills a bear to eat but gets arrested and put in jail because he does not have a valid hunting license. Does this mean that our society has come to the point where wildlife is more valuable than human life? A good lawyer would answer such a question as follows: Well, it depends. The chapter objective is to examine various ethical theories so that one may answer questions such as whether or not wildlife has more value in our society than human life. Accordingly, one must look through the eyes of another to truly answer this question. And fortunately, the reader will be able to view these questions through the eyes of many – his classroom peers! “It depends” is the classic law school answer to a legal question posed by a law school professor. Socrates, the famous Athenian philosopher from around 400 BC created what is now known as the “Socratic Method” where a series of questions is asked not only to draw individual answers, but also to encourage fundamental insight into the issue at hand. So, Socrates might ask the follow on question: “Depends on what?” So, let’s revisit the question: “Does wildlife have more value than human life?” Based on the examples provided from the Castle Doctrine to the bear-poaching scenario, the outcomes suggest that wildlife might hold more value than human life. From an historical perspective, one need go back no further than the 1870’s to see very speci�c examples of where Americans believed that animals had more value than humans as it was a hanging o�ense to steal a man’s horse and yet killing a tribal Indian was legal in many places. So there is precedent to make the
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statement that Americans have valued animals more than humans. Is this the moral compass of America? Normative standards from a philosophical perspective can be described as generally accepted rules that govern society to create stability. Society sets expectations and standards that should be followed. Some of those standards are also legal standards. Some of the standards are simply proper etiquette, such as not cutting in line. Not all normative standards or positive laws are ethical. How can this be? Is there a way to infuse another concept into normative standards and positive law that would create a holistic standard where positive law and normative standards are always ethical? Natural law is a concept that �lters through our society
and is a driving factor of ethical behavior.3 For example, slavery was legal in southern states prior to the Civil War. So from a positive law and normative standard, southern slavery was considered ethical in the south. In the northern states, however, natural law blossomed from the writings of Henry David Thoreau through his classic book On Walden Pond. The northern states believed that slavery was a blight on our society. As a result, over 500,000 people lost their lives in a �ght over the Emancipation Proclamation by Abraham Lincoln when he decried that all men are free. So ethics based on normative and positive law standards would essentially depend upon the side you’re on, or geography or many other general factors to long to name. If you were a southerner, then you favored slavery – it was pervasive and legal. If you were a northerner, then you were against slavery – it was abolished and illegal. When the concept of natural law is added to the positive and normative law discussion, Thoreau might state “what men already know instinctively is true humanity.” And when aligning Thoreau’s writings with our nation’s Declaration of Independence, that “all men are created equal, that they are endowed by their Creator with certain unalienable
Rights….,”4 it is clear that slavery is an abomination against humanity and thus unethical.
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Other sources of ethics include family and religion; however, family and religious values vary greatly. Politicians in the United States often refer to family values, but �nding a solid consensus as to the meaning of family values is challenging. Religion and the ethics of religion are prevalent in the United States as well and the courts occasionally address challenges to legislative action to clarify the meaning of religious freedom as expressed in the First Amendment, see Burwell v. Hobby Lobby, 573 U.S. ___ (2014), which is a landmark decision by the U.S. Supreme Court allowing closely held for pro�t companies to be exempt from a law its owners religiously object to. In this instance, Hobby Lobby stopped providing contraception in its health care plan, which was required by the A�ordable Care Act (ACA). So although the law required that Hobby Lobby provide contraception to its employees, the company objected on religious grounds. So, there was a direct con�ict between positive law (ACA requirement requiring contraception), and the Christian principles of the company, which were against such contraception. And religious beliefs held sway over the court and overcame the law. It is worth mentioning that the First Amendment to the Constitution providing among other things “freedom of religion” is the �rst protected right and deeply rooted in American history. These are deep philosophical thoughts about society and history so let’s reframe the discussion to business. Business Ethics. For the past 50 years or so, as taught by many notable business schools, corporate managers have lived under the moral imperative of maximizing shareholder value. Furthermore, the courts have ruled that corporate management and majority shareholders have a legal duty to minority shareholders and shareholders in general to maximize corporate value. This concept of maximizing shareholder value collides with positive law. One could posit that because the law requires companies to maximize pro�ts, then the pursuit of pro�t maximization is ethical. Many companies and majority shareholders have come under scrutiny and
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litigation to examine exactly what a majority shareholder or manager’s responsibility is to minority shareholders. In eBay Domestic Holdings, Inc. v. Newmark, 16 A.3d 1, 60-61 (Del. Ch. 2010) Chancellor Chandler from the Delaware Chancery Court wrote: “Having chosen a for- pro�t corporate form, the craigslist directors are bound by the �duciary duties and standards that accompany that form. Those standards include acting to promote the value of the corporation for the bene�t of its stockholders. The “Inc.” after the company name has to mean at least that.” So what does “promote the value of the corporation for the bene�t of its stockholders” really mean? If this question were presented to a free market economist like Nobel Prize winning Milton Friedman or an Adam Smith, they might suggest that the manager’s only goal is to maximize pro�ts given a particular set of risks. Or in other words, pro�t by any legal means possible. In the context of this chapter, this economic philosophy might directly contradict natural law and Justice Stewart’s remarks that “…there is a big di�erent between what we have the right to do and what is right.”
Critical Thinking Discussion Question: Take either side in the argument “for” or “against” �ring 1,000 employees in a mass layo� even though a company is currently pro�table. In other words, how does a corporate manager justify �ring 1,000 employees when the company is pro�table and there is no indication that �ring 1,000 employees will actually create corporate value? How does the business judgment rule support the manager’s decision to make the layo�s? What would a manager espousing Corporate Social Responsibility (CSR) do regarding the layo�s? CSR is a corporate self- regulatory mechanism that requires businesses to self- monitor to ensure active compliance with the spirit of the law, ethical standards, and normative standards. As more
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theories are infused into the discussion, does the decision to layo� the 1,000 employees become easier or more di�cult? Maybe reviewing some ethical decision-making theories will help answer the question.
ETHICAL DILEMMA CATEGORIES Before getting to the previous question about �ring 1,000 employees, let’s examine some larger groups of ethical challenges. As it relates to business, several larger categories of ethical challenges exist that create dilemmas for the
decision makers. 5
1. Stealing, and taking things without permission. An employee could take a company laptop and not return it, or a company could use employee pensions to support business operations without permission. What about buying a personal meal on a corporate credit card and reporting it as a business meal?
2. Lying, and giving false impressions. An employee representing a company could deceive a bank about the company’s �nancial position when applying for a corporate loan.
3. Con�icts of Interest to your personal bene�t. Discovering a �nancial opportunity through con�dential relationships and then seeking personal gain from the information over your company.
4. Buying in�uence, and bribery. Paying people in decision-making positions to in�uence favorable business outcomes.
5. Circumventing the law to achieve unfair advantage. For example, a stockbroker needing sales commission might sell stocks or insurance policies to the elderly when the investments are not suitable for the elderly.
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6. Self-indulgence. A business owner may have past due taxes or have signi�cant debt but still pursues excessive travel and extravagant personal spending to the detriment of obligations to third parties.
7. The general catch all of accepting poor behavior in the name of pro�t. Allowing a great salesman who is continuously getting accused of sexual harassment to keep his job. Companies that o�shore work to countries with poor working conditions and human rights violations in order to make more pro�t.
These types of unethical and often illegal actions above are often followed by individual and corporation
rationalization.6 These typical responses are defense mechanisms used to support poor behavior. If an individual or corporation action is followed with these types of responses, then the behavior is likely to be unethical: “Everybody’s doing it.” This is classic high school, juvenile excuse for doing something stupid, like drinking alcohol. The chief executive o�ce’s (CEO) for the top 350 companies made on average, a fully loaded $16.3 million
dollars in 2014.7 When a board of directors pays the company CEO that kind of money, the high salary is often justi�ed because other companies pay their CEO’s that kind of money. Board of Directors have compensation committees and hire experts who tell the board that its okay to pay the CEO that kind of money because it’s the industry average, which is industry speak for everybody’s doing it. When the average employee is making less
$35,2398, it is extremely hard to justify that level of salary for anyone. “Someone else is going to do it.” Perhaps Volkswagen’s programmers believed that other automakers were rigging their emissions systems during smog testing and felt compelled to cheat on emissions testing as a fair way
to compete?9
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“We’ve been doing it this way for years.” The Catholic Church is a modern day example of this rationalization. Priests that were accused or believed to be harming kids were moved from parish to parish and did not face any punishment. The musical chairs of moving pedophile priests from church to church had been done for quite some time, and it became the status quo. After awhile the behavior may even seem to be normal, and comments like “we’ve been doing it this way for years” doesn’t even seem
like an institutional cover up.10
“The lawyers told us it was Okay.” Most lawyers will rely on positive law when giving advice. As stated earlier, positive law does not always lead to an ethical decision so relying on a lawyer for permission to do something or not do something is subject to seriously ethical shortcomings. “It doesn’t really hurt anyone.” “The system is unfair.” In 2007, home loans were being approved left and right for people that were not able to a�ord the loans. When the values of the homes were going up, borrowers would borrow more money to pay for current loans and buy more properties. Because borrowers could continue to tap bank loans to pay for home mortgages, a common theme was that no one was getting hurt. Then, when home loans started drying up, borrowers began to lie about their ability to repay loans. The common theme during the “liar loan” era of the banking crisis was that the system was rigged and not fair and so I am going to do whatever I can to get out of this mess. “I was just following orders.” This is an oft-used excuse in the military or during times of war and combat. Using sanctioned torture methods such as waterboarding allow for underlings to justify doing horrible things – just doing what I was told. “The answer is never black or white.” Was Joe Horn a “Good Samaritan” protecting his neighbor’s house from illegal immigrant criminals or was he a renegade murderer, clinging to the “Castle Doctrine” in order to kill for personal reasons?
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DUE DILIGENCE AND SOLVING ETHICAL KILEMMAS (THROUGH THEORY) Thus far, this chapter has provided a general de�nition of ethics and where ethical or unethical behavior likely originates – the laws, personal circumstances, and group dynamics that drive decision-making. Types of ethical dilemmas have been addressed as well as from stealing to lying and the likely rationalizations for poor decision- making. Ultimately, better decision-making is important in both our personal and professional lives, which begs the question: How does one make better choices when confronted with typical ethical dilemmas? Below is a simple checklist that every person, from parent to citizen to CEO to manager, should have in their pocket when trying to analyze the best approach to resolving ethical dilemmas so that a typical rationalization does not need to be used after the decision is made: Due Diligence, Ethical Dilemma Solving Checklist:
Discover all available facts related to the ethical dilemma – be exhaustive but quick enough to respond in a timely manner; After gathering and reviewing all available facts, identify key facts or other information that might be vital to your decision-making process – facts which might not be readily available; Where appropriate, reach out to persons involved in the dilemma who are stakeholders in the outcome and ask for input; Is there an easy and readily available solution; if not, then adopt an ethical decision-making model (e.g. Golden Rule) to help resolve the matter; What are the consequences of picking a speci�c solution, pros and cons; are there any better
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solutions that provide more bene�t and less damage; Seek third-party input, from attorney potentially, if decision has speci�c legal rami�cations like criminal or civil liability; Apply solution theories to make �nal determination; and, Assess outcomes.
Ethical decision-making paradigms have been researched extensively to help guide individuals and groups in ethical decision-making. These concepts have been more readily de�ned and thoroughly researched since the passing of
Sarbanes–Oxley11 because an entire cottage industry was birthed to help publicly traded companies comply with the law, speci�cally related to ethics training. Depending on the research institution or ethicist, ethical theories are often broken down into category types. The number of theories is extensive and this book will only cover a few, in broad strokes.
a. A Consequentialist primarily analyzes ethical consequences of speci�c actions. What is the result of the decision? Today, a pragmatist might rephrase that to “do the ends justify the means.” So if the goal is morally right, then the means to achieve the goal are morally right. Intent is irrelevant, because when a bad result occurs, the intent often ends up being a rationalization. When the government condones waterboarding as a torture method to extract information from terrorists, the consequentialist can justify the action based on the notion that the torture will save lives by stopping a terrorist act. Below are examples of three such approaches a consequentialist might employ:
i. Utilitarian Model. Utilitarianism is a common approach to making ethical decisions, especially when large groups are concerned, because the decision maker can readily weigh the good and bad that will result from said
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decision. Most people understand that “take the good with the bad” is real and that decisions lead to some good and some bad. Utilitarianism searches for that the best action which does the most good and/or does the least harm. It’s a balancing test.
ii. The Egoistic. In the ethics of self-interest, an individual will use a good/bad balance used in the utilitarian calculation to produce the greatest amount of personal good for one self. This is a self-dealing philosophy. The goal is also to reduce or minimize the potential harm to one self. Relevant “egoists”: Thomas Hobbes and Ayn Rand.
iii. Common Good. Our actions should enhance the community. Rousseau suggested society ought to be guided by the will of the people, which would result in the best outcome for society. This concept emphasizes respect and compassion for all, particularly the powerless and weak.
b. A Nonconsequentialist is more concerned with the decision maker’s intent as it relates to actions and outcomes. This theory may often excuse bad outcomes when the intent was good. Using the waterboarding example, the nonconsequentialist can justify torture because the intent is not to harm a terrorist but rather to save lives from another terrorist attack. Below are examples of approaches a nonconsequentialist might employ:
i. The Duty-Based Approach. Oft referred to as deontological ethics, Immanuel Kant formed this methodology, which suggests that duty essentially drives ethical action, and we act in a certain manner because of obligation. Kant is known for the “categorical imperative,” which is loosely paraphrased as that ‘one should act according to a maxim, which is stated at the time of the decision as if it were to become universal law.’ In other words, killing is unethical because we could not state a maxim
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that said “One should always kill” because it would render everyone in a constant state of war. Conversely, we can state that “One should not kill,” because it suggests a constant state of peace (which is better than a constant state of war). The challenge with this theory is that there is no “grey” area because killing might be okay under certain circumstances such as the defense of oneself or family.
ii. The Rights Approach. This approach favors protecting the ethical rights of those who are likely to be a�ected by the action. This is a “Do Unto Others” approach to decision-making.
iii. The Fairness Approach. Free and rational people who are in a position of equality will adopt a balanced and fair approach to ethical decision-making where everyone is equal.
iv. The Divine Command Approach. What would God do or command? Ethical standards are the creation of God’s will. Following God’s will is thus seen as de�nitively ethical because He is omnipotent and possessed of free will.
c. And lastly, Agent-centered theorist are more concerned with individual ethics and not as concerned the morality of an action. The individual performing the waterboarding torture does not like the act of torture but is doing it simply to save lives in the future.
i. The Virtue Approach. This principle argues that ethical actions should be consistent with ideal human virtues. Virtue ethics is wholly concerned with the entirety of a person’s life, and thus values experience, education and training in a person’s history. Mentorship by a virtuous member of society is very signi�cant to this model as virtuous role models can help to shape our own our understanding of ethics and decision-making.
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ii. The Feminist Approach. In recent decades, this approach has taken hold and it emphasis the principle of care as a primary concern. This approach is often at direct odds with the justice approach. Feminist ethics is concerned with human life and how such in�uences
ethical decision-making.12
Critical Thinking Case: You are the CEO of a publicly traded company. You have 10,000 employees. Usually, 20 percent of your employees are underperforming or within a year of retirement. You need to appease your board of directors, and you have been given two choices: 1. Fire 1,000 employees immediately, or 2. Reduce payroll across the board by 10% for the next 2 years by reducing everyone’s wages. Pick a choice and defend it using any theory. And then, take a theory and argue against your decision.
CONCLUSION Ethics are consistent with morals but change based on context or setting. Ethics are often driven by positive law as well as normative standards but following laws and normative stands don’t always create good and ethical results. Frankly, not all positive laws or normative standards are good (See Nazi Germany, or pre-Civil War south). Thus, inclusion of natural law principles with positive laws and normative standards may provide better outcomes to ethical dilemmas and challenges. People often get ethics from family and religion too but family and religious ethics vary greatly in the United States as cultural and geographical in�uences play signi�cant roles in the development of the moral compass. When evaluating challenging circumstances where decision-making may come into question, speci�cally in a business setting, the decision maker should understand
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how to recognize the type of ethical dilemma faced, how to analyze the ethical dilemma and make the proper decision. Good ethical decision-making has never been proven to make a company more money, but poor ethical decision- making has ruined companies overnight (e.g. Enron, WorldCom).