Week 2 case study

Chapter 4, 5, 6

Chapter 4

4.1. The Sustainability Imperative: A Call for Business to Step Up

Several years ago, a discussion of sustainability would have had to include strong arguments about why businesses would benefit from sustainable practices. Today, the need for sustainability is a “given” as businesses now integrate sustainability into their business strategies.

The sustainability imperative has been, in large part, driven by large-scale initiatives like the United Nations Global Compact (UNGC), whose members total more than 12,000 companies in more than 160 countries. In 2015, the UNGC launched a global initiative for member businesses to agree to commit to ten principles regarding human rights, labor, environment, and anticorruption, and 17 sustainable development goals (SDGs) in support of the principles. These are outlined in Figure 4-1. The goals were developed as part of the UNGC 2030 Agenda for Sustainable Development, which set out a 15-year plan to achieve its goals.

Figure 4-1 The UN Global Compact’s Sustainable Development Goals (SDGs)

Details

Source: 17 Goals to Transform Our World, https://www.unglobalcompact.org/sdgs/17-global-goals, accessed January 28, 2021.

Figure 4-1 presents the UNGC’s 17 SDGs. The UNGC’s goals are designed to help unite global stakeholders to “transform the world to end extreme poverty, fight inequality and injustice, and protect the planet.” Each goal is accompanied by a variety of resources for businesses to implement actions designed to address the goal, including an SDG Compass to navigate the tools, as well as an SDG Industry matrix that showcases industry-specific examples and ideas for corporate action.

Annual reports regarding the UNGC 2030 agenda up to 2020 indicate that while some progress has been made in accomplishing the goals, it has been uneven. Therefore, unless changes are made, the agenda’s promise might not be fulfilled. Additionally, the COVID-19 global pandemic resulted in some devastating impacts of the pandemic on specific goals and targets. Nevertheless, UN Secretary-General Antonio Guterres rallied UNGC members in 2021 with the message, “Everything we do during and after this crisis [COVID-19] must be with a strong focus on building more equal, inclusive and sustainable economies and societies that are more resilient in the face of pandemics, climate change, and the many other global challenges we face.”

One company, Schneider Electric, attributes its sustainability successes to an original commitment to the UNGC principles. Schneider was one of the first companies to endorse the principles, including asking their suppliers to be sustainable. Schneider develops systems that manage electricity for businesses. While it began in high-voltage electrical distribution, it transformed over the years to a renewable energy company, curbing its own emissions by 250,000 metric tons of

CO

2

in 24 months, committing to net-zero operational emissions by 2030, and offering a suite of energy-efficient technologies that could save 120 million metric tons of

CO

2

on their customers’ behalf. As expressed by CEO Jean-Pascal Tricoire, “We have two competing objectives which are essential. The first one is that everybody gets access to energy, because energy gives you access to a decent life. But at the same time, we need to reduce emissions by a factor of two in the next 20 years.”

Another factor in support of businesses’ commitment to sustainability is the media attention to companies who “do well by doing good,” like those highlighted in Fortune magazine’s Change the World (CTW) rankings. Each year, Fortune publishes a list of companies that have had a positive social impact through activities that are part of their core business strategy. Interestingly, the Fortune focus is built on the premise that “the profit motive can inspire companies to tackle society’s unmet needs.” Recent winners include Alibaba Group Holding and Nvidia. Vaccine makers including Pfizer and Moderna have also been highlighted for their important role in the race for a COVID-19 vaccine.

Activism, and in particular youth activism, is another source of incentives for business to take on sustainability challenges. In 2018, for example, then 15-year-old Greta Thunberg started a school strike in Sweden to draw attention to climate change. Since then, her message has taken off as a global social movement, where young people across the world join her rally. Since 2018, she has addressed the United Nations, met with the Pope, exchanged words with the president of the United States, addressed the World Economic Forum in Davos, Switzerland, and inspired four million people to join a global climate strike in September 2019. Her activism seems to provide results as well. After she spoke to Parliament and demonstrated with the British environmental group Extinction, the United Kingdom passed a law requiring that the country eliminate its carbon footprint.

In sum, the concept of sustainability has been institutionalized as a form of CSR, with a critical mass of supporters that point to its benefits.

Ceres, a Boston-based sustainability nonprofit organization that works with many institutional investors, identifies several key drivers that underscore the imperative toward sustainability, presenting both risks and opportunities that parallel the UNGC initiatives:

Competition for Resources—Demand for resources is growing more quickly than they can be replaced.

Climate Change—Businesses must be prepared to not only respond to new policies and regulations regarding emissions but also take advantage of opportunities to profit from new technologies that reduce emissions or create solutions.

Economic Globalization—Wide disparities in social and environmental standards bring risks as well as opportunities.

Connectivity and Communications—Stakeholders can monitor and react to sustainability efforts more quickly and effectively. Reputations are more easily and quickly built and destroyed.

The attention to sustainability inevitably begins at the top ranks of any organization. Schneider Electric’s CEO, for example, has been described as “something of an electricity evangelist,” and he champions sustainability with the edict, “All you need is a change of mentality.” One of the foremost advocates of corporate sustainability is Paul Polman, former CEO of Unilever, the British multinational consumer goods company. During his tenure as CEO from 2009–2019, Polman helped turn around Unilever while developing its reputation as a sustainable company. For example, concerned that a focus on shareholder wealth maximization would lead to a short-term outlook at odds with the long-term perspective needed for sustainability, Polman banned quarterly earnings reports, which lowered his percentage of hedge fund investors from 15 percent to 5 percent in three years. Not sorry to see the hedge fund investors go, he then actively courted more long-term-oriented investment funds. It is not surprising that following his stint at Unilever, Polman went on to cofound a social venture, IMAGINE, designed to accelerate business leadership to achieve global goals.

Company leadership teams are increasingly populated with a chief sustainability officer (CSO), as seen in companies such as Procter & Gamble, Nike, and H&M. According to the GreenBiz Group, corporate engagement at the executive levels is the key for businesses to move beyond the “low hanging fruit” of finding control inside their operations, such as facilities and fleets, which have attractive financial paybacks.

4.2. The Natural Environment

Similar to other broad terms, environment means many things to many people—trees in the backyard, a family’s favorite vacation spot, a mare and her colt in a pasture, a trout stream in the mountains, earth and the other planets, and our solar system. Broadly speaking, it is anything that is external or internal to an entity. For humans, the environment can include external living, working, and playing spaces and natural resources, as well as internal physical, mental, and emotional states.

This chapter focuses on the natural environment—all living and nonliving things occurring naturally (i.e., not artificial). We discuss why it is important, how it has become a major concern, and what businesses and other organizations have done both to and for it—making it one of the most significant societal issues of our time. The chapter also describes the variety of responses human organizations, including businesses, have developed to address this issue. Throughout the chapter, the emphasis is on two themes: that humans are a part of their natural environment, and that the environment itself is extremely complex, defying simple analyses.

In spite of the recent progress described in the introduction, for years businesses conducted their operations with little concern about environmental consequences. Virtually every sector of business in every country was responsible for consuming significant amounts of materials and energy and causing waste accumulation and resource degradation. For instance, forestry firms and companies that process raw materials, such as uranium, coal, and oil, have caused major air, water, and land pollution problems in their extraction, transportation, and processing stages. Manufacturing firms, such as those in steel, petrochemicals, and paper products, have been major sources of air and water pollution. Consumer products companies, such as those who produce bottled water, have contributed toxins to the environment and created a plastics waste problem that has endangered marine life. Most major industry sectors have contributed significant levels of pollution with relatively little concern. Businesses have looked the other way, simply labeling the negative consequences of their actions as externalities. Externalities are side effects or by-products of actions that are not intended and often disregarded.

By labeling the environmental consequences as external to the process, businesses in the past were able to both acknowledge and dismiss the problems they created. In some ways, those days are ending. Companies that were once in famous for the damage they did to the environment are now scrambling to lead the way in environmental initiatives as they realize that such initiatives not only increase efficiency but also satisfy stakeholders and perhaps even help to invent entirely new businesses. Companies like Tesla (electric cars), First Solar (utility-scale solar energy), and Everlane (ethical fashion) are examples of businesses that were developed from environmental initiatives like alternative energy and ethical sourcing.

Nevertheless, businesses still pose hazards to the environment, as evidenced by recent large-scale pollution examples. One of the most notorious examples is the decades-long damage to the air and drinking water in West Virginia due to chemical giant DuPont’s use of the toxin PFOA for manufacturing Teflon. The story is portrayed in the 2019 movie Dark Waters, directed by Todd Haynes and starring Mark Ruffalo as attorney Robert Bilott, who takes on the DuPont Corporation. After years of legal battling, DuPont agreed to pay $671 million in cash to settle thousands of lawsuits alleging links to six diseases in the local population, including testicular and kidney cancers. It is no wonder that in a recent poll by Just Capital of more than 4,500 adults in the United States, respondents felt that businesses are almost twice as likely to consider their shareholders more than other stakeholders like the environment and their employees.

4.3. The Impact of Business on the Natural Environment

Corporate environmental responsibility, a subset of CSR, has evolved over the decades to become institutionalized in business practice. Reducing environmental impact is a large part of businesses’ sustainability imperative as stakeholders from consumers to suppliers to regulators and others are looking for businesses to commit to actions to mitigate the effects of climate change and other environmental hazards.

Now that caring for the natural environment has become good business, there are countless examples of firms demonstrating that sustainable business practices can not only help the planet but also be a source of competitive advantage. Several companies that are “shaking up” sustainability are worth mentioning, and we briefly discuss them below. These companies—Patagonia, Apple, and Tesla—are considered to have taken “principled stances” and/or led innovative programs for better social and environmental conditions. We outline their sustainability initiatives below.

Spotlight on Sustainability 50 Years of Earth Day

Earth Day is celebrated on April 22nd every year, and on April 22, 2020, Earth Day turned 50 years old. As one of the original social movement initiatives focusing on the environment, it inspired 20 million Americans in 1970—10 percent of the population at the time—to demonstrate against oil spills, polluting factories, and other sources of environmental degradation. Its founders, most notably Senator Gaylord Nelson from Wisconsin, were inspired by the 1962 publication of the book Silent Spring by Rachel Carson that exposed the harmful effects of chemicals like DDT pesticides on the environment. Today, Earthday.org represents the movement and works with more than 75,000 partners in more than 190 countries to drive action for the planet.

The New York Times came up with a list of 10 big environmental victories and failures since Earth Day’s 1970 origin. Some of the big victories included the following: “renewable energy is suddenly serious business,” “oil spills are rarer (if still big, sometimes),” and “the bald eagle soars again.” These were offset by failures like “clean energy isn’t yet growing fast enough,” “humans remain addicted to oil,” and “an extinction crisis looms.” The message is clear—while much progress has been made, there is still much work to be done to address the “wicked problems” of sustainability and the environment.

Sources: Earthday.org, https://www.earthday.org/, accessed February 15, 2021; Brad Plumer and John Schwartz, “50 Years of Earth Day: What’s Better Today, and What’s Worse,” The New York Times (April 21, 2020), https://www.nytimes.com/interactive/2020/climate/earth-day-history.html, accessed February 15, 2021.

4.4. Key Environmental Issues

What are some of the key environmental issues that businesses face? We look at each of the following environmental topics next:

Climate Change and Global Warming

Air Pollution and Toxins

Energy and Fossil Fuels

Water

Waste Management

Oceans and Fisheries

Deforestation and Biodiversity

4.5. Responsibility for Environmental and Sustainability Issues

Environmental problems such as smog, toxic waste, and acid rain can be described as “wicked problems”—that is, problems with characteristics such as interconnectedness, complexity, uncertainty, ambiguity, conflict, and societal constraints. Every wicked problem seems to be a symptom of another problem. Responsibility for such messy situations is difficult to affix, because solutions to wicked problems are seldom complete and final and, therefore, credit for these solutions is seldom given or taken. Chlorofluorocarbons, or CFCs, for example, were once considered safe alternatives to other, more toxic refrigerants, which is why these ozone destroyers are so ubiquitous in our society’s technologies.

When no one takes responsibility for adverse environmental effects, a phenomenon called the tragedy of the commons is likely to occur. A “commons” is a plot of land available to all. When the commons are large enough to accommodate the needs of everyone, no problems occur. However, as herders continue to add animals to their herds, the carrying capacity of the commons becomes strained. It is in the self-interest of each herder to allow the animals to graze, even though the cumulative grazing will inevitably destroy the commons. The analogy of a “commons” can be applied to the environment as a whole as well as its many constituent parts. In the absence of constraints, self-interest is likely to lead individuals and organizations to behave in ways that will not sustain our shared resources.

Chapter 5. Business Ethics Essentials

Chapter Learning Outcomes

After studying this chapter, you should be able to:

Describe the public’s opinion of business ethics.

Define business ethics, explain the conventional approach to business ethics, and identify the sources of ethical norms in individuals.

Analyze the economic, legal, and ethical aspects of a decision by using a Venn model.

Identify, explain, and illustrate three models of management ethics.

In terms of making moral management actionable, describe and discuss Kohlberg’s three levels of moral development and Gilligan’s ethics of care.

Identify and discuss six major elements of moral judgment. How does Rest’s four component model of ethical decision-making build upon these elements?

Introduction

The public’s interest in business ethics continues at a high level. Certainly, there has been an ebb and flow of interest on society’s part, but in recent years this interest has grown to a preoccupation or, as some might say, an obsession. With the ethics scandal tsunami of the early 2000s, beginning with Enron, we witnessed the birth and accelerated maturation of the “ethics industry.” The Enron scandal is considered to be the most notorious in American history as it involved massive misrepresentations of earnings, the creation of a fraudulent energy crisis, and embezzlement.

The Enron collapse ushered in an avalanche of ethics scandals that brought down several other companies, including the accounting firm Arthur Andersen and the telecom company WorldCom. The magnitude of CEO greed and contempt for the law seemed unprecedented. And, it wasn’t until the Wall Street financial crisis beginning in 2008 that the country realized that the difficulties with corporate ethics had not been fixed.

The Wall Street financial crisis and scandals, commencing in 2008, ushered in a new set of corporate characters, and it has been mostly companies and not CEOs or CFOs accused of questionable dealings.

Occurring at about the same time as the Wall Street financial scandals was the exposure of Bernard L. Madoff’s infamous Ponzi scheme. The world economy has improved since the Wall Street financial scandals, but it has continued to be difficult for trust in business to be restored. With each passing day, it seems, some new business ethics scandal hits the news. Some are more serious than others. But in recent years, companies such as Wells Fargo with its fake accounts scandal, Volkswagen with its emissions scandal, Equifax with its inadequate security leading to hacker theft of millions, Theranos and the health-care start-up selling blood tests that did not work, and Boeing with its flawed MAX pilot software leading to two airline crashes, and many others, have assured us that business ethics trials deserve their front-page status and that businesses still have much to do to restore the public’s trust in them.

What the scandals of the past couple of decades have revealed is that the issue of business ethics has both macro and micro effects. At the macro level, the entire business system has been polluted and called into question. This is the level of capitalism and Big Business, as an institution, maintaining its legitimacy in a complex world. At the micro level, individual companies, managers, and employees still face the continuing onslaught of ethics challenges that occur regularly. Using a managerial perspective, business ethics education is more focused on this latter category of ethics challenges. The broad environment, which deals with business and society relationships, however, continues to be a confounding backdrop against which these daily challenges occur. This has been complicated by the implications of the COVID-19 pandemic, the effects of which may be felt for years.

Figure 5-1 summarizes some of the major business ethics scandals that have occurred in recent years. The effects of these continue to the present day. Many of these companies and executives have claimed their innocence, and allegations and trials are at various stages of completion.

Figure 5-1 Major Business Ethics Scandals

Companies Implicated

Legal/Ethical Charges and Accusations

Airbus of Europe

Bribed to secure contracts around world

Boeing

Flawed software leading to two major airline crashes

Purdue Pharma

Felonies selling OxyContin; kickbacks and fraud

Theranos

Fraud and falsification of blood testing machinery

Facebook

Accused of revenue approaches resulting in privacy lapses

Credit Suisse

Execs turned blind eye to banker’s wrongdoing; failing to prevent money laundering

Houston Astros

Devised a sign-stealing scheme for decoding opposing catcher’s signs

Wells Fargo

Sales employees pressured to create fake customer accounts

Volkswagen

Emissions scandal; illegal pollution control defeat-devices installed on cars

Wirecard

Inflated company’s results by booking fake income

Takata

Faulty airbags leading to consumer deaths/recalls

Pilgrim’s Pride Corporation

Indicted for fixing price of chickens sold to restaurants and grocery stores

Peanut Corporation of America

Deadly salmonella outbreak leading to deaths; fraud

The public’s view of business ethics has never been very high. Some observers have claimed that business ethics is essentially a contradiction in terms, an oxymoron, and sometimes suspect that there is only a fine line between a business executive and a crook. Each of us as consumers, employees, or citizens can easily recall some problem that occurred in our everyday lives that involved suspected unethical behavior on the part of businesses. Over many years now, public opinion polls have revealed the public’s deep concerns about the honesty and ethical standards of business. In their 2020 poll, for example, Gallup found that only 17 percent of the public rated the ethics of business executives very high or high.

In the third decade of the 2000s, it appears that society is clamoring for a renewed emphasis on values, morals, and ethics, and the business ethics discussions during this period reflect an ongoing societal concern. Whether the business community will be able to close the trust gap and ratchet up its reputation to a higher plateau remains to be seen. One thing is certain: There is a continuing interest in business ethics, and the proliferation of business ethics courses, blogs, and tweets, along with the revitalized interest on the part of the business community, paints an encouraging picture for the “ethics industry” of the future.

Sometimes it is difficult to tell whether business ethics have really deteriorated or if the media, including social media, are doing a more thorough job of reporting on ethics violations. There is no doubt that the media are reporting ethical problems more frequently and fervently. Spurred on by the continuing supply of scandals, the media have found business ethics and, indeed, ethics questions among all institutions to be subjects of mounting and sustaining interest.

As maintained in Chapter 1, society is always changing. Due to affluence, education, awareness, and other factors, society is not just changing but raising its expectations of business’s integrity and ethical performance. Many business managers subscribe to this belief—that it is society that is changing, not just them.

Figure 5-2 illustrates one way of looking at the ethical problem in business today compared to earlier periods. It depicts the growing disconnect between society’s expectations of business ethics and ethics in practice. Note in the figure that actual business ethics is assumed to be slightly improving but not at the same pace as public expectations are rising. In this analysis, the magnitude of the current ethics problem is seen partially to be a function of rising societal expectations about business behavior compared with smaller increases, declines, or stability in actual business ethics. It is difficult to accurately say whether business ethics are definitely getting better, worse, or staying the same, but perceptions and expectations are significantly driving businesses’ reputations.

Figure 5-2 Business Ethics Today versus Earlier Periods

Details

Not all business ethics issues turn into major scandals. But the range of business issues within which ethical problems continue to reside are numerous. To gain an appreciation of the kinds of issues that are important on a day-to-day basis under the rubric of business ethics, Figure 5-3 presents a list of business ethics issues that companies typically have to face with major stakeholder groups. Against this backdrop, we plan to begin our business ethics discussion in this chapter and the next three chapters. This chapter introduces essential business ethics concepts. Next, Chapter 6 extends the discussion by considering managerial and organizational ethics. Then Chapter 7 turns to the international sphere as ethical issues in the global arena are examined. Finally, Chapter 8 focuses on business technology issues and the digital enterprise.

Figure 5-3 Examples of Ethical Issues Businesses Face Today

Stakeholder Group

Examples of Ethical Issues

Customers

Product safety/healthfulness

Advertising/marketing honestly

Packaging fairly/accurately

Labeling accurately/completely

Pricing fairly relative to quality

Protecting consumer privacy

Employees

Fair compensation practices

Fair day’s work and pay; living wage

Compliance with employment laws

Avoidance of employment discrimination

Safe working conditions

Avoiding employee theft/embezzlement

Protecting employees’ privacy

Dealing with distracted employees

Community/Environment

Environmental protection/sustainability

Adherence to legal mandates

Good corporate citizenship

Philanthropy/supporting causes

Adapting to foreign cultures

Avoidance of bribery

Shareholders

Protecting shareholders’ interests

Fair compensation for executives

Quality boards of directors

Protection of company assets

Fair returns on investments

Communicating accurately

Transparency

5.1. Business Ethics: Some Basic Concepts

In Chapter 2, ethical responsibilities of business were alluded to in an introductory way. The contrast between ethics, economics, law, and philanthropy were discussed. To be sure, we all have a general idea of what business ethics means, but now it is important to probe the topic more deeply. To understand business ethics, it is useful to comment on the relationship between ethics and morality.

The terms ethics and morals often are used interchangeably by commentators on business ethics. Both have to do with the standards of right or wrong, fairness, or justice. One distinction holds that ethics are standards of conduct, which originate from some external group or source such as society, in general, or business, in particular. Ethics in this view would be governed by society, professions, or organizations and may appear as principles, standards, or codes.

By contrast, morals are frequently seen as standards of conduct that originate within the individual. Morality, in this view, is often viewed as one’s personal compass regarding right or wrong. One complication is that some experts define these terms in the opposite manner to that expressed above. Another complication is that it is often difficult for persons to sort out the origins of their standards of behavior or conduct, that is, whether their standards are coming from outside the individual or from within the individual. For this reason, we will take the position that both ethics and morality are so similar to one another that we may use the terms interchangeably to refer to the study of fairness, justice, and behavior.

Business ethics, therefore, is concerned with the rightness, wrongness, fairness, or justice of actions, decisions, policies, and practices that take place within a business context or in the workplace. Business ethics is often seen as a set of principles or code of conduct by which activities are judged to be appropriate or questionable. Business ethics is a field of study in which the practices in organizations are analyzed to determine whether they are acceptable or not. Business ethics is also a field of study and topic that is of interest to the public, academics, students, and managers. Many stakeholders have much at stake in issues of business ethics.

5.2. Ethics, Economics, and Law—A Venn Model

Following on our discussion of ethics versus law, it is important to note that in many business decisions, ethics, economics, and the law all come into play. When we focus on ethics and ethical decision making, it is useful to consider these primary elements that come into tension while making ethical judgments. In Chapter 2, these were introduced as part of the four-part definition of corporate social responsibility, and they were depicted in the Pyramid of corporate social responsibility (CSR). When we discuss a firm’s CSR, philanthropy commonly enters the discussion. This is because philanthropic initiatives are one of the primary ways many companies display their CSR in the community—through good and charitable works.

In ethical decision-making situations, however, we tend to set aside philanthropic expectations and focus on ethical expectations and, especially, those elements that primarily come into tension with ethics—economics (the quest for profits) and law (society’s codified ethics). Thus, in most decision-making situations, ethics, economics, and law become the central variables that must be considered and balanced against each other in the quest to make wise and sensible decisions.

A firm’s economic, legal, and ethical responsibilities may be depicted in a Venn diagram model illustrating how certain actions, decisions, practices, or policies fulfill one, two, or three of these responsibility categories. Figure 5-6 presents this Venn diagram model, illustrating the overlapping potential of these three responsibility categories.

Figure 5-6 A Venn Model for Ethical Decision Making

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In Area 1 of the diagram, where the decision, action, or practice fulfils all three responsibilities, the management prescription is to “go for it.” That is, the action is profitable, in compliance with the law, and represents ethical behavior. In Area 2a, the action under consideration is profitable and legal, but its ethical status may be uncertain. The guideline here is to “proceed cautiously.” In these kinds of situations, the ethics of the action needs to be carefully considered. In Area 2b, the action is profitable and ethical, but perhaps the law does not clearly address the issue or is ambiguous. If it is ethical, there is a good chance it is also legal, but the guideline again is to “proceed cautiously.”

In Area 3 of the diagram, the action is legal and ethical but not profitable. Therefore, the strategy here would be to avoid this action or “find ways to make it profitable.” However, there may be a compelling case to take the action if it is legal and ethical and, thus, represents the right thing to do. Schwartz and Carroll have presented a three-domain approach to CSR that employs a Venn diagram format similar to that presented in Figure 5-6. They provide corporate examples to illustrate each section of the Venn diagram.

By taking philanthropy out of the picture, the Venn model serves as a useful template for thinking about the more immediate expectations that society has on business in a situation in which the ethical dimension plays an important role. It illustrates clearly that many business decisions boil down to trade-offs between the influences of economics, law, and ethics.

Ethics In Practice Case Is Résumé Inflation and Deception Acceptable?

According to Steven Levitt, author of Freakonomics, a small bit of inflation on one’s résumé is universal. Levitt estimates that at least half the people engage in this deception to some degree. Typically, the small edits to one’s résumé are done to disguise some unaccounted-for time between jobs. There may be nothing to hide except the fact that an unexplained time period looks suspicious. On other occasions, the deceptions have been more substantial, for example, claiming an academic degree one almost acquired but didn’t: “Well, I was just two courses short!” It has also been said that based on one study, the average American tells two to four lies a day, often at work. A survey of 2,500 hiring managers by CareerBuilder found that 30 percent of them find false or misleading information on applicants’ résumés.

A résumé controversy with significant consequences occurred when the then-Yahoo CEO, Scott Thompson, was questioned about a statement on his company’s website, which reported that he had a degree in computer science. A dissident shareholder went public with the revelation that Thompson couldn’t have a degree in computer science because the small college he graduated from didn’t have a computer science major until after he graduated. The company’s regulatory filing indicated that Thompson had a degree in accounting and computer science. Thompson claimed the website information was an inadvertent error without providing more information. According to his college, Thompson graduated with a bachelor’s of science degree in business administration.

Days after this information came out, a person close to Yahoo’s board reported that in absence of information that Thompson intentionally misled, the company probably would not force him out, indicating that his importance as CEO to the company was more important than whether he had a computer science degree or not. In spite of this, CEO Scott Thompson resigned his position soon thereafter amid the controversy over his résumé discrepancy.

In light of the prevalence of these practices, is résumé inflation and deception acceptable? Is it okay “up to a point” as long as the distortion doesn’t get too big? Is a small amount of puffery on one’s résumé just expected as part of the game of getting a job and getting ahead? What would the conventional approach to business ethics say about this?

Some small schools don’t have official majors but people sometimes claim them anyway because they took several courses in a specialized area. Is this an acceptable practice?

If you had been on Yahoo’s board, would you have supported keeping Thompson?

Why do you suppose Thompson resigned?

Sources: Steven Levitt, Freakonomics, 2005; David Wescott, “The Truth Won’t Set You Free,” Bloomberg Business Week, February 4–10, 2013; “Imaginary Friends,” Bloomberg Businessweek, January 21–27, 2013, 68; Amir Efrati and J. S. Lublin, “Résumé Trips Up Yahoo’s Chief,” Wall Street Journal, May 5–6, 2012, A1, A12; Peter Yang, “The Most Outrageous Resume Lies Employers Have Seen,” March 19, 2019, https://www.cnbc.com/2019/03/19/the-most-outrageous-resume-lies-and-4-secret-tactics-hiring-managers-use-to-catch-a-liar.html, accessed March 12, 2021.

Chapter 6. Managerial and Organizational Ethics

Introduction

The ethical issues on which managers must make decisions are numerous and varied. The news media tends to focus on the major ethical scandals involving well-known corporate names. Therefore, Purdue Pharma, Theranos, Boeing, Wells Fargo, Volkswagen, Takata, and other such high-visibility firms have attracted considerable attention. As a consequence, many of the day-to-day ethical challenges that managers and employees face in medium-sized and small organizations are often overlooked or underreported. People today face ethical issues in a variety of settings, but our concern in this chapter is limited to managerial and organizational ethics.

Managers encounter day-to-day ethical challenges in arenas such as conflicts of interest, sexual harassment, discrimination, inappropriate gifts to corporate personnel, unauthorized payments, customer dealings, evaluation of personnel, and pressure to compromise their personal standards. But often these managers have no experience or training in business ethics or ethical decision making to tackle such quandaries.

The ethical challenge in business is a daunting one, and progress on this front is vital to sustainable businesses. An ethics officer for a large corporation once said that there are three types of organizations: those that have had ethics problems, those that are having ethics problems, and those that will have ethics problems. Ethical issues appear through all levels of management, in many different types of jobs, and in organizations of all sizes.

A study of managers’ desired leadership qualities was conducted by consultant and writer Lee Ellis, who concluded that integrity is the quality most sought after in leaders. Furthermore, sustaining a company’s integrity requires constant vigilance. A retired corporate executive, now business school lecturer, Bill George, former CEO of Medtronic, asserted that today we need corporate leaders with integrity. But how does one get personal integrity, and as a manager, how do you instill it in yourself and your organization to create an ethical organizational climate? These topics will be explored in this chapter.

Some of the significant challenges managers face today include the following: How do you keep your own managerial ethics focused in such a way that you avoid immorality and amorality? What principles, concepts, or guidelines are available to help you to be ethical? What specific strategies, approaches, or best practices might be emphasized to bring about an ethical culture in companies and organizations? How is “behavioral ethics” affecting decision making?

6.1. Ethics Issues Arise at Different Levels

As individuals and as managers, we experience ethical pressures or dilemmas in a variety of settings and at different levels of occurrence, including the personal level, the managerial and organizational level, the industry level, the societal level, and the global level. These levels ripple out from the individual level to the global level. In an analogous manner, Epstein and Hanson have recently described that ethical failures in business have occurred using the following metaphor: Some people are bad—this is their bad-apple theory. Some companies are bad—this is their bad-barrel theory. The economic system itself is bad—this is their bad-orchard theory. Indeed, poor business ethics does occur because of “bad apples” (people), “bad barrels” (organizations), and “bad orchards” (industries, societies, global). In this chapter, we will focus on people and organizations, for they are the levels about which action may be more readily taken by managers.

Some observers believe that “ethics are ethics” regardless of whether they are applied at the personal, managerial, or organizational level. In many respects this is true. However, each level of application also introduces distinct challenges. To help understand the types of decision situations that are faced at the various levels, it is worth considering them in terms of the types of issues that may arise in different contexts.

6.2. Managerial Ethics and Ethical Principles

In thinking about managerial ethics, it is anticipated that most individuals want to behave ethically or improve their ethical conduct in organizational situations. Our discussion here focuses on those who desire to be ethical and are looking for help in doing so. All the difficulties with making ethical judgments that we discussed in the previous chapter are applicable in this discussion as well.

Managerial ethics, for the most part, entails making decisions that have ethical implications or consequences. Difficult decisions typically present the individual with a conflict-of-interest situation. Conflicts of interest are at the heart of ethics and ethical decision making. A conflict of interest is usually present when the individuals have to choose between their interests and the interests of someone else or some other group (their organization, other stakeholders). What it boils down to in the final analysis is answering the question, “What is the ethical course of action to take in this situation?” In other instances, practices that managers and organizations employ are embedded with ethical implications. Someone else most likely first introduced the practices at an earlier time, so some managers do not see that each time they continue a questionable practice, they are implicitly deciding that it is appropriate.

In answering the question about the right or fair course of action, it often seems that individuals think about the situation briefly and then go with their instincts. There are, however, guidelines for ethical decision making that employees or managements might turn to if they really want to make the best ethical decisions. Some of these guidelines are discussed in the next several sections of this chapter.

In Chapter 5, we discussed business ethics using the conventional approach. The conventional approach entailed making a comparison between a decision, action, or policy and prevailing norms of acceptability. In this chapter, we introduce two approaches to managerial ethics or ethical decision making that serve as additional guidance: (1) the principles approach and (2) the ethical tests approach.

6.3. Principles Approach to Ethics

The principles approach to ethics or ethical decision making is based on the idea that employees and managers desire to anchor their decisions, actions, or policies on a more solid foundation than that provided with the conventional approach. Several principles of ethics have evolved over time as moral philosophers and ethicists have attempted to organize and codify their thinking and guidelines. These principles are normative in nature as they offer guidance regarding what one “ought to do” in a situation.