ETHICAL THEORY

Ethical Theory and Business

EIGHTH EDITION

Edited by

Tom L. Beauchamp Georgetown University

Norman E. Bowie University of Minnesota

Denis G. Arnold University of Tennessee

PEARSON

Prentice Hall

Pearson Education International

Contents

PREFACE xiv

Chapter 1 ETHICAL THEORY AND BUSINESS PRACTICE 1

INTRODUCTION 1

FUNDAMENTAL CONCEPTS AND PROBLEMS 1 Morality and Ethical Theory 1 Morality and Prudence 3 Morality and Law 4 The Rule of Conscience 6 Approaches to the Study of Morality and Ethical Theory 7 Relativism and Objectivity of Belief 8 Moral Disagreements 11 The Problem of Egoism 13

NORMATIVE ETHICAL THEORY 18 Utilitarian Theories 18 Kantian Ethics 23 Contemporary Challenges to the Dominant Theories 30 Rights Theories 30 Virtue Ethics 33 Common-Morality Theories 35

vi Contents

A Prologue to Theories of Justice 38 The Moral Point of View 39

Chapter 2 THE PURPOSE OF THE CORPORATION 45

INTRODUCTION 45

STOCKHOLDER MANAGEMENT VERSUS STAKEHOLDER MANAGEMENT

Milton Friedman, The Social Responsibility of Business Is to Increase Its Profits 51 R. Edward Freeman, Managing for Stakeholders 56 John R. Boatright, What's Wrong—and What's Right—with Stakeholder Management 69

- Wayne F. Cascio, Decency Means More than "Always Low Prices": A Comparison of Costco to Wal-Mart's Sam's Club" 80

LEGAL PERSPECTIVES

Michigan Supreme Court, Dodge v. Ford Motor Co. 90 Supreme Court of New Jersey, A. P. Smith Manufacturing Co. v. Barlow 92 Johnson & Johnson: Our Credo 94

CASES

Case 1: The NYSEG Corporate Responsibility Program 95 Case 2: Outsourcing at Any Cost? Do Corporations Ever Have a Moral Obligation Not

to Outsource? 98 Case 3: Merck and River Blindness 101 Case 4: H. B. Fuller in Honduras: Street Children and Substance Abuse 102 Case 5: From Tension to Cooperative Dialogue: Holcim 104

Suggested Supplementary Readings 106

Chapter 3

ETHICAL TREATMENT OF EMPLOYEES 107

INTRODUCTION 107

THE HIRING AND FIRING OF EMPLOYEES

Patricia H. Werhane and TaraJ. Radin, Employment at Will and Due Process 113 Richard A. Epstein, In Defense of the Contract at Will 121

Contents vii

OCCUPATIONAL RISK

Ruth R. Faden and Tom L. Beauchamp, The Right to Risk Information and the Right to Refuse Workplace Hazards 129

John R. Boatright, Occupational Health and Safety 136

WHISTLE-BLOWING

Michael Davis, Some Paradoxes of Whistle-Blowing 147 Ronald Duska, Whistle-Blowing and Employee Loyalty 155

LEGAL PERSPECTIVES

Superior Court of New Jersey, Warthenv. Toms River Community Memorial Hospital 159

United States Supreme Court, Automobile Workers v. Johnson Controls Inc. 164 Superior Court of New Jersey, Potter v. Village Bank of New Jersey 167

CASES

Case 1: Off-Duty Smoking 171 Case 2: Fired for Drinking the Wrong Brand of Beer 172 Case 3: Exposing Workers to Plutonium 172 Case 4: BP Workers Ill-Trained for Dangers 173 Case 5: Roger Boisjoly and the Challenger Disaster: Disloyal Employee or Courageous

Whistle-Blower? 175 Case 6: The Reluctant Security Guard 177 Case 7: A Matter of Principle 180

Suggested Supplementary Readings 181

Chapter 4 DIVERSITY, DISCRIMINATION AND HARASSMENT IN THE WORKPLACE 184

INTRODUCTION 184

DIVERSITY AND AFFIRMATIVE ACTION

Tom L. Beauchamp, Affirmative Action Goals in Hiring and Promotion 194 N. Scott Arnold, Affirmative Action and the Demands of Justice 202 James P. Sterba, A Defense of Diversity Affirmative Action 212 George Sher, Diversity 219

SEXUAL HARASSMENT

Larry May, Sexual Harassment and Solidarity 227 Jaimie Leeser and William O'Donohue, Normative Issues in Defining Sexual Harassment 236

viii Contents

LEGAL PERSPECTIVES

United States Supreme Court, Local 28 of the Sheet Metal Workers' International Association v. Equal Employment Opportunity Commission 244

United States Supreme Court, Barbara Grutter, Petitioner, u Lee Bollinger et al. 249 Justice Sandra Day O'Connor, Opinion of the Court 249 Justice Clarence Thomas, Dissenting Opinion 253 Brief for Amid Curiae: 65 Leading American Businesses in Support of Respondents 255

United States Supreme Court, Meritor Savings Bank, FSB, v. Vinson et al. 258 United States Supreme Court, Teresa Harris, Petitioner, v. Forklift Systems Inc. 262

CASES

Case 1: How Would You Vote if You Lived in Michigan? 264 Case 2: Sing's Chinese Restaurant 266 Case 3: Kaiser Aluminum and the United Steelworkers 266 Case 4: Promotions at Uptown Bottling and Canning Company 267 Case 5: Freedom of Expression in the Workplace 268 Case 6: "Harassment" at Brademore Electric 269

Suggested Supplementary Readings 270

Chapter 5

MARKETING AND THE DISCLOSURE OF INFORMATION 273

INTRODUCTION 273

ADVERTISING AND DISCLOSURE Robert L. Arrington, Advertising and Behavior Control 284 David M. Holley, Information Disclosure in Sales 290

MARKETING

George G. Brenkert, Marketing and the Vulnerable 297 Carl Elliott, The Drug Pushers 307

LEGAL PERSPECTIVES

United States Court of Appeals for the First Circuit, Irving A. Backman u Polaroid Corporation 317

United States Court of Appeals for the Seventh Circuit, B. Sanfield Inc. v. FinlayFine Jewelry Corp. 320

United States Court of Appeals for the Second Circuit, Coca-Cola Company v. Tropicana Products Inc. 323

Supreme Court of California, Kasky v. Nike Inc. 325 The Pharmaceutical Research and Manufacturers of America, Code on Interactions

with Health-Care Professionals 328

Contents

CASES

Case 1: More HorsePOWER? 331 Case 2: Advice for Sale: How Companies Pay TV Experts for On-Air Product Mentions 331 Case 3: Sales at World Camera and Electronics 336 Case 4: Hucksters in the Classroom 336 Case 5: Kraft Foods Inc.: The Cost of Advertising on Children's Waistlines 339 Case 6: Marketing Malt Liquor 344 Case 7: Merck & Company: The Vioxx Recall 345

Suggested Supplementary Readings 350

Chapter 6 ETHICAL ISSUES IN FINANCE AND ACCOUNTING 352

INTRODUCTION 352

AUDITING AFTER ENRON

Ronald F. Duska and Brenda Shay Duska, Ethics in Auditing: The Auditing Function 355

Colin Boyd, The Structural Origins of Conflicts of Interest in the Accounting Profession 364

John R. Boatright, Individual Responsibility in the American Corporate System: Does Sarbanes-Oxley Strike the Right Balance? 373

"FINANCIAL SERVICES

John R. Boatright, Ethical Issues in Financial Services 387 Robert W. McGee, Applying Ethics to Insider Trading 395

LEGAL PERSPECTIVES

United States Supreme Court, United States, Petitioner, v. James Herman O'Hagan, 402

American Institute of Certified Public Accountants, Code of Professional Conduct 405

CASES

Case 1: An Auditor's Dilemma 408 Case 2: Accounting for Enron 409 Case 3: Enron and Employee Investment Risk 414 Case 4: The Conventions of Lying on Wall Street 415 Case 5: Martha Stewart Living Omnimedia Inc.: An Accusation of Insider Trading 416

Suggested Supplementary Readings 421

x Contents

Chapter 7

ETHICAL ISSUES REGARDING EMERGING TECHNOLOGIES 423

INTRODUCTION 423

INFORMATION AND THE WORLD WIDE WEB Deborah G. Johnson, Privacy 428 Jeffery D. Smith, Internet Content Providers and Complicity in Human

Rights Abuse 442 Richard T. De George, Intellectual Property and the Information Age 455

PHARMACEUTICAL PATENTS

Richard T. De George, Intellectual Property and Pharmaceutical Drugs: An Ethical Analysis 465

Patricia H. Werhane and Michael E. Gorman, Intellectual Property Rights, Moral •Imagination, and Access to Life-Enhancing Drugs 477

LEGAL PERSPECTIVES

United States Supreme Court, Sony Corp. v. Universal City Studios Inc. 486 United States District Court for the Northern District of California, A&M Records

v. Napster 491 World Trade Organization, Agreement on Trade-Related Aspects of Intellectual Property

Rights 498 World Trade Organization, Declaration on the TRIPS Agreement and Public Health 501

CASES

Case 1: Privacy Pressures: The Use of Web Bugs at HomeConnection 502 Case 2: Spiders at the Auction 504 Case 3: Ditto.com 505 Case 4: Patents and the African AIDS Epidemic 507 Case 5: Aventis: Partnerships for Health 509

Suggested Supplementary Readings 510

Chapter Eight ETHICAL ISSUES REGARDING THE NATURAL ENVTROMENT 512

INTRODUCTION 512

BUSINESS AND ENVIRONMENTAL OBLIGATIONS

Norman E. Bowie, Morality, Money and Motor Cars 516 Denis G. Arnold and Keith Bustos, Business, Ethics, and Global Climate Change 523

Contents 3

Joseph Desjardins, -Sustainability: Business's New Environmental Obligation 533 Dennis R. Cooley, Genetically Modified Organisms and Business Duties 541

LEGAL PERSPECTIVES

United States Supreme Court, United States, Petitioner, v. Best Foods et al. 547 United States Supreme Court, Christine Todd Whitman, Administrator of Environmental

Protection Agency et al., Petitioners, v. American Trucking Associations, Inc., et al. 550

CASES

Case 1: Royal Caribbean: Exotic Promises and Toxic Waters 553 Case 2: Texaco in the Ecuadorean Amazon 555 Case 3: BP: Beyond Petroleum Spills? 558 Case 4: Maintaining a Seat at the Table: The Shell Group 562 Case 5: Interface Corporation and Sustainable Business 565 Case 6: Monsanto's Roundup Ready Wheat 566

Suggested Supplementary Readings 569

Chapter 9 ETHICAL ISSUES IN INTERNATIONAL BUSINESS 571

INTRODUCTION 571

UNIVERSALISM, RELATIVISM, AND HUMAN RIGHTS

Norman E. Bowie, Relativism and the Moral Obligations of Multinational Corporations 577

Denis G. Arnold, The Human Rights Obligations of Multinational Corporations 583 Patricia H. Werhane, Exporting Mental Models: Global Capitalism in the Twenty-First

Century 590

SWEATSHOPS AND BRIBERY

Ian Maitland, The Great Non-Debate over International Sweatshops 597 Denis G. Arnold and Norman E. Bowie, Sweatshops and Respect for Persons 608 David Hess and Thomas Dunfee, Taking Responsibility for Bribery: The Multinational

Corporation's Role in Combating Corruption 624

LEGAL PERSPECTIVES

Supreme Court of Texas, Dow Chemical Company and Shell Oil Company v. Domingo Castro Alfaro et al. 633

United States Court of Appeals for the Ninth Circuit, Doe 1 v. Unocal 638 United Nations, Draft Norms on the Responsibilities of Transnational Corporations

and Other Business Enterprises with Regard to Human Rights (2003) 644 United Nations, Global Compact 647

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CASES

Case 1: Foreign Assignment 648 Case 2: Facilitation or Bribery: Cultural and Ethical Disparities 650 Case 3: Chrysler and Gao Feng: Corporate Responsibility for Religious and Political

Freedom in China 651 Case 4: Should Wal-Mart Do More?: A Case Study in Global Supply Chain Ethics 653 Case 5: adidas: Application of Standards of Engagement to Child Labor Dilemma 657 Case 6: Tackling HIV/AIDS: Unilever Tea Kenya 661

Suggested Supplementary Readings 663

Chapter 10

SOCIAL AND ECONOMIC JUSTICE 665

INTRODUCTION 665

THEORIES OF SOCIAL JUSTICE John Rawls, An Egalitarian Theory of Justice 674 Robert Nozick, The Entitlement Theory 682 Peter Singer, Rich and Poor 686

COMPENSATION

Jeffrey Moriarty, Do CEOs Get Paid Too Much? 692

GLOBAL JUSTICE

Martin Wolf, Why Globalization Works 702 Thomas Pogge, Priorities of Global Justice 712

LEGAL PERSPECTIVE

United Nations, Universal Declaration of Human Rights 722

CASES

Case 1: Sapora's Patriarchical Society 725 Case 2: Cocaine at the Fortune 500 Level 726 Case 3: CEO Compensation at Qwest 728 Case 4: Wages of Failure: The Ethics of Executive Compensation 729 Case 5: Covering the Costs of Health Care 731

Suggested Supplementary Readings 732