Business Ethics - Corporate Social Responsibility Discussion (URGENT - DUE TOMORROW)

BMGT 496 - Week 1 Citations

(Banton, 2020)

(Brusseau, 2012)

(Deloitte, 2015)

(Horton, 2020)

(Lumen Learning)

(University of Maryland Global Campus)

Bibliography Banton, C. (2020, February 25). Shareholder vs. Stakeholder: What's the Difference? Retrieved

March 18, 2021, from Investopedia: https://www.investopedia.com/ask/answers/08/difference-between-a-shareholder-and- a-stakeholder.asp

Brusseau, J. (2012). Chapter 1: What is Business Ethics? In J. Brusseau, The Business Ethics Workshop (pp. 4-32). Washington, DC: Saylor Academy. Retrieved March 15, 2021, from https://resources.saylor.org/wwwresources/archived/site/textbooks/The%20Business% 20Ethics%20Workshop.pdf

Deloitte. (2015). Corporate Culture: The second ingredient in a world-class ethics and compliance program. New York: Deloitte Development. Retrieved March 15, 2021, from https://www2.deloitte.com/content/dam/Deloitte/us/Documents/risk/us-aers- corporate-culture-112514.pdf

Horton, M. (2020, July 1). The Importance of Business Ethics. Retrieved March 15, 2021, from Investopedia: https://www.investopedia.com/ask/answers/040815/why-are-business- ethics-important.asp

Lumen Learning. (n.d.). Ethics Explored. In Introduction to Ethics. Retrieved March 15, 2021, from https://courses.lumenlearning.com/atd-epcc-introethics-1/chapter/ethics-explored/

University of Maryland Global Campus. (n.d.). Ethical Issues Dilemmas Legal Issues. Retrieved March 15, 2021, from University of Maryland Global Campus: https://learn.umgc.edu/d2l/le/content/566199/viewContent/20379475/View

Shareholder vs. Stakeholder: What's the Difference? By CAROLINE BANTON Updated Feb 25, 2020 Shareholder vs. Stakeholder: An Overview When it comes to investing in a corporation, there are shareholders and stakeholders. While they have similar-sounding names, their investment in a company is quite different.

Shareholders are always stakeholders in a corporation, but stakeholders are not always shareholders. A shareholder owns part of a public company through shares of stock, while a stakeholder has an interest in the performance of a company for reasons other than stock performance or appreciation. These reasons often mean that the stakeholder has a greater need for the company to succeed over a longer term.

Understanding the Role of the Shareholder A shareholder can be an individual, company, or institution that owns at least one share of a company and therefore has a financial interest in its profitability. For example, a shareholder might be an individual investor who is hoping the stock price will increase because it is part of their retirement portfolio. Shareholders have the right to exercise a vote and to affect the management of a company. Shareholders are owners of the company, but they are not liable for the company’s debts.1 For private companies, sole proprietorships, and partnerships, the owners are liable for the company's debts. A sole proprietorship is an unincorporated business with a single owner who pays personal income tax on profits earned from the business. 2

Understanding the Role of the Stakeholder Stakeholders can be:

• owners and shareholders • employees of the company • bondholders who own company-issued debt • customers who may rely on the company to provide a particular good or service • suppliers and vendors who may rely on the company to provide a consistent revenue

stream

Although shareholders may be the largest type of stakeholders, because shareholders are affected directly by a company's performance, it has become more commonplace for additional groups to also be considered stakeholders.

Key Differences A shareholder can sell their stock and buy different stock; they do not have a long-term need for the company. Stakeholders, however, are bound to the company for a longer term and for reasons of greater need.3

For example, if a company is performing poorly financially, the vendors in that company's supply chain might suffer if the company no longer uses their services. Similarly, employees of the company, who are stakeholders and rely on it for income, might lose their jobs.

Stakeholders and shareholders often have competing interests depending on their relationship with the organization or company.

Special Considerations The emergence of corporate social responsibility (CSR), a self-regulating business model that helps a company be socially accountable to itself, its stakeholders, and the public, has encouraged companies to take the interests of all stakeholders into consideration.4 During their decision-making processes, for example, companies might consider their impact on the environment instead of making choices based solely upon the interests of shareholders. The general public is an external stakeholder now considered under CSR governance.

When a company's operations could increase environmental pollution or take away a green space within a community, for example, the public at large is affected. These decisions may increase shareholder profits, but stakeholders could be impacted negatively. Therefore, CSR encourages corporations to make choices that protect social welfare, often using methods that reach far beyond legal and regulatory requirements.

Key Takeaways

• Shareholders are always stakeholders in a corporation, but stakeholders are not always shareholders.

• Shareholders own part of a public company through shares of stock; a stakeholder wants to see the company prosper for reasons other than stock performance.

• Shareholders don't need to have a long-term perspective on the company and can sell the stock whenever they need to; stakeholders are often in it for the long haul and have a greater need to see the company prosper.

Article Sources

1. U.S. Securities and Exchange Commission. "Shareholder Voting." Accessed Feb. 24, 2020.

2. U.S. Small Business Administration. "Sole Proprietorship." Accessed Feb. 24, 2020. 3. ENISA, European Union Agency for Cybersecurity. "Define Stakeholders." Accessed

Feb. 24, 2020. 4. Business Development Bank of Canada. "Corporate social responsibility." Accessed

Feb. 24, 2020.

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Chapter 1

What Is Business Ethics?

Chapter Overview

Chapter 1 "What Is Business Ethics?" defines business ethics and sketches how debates within the field

happen. The history of the discipline is also considered, along with the overlap between business and

personal ethics.

1.1 What Is Business Ethics?

L E A R N I N G O B J E C T I V E S

1. Define the components of business ethics.

2. Outline how business ethics works.

Captive Customers

Ann Marie Wagoner studies at the University of Alabama (UA). She pays $1,200 a year for books, which is

exasperating, but what really ticks her off is the text for her composition class. Called A Writer’s Reference

(Custom Publication for the University of Alabama), it’s the same Writer’s Reference sold everywhere

else, with slight modifications: there are thirty-two extra pages describing the school’s particular writing

program, the Alabama A is emblazoned on the front cover, there’s an extra $6 on the price tag (compared

with the price of the standard version when purchased new), and there’s an added sentence on the back:

“This book may not be bought or sold used.” The modifications are a collective budget wrecker. Because

she’s forced to buy a new copy of the customized Alabama text, she ends up paying about twice what she’d

pay for a used copy of the standard, not-customized book that’s available at Chegg.com and similar used-

book dealers.

For the extra money, Wagoner doesn’t get much—a few additional text pages and a school spirit cover.

Worse, those extra pages are posted free on the English department’s website, so the cover’s the only

unambiguous benefit. Even there, though, it’d be cheaper to just buy a UA bumper sticker and paste it

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across the front. It’s hard to see, finally, any good reason for the University of Alabama English

Department to snare its own students with a textbook costing so much.

Things clear up when you look closely at the six-dollar difference between the standard new book cost and

the customized UA version. Only half that money stays with the publisher to cover specialized printing

costs. The other part kicks back to the university’s writing program, the one requiring the book in the first

place. It turns out there’s a quiet moneymaking scheme at work here: the English department gets some

straight revenue, and most students, busy with their lives, don’t notice the royalty details. They get their

books, roll their eyes at the cash register, and get on with things.

Wagoner noticed, though. According to an extensive article in the Wall Street Journal, she calls the cost

of new custom books “ridiculous.” She’s also more than a little suspicious about why students aren’t more

openly informed about the royalty arrangement: “They’re hiding it so there isn’t a huge uproar.” [1]

While it may be true that the Tuscaloosa University is hiding what’s going on, they’re definitely not doing

a very good job since the story ended up splattered across the Wall Street Journal. One reason the story

reached one of the United States’ largest circulation dailies is that a lot of universities are starting to get in

on the cash. Printing textbooks within the kickback model is, according to the article, the fastest growing

slice of the $3.5 billion college textbook market.

The money’s there, but not everyone is eager to grab it. James Koch, an economist and former president

of Old Dominion University and the University of Montana, advises schools to think carefully before

tapping into customized-textbook dollars because, he says, the whole idea “treads right on the edge of

what I would call unethical behavior. I’m not sure it passes the smell test.” [2]

What Is Business Ethics?

What does it mean to say a business practice doesn’t “pass the smell test”? And what would happen if

someone read the article and said, “Well, to me it smells all right”? If no substance fills out the idea, if

there’s no elaboration, then there probably wouldn’t be much more to say. The two would agree to

disagree and move on. Normally, that’s OK; no one has time to debate everything. But if you want to get

involved—if you’re like Wagoner who sounds angry about what’s going on and maybe wants to change it—

you’ll need to do more than make comments about how things hit the nose.

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Doing business ethics means providing reasons for how things ought to be in the economic world. This

requires the following:

 Arranging values to guide decisions. There needs to be a clearly defined and well-justified set of

priorities about what’s worth seeking and protecting and what other things we’re willing to compromise or

give up. For example, what’s more important and valuable: consumers (in this case students paying for an

education) getting their books cheaply or protecting the right of the university to run the business side of

its operation as it sees fit?

 Understanding the facts. To effectively apply a set of values to any situation, the situation itself must be

carefully defined. Who, for example, is involved in the textbook conflict? Students, clearly, as well as

university administrators. What about parents who frequently subsidize their college children? Are they

participants or just spectators? What about those childless men and women in Alabama whose taxes go to

the university? Are they involved? And how much money are we talking about? Where does it go? Why?

How and when did all this get started?

 Constructing arguments. This shows how, given the facts, one action serves our values better than other

actions. While the complexities of real life frequently disallow absolute proofs, there remains an absolute

requirement of comprehensible reasoning. Arguments need to make sense to outside observers. In simple,

practical terms, the test of an ethical argument resembles the test of a recipe for a cook: others need to be

able to follow it and come to the same result. There may remain disagreements about facts and values at

the end of an argument in ethics, but others need to understand the reasoning marking each step taken on

the way to your conclusion.

Finally, the last word in ethics is a determination about right and wrong. This actual result, however, is

secondary to the process: the verdict is only the remainder of forming and debating arguments. That’s

why doing ethics isn’t brainwashing. Conclusions are only taken seriously if composed from clear values,

recognized facts, and solid arguments.

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Bringing Ethics to Kickback Textbooks

The Wall Street Journal article on textbooks and kickbacks to the university is a mix of facts, values, and

arguments. They can be sorted out; an opportunity to do the sorting is provided by one of the article’s

more direct assertions:

Royalty arrangements involving specially made books may violate colleges’ conflict-of-interest

rules because they appear to benefit universities more than students.

A conflict of interest occurs when a university pledges to serve the interest of students but finds that its

own interest is served by not doing that. It doesn’t sound like this is a good thing (in the language of the

article, it smells bad). But to reach that conclusion in ethical terms, the specific values, facts, and

arguments surrounding this conflict need to be defined.

Start with the values. The priorities and convictions underneath the conflict-of-interest accusation are

clear. When university takes tuition money from a student and promises to do the best job possible in

providing an education to the student, then it better do that. The truth matters. When you make a

promise, you’ve got to fulfill it. Now, this fundamental value is what makes a conflict of interest

worrisome. If we didn’t care about the truth at all, then a university promising one thing and doing

something else wouldn’t seem objectionable. In the world of poker, for example, when a player makes a

grand show of holding a strong hand by betting a pile of chips, no one calls him a liar when it’s later

revealed that the hand was weak. The truth isn’t expected in poker, and bluffing is perfectly acceptable.

Universities aren’t poker tables, though. Many students come to school expecting honesty from their

institution and fidelity to agreements. To the extent these values are applied, a conflict of interest becomes

both possible and objectionable.

With the core value of honesty established, what are the facts? The “who’s involved?” question brings in

the students buying the textbooks, the company making the textbooks (Bedford/St. Martin’s in Boston),

and the University of Alabama. As drawn from the UA web page, here’s the school’s purpose, the reason it

exists in the first place: “The University of Alabama is a student-centered research university and an

academic community united in its commitment to enhancing the quality of life for all Alabamians.”

Moving to the financial side, specific dollar amounts should be listed (the textbook’s cost, the cost for the

non-customized version). Also, it may be important to note the financial context of those involved: in the

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case of the students, some are comfortably wealthy or have parents paying for everything, while others

live closer to their bank accounts edge and are working their way through school.

Finally, the actual book-selling operation should be clearly described. In essence, what’s going on is that

the UA English Department is making a deal with the Bedford/St. Martin’s textbook company. The

university proposes, “If you give us a cut of the money you make selling textbooks, we’ll let you make

more money off our students.” Because the textbooks are customized, the price goes up while the supply

of cheap used copies (that usually can be purchased through the Internet from stores across the nation)

goes way down. It’s much harder for UA students to find used copies, forcing many to buy a new version.

This is a huge windfall for Bedford/St. Martin’s because, for them, every time a textbook is resold used,

they lose a sale. On the other side, students end up shelling out the maximum money for each book

because they have to buy new instead of just recycling someone else’s from the previous year. Finally, at

the end of the line there is the enabler of this operation, the English department that both requires the

book for a class and has the book customized to reduce used-copy sales. They get a small percentage of

Bedford/St. Martin’s extra revenue.

With values and facts established, an argument against kickback textbooks at Alabama can be drawn up.

By customizing texts and making them mandatory, UA is forcing students to pay extra money to take a

class: they have to spend about thirty dollars extra, which is the difference between the cost of a new,

customized textbook and the standard version purchased, used. Students generally don’t have a lot of

money, and while some pass through school on the parental scholarship, others scrape by and have to

work a Mc Job to make ends meet. So for at least some students, that thirty dollars directly equals time

that could be spent studying, but that instead goes to flipping burgers. The customized textbooks,

consequently, hurt these students’ academic learning in a measurable way. Against that reality there’s the

university’s own claim to be a “student-centered” institution. Those words appear untrue, however, if the

university is dragging its own students out of the library and forcing them to work extra hours. To comply

with its own stated ideals—to serve the students’ interests—UA should suspend the kickback textbook

practice. It’s important to do that, finally, because fulfilling promises is valuable; it’s something worth

doing.

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Argument and Counterargument

The conclusion that kickback textbooks turn universities into liars doesn’t end debate on the question. In

fact, because well-developed ethical positions expose their reasoning so openly (as opposed to “it doesn’t

smell right”), they tend to invite responses. One characteristic, in other words, of good ethical arguments

is that, paradoxically but not contradictorily, they tend to provoke counterarguments.

Broadly, there are three ways to dispute an argument in ethics. You can attack the

1. facts,

2. values,

3. reasoning,

In the textbook case, disputing the facts might involve showing that students who need to work a few

extra hours to afford their books don’t subtract that time from their studying; actually, they subtract it

from late-night hours pounding beers in dank campus bars. The academic damage done, therefore, by

kickback textbooks is zero. Pressing this further, if it’s true that increased textbook prices translate into

less student partying, the case could probably be made that the university actually serves students’

interests—at least those who drink too much beer—by jacking up the prices.

The values supporting an argument about kickback textbooks may, like the facts, be disputed. Virginia

Tech, for example, runs a text-customization program like Alabama’s. According to Tech’s English

Department chair Carolyn Rude, the customized books published by Pearson net the department about

$20,000 a year. Some of that cash goes to pay for instructors’ travel stipends. These aren’t luxury retreats

to Las Vegas or Miami; they’re gatherings of earnest professors in dull places for discussions that reliably

put a few listeners to sleep. When instructors—who are frequently graduate students—attend, they’re

looking to burnish their curriculum vitae and get some public responses to their work. Possibly, the trip

will help them get a better academic job later on. Regardless, it won’t do much for the undergraduates at

Virginia Tech. In essence, the undergrads are being asked to pay a bit extra for books to help graduate

students hone their ideas and advance professionally.

Can that tradeoff be justified? With the right values, yes. It must be conceded that Virginia Tech is

probably rupturing a commitment to serve the undergrads’ interest. Therefore, it’s true that a certain

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amount of dishonesty shadows the process of inflating textbook costs. If, however, there’s a higher value

than truth, that won’t matter so much. Take this possibility: what’s right and wrong isn’t determined by

honesty and fidelity to commitments, but the general welfare. The argument here is that while it’s true

that undergrads suffer a bit because they pay extra, the instructors receiving the travel stipends benefit a

lot. Their knowledge grows, their career prospects improve, and in sum, they benefit so much that it

entirely outweighs the harm done to the undergrads. As long as this value—the greatest total good—

frames the assessment of kickback textbooks, the way is clear for Tech or Alabama to continue the

practice. It’s even recommendable.

The final ground on which an ethical argument can be refuted is the reasoning. Here, the facts are

accepted, as well as the value that universities are duty bound to serve the interests of the tuition-paying

undergraduate students since that’s the commitment they make on their web pages. What can still be

debated, however, is the extent to which those students may actually be benefitted by customizing

textbooks. Looking at the Wall Street Journal article, several partially developed arguments are presented

on this front. For example, at Alabama, part of the money collected from the customized texts underwrites

teaching awards, and that, presumably, motivates instructors to perform better in the classroom, which

ends up serving the students’ educational interests. Similarly, at Virginia Tech, part of the revenue is

apportioned to bring in guest speakers, which should advance the undergraduate educational cause. The

broader argument is that while it’s true that the students are paying more for their books than peers at

other universities, the sequence of reasoning doesn’t necessarily lead from that fact to the conclusion that

there’s a reproachable conflict of interest. It can also reach the verdict that students’ educational

experience is improved; instead of a conflict of interest, there’s an elevated commitment to student

welfare inherent in the kickback practice.

Conclusion. There’s no irrefutable answer to the question about whether universities ought to get involved

in kickback textbooks. What is clear, however, is that there’s a difference between responding to them by

asserting that something doesn’t smell right, and responding by uniting facts, values, and reasoning to

produce a substantial ethical argument.

K E Y T A K E A W A Y S

 Business ethics deals with values, facts, and arguments.

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 Well-reasoned arguments, by reason of their clarity, invite counterarguments.

R E V I E W Q U E S T I O N S

1. What is the difference between brainwashing and an argument?

2. What does it mean to dispute an argument on the basis of the facts?

3. What does it mean to dispute an argument on the basis of the values?

4. What does it mean to dispute an argument on the basis of the reasoning?

[1] John Hechinger, “As Textbooks Go ‘Custom,’ Students Pay: Colleges Receive Royalties for School-Specific

Editions; Barrier to Secondhand Sales,” Wall Street Journal, July 10, 2008, accessed May 11,

2011,http://online.wsj.com/article/SB121565135185141235.html.

[2] John Hechinger, “As Textbooks Go ‘Custom,’ Students Pay: Colleges Receive Royalties for School-Specific

Editions; Barrier to Secondhand Sales,” Wall Street Journal, July 10, 2008, accessed May 11,

2011,http://online.wsj.com/article/SB121565135185141235.html.

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1.2 The Place of Business Ethics

L E A R N I N G O B J E C T I V E S

1. Distinguish the place of business ethics within the larger field of decision making.

2. Sketch the historical development of business ethics as a coherent discipline.

The Boundaries and History of Business Ethics

Though both economic life and ethics are as old as history, business ethics as a formal area of study is

relatively new. Delineating the specific place of today’s business ethics involves

 distinguishing morality, ethics, and meta-ethics;

 dividing normative from descriptive ethics;

 comparing ethics against other forms of decision making;

 sketching some inflection points in the histories of ethics and business ethics.

Morality, Ethics, and Meta-ethics: What’s the Difference?

The back and forth of debates about kickback textbooks occurs on one of the three distinct levels of

consideration about right and wrong. Morals occupy the lowest level; they’re the direct rules we ought to

follow. Two of the most common moral dictates are don’t lie and don’t steal. Generally, the question to ask

about a moral directive is whether it was obeyed. Specifically in the case of university textbooks, the

debate about whether customized textbooks are a good idea isn’t morality. It’s not because morality

doesn’t involve debates. Morality only involves specific guidelines that should be followed; it only begins

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when someone walks into a school bookstore, locates a book needed for a class, strips out the little

magnetic tag hidden in the spine, and heads for the exit.

Above all morality there’s the broader question about exactly what specific rules should be instituted and

followed. Answering this question is ethics. Ethics is the morality factory, the production of guidelines

that later may be obeyed or violated. It’s not clear today, for example, whether there should be moral rule

prohibiting kickback textbooks. There are good arguments for the prohibition (universities are betraying

their duty to serve students’ interests) and good arguments against (schools are finding innovative sources

of revenue that can be put to good use). For that reason, it’s perfectly legitimate for someone like Ann

Marie Wagoner to stand up at the University of Alabama and decry the practice as wrong. But she’d be

going too far if she accused university administrators of being thieves or immoral. They’re not; they’re on

the other side of an ethical conflict, not a moral one.

Above both morality and ethics there are debates about meta-ethics. These are the most abstract and

theoretical discussions surrounding right and wrong. The questions asked on this level include the

following: Where do ethics come from? Why do we have ethical and moral categories in the first place? To

whom do the rules apply? Babies, for example, steal from each other all the time and no one accuses them

of being immoral or insufficiently ethical. Why is that? Or putting the same question in the longer terms

of human history, at some point somewhere in the past someone must have had a light bulb turn on in

their mind and asked, “Wait, is stealing wrong?” How and why, those interested in meta-ethics ask, did

that happen? Some believe that morality is transcendent in nature—that the rules of right and wrong

come from beyond you and me and that our only job is to receive, learn, and obey them. Divine command

theory, for example, understands earthly morality as a reflection of God. Others postulate that ethics is

very human and social in nature—that it’s something we invented to help us live together in communities.

Others believe there’s something deeply personal in it. When I look at another individual I see in the

depth of their difference from myself a requirement to respect that other person and his or her

uniqueness, and from there, ethics and morality unwind. These kinds of meta-ethical questions, finally,

are customarily studied in philosophy departments.

Conclusion. Morality is the rules, ethics is the making of rules, and meta-ethics concerns the origin of the

entire discussion. In common conversation, the words morality and ethics often overlap. It’s hard to

change the way people talk and, in a practical field like business ethics, fostering the skill of debating

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arguments is more important than being a stickler for words, but it’s always possible to keep in mind that,

strictly speaking, morality and ethics hold distinct meanings.

What’s the Difference between Normative Ethics and Descriptive Ethics?

Business ethics is normative, which means it concerns how people ought to act. Descriptive ethics depicts

how people actually are acting.

At the University of Alabama, Virginia Tech, and anywhere kickback textbooks are being sold, there are

probably a few students who check their bank accounts, find that the number is low, and decide to mount

their own kickback scheme: refund the entire textbook cost to themselves by sneaking a copy out of the

store. Trying to make a decision about whether that’s justified—does economic necessity license theft in

some cases?—is normative ethics. By contrast, investigating to determine the exact number of students

walking out with free books is descriptive. So too is tallying the reasons for the theft: How many steal

because they don’t have the money to pay? How many accuse the university of acting dishonestly in the

first place and say that licenses theft? How many question the entire idea of private property?

The fields of descriptive ethics are many and varied. Historians trace the way penalties imposed for theft

have changed over time. Anthropologists look at the way different cultures respond to thievery.

Sociologists study the way publications, including Abbie Hoffman’s incendiary book titled Steal This

Book, have changed public attitudes about the ethics of theft. Psychologists are curious about the

subconscious forces motivating criminals. Economists ask whether there’s a correlation between

individual wealth and the kind of moral rules subscribed to. None of this depends on the question about

whether stealing may actually be justifiable, but all of it depends on stealing actually happening.

Ethics versus Other Forms of Decision

When students stand in the bookstore flipping through the pages of a budget buster, it’s going to cross a

few minds to stick it in the backpack and do a runner. Should they? Clear-headed ethical reflection may

provide an answer to the question, but that’s not the only way we make decisions in the world. Even in the

face of screaming ethical issues, it’s perfectly possible and frequently reasonable to make choices based on

other factors. They include:

 The law

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 Prudence (practicality)

 Religion

 Authority figures

 Peer pressure

 Custom

 Conscience

When the temptation is there, one way to decide whether to steal a book is legal: if the law says I can’t, I

won’t. Frequently, legal prohibitions overlap with commonly accepted moral rules: few legislators want to

sponsor laws that most believe to be unjust. Still, there are unjust laws. Think of downloading a text (or

music, or a video) from the web. One day the downloading may be perfectly legal and the next, after a bill

is passed by a legislature, it’s illegal. So the law reverses, but there’s no reason to think the ethics—the

values and arguments guiding decisions about downloading—changed in that short time. If the ethics

didn’t change, at least one of the two laws must be ethically wrong. That means any necessary connection

between ethics and the law is broken. Even so, there are clear advantages to making decisions based on

the law. Besides the obvious one that it’ll keep you out of jail, legal rules are frequently cleaner and more

direct than ethical determinations, and that clarity may provide justification for approving (or

disapproving) actions with legal dictates instead of ethical ones. The reality remains, however, that the

two ways of deciding are as distinct as their mechanisms of determination. The law results from the votes

of legislators, the interpretations of judges, and the understanding of a policeman on the scene. Ethical

conclusions result from applied values and arguments.

Religion may also provide a solution to the question about textbook theft. The Ten Commandments, for

example, provide clear guidance. Like the law, most mainstream religious dictates overlap with generally

accepted ethical views, but that doesn’t change the fact that the rules of religion trace back to beliefs and

faith, while ethics goes back to arguments.

Prudence, in the sense of practical concern for your own well-being, may also weigh in and finally guide a

decision. With respect to stealing, regardless of what you may believe about ethics or law or religion, the

possibility of going to jail strongly motivates most people to pay for what they carry out of stores. If that’s

the motivation determining what’s done, then personal comfort and welfare are guiding the decision more

than sweeping ethical arguments.

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Authority figures may be relied on to make decisions: instead of asking whether it’s right to steal a book,

someone may ask themselves, “What would my parents say I should do? Or the soccer coach? Or a movie

star? Or the president?” While it’s not clear how great the overlap is between decisions based on authority

and those coming from ethics, it is certain that following authority implies respecting the experience and

judgment of others, while depending on ethics means relying on your own careful thinking and

determinations.

Urges to conformity and peer pressure also guide decisions. As depicted by the startling and funny Asch

experiments (see Video Clip 1.1), most of us palpably fear being labeled a deviant or just differing from

those around us. So powerful is the attraction of conformity that we’ll deny things clearly seen with our

own eyes before being forced to stand out as distinct from everyone else.

Custom, tradition, and habit all also guide decisions. If you’re standing in the bookstore and you’ve never

stolen a thing in your life, the possibility of appropriating the text may not even occur to you or, if it does,

may seem prohibitively strange. The great advantage of custom or tradition or just doing what we’ve

always done is that it lets us take action without thinking. Without that ability for thoughtlessness, we’d

be paralyzed. No one would make it out of the house in the morning: the entire day would be spent

wondering about the meaning of life and so on. Habits—and the decisions flowing from them—allow us to

get on with things. Ethical decisions, by contrast, tend to slow us down. In exchange, we receive the

assurance that we actually believe in what we’re doing, but in practical terms, no one’s decisions can be

ethically justified all the time.

Finally, the conscience may tilt decisions in one direction or another. This is the gut feeling we have about

whether swiping the textbook is the way to go, coupled with the expectation that the wrong decision will

leave us remorseful, suffering palpable regret about choosing to do what we did. Conscience,

fundamentally, is a feeling; it starts as an intuition and ends as a tugging, almost sickening sensation in

the stomach. As opposed to those private sensations, ethics starts from facts and ends with a reasoned

argument that can be publicly displayed and compared with the arguments others present. It’s not clear,

even to experts who study the subject, exactly where the conscience comes from, how we develop it, and

what, if any, limits it should place on our actions. Could, for example, a society come into existence where

people stole all the time and the decision to not shoplift a textbook carries with it the pang of remorse? It’s

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hard to know for sure. It’s clear, however, that ethics is fundamentally social: it’s about right and wrong as

those words emerge from real debates, not inner feelings.

History and Ethics

Conflicts, along with everything necessary to approach them ethically (mainly the ability to generate and

articulate reasoned thoughts), are as old as the first time someone was tempted to take something from

another. For that reason, there’s no strict historical advance to the study: there’s no reason to confidently

assert that the way we do ethics today is superior to the way we did it in the past. In that way, ethics isn’t

like the physical sciences where we can at least suspect that knowledge of the world yields technology

allowing more understanding, which would’ve been impossible to attain earlier on. There appears to be, in

other words, marching progress in science. Ethics doesn’t have that. Still, a number of critical historical

moments in ethics’ history can be spotted.

In ancient Greece, Plato presented the theory that we could attain a general knowledge of justice that

would allow a clear resolution to every specific ethical dilemma. He meant something like this: Most of us

know what a chair is, but it’s hard to pin down. Is something a chair if it has four legs? No, beds have four

legs and some chairs (barstools) have only three. Is it a chair if you sit on it? No, that would make the

porch steps in front of a house a chair. Nonetheless, because we have the general idea of a chair in our

mind, we can enter just about any room in any home and know immediately where we should sit. What

Plato proposed is that justice works like that. We have—or at least we can work toward getting—a general

idea of right and wrong, and when we have the idea, we can walk into a concrete situation and correctly

judge what the right course of action is.

Moving this over to the case of Ann Marie Wagoner, the University of Alabama student who’s outraged by

her university’s kickback textbooks, she may feel tempted, standing there in the bookstore, to make off

with a copy. The answer to the question of whether she ought to do that will be answered by the general

sense of justice she’s been able to develop and clarify in her mind.

In the seventeenth and eighteenth centuries, a distinct idea of fundamental ethics took hold: natural

rights. The proposal here is that individuals are naturally and undeniably endowed with rights to their

own lives, their freedom, and to pursue happiness as they see fit. As opposed to the notion that certain

acts are firmly right or wrong, proponents of this theory—including John Locke and framers of the new

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American nation—proposed that individuals may sort things out as they please as long as their decisions

and actions don’t interfere with the right of others to do the same. Frequently understood as a theory of

freedom maximization, the proposition is that your freedom is only limited by the freedoms others

possess.

For Wagoner, this way of understanding right and wrong provides little immediate hope for changing

textbook practices at the University of Alabama. It’s difficult to see how the university’s decision to assign

a certain book at a certain price interferes with Wagoner’s freedom. She can always choose to not

purchase the book, to buy one of the standard versions at Amazon, or to drop the class. What she

probably can’t justify choosing, within this theory, is responding to the kickback textbooks by stealing a

copy. Were she to do that, it would violate another’s freedom, in this case, the right of the university (in

agreement with a publisher) to offer a product for sale at a price they determine.

A third important historical direction in the history of ethics originated with the proposal that what you

do doesn’t matter so much as the effects of what you do. Right and wrong are found in the consequences

following an action, not in the action itself. In the 1800s John Stuart Mill and others advocated the idea

that any act benefitting the general welfare was recommendable and ethically respectable.

Correspondingly, any act harming a community’s general happiness should be avoided. Decisions

about good or bad, that means, don’t focus on what happens now but what comes later, and they’re not

about the one person making the decision but the consequences as they envelop a larger community.

For someone like Wagoner who’s angry about the kickback money hidden in her book costs, this

consequence-centered theory opens the door to a dramatic action. She may decide to steal a book from the

bookstore and, after alerting a reporter from the student newspaper of her plan, promptly turn herself

into the authorities as a form of protest. “I stole this book,” she could say, “but that’s nothing compared

with the theft happening every day on this campus by our university.” This plan of action may work out—

or maybe not. But in terms of ethics, the focus should be on the theft’s results, not the fact that she

sneaked a book past security. The ethical verdict here is not about whether robbery is right or wrong but

whether the protest stunt will ultimately improve university life. If it does, we can say that the original

theft was good.

Finally, ethics is like most fields of study in that it has been accompanied from the beginning by skeptics,

by people suspecting that either there is no real right and wrong or, even if there is, we’ll never have much

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luck figuring out the difference. The twentieth century has been influenced by Friedrich Nietzsche’s

affirmation that moral codes (and everything else, actually) are just interpretations of reality that may be

accepted now, but there’s no guarantee things will remain that way tomorrow. Is stealing a textbook right

or wrong? According to this view, the answer always is, “It depends.” It depends on the circumstances, on

the people involved and how well they can convince others to accept one or another verdict. In practical

terms, this view translates into a theory of cultural or contextual relativism. What’s right and wrong only

reflects what a particular person or community decides to believe at a certain moment, and little more.

The Historical Development of Business Ethics

The long philosophical tradition of ethical thought contains the subfield of business ethics. Business

ethics, in turn, divides between ethics practiced by people who happen to be in business and business

ethics as a coherent and well-defined academic pursuit.

People in business, like everyone else, have ethical dimensions to their lives. For example, the company

W. R. Grace was portrayed in the John Travolta movie A Civil Action as a model of bad corporate

behavior. [1]

What not so many people know, however, is that the corporation’s founder, the man named

W. R. Grace, came to America in the nineteenth century, found success, and dedicated a significant

percentage of his profits to a free school for immigrants that still operates today.

Even though questions stretch deep into the past about what responsibilities companies and their leaders

may have besides generating profits, the academic world began seriously concentrating on the subject

only very recently. The first full-scale professional conference on academic business ethics occurred in

1974 at the University of Kansas. A textbook was derived from the meeting, and courses began appearing

soon after at some schools.

By 1980 some form of a unified business ethics course was offered at many of the nation’s colleges and

universities.

Academic discussion of ethical issues in business was fostered by the appearance of several specialized

journals, and by the mid-1990s, the field had reached maturity. University classes were widespread,

allowing new people to enter the study easily. A core set of ideas, approaches, and debates had been

established as central to the subject, and professional societies and publications allowed for advanced

research in and intellectual growth of the field.

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The development of business ethics inside universities corresponded with increasing public awareness of

problems associated with modern economic activity, especially on environmental and financial fronts. In

the late 1970s, the calamity in the Love Canal neighborhood of Niagara Falls, New York, focused

international attention on questions about a company’s responsibility to those living in the surrounding

community and to the health of the natural world. The Love Canal’s infamy began when a chemical

company dumped tons of toxic waste into the ground before moving away. Despite the company’s

warnings about the land’s toxicity, residential development spread over the area. Birth defects and similar

maladies eventually devastated the families. Not long afterward and on the financial front, an insider

trading scandal involving the Wall Street titan Ivan Boesky made front pages, which led John Shad,

former head of the Securities and Exchange Commission, to donate $20 million to his business school

alma mater for the purpose of ethics education. Parallel (though usually more modest) money infusions

went to university philosophy departments. As a discipline, business ethics naturally bridges the two

divisions of study since the theory and tools for resolving ethical problems come from philosophy, but the

problems for solving belong to the real economic world.

Today, the most glamorous issues of business ethics involve massively powerful corporations and

swashbuckling financiers. Power and celebrity get people’s attention. Other, more tangible issues don’t

appear in so many headlines, but they’re just as important to study since they directly reach so many of

us: What kind of career is worth pursuing? Should I lie on my résumé? How important is money?

The Personal History of Ethics

Moving from academics to individual people, almost every adult does business ethics. Every time people

shake their exhausted heads in the morning, eye the clock, and decide whether they’ll go to work or just

pull up the covers, they’re making a decision about what values guide their economic reality. The way

ethics is done, however, changes from person to person and for all of us through our lives. There’s no

single history of ethics as individuals live it, but there’s a broad consensus that for many people, the

development of their ethical side progresses in a way not too far off from a general scheme proposed by

the psychologist Lawrence Kohlberg.

Pre-conventional behavior—displayed by children, but not only by them—is about people calculating to

get what they want efficiently: decisions are made in accordance with raw self-interest. That’s why many

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children really do behave better near the end of December. It’s not that they’ve suddenly been struck by

respect for others and the importance of social rules; they just figure they’ll get more and better presents.

Moving up through the conventional stages, the idea of what you’ll do separates from what you want.

First, there are immediate conventions that may pull against personal desires; they include standards and

pressures applied by family and friends. Next, more abstract conventions—the law and mass social

customs—assert influence.

Continuing upward, the critical stages of moral development go from recognizing abstract conventions to

actively and effectively comparing them. The study of business ethics belongs on this high level of

individual maturity. Value systems are held up side by side, and reasons are erected for selecting one over

another. This is the ethics of full adulthood; it requires good reasoning and experience in the real world.

Coextensive with the development of ideas about what we ought to do are notions about responsibility—

about justifiably blaming people for what they’ve done. Responsibility at the lowest level is physical. The

person who stole the book is responsible because they took it. More abstractly, responsibility attaches to

notions of causing others to do a wrong (enticing someone else to steal a book) and not doing something

that could have prevented a wrong (not acting to dissuade another who’s considering theft is, ultimately, a

way of acting). A mature assignment of responsibility is normally taken to require that the following

considerations hold:

 The person is able to understand right and wrong.

 The person acts to cause—or fails to act to prevent—a wrong.

 The person acts knowing what they’re doing.

 The person acts from their own free will.

K E Y T A K E A W A Y S

 Morality is the set of rules defining what ought to be done; ethics is the debate about what the rules

should be; meta-ethics investigates the origin of the entire field.

 Normative ethics concerns what should be done, not what is done.

 Ethics is only one of a number of ways of making decisions.

 Business ethics as an academic study is a recent development in the long history of ethical reflection.

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 With respect to individuals, the development of ethical thought may be studied, as well as notions of

responsibility.

R E V I E W Q U E S T I O N S

1. List two basic questions belonging to the field of morality.

2. List two basic questions belonging to the field of ethics.

3. What is one basic question belonging to the field of meta-ethics?

4. What is an example of normative ethics? And descriptive ethics?

5. Explain the difference between a decision based on ethics and one based on the law.

6. Explain the difference between a decision based on ethics and one based on religion.

7. List two factors explaining the recent development and growth of business ethics as a coherent discipline.

[1] Steven Zaillian (director), A Civil Action (New York: Scott Rudin, 1998), film.

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1.3 Is Business Ethics Necessary?

L E A R N I N G O B J E C T I V E S

1. Articulate two extreme views of business ethics.

2. Describe the sense in which business ethics is inevitable.

Two Extreme Views of the Business World

At the boundaries of the question about whether business ethics is necessary, there are conflicting and

extreme perceptions of the business world. In graphic terms, these are the views:

 Business needs policing because it’s a dirty enterprise featuring people who get ahead by being selfish

liars.

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 Successful businesses work well to enrich society, and business ethicists are interfering and annoying

scolds threatening to ruin our economic welfare.

A 1987 New York Times article titled “Suddenly, Business Schools Tackle Ethics” begins this way:

“Insider-trading scandals in the last year have badly tarnished the reputations of some of the nation’s

most prominent financial institutions. Nor has Wall Street been the only area engulfed in scandal;

manufacturers of products from contraceptives to military weapons have all come under public scrutiny

recently for questionable—if not actionable—behavior.” [1]

Slimy dealing verging on the illegal, the message is, stains the economic world from one end to the other.

A little further into the article, the author possibly gives away her deepest feelings about business when

she cracks that business ethics is “an oxymoron.”

What will business leaders—and anyone else for that matter—do when confronted with the accusation of

sliminess? Possibly embrace it—an attitude facilitated by an infamous article originally published in

the Harvard Business Review. In “Is Business Bluffing Ethical?” the author suggests businessmen and

women should double down on the strategy of getting ahead through deceit because if you’re in business,

then everyone already knows you’re a liar anyway. And since that’s common knowledge, taking liberties

with the truth doesn’t even count as lying: there’s no moral problem because that’s just the way the

business game is played. In the author’s words, “Falsehood ceases to be falsehood when it is understood

on all sides that the truth is not expected to be spoken—an exact description of bluffing in poker,

diplomacy, and business.” [2]

The basic argument is strong. Ethically, dishonesty stops being reproachable—it stops being an attempt to

mislead—when everyone knows that you’re not telling the truth. If it weren’t for that loophole, it’d be

difficult to enjoy movies. Spiderman swinging through New York City skyscrapers isn’t a lie, it’s just fun

because everyone agrees from the beginning that the truth doesn’t matter on the screen.

The problem with applying this logic to the world of commerce, however, is that the original agreement

isn’t there. It’s not true that in business everyone knows there’s lying and accepts it. In poker, presumably,

the players choosing to sit down at the table have familiarized themselves with the rules and techniques of

the game and, yes, do expect others to fake a good hand from time to time. It’s easy to show, however, that

the expectation doesn’t generally hold in office buildings, stores, showrooms, and sales pitches. Take, for

example, a car advertisement claiming a certain model has a higher resale value, has a lower sticker price,

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or can go from zero to sixty faster than its competition. People in the market for a new car take those

claims seriously. If they’re prudent, they’ll check just to make sure (an economic form of “trust but

verify”), but it’s pretty rare that someone sitting in front of the TV at home chuckles and calls the claim

absurd. In poker, on the other hand, if another player makes a comparable claim (“I have the highest hand

at the table!”), people just laugh and tell the guy to keep drinking. Poker isn’t like business.

The argument that bluffing—lying—in business is acceptable because everyone does it and everyone

knows everyone’s doing it doesn’t hold up. However, the fact that someone could seriously make the

argument (and get it published in the Harvard Business Review no less) certainly provides heavy

ammunition for those who believe that most high-level businesspeople—like those who read the Harvard

Business Review—should have a hard time looking at themselves in the mirror in the morning.

Opposing the view that business life is corrupt and needs serious ethical policing, there’s the view that

economic enterprises provide wealth for our society while correcting their own excesses and problems

internally. How does the correction work? Through the marketplace. The pressures of demanding

consumers force companies into reputable behavior. If a car manufacturer lies about its product, there

may be a brief uptick in sales, but eventually people will figure out what’s going on, spread the word at the

water cooler and on Facebook, and in the end the company’s sales will collapse. Similarly, bosses that

abuse and mistreat subordinates will soon find that no one wants to work for them. Workers who cheat on

expense reports or pocket money from the till will eventually get caught and fired. Of course it must be

admitted that some people sometimes do get away with something, but over the long run, the forces of the

economic world inexorably correct abuses.

If this vision of business reality is correct, then adding another layer of academic ethics onto what’s

already going on in the real world isn’t necessary. More, those who insist on standing outside corporate

offices and factory buildings preaching the need for oversight and remedial classes in morality become

annoying nags. That’s especially true if the critics aren’t directly doing business themselves. If they’re

ensconced in university towers and gloomy libraries, there may even be a suspicion that what really drives

the call to ethics is a burning resentment of all the money Wall Street stars and captains of industry seem

to make, along with their flashy cars, palatial homes, and luxurious vacations.

An issue of the Cato Institute’s Policy Report from 2000 carries an article titled “Business Ethics Gone

Wrong.” It asserts that some proponents of business ethics aren’t only bothersome envious—their

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resentment-fueled scolding actually threatens our collective economic welfare. Business ethics, according

to the author, “is fundamentally antagonistic to capitalist enterprise, viewing both firm and manager as

social parasites in need of a strong reformative hand.” [3]

These reforms—burdensome regulations, prying investigations, and similar ethical interventions—

threaten to gum up the capitalist engine: “If the market economy and its cornerstone, the shareholder-

oriented firm, are in no danger of being dealt a decisive blow, they at least risk death by a thousand

cuts.” [4]

There’s a problem with this perspective on the business world. Even if, for the sake of argument, it’s

acknowledged that economic forces effectively police commerce, that doesn’t mean business ethics is

unnecessary or a threat to the market economy. The opposite is the case: the view that the marketplace

solves most problems is an ethics. It’s a form of egoism, a theory to be developed in later chapters but with

values and rules that can be rapidly sketched here. What are most valued from this perspective is our

individual welfare and the freedom to pursue it without guilt or remorse. With that freedom, however,

comes a responsibility to acknowledge that others may be guided by the same rules and therefore we’re all

bound by the responsibility to look out for ourselves and actively protect our own interests since no one

will be doing it for us. This isn’t to confirm that all businesspeople are despicable liars, but it does mean

asserting that the collective force of self-interest produces an ethically respectable reality. Right and

wrong comes to be defined by the combined force of cautious, self-interested producers and consumers.

In the face of this argument defending a free-for-all economic reality where everyone is doing the best

they can for themselves while protecting against others doing the same, objections may be constructed. It

could be argued, for example, that the modern world is too complex for consumers to adequately protect

their own interests all the time. No matter how that issue gets resolved, however, the larger fact remains

that trusting in the marketplace is a reasonable and defensible ethical posture; it’s a commitment to a set

of values and facts and their combination in an argument affirming that the free market works to

effectively resolve its own problems.

Conclusion. It’s not true that doing business equals being deceitful, so it’s false to assert that business

ethics is necessary to cure the ills of commerce. It is true that the business world may be left to control its

own excesses through marketplace pressure, but that doesn’t mean business escapes ethics.

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Business Ethics Is Inevitable

Business ethics is not about scolding, moralizing, or telling people to be nice. Ethics doesn’t have to be

annoying or intrusive. On the other hand, it can’t just be dismissed altogether because ethics in business is

unavoidable. The values guiding our desires and aspirations are there whether they’re revealed or not.

They must be because no one can do anything without first wanting something. If you don’t have a goal,

something you’re trying to achieve or get, then you won’t have anything to do when you get out of bed in

the morning. Getting up in the morning and going, consequently, mean that you’ve already selected

something as desirable, valuable, and worth pursuing. And that’s doing ethics; it’s establishing values.

The only real and durable difference, therefore, between those who understand ethics and those who don’t

is that the former achieve a level of self-understanding about what they want: they’ve compared their

values with other possibilities and molded their actions to their decisions. The latter are doing the same

thing, just without fully realizing it. The question about whether ethics is necessary, finally, becomes a

false one. You can choose to not understand the ethics you’re doing (you can always drop this class), but

you can’t choose to not do ethics.

K E Y T A K E A W A Y S

 Views about the ethical nature of the business vary widely.

 Because ethics is the arrangement of values guiding our aspirations and actions, some form of ethics is

unavoidable for anyone acting in the economic world.

R E V I E W Q U E S T I O N S

1. Why might someone believe the business world needs exterior ethical monitoring and correction?

2. What is the argument that the business world can regulate itself, and why is that an ethics?

3. In your own words, why is business ethics unavoidable?

[1] Sandra Salmans, “Suddenly, Business Schools Tackle Ethics,” New York Times, August 2, 1987, accessed May 11,

2011, http://www.nytimes.com/1987/08/02/education/suddenly-business-schools-tackle-ethics.html.

[2] Albert Carr, “Is Business Bluffing Ethical?,” Harvard Business Review 46 (January–February, 1968), 143–53.

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[3] Alexei M. Marcoux, “Business Ethics Gone Wrong,” Cato Policy Report 22, no. 3 (May/June 2000), accessed May

11, 2011,http://www.cato.org/pubs/policy_report/v22n3/cpr-22n3.html.

[4] Alexei M. Marcoux, “Business Ethics Gone Wrong,” Cato Policy Report 22, no. 3 (May/June 2000), accessed May

11, 2011,http://www.cato.org/pubs/policy_report/v22n3/cpr-22n3.html.

1.4 Facebook and the Unavoidability of Business Ethics

L E A R N I N G O B J E C T I V E

1. Show how business ethics stretches beyond working life.

The Facebook Firing

Business ethics in some form is inescapable inside factories, office buildings, and other places where work

gets done. The application of business ethics principles and guidance doesn’t stop, though, when the

workday ends or outside the company door. Because our economic lives mingle so intimately with our

private existences, the decisions and reasoning shaping our laboring eventually shape our lives generally.

Business ethics, as the problems bedeviling Dawnmarie Souza show, provides a way to examine and make

sense of a large segment of our time, both on and off the job.

Souza’s problems started when the ambulance she worked on picked up a “17.” That’s code for a

psychiatric case. This particular 17, as it happened, wasn’t too crazy to form and submit a complaint about

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the treatment received from Souza. Since this was the second grievance the ambulance service had

received on Souza in only ten days, she sensed that she’d be getting a suspension. “Looks like,” she wrote

on her Facebook page later that day, “I’m getting some time off. Love how the company allows a 17 to be a

supervisor.” She also referred to her real supervisor with some choice four-letter words.

A number of coworkers responded to her post with their own supportive and agreeing comments.

Management responded by firing her.

The termination decision came easily to the ambulance service, American Medical Response of

Connecticut, since their policy explicitly prohibited employees from identifying or discussing the company

or other employees in the uncontrolled public forum that is the Internet. Around the water cooler, at

home, or during weekend parties, people can say what they like. Given the semi-permanent record that is

the web, however, and the ambulance service’s natural inclination to protect its public image, posting

there was out of bounds.

But, Souza responded, there’s no difference. If people can talk at the water cooler and parties, why can’t

they post on Facebook? She’s not claiming to speak for the company, she’s just venting with a keypad

instead of vocal chords.

The celebrity blogger and Facebook addict Perez Hilton came down on the company’s side: “We think

Dawnmarie should be fired, and we support the company’s decision to let her go. When you post things

online, it’s out there for the public to see, and it’s a sign of disloyalty and disrespect to deal with a work-

related grievance in such a manner.” [1]

The Reach of Business Ethics

When someone like Perez Hilton—a blogger most comfortable deriding celebrities’ bad hair days—finds

himself wrapped in a business ethics debate, you’ve got to figure the discipline is pretty much

unavoidable. Regardless, the Souza episode displays many of the ways business ethics connects with our

nonworking existence, whether we like it or not:

 It doesn’t sound like Souza displayed any great passion about her job. Maybe she really doesn’t care that

she got fired. Or maybe she cares but only because it means a lost paycheck. On the other hand, it may

just have been a bad day; it’s possible that she usually gets up in the morning eager to mount the

ambulance. It’s hard to know, but it’s certain that this—the decision about what we want to do with our

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professional lives—is business ethics. When choosing a job, what has value? The money it provides?

Satisfaction from helping others? Status? Or do you just want something that gives you the most free time

possible? There are no rights or wrong answers, but these are all ethical decisions tangling your personal

and professional lives together.

 The mix between the personal and professional on the question of one’s job tends to link tighter as people

get older. Many of us define who we and others are through work. When finding out about someone new,

the question—embraced by some and dreaded by others—inevitably comes up. When meeting a woman at

a party, when being sent on a blind date, or when discussing old high school friends or the guy who just

moved into the next-door apartment, the question hums just below the surface, and it’s never long until

someone comes out and asks. Of course, for collegians and young people working part-time jobs, it

doesn’t matter so much because everyone knows that where you work isn’t where you’ll end up working.

Once someone hits the mid-twenties, though, the question “what do you do?” starts to press and it won’t

let up.

 Perez Hilton wrote that Souza displayed disloyalty to her company when she trashed the management on

Facebook. The following questions are raised: What is loyalty? What is it worth? When should you feel it?

When do you have a right to demand it from others? Is there any difference among loyalty to the

company, to family, and to friends?

 One of Hilton’s readers posted a pithy response to Hilton in the web page’s comments section: “I bet if she

were gay, and did the same exact thing, you would be singing a different tune!” Perez Hilton, it’s widely

known, is about as exuberantly gay as they come. As it happens, in his line of work that orientation isn’t

professionally harmful. For others, however, the revelation may be career damaging. Hilton, in fact, is

despised by some in Hollywood for his habit of outing gay celebrities, people who hide part of themselves

in the name of furthering their career. The business ethics question here is also a life one. Would you hide

who you are to facilitate things at work? Should you? Doesn’t everyone do that to some extent and in some

ways?

 Another reader posted this comment: “In the US, your employer owns you. I mean they can make you piss

in a cup to check and see what you did over the weekend.” Should employers be able to change what you

do over the weekend?

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 A number of readers defended Souza by upholding the right to free speech—she should be able to say

whatever she wants wherever she wants without fear of retribution. In response to those assertions, this

was posted, “Of course we have freedom of speech. Employers also have the freedom to employ whoever

they wish. Your decision is whether whatever is on your mind is more important than your job.” Does

freedom of speech—or any other basic liberty—end or get conditioned when the workday begins?

 One commenter wrote, “I’m going to have to agree with the company on this one. An employer expects

proper business demeanor even while off the clock.” What is “proper demeanor”? Who decides? On the

basis of what?

 Many people spend eight (or more) hours a day on the job. There’s no shortage of women who see their

boss more than their husband, of men who remember the birthday of the guy in the next cubicle before

their own child’s. Parties tend to include workmates; companies invite clients to ball games. The sheer

hours spent at work, along with the large overlaps between professional and social relationships, make

separating the ethics of the office and the home nearly impossible.

 This comment is aimed right at Perez Hilton and his Internet gossip column, which wins few points for

checking and confirming claims but definitely gets the juicy and embarrassing rumors out about the

private lives of celebrities: “Are you insane? All you did for God knows how long is put nasty stuff up

about people for the public to see as a sign of disloyalty and disrespect.” Assuming that’s a reasonable

depiction of Hilton’s work, the question his career raises is: what are you willing to do to the lives of

others to get yourself ahead at work?

Underlining all these questions is a distinction that’s easy to make in theory but difficult to maintain in

real life. It’s one betweeninstitutional business ethics and personal business ethics. Institutional ethics in

business deals with large questions in generic and anonymous terms. The rules and discussions apply to

most organizations and to individuals who could be anyone. Should companies be allowed to pollute the

air? What counts as a firing offense? The personal level, by contrast, fills with questions for specific people

enmeshed in the details of their particular lives. If Perez Hilton has gotten rich dishing dirt on others, is

he allowed to assert that others must treat their employers respectfully?

K E Y T A K E A W A Y

 The questions pursued by business ethics cross back and forth between professional and personal lives.

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R E V I E W Q U E S T I O N S

1. What are two reasons business ethics decisions tend to affect lives outside work?

2. What are two ways business ethics decisions may affect lives outside work?

[1] “Facebook-Related Firing Sparks Legal Drama!,” PerezHilton.com (blog), accessed May 11,

2011, http://perezhilton.com/2010-11-09-woman-fired-over-comments- she-made-about-her-boss-on-facebook-

brings-about-court-case#respond.

1.5 Overview of The Business Ethics Workshop

This textbook is organized into three clusters of chapters. The first group develops and explains the main

theories guiding thought in business ethics. The goals are to clarify the theoretical tools that may be used

to make decisions and to display how arguments can be built in favor of one stance and against others.

The questions driving the chapters include the following:

 Are there fundamental rules for action that directly tell us what we ought to do? If so, are the imperatives

very specific, including dictates like “don’t lie”? Or are they more flexible, more like rules broadly

requiring fairness and beneficence to others?

 Are fundamental rights—especially the conviction that we’re all free to pursue the destinies we choose—

the key to thinking about ethics? If we have these rights, what happens when my free pursuit of happiness

conflicts with yours?

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 Could it be that what we do doesn’t matter so much as the effects of what’s done? How can a framework

for decisions be constructed around the idea that we ought to undertake whatever action is necessary

(even lying or stealing) in order to bring about a positive end, something like the greater happiness of

society overall?

 To what extent are perspectives on right and wrong only expressions of the particular culture we live in?

Does it makes sense to say that certain acts—say bribery—are OK in some countries but wrong in others?

The second cluster of chapters investigates business ethics on the level of the individual. The goal is to

show how the tools of ethical reasoning may be applied to personal decisions made in connection with our

nine-to-five lives. The questions driving the chapters include the following:

 What values come into play when a career path is selected?

 Can I justify lying on my résumé? How far am I willing to go to get a raise or promotion?

 Besides a paycheck, what benefits will I seek at work? Money from a kickback? An office romance?

 What do I owe my employer? Is there loyalty in business, or is there nothing more than the money I’m

paid and the duties I’m assigned according to my work contract?

 Do I have an obligation to report on someone else doing something I think is wrong?

 If people work for me, what responsibilities do I have toward them inside and outside the office?

 What values govern the way I hire, promote, and fire workers?

The third cluster of chapters considers institutional business ethics. These are general and sweeping

issues typically involving corporations, the work environments they promote, and the actions they take in

the economic world. Guiding questions include the following:

 What counts as condemnable discrimination in the workplace, and what remedies ought to be tried?

 Which attitudes, requirements, and restrictions should attach to sex and drugs in the workplace?

 Should there be limits to marketing techniques and strategies? Is there anything wrong with creating

consumer needs? What relationships should corporations form with their consumers?

 Do corporations hold ethical responsibilities to the larger community in which they operate, to the people

who aren’t employees or consumers but live nearby?

 Is there a corporate responsibility to defend the planet’s environmental health?

 Should the economic world be structured to produce individually successful stars or to protect the welfare

of laboring collectives?

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1.6 Case Studies

Gray Matters

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To foster ethical discussion and understanding in the workplace, the Lockheed Martin Company

developed a quiz for employees called “Gray Matters.” The quiz is multiple choices, with a range of points

awarded (or subtracted) depending on the response. Subsequently, the approach has been adopted by a

wide range of corporations. Here’s a typical question matched with its possible answers and the

corresponding points:

Six months after you hired an assistant accountant who has been working competently and

responsibly, you learn that she departed from the truth on her employment application: she

claimed she had a college degree when she didn’t. You’re her manager; what should you do?

1. Nothing because she’s doing her job just fine. (–10 points)

2. Bring the issue to the human resources department to determine exactly how company policy

determines the situation should be handled. (10 points)

3. Fire her for lying. (5 points)

4. Carefully weigh her work performance, her length of service, and her potential benefit to the

company before informing anyone of what happened or making any recommendations. (0

points)

Q U E S T I O N S

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e r em

ov ed

du e t

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s.

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1. The three principle components of business ethics are facts, values, and arguments. What are the facts

pertinent to an ethical evaluation of this case? Is there any information not contained in the question that

you’d like to have before making a decision about what should be done?

2. From the facts and information provided, can you sketch a set of values and chain of reasoning justifying

the answer that the quiz’s original authors sanctioned as the right one? (Leave the decision in the hands of

the HR department and existing company policy.)

3. You get some points for C (firing her). What values and reasoning may lead to that determination?

4. According to the quiz authors, the worst answer is A. Maybe they’re wrong, though. What values and

reasoning may lead to the conclusion that doing “nothing because she’s doing her job just fine” is an

excellent response?

5. One of the most important questions about a situation’s facts is “who’s involved?”

o Would it be reasonable to say that, ethically, this is an issue just between you and the woman who

you hired after she lied on her résumé?

o If you expand the answer about who’s involved to include other workmates at the company, as

well as the company’s clients and shareholders, does that change the ethical perspective you have

on what should be done with the lying (but capable) coworker?

6. What’s the difference between morality and ethics?

o Would you categorize response B (bring the issue to HR to determine exactly how company policy

determines the situation should be handled) as leading to a decision more based on morality or

more based on ethics? Explain.

o Would you categorize response D (carefully weigh her work performance, her length of service,

and her potential benefit to the company before informing anyone of what happened or making

any recommendations) as leading to a decision more based on morality or ethics? Explain.

Who made your iPhone?

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Connie Guglielmo, a reporter for Bloomberg news services, begins an article on Apple this way: “Apple

Inc. said three of its suppliers hired 11 underage workers to help build the iPhone, iPod and Macintosh

computer last year, a violation it uncovered as part of its onsite audit of 102 factories.” [1]

Her story adds details. The underage workers were fifteen in places where the minimum legal age for

employment is sixteen. She wasn’t able to discover the specific countries, but learned the infractions

occurred in one or more of the following: China, Taiwan, Thailand, Malaysia, Singapore, South Korea, the

Czech Republic, and the Philippines.

Following the discovery, the employees were released, and disciplinary action was taken against a number

of the foreign suppliers. In one case, Apple stopped contracting with the company entirely.

The story closes with this: “Apple raised $2.62 to $204.62 yesterday in Nasdaq Stock Market trading. The

shares more than doubled last year.”

Q U E S T I O N S

Im age

re mo

ved du

e to co

pyr igh

t is sue

s.

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1. The ethical question is whether Apple ought to contract (through suppliers) fifteen-year-olds to work on

factory floors. Is the fact that the stock price has been zooming up a pertinent fact, or does it not affect

the ethics? Explain.

2. From the information given and reasonable assumptions about these factories and the living conditions of

people working inside them, sketch an ethical argument against Apple enforcing the age workplace rule.

What fundamental values underwrite the argument?

3. From the information given and reasonable assumptions about these factories and the living conditions of

people working inside them, sketch an argument in favor of Apple enforcing the age workplace rule. What

fundamental values underwrite the argument?

4. Within the context of the Apple situation, what’s the difference between making a decision in terms of the

law and in terms of ethics?

5. Assume that in the countries where fifteen-year-olds were working, it’s customary for children

even younger to earn an adult-type living.

o What is an advantage of following the local customs when making economic decisions like the one

confronting Apple?

o Does the custom of employing young workers in some countries change your ethical consideration

of the practice in those places? Why or why not?

6. Attributing responsibility—blaming another for doing wrong—requires that the following

conditions hold:

o The person is able to understand right and wrong.

o The person acts to cause (or fails to act to prevent) a wrong.

o The person acts knowing what they’re doing.

o The person acts from their own free will.

Assuming it’s unethical for fifteen-year-olds to work factory shifts making iPhones, who bears

responsibility for the wrong?

o Do the fifteen-year-olds bear some responsibility? Explain.

o Does Steve Jobs, the CEO of Apple? Explain.

o Are shareholders guilty? Explain.

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o Do people who use iPhones bear responsibility? Explain.

I Swear

Since 2006, students at the Columbia Business School have been required to pledge “I adhere to the

principles of truth, integrity, and respect. I will not lie, cheat, steal, or tolerate those who do.”

This is a substantial promise, but it doesn’t sound like it’ll create too many tremendous burdens or require

huge sacrifices.

A somewhat more demanding pledge solidified in 2010 when a group of business school students from

Columbia, Duke Fuqua, Harvard, MIT Sloan, NYU Stern, Rensselaer Lally, Thunderbird, UNC Kenan-

Flagler, and Yale met to formalize the following MBA Oath:

As a business leader I recognize my role in society.

 My purpose is to lead people and manage resources to create value that no single individual can

create alone.

 My decisions affect the well-being of individuals inside and outside my enterprise, today and

tomorrow.

Therefore, I promise that:

 I will manage my enterprise with loyalty and care, and will not advance my personal interests at

the expense of my enterprise or society.

Im age

re mo

ved du

e t o c

op yri

gh t is

sue s.

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 I will understand and uphold, in letter and spirit, the laws and contracts governing my conduct

and that of my enterprise.

 I will refrain from corruption, unfair competition, or business practices harmful to society.

 I will protect the human rights and dignity of all people affected by my enterprise, and I will

oppose discrimination and exploitation.

 I will protect the right of future generations to advance their standard of living and enjoy a

healthy planet.

 I will report the performance and risks of my enterprise accurately and honestly.

 I will invest in developing myself and others, helping the management profession continue to

advance and create sustainable and inclusive prosperity.

In exercising my professional duties according to these principles, I recognize that my behavior

must set an example of integrity, eliciting trust and esteem from those I serve. I will remain

accountable to my peers and to society for my actions and for upholding these standards. [2]

Q U E S T I O N S

1. The second introductory clause of the MBA Oath is “My decisions affect the well-being of individuals inside

and outside my enterprise, today and tomorrow.” [3]

What’s the difference between seeing this as a

positive ethical stand in favor of a broad social responsibility held by those in business, and seeing it as

arrogance?

2. Looking at the MBA Oath, can you list a set of values that are probably shared by those responsible for its

creation?

3. All this pledging and oathing suddenly popping up at business schools drew the attention of

the New York Times, and soon after, an article appeared: “A Promise to Be Ethical in an Era of

Immorality.” [4]

Many of the readers’ comments at the end are interesting. The commenter paulnyc

writes that “most students go to MBA programs to advance their careers and to earn more

money, pure and simple, and there is nothing wrong with it.” [5]

o What values underlie paulnyc’s perspective?

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o How is paulnyc’s vision different from the one espoused in the oath?

4. The commenter JerryNY wrote, “Greed IS good as long as it is paired with the spirit of fairness.

Virtually all of the major advances in science and technology were made with greed as one of the

motivating factors. Gugliemo [sic] Marconi, Alexander Graham Bell, Bill Gates, Henry Ford and

Steve Jobs would not have given us the life changing technological advances of our time were it

not for personal greed. Remove that element, and your class is destined for mediocrity.” [6]

Is it plausible to assert that JerryNY shares most of the values of those who wrote the MBA Oath,

it’s just that he sees a different business attitude as the best way to serve those values? If so,

explain. If not, why not?

5. Eric writes,

I would refuse to take that oath…on principle. The idea that an individual’s proper motive

should be to serve “the greater good” is highly questionable. This altruistic ethic is what

supported the collectivist of communism and National Socialism. If my life belongs first and

foremost to “the greater good,” it follows that the greatest virtue is to live as a slave. A

slave’s existence, after all, is devoted primarily for the benefit of his master. The master can

be a plantation owner or a King or an oligarchy or a society that demands your servitude.

The only oath I’d be willing to take is, “I swear, by my life and my love of it, that I will never

live for the sake of another man, nor ask another man to live for mine.” [7]

In your own words, contrast the values the MBA Oath supporters espouse with the values the

commenter Eric espouses.

6. The commenter Clyde Wynant is skeptical. He writes this about those who take the MBA Oath:

“Call me hyper-cynical, but I can’t help wondering if a lot of these kids aren’t hoping that having

this ‘pledge’ on their résumé might help them look good.” [8]

Is it unethical to take the pledge without expecting to adhere to it simply because you think it will

help in your job search, or is that strategy just a different kind of ethics? Explain.

7. The commenter Mikhail is skeptical. He writes, “Give me a break…With the next upswing of the

economy, these leeches will be sucking the lifeblood out of our collective economies like the

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champions they truly are!!! Yes, perhaps opportunistic parasites every last one of them—but

really, it’s not their fault—they’re just programmed that way.” [9]

When he says business school students are programmed, what does he mean? If someone is

programmed to be an opportunistic parasite in business, can we blame them for what they do? If

so, how? If not, who should be blamed?

8. The commenter as is skeptical. He writes, “Don’t make me laugh. If they are so concerned about

the ‘greater good,’ go into teaching and nursing.” [10]

Assume the MBA Oath does stress the importance of the greater good, and you too are going into

the economic world with that as a privileged value. How could you respond to the argument that

you really should be doing nursing or something more obviously serving the general good?

9. According to the Times, B-schoolers aren’t lining up for the MBA Oath: only about 20 percent take the

pledge. How could you convince the other 80 percent to sign on?

I.M.P. (It’s My Party)

“Look at them!” he said, his eyes dancing. “That’s what it’s all about, the way the people feel. It’s

not about the sellout performances and the caliber of the bands that appear here. It’s about the

people who buy tickets, having a good time.” [11]

Ima ge r

emo ved

due to c

opy righ

t iss ues.

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That’s Seth Hurwitz quoted in the Washington Post, talking about his 9:30 Club, a small venue playing

over-the-hill bands on the way down, and fresh acts scratching their way up.

The story’s curious detail is that even though Hurwitz calls his company I.M.P. (It’s My Party), he doesn’t

spend much time at his club. In fact, he’s almost never there. Part of the reason is that his workday begins

at 6 a.m., so he’s actually back in bed preparing for the next day before his enterprise gets going in earnest

each night. His job is straightforward: sitting in the second floor office of his suburban DC home, he

scrutinizes the music publications and statistics, probing for bands that people want to see and that won’t

charge too much to appear. He told the Post that he won’t book an act as a favor, and he won’t flatter a

group into playing his club to keep them away from the competition by overpaying them. “I don’t

subscribe,” he says, “to doing shows that will lose money.”

Hurwitz has been connected with music in one way or another for almost as long as he can remember.

The Post relates some of his early memories:

He rigged a system to broadcast radio from his basement to his parents and brothers in the living

room. “I used to bring my singles into class and play them,” Hurwitz said. When he was 16, he

decided he wanted to be a deejay and got his chance when alternative rock station WHFS gave

him a spot. “It was from 7:45 to 8—fifteen minutes,” he said, laughing. “But that was okay

because I wanted to be on the radio, and I had my own show, as a high school student.” He said

he was fired “for being too progressive.” [12]

It’s a long way from getting fired for playing music too obscure for alternative radio to where Hurwitz is

now: putting on concerts by bands selected because they’ll make money.

Q U E S T I O N S

1. Hurwitz is brutally honest about the fact that he’ll only contract bands capable of turning a profit.

When he was younger and a deejay, he insisted on playing the music he judged best no matter

how many people turned off the radio when his show came on (an attitude that cost him the job).

o What, if anything, is Hurwitz the older concert promoter compromising to get ahead? Is there an

ethical objection that could be raised here? If so, what? If not, why not?

Saylor URL: http://www.saylor.org/books Saylor.org 44

o When Hurwitz was a deejay, he played records that led people to change the station. Then the

station changed him. Is this an example of business regulating itself? Is there an ethical side to

this, or is it just the way money works? Explain.

o From the information given, would you judge that Hurwitz is successful in business? Why or why

not?

o Are all these questions part of institutional business ethics or personal business ethics? Explain.

2. Hurwitz says that he doesn’t book bands as favors. Presumably at least some of the favors he’s

talking about would be to friends.

o Do people who run their own company have an ethical responsibility to separate friends from

business?

3. One nice thing about Hurwitz working upstairs in his own house is that he can show up for work in the

morning in his pajamas. Should all places of business be like that—with people free to wear whatever they

want for work? Explain your answer from an ethical perspective.

4. Most of Hurwitz’s shows are on weeknights. Some concertgoers may have such a good time that

they can’t make it in to work the next day.

o If you go to a concert on a Wednesday and are too hung over to make it to work on Thursday,

what should you tell your boss on Friday? That you were hung over? That your car broke down?

Something else? Justify.

o Should Hurwitz accept some responsibility and blame for absent employees? Explain.

[1] Connie Guglielmo, “Apple Says Children Were Used to Build iPhone, iPod (Update1),” Bloomberg,

February 27, 2010, accessed May 11, 2011,

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aiEeeQNHkrOY.

[2] “The MBA Oath,” MBA Oath, accessed May 11, 2011, http://mbaoath.org/about/the-mba-oath.

[3] “The MBA Oath,” MBA Oath, accessed May 11, 2011, http://mbaoath.org/about/the-mba-oath.

[4] Leslie Wayne, “A Promise to Be Ethical in an Era of Immorality,” New York Times, May 29, 2009,

accessed May 11, 2011, http://www.nytimes.com/2009/05/30/business/30oath.html.

Saylor URL: http://www.saylor.org/books Saylor.org 45

[5] paulnyc, May 30, 2009 (10:58 a.m.), comment on Leslie Wayne, “A Promise to Be Ethical in an Era of

Immorality,” New York Times, May 29, 2009, accessed May 11, 2011,

http://community.nytimes.com/comments/www.nytimes.com/2009/05/30/business/30oath.html?sort

=oldest.

[6] JerryNY, May 30, 2009 (10:51 a.m.), comment on Leslie Wayne, “A Promise to Be Ethical in an Era of

Immorality,” New York Times, May 29, 2009, accessed May 11, 2011,

http://community.nytimes.com/comments/www.nytimes.com/2009/05/30/business/30oath.html?sort

=oldest.

[7] Eric, May 30, 2009 (10:35 a.m.), comment on Leslie Wayne, “A Promise to Be Ethical in an Era of

Immorality,” New York Times, May 29, 2009, accessed May 11, 2011,

http://community.nytimes.com/comments/www.nytimes.com/2009/05/30/business/30oath.html?sort

=oldest.

[8] Clyde Wynant, May 30, 2009 (10:55 a.m.), comment on Leslie Wayne, “A Promise to Be Ethical in an

Era of Immorality,” New York Times, May 29, 2009, accessed May 11, 2011,

http://community.nytimes.com/comments/www.nytimes.com/2009/05/30/business/30oath.html?sort

=oldest.

[9] Mikhail, May 30, 2009 (10:35 a.m.), comment on Leslie Wayne, “A Promise to Be Ethical in an Era of

Immorality,” New York Times, May 29, 2009, accessed May 11, 2011,

http://community.nytimes.com/comments/www.nytimes.com/2009/05/30/business/30oath.html?sort

=oldest.

[10] as, May 30, 2009 (10:35 a.m.), comment on Leslie Wayne, “A Promise to Be Ethical in an Era of

Immorality,” New York Times, May 29, 2009, accessed May 11, 2011,

http://community.nytimes.com/comments/www.nytimes.com/2009/05/30/business/30oath.html?sort

=oldest.

[11] Avis Thomas-Lester, “A Club Owner’s Mojo,” Washington Post, December 28, 2009, accessed May

11, 2011, http://views.washingtonpost.com/on-success/what-it-takes/2009/12/seth_hurwitz.html.

[12] Avis Thomas-Lester, “A Club Owner’s Mojo,” Washington Post, December 28, 2009, accessed May

11, 2011, http://views.washingtonpost.com/on-success/what-it-takes/2009/12/seth_hurwitz.html.

Corporate culture: The second ingredient in a world-class ethics and compliance program

A culture of ethics and compliance is at the core of a strong risk management program In a business environment where reputational threats lurk around every corner, a strong culture of ethics and compliance is the foundation of a robust risk management program. The lessons learned related to scandals and organizational crises that trace back to the early 2000s make one thing clear: without an ethical and compliant culture, organizations will always be at risk.

As a fundamental component of an effective ethics and compliance program, culture is now referenced by the U.S. Federal Sentencing Guidelines, which include expectations for organizations to promote an “organizational culture that encourages ethical conduct” and “compliance with the law.” Furthermore, the Organisation for Economic Co-operation and Development’s (OECD’s) Convention on Combating Bribery of Foreign Public Officials in International Business Transactions refers to the importance of a strong culture of organizational ethics. More and more, culture is moving from a lofty, “squishy” concept to something that should be defined, measured, and improved (see figure 1).

2

Third-party Compliance

Training and Communications

Case Management and Investigations

Continuous Improvement

Governance and Leadership

Employee Reporting

Risk Assessments

and Due Diligence

Standards, Policies, and Procedures

Testing and Monitoring

Culture of Ethics and

Compliance

Figure 1: Culture is the foundation The Deloitte Ethics and Compliance Framework recognizes that an ethical culture is the core element of an organization’s ethics and compliance program. If the culture of the organization does not support principled performance, then all of the people, processes, and technologies that are put in place to mitigate ethics and compliance risks cannot be effective.

3

Culture has always been important to how organizations operate. So why is it getting so much attention lately? One reason is that regulators have come to the realization that without a culture of integrity, organizations are likely to view their ethics and compliance programs as a set of check- the-box activities, or even worse, as a roadblock to achieving their business objectives. In fact, organizations responsible for some of the most egregious acts of malfeasance have had quite impressive, formalized ethics and compliance guidelines. The problem was that either leadership or a group of influential insiders operated outside of those guidelines.

What is “culture”? Culture is one of the biggest determinants of how employees behave. Strong cultures have two common elements: there is a high level of agreement about what is valued, and a high level of intensity with regard to those values. Of course, not all cultures encourage good or ethical behaviors. When it comes to developing world-class ethics and compliance programs, the starting point is a positive culture of integrity.

Given the regulatory focus on fostering an ethical culture, many organizations are conducting assessments leveraging internal and/or external resources to review their overall programs to ensure both ethics and compliance are addressed.

The balance of this article will provide practical guidance for leaders to consider in creating a culture of integrity.

Grounding a culture in integrity A culture of integrity is generally characterized by:

• Organizational values: A set of clear values that, among other things, emphasizes the organization’s commitment to legal and regulatory compliance, integrity, and business ethics.

• Tone at the top1: Executive leadership and senior managers across the organization encourage employees and business partners to behave legally and ethically, and in accordance with compliance and policy requirements.

• Consistency of messaging: Operational directives and business imperatives align with the messages from leadership related to ethics and compliance.

• Middle managers who carry the banner: Front-line and mid-level supervisors turn principles into practice. They often use the power of stories and symbols to promote ethical behaviors.

• Comfort speaking up: Employees across the organization are comfortable coming forward with legal, compliance, and ethics questions and concerns without fear of retaliation.

• Accountability: Senior leaders hold themselves and those reporting to them accountable for complying with the law and organizational policy, as well as adhering to shared values or organizational values.

• The hire-to-retire life cycle: The organization recruits and screens employees based on character, as well as competence. The on-boarding process steeps new employees in organizational values, and mentoring also reflects those values. Employees are well-treated when they leave or retire, creating colleagues for life.

• Incentives and rewards: The organization rewards and promotes people based, in part, on their adherence to ethical values. It is not only clear that good behavior is rewarded, but that bad behavior (such as achieving results regardless of method) can have negative consequences.

• Procedural justice: Internal matters are adjudicated equitably at all levels of the organization. Employees may not always agree with decisions, but they will accept them if they believe a process has been fairly administered.

Organizations with strong positive cultures create trusting relationships with stakeholders. In our experience, those relationships become reciprocal; that is, stakeholders trust the organization and the brand. This creates employee, customer, and supplier loyalty. A strong culture helps to build positive relationships with regulators and it helps attract long-term investors. Ultimately, a culture of integrity is reflected in superior, long-term performance.

1 For more information on tone at the top, see the first article in our series: www.deloitte.com/us/toneatthetop

As used in this document, “Deloitte” means Deloitte LLP and its subsidiaries. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting.

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Facing up to the challenges More and more organizations are choosing to create additional structure around their ethics program. This can include the appointment of a Chief Ethics Officer (or expanding the Chief Compliance Officer’s role to include specific responsibility for the ethics program), enhancing the code of conduct and related controls and procedures, and improving accountability for ethical behavior through training and performance assessments. These actions are a great start toward the creation of a strong culture and will benefit the broader efforts around risk management and compliance.

Establishing a strong culture of integrity is not a discrete project with a beginning and an end, nor is it always smooth sailing. Despite best efforts, many organizations may run up against a number of obstacles.

Defining the culture Most leaders believe they understand and can define their organization’s culture. However, often there is a gap between management’s perception of the culture and how the rest of the organization views it. It is a mistake for leaders to assume they always have their finger on the pulse of the organization’s culture. To get a more accurate picture, organizations can set up listening posts, such as cultural assessments using employee surveys and outside observers. It is especially helpful to offer avenues, such as focus groups, run by third parties, for employees to provide open-ended responses that truly reflect their perceptions of the organization.

Instilling culture and values throughout the organization While executive leadership may work hard to establish a culture of integrity at headquarters, something often gets lost in translation as one moves farther away from the central office. This is why attention to culture needs to be active and continuous, especially in large organizations with distant outposts. Values—with ethics and integrity at their core—must be clearly and consistently communicated. Messaging needs to be explicit and repeated, so that it becomes embedded in how work gets done.

Communicating culture can be especially challenging when crossing borders. It is important that everyone understands the expected behaviors of the organization and the principles against which decisions will be made. Values need to be articulated in a manner that transcends nationality— for example, the concepts of honesty and trustworthiness are universally acknowledged. Nevertheless, it is important to recognize that cultural differences will influence how messages are heard and interpreted, and adjustments may need to be made in training, employee onboarding, and performance reviews.

Extending cultural values to mergers and acquisitions (M&A) Cultural fit is one of the biggest stumbling blocks in integrating a merged or acquired organization; in fact, it is one reason such transactions fail, despite the potential business benefits. This is why executives may want to conduct a cultural “audit” as part of the due diligence process. If the target company's values diverge significantly from those of the buyer, this could be a red flag. A well- developed integration plan will ensure both entities understand and reinforce desired values. From day one, management needs to let new employees know that they are welcome. At the same time, leaders need to communicate how the organization expects them to behave and how they can expect to be treated in return.

Handling the naysayers Nothing will damage culture more than the malcontents. When people get in the way of supporting the culture, they can cause roadblocks and undermine the efforts of the organization. They must be identified, counseled, and offered the opportunity to conform to expected behavior, or they should be separated from the organization. Training programs focusing on ethics and compliance are one way to communicate values to individuals who may need additional reinforcement. As a next step, performance reviews should be structured to include an evaluation of an individual’s results and should reflect how those results were achieved. Some organizations even make adhering to values part of the goal-planning process by setting objectives that are tied to specific cultural elements.

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Reinforcing culture and values

Create listening posts: Conduct cultural assessments that get at the core of how people behave and what they think.

Maintain a healthy mood in the middle: Much hinges on middle management’s ability to translate tone at the top into the policies and practices that drive everyday behavior.

Keep it interesting: Find new and innovative ways to communicate cultural values and reward values-based behavior. Encourage storytelling to bring values to life.

Play fair: Reward the right behaviors and penalize the wrong ones. Don't play favorites.

Shout it from the rooftops: Leaders tend to undercommunicate values and expectations. In this case, more is better.

Battling values fatigue While ongoing communication is essential, organizations should avoid delivering exactly the same message again and again. This is because messages can get stale, causing employees to ignore the underlying values and principles. Communicating values is much like a marketing campaign—it needs to capture people’s attention and use different content, formats, and communication channels to remain fresh. One way to achieve this level of interest is through the power of stories. Stories cannot only make values concrete, they connect people to those values in ways other forms of communication cannot.

Addressing leadership flux When organizations experience rapid turnover of CEOs and other senior leaders, maintaining a consistent identity and set of values can sometimes be a challenge. Clearly, selecting the right individuals to lead the organization is critical. If everyone in the organization lives its values, then promoting from within is one way to ensure those values remain intact. But that is not always either practical or possible. The board is usually involved in external hiring of senior leaders, especially CEOs. They need to pay particular attention to cultural fit and consider candidates who are not only competent, but who have the chemistry, character, and moral capability to inspire and win the hearts and minds of all stakeholders. Regardless of the CEO selection, it is important that culture not be dependent on a single person or group. A robust ethics and compliance program—appropriately designed, positioned, and resourced—will survive executive changes at the top of the organization.

Appealing to a cross-generational workforce Revolving leadership is not the only source of change that can undermine culture. Employee turnover can threaten it as well. Organizations today need to appeal to the most multi-generational workforce in history.2 For both financial and other reasons, baby boomers are not retiring the minute they hit age 65. Many are choosing to remain employed, sometimes postponing promotional opportunities for younger, Generation X workers. At the same time, Millennials entering the workforce are often

driven by a sense of purpose and crave a more collaborative culture. They are more likely to pursue portfolio careers in which they change jobs frequently to seek organizations that fit with their values. To create cultures with staying power, organizations must therefore foster an environment that balances a “something for everyone” appeal, with a set of consistent values that all generations will be able to embrace.

Conclusion An organization is a community of people with common interests and shared values, banded together to achieve a common goal. When people work together toward these shared goals, success follows. When organizations are torn apart by distractions that are not aligned at the core, failure follows. Building a culture of integrity not only fortifies the organization against risk, but also builds both employee engagement and strong loyalties with all stakeholders. In the long run, a positive culture of integrity is the foundation for an effective ethics and compliance program, which, when properly embedded into an organization, can create a competitive advantage and serve as a valuable organizational asset.

2 Global Human Capital Trends 2014: Engaging the 21st-century workforce, Deloitte. http://dupress.com/wp-content/uploads/2014/04/GlobalHumanCapitalTrends_2014.pdf

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Please contact one of our Enterprise Compliance Services leaders for more information.

Nicole Sandford Partner | Deloitte Advisory National Practice Leader, Enterprise Compliance Services Deloitte & Touche LLP +1 203 708 4845 [email protected] Stamford, CT

Keith Darcy Independent Senior Advisor to Deloitte & Touche LLP +1 203 905 2856 [email protected] Stamford, CT

Maureen Mohlenkamp Principal | Deloitte Advisory Deloitte & Touche LLP +1 212 436 2199 [email protected] Stamford, CT

Brian Clark Partner | Deloitte Advisory Deloitte & Touche LLP +1 816 802 7751 [email protected] Kansas City, MO

Laurie Eissler Director | Deloitte Advisory Deloitte & Touche LLP +1 313 396 3321 [email protected] Detroit, MI

Nolan Haskovec Senior Manager | Deloitte Advisory Deloitte & Touche LLP +1 212 436 2973 [email protected] New York, NY

Kevin Lane Principal | Deloitte Advisory Deloitte & Touche LLP +1 214 840 1577 [email protected] Dallas, TX

Thomas Nicolosi Principal | Deloitte Advisory Deloitte & Touche LLP +1 215 405 5564 [email protected] Philadelphia, PA

Holly Tucker Partner | Deloitte Advisory Deloitte Financial Advisory Services LLP +1 214 840 7432 [email protected] Dallas, TX

Additionally, feel free to reach out to our team of former compliance officers who are located across the country and experienced in a wide variety of industries.

Martin Biegelman Director | Deloitte Advisory Deloitte Financial Advisory Services LLP +1 602 631 4621 [email protected] Phoenix, AZ Industry: Technology

Rob Biskup Director | Deloitte Advisory Deloitte Financial Advisory Services LLP +1 313 396 3310 [email protected] Detroit, MI Industry: Consumer & Industrial Products

Timothy Cercelle Director | Deloitte Advisory Deloitte & Touche LLP +1 216 589 5415 [email protected] Cleveland, OH Industry: Insurance

Michael Fay Principal | Deloitte Advisory Deloitte & Touche LLP +1 617 437 3697 [email protected] Boston, MA Industry: Investment Management

Howard Friedman Director | Deloitte Advisory Deloitte & Touche LLP +1 713 982 3065 [email protected] Houston, TX Industry: Energy & Resources

George Hanley Director | Deloitte Advisory Deloitte & Touche LLP +1 973 602 4928 [email protected] Parsippany, NJ Industry: Insurance

Peter Reynolds Director | Deloitte Advisory Deloitte & Touche LLP +1 973 602 4111 [email protected] Parsippany, NJ Industry: Investment Management

Thomas Rollauer Director | Deloitte Advisory Executive Director, Deloitte Center for Regulatory Strategies Deloitte & Touche LLP +1 212 436 4802 [email protected] New York, NY Industry: Financial Services/Banking & Securities

Contacts

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This publication contains general information only and Deloitte is not, by means of this publication, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor.

Deloitte shall not be responsible for any loss sustained by any person who relies on this document.

Copyright © 2015 Deloitte Development LLC. All rights reserved. Member of Deloitte Touche Tohmatsu Limited

The Importance of Business Ethics By MELISSA HORTON Updated Jul 1, 2020 The system of moral and ethical beliefs that guides the values, behaviors, and decisions of a business organization and the individuals within that organization is known as business ethics. Some ethical requirements for businesses are codified into law; environmental regulations, the minimum wage, and restrictions against insider trading and collusion are all examples of the government setting forth minimum standards for business ethics. What qualifies as business ethics in history has changed over time and the different areas of ethics are important to every business.

Business Ethics

Ethics in Leadership The management team sets the tone for how the entire company runs on a day- to-day basis. When the prevailing management philosophy is based on ethical practices and behavior, leaders within an organization can direct employees by example and guide them in making decisions that are not only beneficial to them as individuals, but also to the organization as a whole. Building on a foundation of ethical behavior helps create long-lasting positive effects for a company, including the ability to attract and retain highly talented individuals, and building and maintaining a positive reputation within the community. Running a business in an ethical manner from the top down builds a stronger bond between individuals on the management team, further creating stability within the company.

Employee Ethics When management is leading an organization in an ethical manner, employees follow in those footsteps. Employees make better decisions in less time with business ethics as a guiding principle; this increases productivity and overall employee morale. When employees complete work in a way that is based on honesty and integrity, the whole organization benefits. Employees who work for a corporation that demands a high standard of business ethics in all facets of operations are more likely to perform their job duties at a higher level and are also more inclined to stay loyal to that organization.

Ethics Vary by Industry Business ethics differ from industry to industry, and nation to nation. The nature of a business's operations has a major influence on the ethical issues with which it must contend. For example, an ethical quandary arises for an investment brokerage when the best decision for a client and their money does not coincide with what pays the brokerage the highest commission. A media company that produces TV content aimed at children may feel an ethical obligation to promote good values and eschew off-color material in its programming.

A striking example of industry-specific business ethics is in the energy field. Companies that produce energy, particularly nonrenewable energy, face unrelenting scrutiny on how they treat the environment. One misstep—whether it is a minor coal ash spill at a power plant or a major disaster such as the 2010 BP (BP) oil spill—forces a company to answer to numerous regulatory bodies and society at large regarding whether it skirted its duty to protect the environment in an aggressive pursuit of higher profits.

A stringent, clearly defined system of environmental ethics is paramount for an energy company if it wants to thrive in a climate of increased regulations and public awareness on environmental issues.

Companies such as Amazon (AMZN) and Google (GOOGL), which conduct most of their operations online, are not scrutinized for their environmental impact the way energy companies such as BP and Exxon (XOM) are. When it comes to protecting their customers' privacy and security, however, their ethics are examined very closely.

A particular area in which technology companies must make tough ethical decisions is marketing. Advancements in data mining technology enable businesses to track their customers' movements online and sell that data to marketing companies or use it to match customers with advertising promotions. Many people view this type of activity as a major invasion of privacy. However, such customer data is invaluable to businesses, as they can use it to increase profits substantially. Thus, an ethical dilemma is born: To what extent is it appropriate to spy on customers' online lives to gain a marketing advantage?

Benefits of Business Ethics The importance of business ethics reaches far beyond employee loyalty and morale or the strength of a management team bond. As with all business

initiatives, the ethical operation of a company is directly related to profitability in both the short and long term.

The reputation of a business in the surrounding community, other businesses, and individual investors is paramount in determining whether a company is a worthwhile investment. If a company is perceived to not operate ethically, investors are less inclined to buy stock or otherwise support its operations.

Companies have more and more of an incentive to be ethical as the area of socially responsible and ethical investing keeps growing. The increasing number of investors seeking out ethically operating companies to invest in is driving more firms to take this issue more seriously.

The Bottom Line With consistent ethical behavior comes an increasingly positive public image, and there are few other considerations as important to potential investors and current shareholders. To retain a positive image, businesses must be committed to operating on an ethical foundation as it relates to the treatment of employees, respecting the surrounding environment, and fair market practices in terms of price and consumer treatment.

Ethics Explored

What is meant by “ethics”?

Ethics is the study of the standards of right and wrong that inform us as to how we ought to behave. These standards relate to unwritten rules that are necessary for humans to live among each other, such as “don’t hurt others.” We function better as a society when we treat each other well.

Ethics can also refer to the standards themselves. They often pertain to rights, obligations, fairness, responsibilities, and specific virtues like honesty and loyalty.

They are supported by consistent and well-founded reasons; as such, they have universal appeal. It’s never good to have a society that supports hurting others as a general rule; honesty and loyalty are positive attributes.

Can we think of instances when hurting others is condoned (such as in war) and where honesty or loyalty may be misplaced? Of course! That’s one of the reasons why ethics are so complicated, and what makes Core 202 such an interesting class.

What is not “ethics”?

We need to distinguish ethics from what it is not. It’s easier if you can remember that ethics doesn’t change:

 Ethics is not what’s legal. The law often puts into writing our ethical standards (don’t hurt others=don’t commit homicide) but it also usually reflects our cultural beliefs at the time. For example, hunting is legal in Virginia, but it would be difficult to say that everyone agrees that it is ethical to hunt. Some people will argue that hunting is ethical because it manages the wildlife population, while others will argue that it is never ethical because it creates pain and suffering.

 Ethics is not what you feel. In fact, most times our feelings are very egocentric: what’s best for me and my nearest and dearest? But making judgments based on these sentiments could be detrimental to society as a whole,

 Ethics is not religion. Religions may teach ethical standards, and you may personally use religion to guide your beliefs, but people can have ethics without necessarily belonging to a religion. Therefore, ethics and religion are not interchangeable.

 Ethics is not a political ideology. A political party may share your values and offer ethical arguments to supports its policies, but your decisions aren’t automatically ethical, just because you belong to one political party or another. In

fact, many, if not most, political debates are built from arguments that claim one aspect of an ethical dilemma is more significant than another.

What does it mean to be ethical?

When we explore what it means to be ethical, we are looking at what is rationally “right” and “wrong.” We need to have such conversations so that we can live with other people in society. Philosophers would also argue that the best way to achieve our fullest potential is by being ethical.

In this course, we are not teaching you what to believe. We are building on the skills you learned in Core 201 to identify, evaluate, create and analyze ethical arguments.

Do “ethical” and “moral” mean the same thing?

For the purposes of this Handbook, the answer is ‘yes’. The terms ethical and moral are often used as synonyms, and we will adopt this convention and use these terms interchangeably. For most purposes this works fine, but some authors and teachers do see a distinction between these ideas. Usually when the terms are distinguished it is because “morals” can connote very culture-specific norms or expectations. Hence “the mores of the Azande” describes the moral norms of that particular tribe or culture, but without expectation that these norms are universally valid. When “ethics” is contrasted with “morals,” the writer is usually discussing certain normative ethical theories that maintain that certain principles, rules, or virtues have universal ethical validity. A slightly more comprehensive answer would describe the difference; say from an ethical relativist positions definition, as hinging on ethical standards being subjected to the scrutiny of reason or rationality as its fundamental method.

What are values?

Frequently when used in discussions of ethics the term values is used to refer to the fundamental ideals that an individual relies on to describe praise-worthy behavior. A person’s values are the bedrock concepts used to determine their ethical decisions. Most generally speaking values represent aspirational goals common within your culture or society. Values such as honesty, benevolence, wisdom, duty, or compassion are universally recognized laudable and desirable features of a well-developed character. But which values are most important may differ from individual to individual, or across cultures. We could refer to the values of the feudal Japanese samurai culture placing the highest emphasis on the concept of personal honor. We could compare and contrast that with the European knightly virtues as a similar yet distinctively different set of cultural values. We could draw on political beliefs to describe the concepts of equality and freedom at the heart of democratic ideals, contrasting them with a constitutional

monarchy that perhaps places the highest importance on duty and tradition as its central political ideals

What are some examples of ethical issues?

Ethical issues abound in contemporary society. Ethical issues involve questions of the ethical rightness or wrongness of public policy or personal behavior. Actions or policies that affect other people always have an ethical dimension, but while some people restrict ethical issues to actions that can help or harm others (social ethics) others include personal and self-regarding conduct (personal ethics).

Many of today’s most pressing issues of social ethics are complex and multifaceted and require clear and careful thought. Some of these issues include:

 Should states allow physician-assisted suicide?

 Is the death penalty an ethically acceptable type of punishment?

 Should animals have rights?

 Is society ever justified in regulating so-called victimless crimes like drug use, not wearing a helmet or a seatbelt, etc.?

 What are our responsibilities to future generations?

 Are affluent individuals and countries obligated to try to prevent starvation, malnutrition, and poverty wherever we find them in the world?

 Is there such a thing as a just war?

 How does business ethics relate to corporate responsibility?

To reach careful conclusions, these public policy issues require people to engage in complicated ethical reasoning, but the ethical reasoning involving personal issues can be just as complex and multifaceted:

 What principles do I apply to the way I treat other people?

 What guides my own choices and my own goals in life?

 Should I have the same expectations of others in terms of their behavior and choices as I have of myself?

 Is living ethically compatible or incompatible with what I call living well or happily?

How can I effectively apply critical reasoning to an ethical issue?

People care quite a bit about ethical issues and often voice varied and even sharply opposed perspectives. So when looking at how we debate ethical issues publicly, it is not surprising to find debate ranging from formal to informal argumentation, and from

very carefully constructed arguments with well-qualified conclusions, to very biased positions and quite fallacious forms of persuasion. It’s easy to be dismayed by the discord we find over volatile issues like gun control, immigration policy, and equality in marriage or in the workplace, gender and race equality, abortion and birth control, jobs versus environment, freedom versus security, free speech and censorship, and so on. But it is also easy to go the other direction and be drawn into the often fallacious reasoning we hear all around us.

Critical thinkers want to conduct civil, respectful discourse, and to build bridges in ways that allow progress to be made on difficult issues of common concern. Progress and mutual understanding is not possible when name-calling, inflammatory language, and fallacies are the norm. Some mutual respect, together with the skill of being able to offer a clearly-structured argument for one’s position, undercuts the need to resort to such tactics. So critical thinkers resist trading fallacy for fallacy, and try to introduce common ground that can help resolve disputes by remaining respectful of differences, even about issues personally quite important to them. When we support a thesis (such as a position on one of the above ethical issues) with a clear and well-structured argument, we allow and invite others to engage with us in more constructive fashion. We say essentially, “Here is my thesis and here are my reasons for holding it. If you don’t agree with my claim, then show me what is wrong with my argument, and I will reconsider my view, as any rational person should.”

When I debate ethical issues, what is my responsibility to people who are part of

the dialogue?

When we evaluate (analyze) somebody else’s position on an ethical issue, we are not free to simply reject out-of-hand a conclusion we don’t initially agree with. To be reasonable, we must accept the burden of showing where the other person errs in his facts or reasoning. If we cannot show that there are errors in the person’s facts or reasoning, to be reasonable we must reconsider whether we should reject the other person’s conclusion.

By applying the common standards of critical thinking to our reasoning about ethical issues, our arguments will become less emotionally driven and more rational. Our reasoning will become less dependent upon unquestioned beliefs or assumptions that the other people in the conversation may not accept. We become better able to contribute to progressive public debate and conflict resolution through a well-developed ability to articulate a well-reasoned position on an ethical issue.

What are ethical judgments?

Ethical judgments are a subclass of value judgments. A value judgment involves an argument as to what is correct, superior, or preferable. In the case of ethics, the value

judgment involves making a judgment, claim, or statement about whether an action is morally right or wrong or whether a person’s motives are morally good or bad. Ethical judgments often prescribe as well as evaluate actions, so that to state that someone (or perhaps everyone) ethically “should” or “ought to” do something is also to make an ethical judgment.

How can I distinguish ethical judgments from other kinds of value judgments?

If ethical judgments are a subclass of value judgments, how do we distinguish them? Ethical judgments typically state that some action is good or bad, or right or wrong, in a specifically ethical sense. It is usually not difficult to distinguish non-ethical judgments of goodness and badness from ethical ones. When someone says “That was a good action, because it was caring,” or “That was bad action, because it was cruel” they are clearly intending goodness or badness in a distinctly ethical sense.

By contrast, non-moral value judgments typically say that something is good (or bad) simply for the kind of thing it is; or that some action is right or wrong, given the practical goal or purpose that one has in mind. “That’s a good car” or “That’s a bad bike” would not be considered to moral judgments about those objects. Goodness and badness here are still value judgments, but value judgments that likely track features like comfort, styling, reliability, safety and mileage ratings, etc.

The use of “should” or “ought to” for non-moral value judgments is also easy to recognize. “You ought to enroll early” or “You made the right decision to go to Radford” are value-judgments, but no one would say they are ethical judgments. They reflect a concern with wholly practical aims rather than ethical ones and with the best way to attain those practical aims.

What are ethical arguments?

Ethical arguments are arguments whose conclusion makes an ethical judgment. Ethical arguments are most typically arguments that try to show a certain policy or behavior to be either ethical or unethical. Suppose you want to argue that “The death penalty is unjust (or just) punishment” for a certain range of violent crimes. Here we have an ethical judgment, and one that with a bit more detail could serve as the thesis of a position paper on the death penalty debate.

An ethical judgment rises above mere opinion and becomes the conclusion of an ethical argument when you support it with ethical reasoning. You must say why you hold the death penalty to be ethically right or wrong, just or unjust. For instance, you might argue that it is unjust because of one or more of the reasons below:

 It is cruel, and cruel actions are wrong.

 Two wrongs don’t make a right.

 It disrespects human life.

 In some states the penalty falls unevenly on members of a racial group.

 The penalty sometimes results in the execution of innocent people.

Of course you could also give reasons to support the view that the death penalty is a just punishment for certain crimes. The point is that whichever side of the debate you take, your ethical argument should develop ethical reasons and principles rather than economic or other practical but non-moral concerns. To argue merely that the death penalty be abolished because that would save us all money is a possible policy- position, but it is essentially an economic argument rather than an ethical argument.

What is an ethical dilemma?

An ethical dilemma is a term for a situation in which a person faces an ethically problematic situation and is not sure of what she ought to do. Those who experience ethical dilemmas feel themselves being pulled by competing ethical demands or values and perhaps feel that they will be blameworthy or experience guilt no matter what course of action they take. The philosopher Jean-Paul Sartre gives the example of a young Frenchman of military age during the wartime Nazi occupation who finds himself faced, through no fault of his own, with the choice of staying home and caring for his ailing mother or going off to join the resistance to fight for his country’s future:

He fully realized that this woman lived only for him and that his disappearance – or perhaps his death – would plunge her into despair…. Consequently, he found himself confronted by two very different modes of action; the one concrete, immediate, but directed towards only one individual; and the other an action addressed to an end infinitely greater, a national collectivity, but for that very reason ambiguous – and it might be frustrated on the way. (Sartre, 1977)

What is the role of values in ethical dilemmas?

Frequently, ethical dilemmas are fundamentally a clash of values. We may experience a sense of frustration trying to figure out what the ‘right’ thing to do is because any available course of action violates some value that we are dedicated to. For example, let’s say you are taking a class with a good friend and sitting next to him one day during a quiz you discover him copying answers from a third student. Now you are forced into an ethical decision embodied by two important values common to your society. Those values are honesty and loyalty. Do you act dishonestly and preserve your friend’s secret or do you act disloyal and turn them in for academic fraud?

Awareness of the underlying values at play in an ethical conflict can act as a powerful method to clarify the issues involved. We should also be aware of the use of value as a verb in the ethical sense. Certainly what we choose to value more or less will play a very significant role in the process of differentiating between outcomes and actions thereby determining what exactly we should do.

Literature and film are full of ethical dilemmas, as they allow us to reflect on the human struggle as well as presenting tests of individual character. For example in World War Z, Gerry Lane (played by Brad Pitt in the movie version) has to make a similar choice as Sartre’s Frenchman: between serving the world-community of humans in their just war against Zombies, and serving his own immediate family. It adds depth and substance to the character to see him struggling with this choice over the right thing to do.

What ethical dilemmas are more common in real life?

Rarely are we called on to fight zombies or Nazis, but that doesn’t mean we live in an ethically easy world. If you’ve ever felt yourself pulled between two moral choices, you’ve faced an ethical dilemma. Often we make our choice based on which value we prize more highly. Some examples:

 You are offered a scholarship to attend a far-away college, but that would mean leaving your family, to whom you are very close. Values: success/future achievements/excitement vs. family/love/safety

 You are friends with Jane, who is dating Bill. Jane confides in you that she’d been seeing Joe on the side but begs you not to tell Bill. Bill then asks you if Jane has ever cheated on him. Values: Friendship/loyalty vs. Truth

 You are the official supervisor for Tywin. You find out that Tywin has been leaving work early and asking his co-workers to clock him out on time. You intend to fire Tywin, but then you find out that he’s been leaving early because he needs to pick up his child from daycare. Values: Justice vs. Mercy

You could probably make a compelling argument for either side for each of the above. That’s what makes ethical dilemmas so difficult (or interesting, if you’re not directly involved!)

What is an ethical violation?

Sometimes we are confronted with situations in which we are torn between a right and a wrong; we know what the right thing to do would be, but the wrong is personally beneficial, tempting, or much easier to do. In 2010, Ohio State University football coach Jim Tressel discovered that some of his players were violating NCAA rules. He did not report it to anyone, as it would lead to suspensions, hurting the football team’s chances of winning. He was not torn between two moral choices; he knew what he should do,

but didn’t want to jeopardize his career. In 2011, Tressel’s unethical behavior became public, OSU had to void its wins for the year, and he resigned as coach.

Ethics experts tend to think that ethical considerations should always trump personal or self-interested ones and that to resist following one’s personal desires is a matter of having the right motivation and the strength of will to repel temptation. One way to strengthen your “ethics muscles” is to become familiar with the ways we try to excuse or dismiss unethical actions.

How does self-interest affect people’s ethical choices?

In a perfect world, morality and happiness would always align: living ethically and living well wouldn’t collide because living virtuously—being honest, trustworthy, caring, etc.— would provide the deepest human happiness and would best allow humans to flourish. Some would say, however, that we do not live in a perfect world, and that our society entices us to think of happiness in terms of status and material possessions at the cost of principles. Some even claim that all persons act exclusively out of self-interest—that is, out of psychological egoism—and that genuine concern for the well-being of others—altruism—is impossible. As you explore an ethical issue, consider whether people making choices within the context of the issue are acting altruistically or out of self-interest.

What is the difference between good ethical reasoning and mere rationalization?

When pressed to justify their choices, people may try to evade responsibility and to justify decisions that may be unethical but that serve their self-interest. People are amazingly good at passing the buck in this fashion, yet pretty poor at recognizing and admitting that they are doing so. When a person is said to be rationalizing his actions and choices, this doesn’t mean he is applying critical thinking, or what we have described as ethical analysis. Quite the opposite: it means that he is trying to convince others—or often just himself—using reasons that he should be able to recognize as faulty or poor reasons. Perhaps the most common rationalization of unethical action has come to be called the Nuremberg Defense: ‘I was just doing what I was told to do— following orders or the example of my superior. So blame them and exonerate me.’ This defense was used by Nazi officials during the Nuremberg trials after World War II in order to rationalize behavior such as participation in the administration of concentration camps. This rationalization didn’t work then, and it doesn’t work now.

Defining an “Ethical Dilemma;” Distinguishing Facts from Ethical Issues; Legal

Issues from Ethical Issues

Identifying ethical and legal issues can be a bit tricky at first, but we will do it in each

week. It is the essence of the course, of business ethics and of ethical decision making in

business.

Let‘s begin with the easiest definition: Legal issues

A legal issue arises when the law of a given jurisdiction—city, county, state, country—has

something to say about the legal permissibility or legal consequence of a course of action.

For example: There are federal laws that restrict the amount of CO2 emissions that a

Foundry can send into the air. Thus, when considering what sort of pollution control

devices a Foundry will install, the legal issue of compliance with this law arises.

There are federal and state laws that prescribe the minimum wage that can be paid

workers. [state minimum wages are often higher than the federal minimum wage]. Thus, in

deciding how much to pay workers who are covered by these laws, the legal issue of

compliance is raised.

Law is passed by legislative or administrative bodies or it is announced by judges in

specific court decisions. The courts and executive authorities, such as the police, are

charged with enforcing the law, whether by awarding damages to a civil plaintiff, or

imposing fines or incarceration on those violating criminal laws.

Now we should note that many laws enjoy widespread approval, as appropriate restrictions

on behavior. Included in these would be laws prohibiting murder, rape, robbery, etc.

Others may be questioned by some citizens, such as laws that restrict gun ownership, or

laws that require us to pay income taxes. The point is that laws are the product of the

conscious actions of people, usually government officials like Congresspersons, senators

and judges.

Why are laws important to business decision-makers?

There are several possible answers.

1, If the business is found to have violated the law, it will have to pay fines, and

sometimes, its managers may face criminal penalties. This is an important downside of

breaking the law.

Of course, a business can ―get away with‖ violating the law.

2. The law may codify an important moral restraint on the business, as is the case with

anti-pollution laws, which are aimed at minimizing the environmental damage of business

operations. That is, a manager may agree with the law, inasmuch as he recognizes a

responsibility to safeguard the environment.

3. Consumers may regard the law as important, and withdraw their patronage if they learn

of the illegal/unethical behavior of the business.

Contrasting Morality or Ethics with Law

However one defines morality or ethics, it is clear that compliance with law, even if

ethically significant, does not necessarily satisfy all ethical or moral requirements.

A simple example:

The law may require a foundry to limit the amount of a cancer-causing chemical it uses in

production that is flushed into nearby waterways. Meeting this standard is all the law

requires. But if a number of downstream inhabitants still face significantly greater risk of

cancer, an ethical issue arises: Is it ethically or morally permissible to run the business in

such a way as to create a significantly increased risk of cancer in ―innocent‖ homeowners?

For both individuals and businesses, morality may require more than law. There is no law,

for example, prohibiting lying to your spouse, or being unkind to your neighbor.

An ethical issue is one that is reflected in actions, conduct in various situations, such as

how we treat one another (and, some would say, animals and the environment). For example,

do our actions reflect the ethical issues of respect for others, show concern for others,

show honesty, show dishonesty, show manipulation, etc.?

You will be reading about a number of different ―ethical theories‖ in this class. Ethical

theories can help us analyze situations and problems and thus, help us make decisions

about ethical dilemmas, about how to act in certain situations, about how to resolve ethical

problems. All decisions need to be justified and explained. For example, if a CEO decides

to close a plant, the CEO has to justify and explain this decision to the Board of Directors,

shareholders. The CEO cannot just say, "I am closing a plant because I think it is best."

There has to be detailed justification for this plant closing - and justification for all

decisions we make as individuals and companies.

For example, one theory you will study is Utilitarianism which, simply, is a consequences-

based theory that guides ethical behavior by examining all possible negative and positive

consequences of a given decision/action. If a CEO has to decision whether to close a plant

that is not profitable, the CEO can consider applying Utilitarianism and thus, examining all

possible consequences and choosing the decision that has the most positive consequence

for the greatest number of affected people or groups. The CEO knows closing an

unprofitable plant will result in short term loss of jobs and loss of income for the

community - these are 2 consequences. On the other hand the CEO knows if the

unprofitable plant remains open, while there will be no short term loss of jobs or loss of

community income, in the long term as costs will continue to rise, profits will continue to

drop and this may have far-reaching impact on the entire company and all its internal and

external stakeholders and likely will ultimately result in the company having to lay off

more employees, close more than 1 plant, loss of revenue for investors and shareholders,

loss of market share, etc. SO, the CEO may decide, by applying Utilitarianism, that the

decision to close 1 plant now will have less negative consequences in the long term, and will

be better for the greatest number of employees and other stakeholders in the long term.

Thus, the CEO can use Utilitarianism to justify the decision to close 1 plant now.

Each theory can help us decide what action is ethical, and best under the circumstances.

Not all theories will result in agreement in a decision or what is "right", some theories will

conflict with each another. For example, if the CEO in the above example applies

Utilitarianism and Egoism theories to help make the plant closing decision, the 2 theories

may not guide the decision in the same direction; they may conflict, but the CEO has to

decide which theory most logically and clearly justifies the decision.

Theories can help us recognize what is ethical conduct in a given situation; theories can

help us make decisions that are ethical, lawful and justifiable. Theories can guide and

restrict our behavior in various situations.

Distinguishing Facts from Ethical Issues

Suppose we pay our workers no more than the minimum wage, when they work in dangerous

difficult jobs that require some skill; we are a profitable business; and that wage keeps

our employees below the poverty level. Suppose also that 80% of the employees must use

food stamps and Medicaid to get by on this wage.

These are the facts. There are no normative judgments here, no ―oughts‖ no assertion of

rights. These are all facts.

The ethical issue, however, is the underlying ethical/moral value that is reflected in the

facts and actions of someone or some group or some organization.

For example, if a company does not pay adequate wages or provide a safe working

environment, what does this tell us about the company's ethical/moral values? What is

unethical about the company's conduct? What is "wrong" with the action of the company?

The answer is the company's conduct shows no respect for employees' welfare (an

underlying ethical issue), lack of concern for the safety of workers (an underlying ethical

issue), unfairness to workers (an underlying ethical issue), and perhaps even suggests

greed (an underlying ethical issue). All these are underlying ethical issues reflected by

the company's conduct.

Another example:

A told B that A would babysit B's children while B went to a job interview. A did not show

up to babysit. These are facts.

Was it right to have made and broken the promise? What does this action of not keeping

the promise to babysit say about A's ethical/moral values? What is unethical/"wrong"

about breaking the promise?

This action of not showing up as promised suggests the underlying ethical issues of lack of

concern for a friend's needs, or lack of integrity, or lack of respect for a friend, lack of

honor in keeping promises, etc. These are underlying ethical issues related to the action

of not keeping a promise to show up and babysit for a friend.

Comments re: Ethical Issues

Ethical Issues:

 arise from facts and situations (but are different from facts and legal issues) and

show the ethical values reflected in actions;

 can usually be defined in a single word, i.e., honesty, dishonesty, trust, etc, or in

brief phrases, i.e., lack of full disclosure, lack of respect for others' safety,

respect for others' needs, etc.;

 can be negative (i.e, dishonesty, manipulation, greed, etc) or positive (i.e., honesty,

respect, concern for others' safety, etc.);

 can often be defined by asking the question, "What is ‗unethical' or ‗wrong‘ with X's

actions?", or "Why is C's conduct unethical?" etc.;

 cannot be listed in a finite list of ethical issues as there are many, but the list is

not endless – many of the same ethical issues arise repeatedly in business;

 can be fully explained in the context of related facts, or a case scenario, etc.;

 are directly related to facts in a fact pattern, but are different from facts.

Ethical Dilemmas

An ethical dilemma (for a business) may be defined as a multi-faceted problem a company

faces, which is described in an either/or statement that defines options open to a

company to resolve an ethical problem; the either / or statement also include possible

consequences of each option. Virtually all options have ethical and business consequences.

Business consequences, which are understood in terms of the best interests of the

business, include those related to profits, reputation, public image, shareholder value.

Ethical consequences or factors may include whether compensation is fair to employees,

advertisements are truthful, promises or contracts are broken, misfortune or

disadvantage is exploited, harm is visited on individuals, including stakeholders, or on the

broader society.

Dilemmas typically start with the need to make a decision on whether to react to the

ethical concerns that have arisen, or not. That is probably the only point at which they are

truly ―either/or‖ decisions: Do we keep things as they are and ignore the problem, or look

to a feasible way to resolve it (always with a view to our other responsibilities, such as

maintaining share value, and considering all other stakeholders‘)?

Then, unless action is rejected, the decision becomes more complicated, and a number of

further choices would need to be made.

Example: Hypothetical Scenario:

Co. A was founded in Baltimore, MD in 1923. In 1924, Co. A began to manufacture sugar

cookies. The company continued to grow, expand its manufacturing operations until, in

1945, Co. A "went public" and sold its stock on the NYSE for $10/per share. The value of

the stock has increased to a value of $100/per share in 2012.

In 2011, Co. A stated in its annual financial report to stockholders that its 2011 profit was $5 million, when in fact its profit was only $3 million. This error was a typo, and not an intentional fraudulent act. The new CEO has discovered this falsification and is concerned about ethical and legal implications.

General Facts: underlined above. These facts are generally relevant to the company but

not relevant to any ethical issues related to Co. A.

Relevant Facts (relevant to ethical issues): in italics above. These facts are directly related to, and relevant to ethical dilemmas and issues. To determine the precise ethical

issue, ask what ethical concerns/ issues are raised by these facts.

Ethical Dilemma: Essentially, A can either do nothing or publish an accurate report.

The ethical dilemma can be described as:

Co. A can EITHER do nothing and risk the error being discovered causing negative public

relations with consumers and shareholders, and possibly causing legal action OR Co A can

publish a revised, accurate financial report and risk some short-term negative reaction

from consumers and shareholders but avoid legal action and long term negative reaction by

being honest.

Possible consequents/Resolutions:

 A can do nothing, and risk that the false report will be discovered. The possible

effects will be that this would likely result in negative publicity, backlash from

shareholders and possible legal investigation/charges. Either the truth will become

known or it will not. If it is not found out, then, for the time being, each major

stakeholder category—employees, shareholders. Customers and communities--

would be unaffected. If it does become known however, every major stakeholder

will suffer. Costs will be incurred to deal with legal claims so that share value may

fall and future R&D would be less well funded. Production may have to be cut back,

which affects employee job security and the community. Similarly, the price to be

paid for negative publicity will also affect these stakeholders in the same way.

 A can report the mistake to the SEC, taking full responsibility for the inadvertent

error. The effects will be……………..

 A can report the error to the SEC and make a public announcement, apologizing for

the error. The effects will be……………..

 A can report the error to the SEC and make a public announcement, apologizing for

the error, and laying out compensation that may be appropriate, for those provably

harmed. The effects will be……………..

 A can do any of these things, each of which concretely addresses the ethical issue,

and it can also implement tighter auditing. The effects will be……………

Thus, when dealing with the ethical issue of a failure of disclosure to those who have a

right to accurate information, there can be many alternative resolutions.

Ethical Issues related to this Dilemma

1. If Co. A does nothing and does not report the error in its financial report, what is

unethical/wrong with this action? The answer is underlying ethical issues reflected in

this conduct that could include dishonesty, lack of full disclosure, fairness, lack of

respect or concern for shareholders, lack of respect for law, lack of respect for

shareholders' right to know the financial status of Company A, lack of concern for welfare

of Company A, trust, distrust, lack of accountability for its actions, etc.

2. If Co. A does reveal the error and correct it with accurate financial information,

underlying ethical issues reflected in this conduct are honesty, fairness, full disclosure,

trust, respect for shareholders' rights, respect for consumers, concern for the welfare of

Company A, trust, accountability for its actions, respect for legal regulations related to

financial reporting of public companies, etc.

Thus, when dealing with the ethical issue of a failure of disclosure to those who have a

right to accurate information, there can be many alternative resolutions.