Bethel University Herbalife Marketing Strategies Case Study

The Herbalife Case is attached and can be found on pages 71-81

(1)  In a narrative format, discuss the key facts and critical issues presented in the case.  What were William Ackman’s accusations against Herbalife?  Why are multilevel compensation plans often confused with illegal pyramid schemes?

(2)  Assume that you are a part of Herbalife’s top management team responsible for responding to these accusations.  Craft a response.

(3)  Compare Herbalife to BurnLounge discussed in the case.  What are the key differences between the two companies?

CHAPTER FIVE
Business Ethics and
Ethical Decision-Making
Chapter Objectives
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152
To define and describe the importance of
business ethics
To understand the diverse and complex
nature of existing and emerging ethical
issues
To discuss the individual factors that
influence ethical or unethical decisions
To explore the effects of organizational
relationships on ethical decision-making
To evaluate the role of opportunity in
ethical or unethical decisions
To understand how to implement an
ethical culture
R
O
B
E
R
T
S
O
N Chapter Outline
, The Nature of Business Ethics
Foundations of Business Ethics
L
Ethical Issues in Business
A
the Ethical Decision-Making
T Understanding
Process
R
Developing an Ethical Culture
E
C
I
A
2
1
8
2
T
S
Opening Vignette
Walmart Faces Bribery AllegationsRin Mexico
Walmart has tried to revitalize its image through global O
Five years later, Walmart reported to the Justice
compliance programs and a renewed interest in sustain- BDepartment that it was conducting an investigation
ability. However, a large bribery ring uncovered in 2012
into possible bribery in Mexico. However, this only
revealed that for years the company had allegedly been E occurred after The New York Times began to invesbribing foreign officials in Mexico. The alleged bribes Rtigate the case. Eventually, the case was expanded
involved its Mexican arm Walmex and were given to to investigate potential instances of bribery in other
obtain licensing and zoning permits. The scandal wors- T countries, such as India. Within two years, Walmart had
ened when it was uncovered that executives at the S spent an estimated $439 million on its investigation
company had reason to suspect the bribery but took
into foreign bribery.
O Walmart is trying to restore its image. For instance,
insufficient actions to stop it.
The story of the Walmart bribery scandal began in Nat a pep rally Mike Duke emphasized integrity as an
the early 2000s in Mexico City. A new zoning map had
company value, as well as Walmart’s hot, important
been developed that would have prohibited Walmart
line and open-door policy. Eleven employees were
from building a store near one of Mexico’s ancient pyramids. Walmart officials in Mexico initially paid $52,000
in bribes to get the zoning map changed so the store
could be built. Fraudulent reporting was used to cover
up the bribes. Other bribes followed to pave Walmex’s
expansion in Mexico.
The general counsel informed Walmart’s executives
about the bribes in 2005. It is alleged that then-CEO Lee
Scott and the head of Walmart International Mike Duke
were told about the accusations. An internal investigation was launched by Walmart’s Mexican general
counsel, which was suspected of approving the scheme
in the first place. This violates the Federal Sentencing
Guidelines prohibiting organizations from putting individuals suspected of misconduct (or being complicit with
misconduct) in charge of an ethical investigation. A top
Walmart lawyer disapproved of the decision to involve
the Mexican general council, but to no end. Walmart
ended the investigation in 2006 despite evidence that
millions of dollars had been given away as bribes.
rewarded at the rally for ethical leadership. Walmart
also announced it was tying executive compensation
more in line with compliance efforts. However, Mike
Duke continued to experience a tumultuous reign as
CEO and stepped down in 2013.
Shareholders began demanding that Walmart
increase its transparency and compliance initiatives.
Many investors filed lawsuits, and Walmart has begun
changing its compliance and leadership structure. Eight
executives left the company, including former CEO Lee
Scott from the board. However, the investigations and
lawsuits against former CEO Mike Duke and Walmart
continue. Although Walmart is trying to get some of
the class-action lawsuits dismissed, at least one U.S.
judge believes Walmart should face lawsuits over
the incident. Walmart will need to make significant
improvements to its global ethics and compliance program to restore its reputation.1
L
A
T
R
E
C
I
A
2
1
8
2
T
S
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Business and Society
K
ey business ethics concerns relate to questions about whether various stakeholders consider specific business practices acceptable. A
reputation as an ethical firm takes a long time to earn but just minutes to lose. Once lost, it can take considerable time to restore goodwill
with stakeholders. For example, banks and financial institutions have had
major reputational damage. The financial services industry ranks the lowest in consumer and investor trust. According to a CFA Institute/Edelman
R
Investor Trust Study, 53 percent
of investors do not believe employees of
financial management firms
will
do the right thing if given the opportuO
nity.2 Business ethics is important to build trust and create an organizaB a good reputation.
tional culture that establishes
By its very nature, the field
E of business ethics is complex because organizational issues often require subject matter knowledge. For example,
R
accounting ethics is embedded
with principles, rules, and regulatory
requirements. Most businesses
are
establishing initiatives that include the
T
development and implementation of ethics programs designed to deter
S
misconduct. Raytheon Company,
a long-established defense and security
company employing 63,000
people
worldwide, has a comprehensive ethics
O
and compliance program. The company’s ethics education program has
been ranked by 82 percentNof employees as relevant and useful in making
ethical decisions. The strength
, of the program has contributed to a strong
organizational culture of integrity. Employees engage in annual peer meetings called “Ethics Checkpoint” sessions where all have an opportunity
to reflect on and provide Lsolutions to real life ethical dilemmas. Video
vignettes and other onlineAeducational materials on supplier relations,
product integrity, and labor issues are also utilized. The company displays
T by supporting education and proper conduct
an outward focus on ethics
3
in defense and university programs.
R
The definition of social responsibility that appears in Chapter 1
E
incorporates society’s expectations
and includes four levels of concern:
economic, legal, ethical, and
philanthropic.
Because ethics is becoming an
C
increasingly important issue in business today, this chapter and Chapter
6 are devoted to exploringI this dimension of social responsibility. First,
we define business ethics, A
examine its importance from an organizational
perspective, and review its foundations. Next, we define ethical issues in
business to help understand areas of risk. We then look at the individual,
organizational, and opportunity
factors that influence ethical decision2
making in the workplace. We conclude by examining requirements for
1
developing an ethical organizational culture.
8
2
The Nature of Business
Ethics
T
Business decisions can be both acceptable and beneficial to society. It is
S
necessary to examine business ethics to understand decisions made in the
context of an organizational culture. The term ethics relates to choices and
judgments about acceptable standards of conduct that guide the behavior
Chapter 5 Business Ethics and Ethical Decision-Making
of individuals and groups. These standards require both organizations
and individuals to accept responsibility for their actions and to comply
with established principles, values, and norms. Without a shared view of
which values and norms are appropriate and acceptable, companies will
not have consistency in decisions, with individuals differing in how they
resolve issues. Building an ethical culture results in shareholder loyalty
and can contribute to success that supports even broader social causes
and concerns. Director of Sustainability at the R
Verdigris Group, Garratt
Hasenstab, has stated regarding its corporate social
O responsibility initiatives that “the true value we receive from our ongoing initiatives is that
B example is the greatest
of social good will—we believe that setting a good
benefit.”4 Society has developed rules—both legal
E and implied—to guide
companies in their efforts to earn profits through means that do not bring
R
harm to individuals or to society at large.
Business ethics comprises the principles andTstandards that guide the
behavior of individuals and groups in the world of business. Most definiSand principles regarding
tions of business ethics relate to rules, standards,
what is right or wrong in specific situations. Principles
O are specific and pervasive boundaries for behavior that are universal and absolute. Principles
N of principles include
often become the basis for rules. Some examples
freedom of speech, principles of justice, and equal
, rights to civil liberties.
Values are used to develop norms that are socially enforced. Integrity,
accountability, and trust are examples of values. Investors, employees,
L the community often
customers, interest groups, the legal system, and
determine whether a specific action is right or wrong,
A ethical or unethical.
Although these groups are not necessarily “right,” their judgments influT and its activities.
ence society’s acceptance or rejection of a business
Managers, employees, consumers, industryR
associations, government
regulators, business partners, and special interest groups all contribute
E time. The most basic of
to these conventions, and they may change over
these standards have been codified as laws andCregulations to encourage
companies to conform to society’s expectations of business conduct. As we
I fraud and conflicts of
said in Chapter 4, public concerns about accounting
interest in the securities industry led to the passage
A of the Sarbanes-Oxley
Act to restore the public’s trust in the stock market.
It is vital to recognize that business ethics goes beyond legal issues.
Ethical business decisions foster trust in business
2 relationships, and as we
discussed in Chapter 1, trust is a key factor in improving productivity and
1
achieving success in most organizations. When companies deviate from
the prevailing standards of industry and society,8the result is customer dissatisfaction, lack of trust, and lawsuits.
2
Some businesspeople choose to behave ethically because of enlightT pays.” They want to act
ened self-interest, or the expectation that “ethics
responsibly and assume that the public and customers
will reward the
S
company for its ethical actions. For example, Patagonia began donating
one percent of their sales to environmental causes and encourages customers not to buy their products if they do not need them. While these
155
business ethics
The principles and
standards that guide the
behavior of individuals
and groups in the world of
business.
principles
Specific and pervasive
boundaries for behavior
that are universal and absolute and often form the
basis for rules.
values
Norms that are socially
enforced, such as integrity,
accountability, and trust.
156
Business and Society
a­ ctivities have the potential to negatively affect the company’s sales, consumers value Patagonia’s responsible message and opt to support them
over other outdoor retailers, which could increase long-run profitability.5
Foundations of Business Ethics
R groups within a company may not have
Because all individuals and
embraced the same set of values, there is always the possibility of ethical
O
conflict. Most ethical issues in an organizational context are addressed
openly whenever a policy,B
code, or rule is questioned. Even then, it may
be hard to distinguish between
E the ethical issue and the legal means used
to resolve it. Because it is difficult to draw a boundary between legal and
R issues need an organizational mechanism
ethical issues, all questionable
for resolution.
T
The legal ramifications of some issues and situations may be obviS and actions more often result in disputes
ous, but questionable decisions
that must be resolved through
O some type of negotiation or even litigation.
Companies that sell e-cigarettes, for instance, may be subject to such risks
N firms. The FDA has moved to regulate some
similar to traditional tobacco
activities related to e-cigarettes
, such as selling to minors, offering free samples, and listing ingredients on packaging. Some argue that these restrictions are too cumbersome in terms of cost for businesses, particularly in
light of the fact that manyLtobacco users have reduced or eliminated their
dependence on the drug as a result of switching to e-cigarettes. On the
A
other hand, many say these devices are targeted toward youth since they
T and bubblegum, which are likely to attract
offer flavors such as chocolate
this demographic and getRthem dabbling with tobacco products.6 Such
highly publicized issues strengthen the perception that ethical standards in
business need to be raised.E
When ethical disputesCwind up in court, the costs and distractions
associated with litigation can be devastating to a business. In addition to
I damages actually incurred, punitive damages
the compensatory or nominal
may be imposed on a company
A that is judged to have acted improperly to
punish the firm and to send an intimidating message to others. The legal
system, therefore, provides a formal venue for businesspeople to resolve
ethical as well as legal disputes;
in fact, many of the examples we cite in
2
this chapter had to be resolved through the courts. To avoid the costs of
1 develop systems to monitor complaints, suglitigation, companies should
gestions, and other feedback
8 from stakeholders. In many cases, issues can
be negotiated or resolved without legal intervention. Strategic responsibil2
ity entails systems for listening to, understanding, and effectively managing
7
T
stakeholder concerns.
A high level of personal morality may not be sufficient to prevent an
S
individual from violating the law in an organizational context in which
even experienced attorneys debate the exact meaning of the law. Because
it is impossible to train all the members of an organization as lawyers,
Chapter 5 Business Ethics and Ethical Decision-Making
the identification of ethical issues and the implementation of standards
of conduct that incorporate both legal and ethical concerns are the best
approaches to preventing crime and avoiding civil litigation. Codifying
ethical standards into meaningful policies that spell out what is and is not
acceptable gives businesspeople an opportunity to reduce the probability
of behavior that could create legal problems. Without proper ethical training and guidance, it is impossible for the average business manager to
R in the areas of produnderstand the exact boundaries for illegal behavior
uct safety, price fixing, fraud, collusion, copyright
O violations, and so on.
For example, the largest technology companies, including Google, Apple,
B suit regarding colluIntel, and Adobe, are being charged in a class-action
sion on employee wages. The claim states that the
E executives of all companies agreed not to recruit the others’ employees for a number of years, the
R some state that the case
effect of which was a suppression of wages. While
may not reach trial, and settlement discussions are
T underway, if convicted,
the companies may have to pay up to $9 billion in damages.8
S trust are often assumed
Although the values of honesty, respect, and
to be self-evident and universally accepted, business
decisions involve
O
complex and detailed discussions in which correctness may not be so
clear-cut. Both employees and managers needNexperience within their
specific industry to understand how to operate ,in gray areas or to handle
close calls in evolving areas. Warren Buffett and his company Berkshire
Hathaway command significant respect from investors because of their
L of their organizations.
track record of financial returns and the integrity
Buffett says, “I want employees to ask themselves
A whether they are willing
to have any contemplated act appear the next day on the front page of
T
their local paper—to be read by their spouses, children
and friends—with
the reporting done by an informed and critical reporter.”
The high level of
R
accountability and trust Buffett places in employees translates into investor
E
trust and confidence.9
Many people with limited business experience
C suddenly find themselves required to make decisions about product quality, advertising,
I and pollution control.
pricing, sales techniques, hiring practices, privacy,
For example, how do advertisers know when A
they are making misleading statements in advertising versus “puffery”? Bayer is “the world’s best
aspirin,” Snapple “made from the best stuff on earth,” and Firestone
(before recalling 6.5 million tires) promised “quality
you can trust.”10
2
The personal values learned through non-work socialization from family,
1
religion, and school may not provide specific guidelines for these complex
8
business decisions. In other words, a person’s experiences
and decisions at
home, in school, and in the community may be quite different from the
2
experiences and the decisions he or she has to make at work. Moreover,
the interests and values of individual employeesTmay differ from those of
the company in which they work, from industry
Sstandards, and from the
society in general. When personal values are inconsistent with the configuration of values held by the work group, ethical conflict may ensue. It
is important that a shared vision of acceptable behavior develop from an
157
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Business and Society
organizational perspective to cultivate consistent and reliable relationships
with all concerned stakeholders. A shared vision of ethics that is part of an
organization’s culture can be questioned, analyzed, and modified as new
issues develop. However, business ethics should relate to work environment decisions and should not control or influence personal ethical issues.
Recognizing an Ethical
R Issue
Although we have described
O a number of relationships and situations that
may generate ethical issues, it can be difficult to recognize specific ethical
B acknowledge ethical issues is a great danger
issues in practice. Failure to
in any organization, particularly
if business is treated as a game in which
E
ordinary rules of fairness do not apply. Sometimes, people who take this
view do things that are notR
only unethical but also illegal to maximize their
own position or boost the T
profits or goals of the organization.
Figure 5.1 identifies the frequency of misconduct observed by employS
ees in the most recent Ethics Resource Center survey. Since 2007, the
O programs countrywide increased, and the
number of corporate ethics
impact is apparent. In the 2013
N national survey on workplace misconduct,
41 percent of employees noted observing misconduct at work. This is
, In addition, Figure 5.1 shows that employdown from 55 percent in 2007.
ees are less likely to feel pressure to compromise their personal standards
in organizational situations over the years. This figure shows how imporL
tant it is to have a comprehensive
ethics and compliance program in place
to assess risk and to reduce
instances
of personal misconduct. These data
A
FIGURE 5.1
T
R in the Workplace
Observed Misconduct
E
Observed Misconduct
C Continues to Decline, At Historic Low
I
60%
55%
52%
51%
49%
45%
A
45%
41%
40%
20%
2
11%
1
8
2000 2003
2
NBES Year
T
S
14%
11%
10%
2005
2007
13%
9%
8%
2009
2011
2013
Observed Misconduct in Previous 12 Months
Felt Pressure to Compromise Standards
Source: Ethics Resource Center, 2013 National Business Ethics Survey® of the U.S. Workforce
(Arlington, VA: Ethics Resource Center, 2014), p. 14.
Chapter 5 Business Ethics and Ethical Decision-Making
159
provide evidence that the institution of an ethical organizational culture
has a positive impact on business.
However, just because an unsettled situation or activity is an ethical
issue does not mean the behavior is necessarily unethical. An ethical issue
may relate to a situation, a problem, or even an opportunity that requires
thought, discussion, or investigation to determine the potential impact of
the decision. Because the business world is dynamic, new ethical issues are
R
emerging all the time.
One way to determine whether a specific behavior
or situation has an
O
ethical component is to ask other individuals in the business for feedback
and guidance, or approval/disapproval of yourBdecision. Another way is
to determine whether the organization has adopted
specific policies or
E
whether there are legal ramifications. An activity approved of by most
R in the industry, is probmembers of an organization, if it is also customary
ably ethical. An issue, activity, or situation that can
T withstand open discussion between many stakeholders, both inside and outside the organization,
and survive untarnished probably does not poseSa threat. For instance, it
is a common legal practice for medical device manufacturers
to have close
O
relationships with medical practitioners, which often include monetary
N
transactions. However, the nature of these relationships
may concern outside stakeholders, especially when devices are found
to malfunction and
,
cause patients harm. Johnson & Johnson had such an experience with one
of their medical devices, and it was found that some internal conversations
about the language of marketing materials wereLchanged to increase sales,
potentially misleading physicians.11
A
T
Ethical Issues in Business R
An ethical issue is a problem, situation, or E
opportunity requiring an
individual, group, or organization to choose among
C several actions that
must be evaluated as right or wrong, ethical or unethical. Surveys can
render a useful overview of the many unsettledI ethical issues in business.
A constructive step toward identifying and resolving
ethical issues is to
A
classify the issues relevant to most business organizations. In this section,
we examine ethical issues related to abusive behavior, misuse of company
resources, conflict of interest, bribery, discrimination
and sexual harass2
ment, fraud, and privacy issues.
1
Although not all-inclusive or mutually exclusive,
these classifications
provide an overview of some major ethical issues
8 that business decisionmakers face. Table 5.1 defines specific ethical issues identified by employees
2
in the National Business Ethics Survey (NBES). Putting one’s own interests
T lying to employees are
ahead of the organization, abusive behavior, and
all personal in nature. Abusive behavior, lying to employees, and conflict
S
of interest are the top three issues that directly relate to the firm’s agenda.
Table 5.1 also compares the percentage of employees who observed specific
types of misconduct over the past two National Business Ethics Surveys.
ethical issue
A problem, situation, or
opportunity requiring an
individual, group, or organization to choose among
several actions that must
be evaluated as right or
wrong, ethical or unethical.
160
Business and Society
TABLE 5.1 Percentage of U.S. Workforce Observing Specific Forms
of Misconduct, 2011 and 2013
2011
2013
Overall
45%
41%
Abusive behavior
21%
18%
Lying to employees
20%
17%
15%
12%
R
16%
12%
O
Discrimination against employees
15%
12%
B
Violations of health or safety regulations
13%
10%
E
Lying to customers, vendors, the public
12%
10%
Retaliation against reporters of misconduct
10%
R
Falsifying time reports/hours worked
12%
10%
T
Stealing or theft
12%
9%
S
Source: Ethics Resource Center, 2013 National Business Ethics Survey® of the U.S. Workforce
O2014), pp. 41–42.
(Arlington, VA: Ethics Resource Center,
N
,
Conflict of interest
Violating company internet use policies
Although Table 5.1 documents many types of ethical issues that exist
in organizations, due to the almost infinite number of ways that misconduct can occur, we cover only
L the major organizational ethical issues. Any
type of manipulation, deceit, or the absence of transparency in decisionmaking can create harm toAothers.
T
R Behavior
Abusive or Intimidating
E
Abusive or intimidating behavior
is the most common ethical problem for
employees, but what does it
mean
to be abusive or intimidating? The conC
cepts can mean anything from physical threats, false accusations, annoying
I yelling, harshness, and ignoring someone to
a coworker, profanity, insults,
the point of being unreasonable,
A and the meaning of these words are subjective and can vary from person to person. It is important to understand
that each term falls along a continuum. For example, what one person may
define as yelling might be 2another’s definition of normal speech. Civility
in our society has been a concern, and the workplace is no exception. The
1
productivity level of many organizations has declined on account of the
8 relationships.
time spent unraveling abusive
Within the concept of abusive behavior, intent should be a consid2
eration. If the employee was trying to convey a compliment when the
comment was considered T
abusive, then it was probably a mistake. The
way a word is spoken (voice
S inflection) can be important. Add to this the
fact that we now live in a multicultural environment doing business and
working with many different cultural groups and the businessperson soon
realizes the depth of the ethical and legal issues that may arise. There are
Chapter 5 Business Ethics and Ethical Decision-Making
161
problems of word meanings across different age-groups and cultures. For
example, an expression such as, “Did you guys hook up last night?” can
have various meanings, including some that could be considered offensive
in a work environment.
Misuse of Company Time and Resources
R
Theft of time is estimated to cost companies hundreds
of billions of dollars annually. It is estimated that the average employee
“steals”
more than
O
ten hours per week with late arrivals, long lunch breaks, leaving early,
B personal activities, and
daydreaming, excessive socializing, engaging in
12 The misuse of time and
using social networking sites such as Facebook.E
resources has been identified by the Ethics Resource Center as a major
R 31 percent of responform of observed misconduct. In the latest survey,
dents observed others misusing company time,Tand 17 percent observed
company resource abuse such as theft of office supplies. Therefore, nearly
50 percent noted misconduct related to resourceS
issues. When enforcement
is lax or non-existent, employees may get theO
impression that they are
entitled to certain company resources.
Using company computer equipment forNpersonal business is a
common way employees engage in time theft., While employees might
recognize that spending the workday talking with friends and relatives
is unacceptable, they might not hesitate to go online and do the same
L
thing. Typical examples of misusing company computers
include sending
personal emails, socializing on Facebook, shopping
on
Amazon
or eBay,
A
downloading music, doing personal banking, or watching sporting events
online. Many employees, for instance, engage inTtime theft during March
Madness during the NCAA basketball tournament.
As a result, many
R
organizations block websites where employees can watch sports events.
E to prevent employees
Some even block sites such as Netflix and Pandora
from watching video clips or streaming music. C
To deter this type of misconduct, many organizations implement poliI For example, Boeing’s
cies describing the acceptable use of such resources.
code of ethics states that resource use is acceptable
A when it does not result
in “significant added costs, disruption of business processes, or any other
disadvantage to the company.” The policy states that use of company
resources for non-company purposes is only acceptable
when an employee
2
receives permission to do so.13
1
8
Conflict of Interest
2
A conflict of interest exists when an individual must choose whether to
advance his or her own interests, those of his orT
her organization, or those
of some other group. Deloitte Accountancy firm
S was fined a record £14
million ($22 million) for 13 charges related to conflict of interest violations. The firm was found to be advising a failing automaker, MG Rover,
as well as the four business owners who bought the company. In five years’
conflict of interest
An issue that arises when
an individual must choose
whether to advance his or
her own interests, those of
his or her organization, or
those of some other group.
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Business and Society
time, the automaker filed for bankruptcy. Because the company was advising both sides of the deal, conflict of interest came into play.14
To avoid conflicts of interest, employees must be able to separate
their private interests from their work roles. Organizations, too, must
avoid potential conflicts of interest in providing goods or services.
Environmental organization Sierra Club requested documents from the
U.S. State Department regarding the hiring of Environmental Resources
Management, a contractorRset to work on the Keystone XL pipeline. The
documents reveal several conflicts
of interest as many of its consultants
O
also work for companies that benefit greatly from the completion of the
pipeline. It was found thatBthe company did not disclose these issues nor
did it appear that the U.S. E
government investigated them.15
R
T
Bribery is the practice of offering something, such as money, gifts, enterS to gain an illicit advantage from someone
tainment, and travel, in order
in authority. The definition
O of bribery depends upon whether the illicit
payment or favor is used to gain an advantage in a relationship. In many
N generally recognizes that employees should
developed countries, society
not accept bribes or special
, favors from people who could influence the
Bribery
bribery
The practice of offering
something, such as money,
gifts, entertainment, and
travel, in order to gain an
illicit advantage from someone in authority.
outcome of a decision. However, bribery is an acceptable way of doing
business in other countries. The U.S. Securities and Exchange Commission
L of bribery involving hundreds of companies.
has cracked down on cases
One investigation resulted A
in metals producer Alcoa Inc. agreeing to pay
$348 million after bribing officials in Bahrain to ensure continued supplier
T
contracts.16
Bribery can be considered
R an unlawful act, but in some cultures bribing
business or government officials with fees is considered standard practice.
E a business ethics issue. Bribes have led to the
In this case, bribery becomes
downfall of many managers,Clegislators, and government officials. The World
Bank estimates that more than $1 trillion is paid annually in bribes.17
I
When a government official
accepts a bribe, it is usually from a business that seeks some advantage,
A perhaps to obtain business or the opportunity to avoid regulation. Giving bribes to legislators or public officials,
then, is both a legal and a business ethics issue. It is a legal issue in the
United States under the U.S.
2 Foreign Corrupt Practices Act (FCPA). This
act maintains that it is illegal for individuals, firms, or third parties doing
1
business in American markets to “make payments to foreign government
8 or retaining business.”18 Companies have
officials to assist in obtaining
paid billions of dollars in fines to the Department of Justice for bribery
2
violations. The law applies not only to American firms but to all firms
T
transacting business with operations
in the United States. This also means
that firms do not necessarily
have
to
commit bribery in the United States
S
to be held accountable.
The United Kingdom Bribery Act passed in 2010 is similar to the
FCPA but more encompassing. For instance, while the FCPA applies to
Chapter 5 Business Ethics and Ethical Decision-Making
bribing foreign government officials, the U.K. Bribery Act holds people or
businesses responsible for commercial bribery as well. The first cases convicted under the U.K. Bribery Act were acts of commercial bribery committed largely by individuals, such as a student who tried to bribe a professor
to pass him. The Act also does not allow for facilitation payments or small
payments to get normal services performed. Like the FCPA, any organization is subject to the U.K. Bribery Act if it has operations in the United
R
Kingdom, no matter where the bribery occurred.
O
Discrimination and Sexual Harassment
B
Discrimination remains a significant ethical issueEin business despite nearly
50 years of legislation to outlaw it. Once dominated by white men, today’s
R African Americans,
U.S. workforce includes significantly more women,
Hispanics, and other minorities, as well as workers
T with disabilities and
older workers. Experts project that within the next 30 years, Hispanics
S African Americans and
will represent 30 percent of the population, while
Asians/Pacific Islanders will make up 15 and 9.2
O percent, respectively.19
These groups have traditionally faced discrimination and higher unemN to assume leadership
ployment rates and have been denied opportunities
roles in corporate America.
,
The most significant piece of legislation against discrimination is Title
VII of the Civil Rights Act of 1964, which prohibits employment discrimiL religion, and gender,
nation on the basis of race, national origin, color,
and applies to employers with 15 or more employees,
including state and
A
local governments. This law is fundamental to employees’ rights to join
T rather than one of the
and advance in an organization according to merit
characteristics just mentioned. As a result of racial
R discrimination classaction settlements, some companies, such as Coca-Cola, were required
E and modify company
to establish an independent task force to monitor
practices to combat racial discrimination.
C
Additional laws passed in the 1970s, 1980s, and 1990s were designed
I disabilities, age, and
to prohibit discrimination related to pregnancy,
other factors. The Americans with Disabilities
A Act, for example, prohibits companies from discriminating on the basis of physical or mental disability in all employment practices and requires them to make
facilities accessible to and usable by persons with
2 disabilities. The Age
Discrimination in Employment Act specifically outlaws hiring practices
1
that discriminate against people ages 40 or older, but it also bans policies
that require employees to retire before the age 8
of 70. Despite this legislation, charges of age discrimination persist in the workplace. Currently,
2
about half of the United States workforce is 40 or older. This is a large
T
segment of the workplace, and naturally age discrimination
lawsuits are
prevalent. In a 5-4 split ruling, the U.S. Supreme
Court
ruled
to make it
S
more difficult for workers to claim age discrimination in lawsuits. Now
employees must be able to prove that their employers terminated them
for age-related reasons. Because this is a difficult thing to prove for
163
164
Business and Society
sexual harassment
Any repeated, unwanted
behavior of a sexual nature
perpetrated upon one individual by another; it may
be verbal, visual, written,
or physical and can occur
between people of different
genders or those of the
same gender.
hostile work
­environment
A kind of work environment where the conduct
is: unwelcome; severe and
hostile as to affect conditions of employment; and
offensive to a reasonable
person.
fraud
Any false communication
that deceives, manipulates,
or conceals facts to create a
false impression when others are damaged or denied
a benefit.
c­ ertain, the ruling signaled a major coup for employers. The ruling was
part of a case brought to trial by Jack Gross, who at 54 was demoted
from a director position by his employer FBL Financial Group.20 Given
that more than 25 percent of the nation’s workers will be 55 years old
or over by 2020, many companies need to change their approach toward
older workers.21
Sexual harassment is a form of sex discrimination that violates Title
VII of the Civil Rights ActRof 1964. Sexual harassment can be defined as
any repeated, unwanted behavior
of a sexual nature perpetrated upon
O
one individual by another. It may be verbal, visual, written, or physical
B of different genders or those of the same
and can occur between people
gender. Displaying sexually
Eexplicit materials “may create a hostile work
environment or constitute harassment, even though the private possesR sharing of such materials is protected under
sion, reading, and consensual
Equal Employment Opportunity Commission
the Constitution.”22 The T
(EEOC), the institution that monitors compliance with Title VII, in one
year received 7,256 chargesSof sexual harassment, of which men filed over
17 percent. In the same year,
O the EEOC resolved 7,758 sexual harassment
charges and recovered $44.6 million in penalties.23
N
To establish sexual harassment,
an employee must understand the
definition of a hostile work
, environment, for which three criteria must
be met: (1) the conduct was unwelcome; (2) the conduct was severe,
pervasive, and regarded by the claimant as so hostile or offensive as to
alter his or her conditionsLof employment; and (3) the conduct was such
that a reasonable person A
would find it hostile or offensive. To assert a
hostile work environment, an employee need not prove that it seriously
T well-being or that it caused an injury; the
affected his or her psychological
decisive issue is whether the
R conduct interfered with the claimant’s work
performance.24
E
C
Fraud
I in deceptive practices to advance his or her
When an individual engages
own interests over those ofAthe organization or some other group, charges
of illegal fraud may result. In general, fraud is any false communication
that deceives, manipulates, or conceals facts to create a false impression
when others are damaged or
2 denied a benefit. It is considered a crime, and
convictions may result in fines, imprisonment, or both. Fraud costs U.S.
1
organizations approximately $3 billion a year, although exactly how much
8 agency exists to track fraud statistics in the
is unclear given that no single
United States.25 Among the most common fraudulent activities reported
2
by 40 percent of employees are embezzlement, offshore financial accounts,
26 Table 5.2 indicates what fraud examT
and stealing money or products.
iners view as the biggest risks
S to companies. In recent years, accounting
fraud has become a major ethical issue, but fraud can also relate to marketing and consumer issues as well. Online fraud is also a large concern
and is growing as internet use expands.27
Chapter 5 Business Ethics and Ethical Decision-Making
Privacy
165
TABLE 5.2 Greatest Fraud Risk to
Companies
The final category of ethical issues relates to privacy,
Corruption 36.8%
especially within the health-care and internet indusConflicts of interrest
tries. Some privacy issues that businesses must address
    Purchasing schemes
include the monitoring of employees’ use of available
    Sales schemes
technology, consumer privacy, and online marketing.
Companies often use cookies or other devices R
to engage
Bribery
in online tracking, and many websites use consumer
    Invoice kickbacks
information to improve services. AlthoughOthis can
    Bid rigging
benefit consumers in the form of better marketing
B and Illegal gratuities
tailored searches, it is also controversial because many
E
Economic Extortion
consumers do not want their information being tracked.
Asset Misappropriation 85.4%
Others are still willing to provide personal information
R
despite the potential risks.28
Theft of cash on hand
T
The challenge for today’s firms is balancing their need
Theft of cash receipts
for consumer or employee information with theSdesire for
    Skimming
privacy. In terms of employees, there are few legal
O protec-     Cash larceny
tions for their right to privacy, giving businesses flexibility
N while Fraudulent disbursements
in establishing policies regarding employee privacy
using company equipment on company property.
, Some     Billing schemes
common ways that an employer might track employee use
    Payroll schemes
of equipment is through computer monitoring, telephone
     Expense reimbursement schemes
monitoring, video surveillance, and GPS satellite
L track-      Expense reimbursement schemes
ing. Although employers have the right to make sure their
    Check tampering
A
resources are being used for appropriate purposes,
the
    Register disbursements
ability to gather and use data about employeeTbehavior
Inventory and all other assets
creates the need for trust and responsibility.
There are two issues involving consumerR privacy:
    Misuse
consumer awareness of information collection
E and a     Larceny
growing lack of consumer control with respect to how
Financial Statement Fraud 9%
C
organizations use their personal information. For examAsset/revenue
overstatements
I
ple, many are not aware that Google, Inc., reserves
the
Asset/revenue understatements
right to track each time you click on a link from
A one of
its searches.29 Online purchases and random web surfing Source: “Occupational Fraud and Abuse
can be tracked without a consumer’s knowledge. The Classification System (Fraud Tree)” and
“Occupational Frauds by Category—Frequency,”
Progress and Freedom Foundation found that 96
2 percent 2014 Report to the Nations on Occupational
of popular commercial websites collect personally identi- Fraud and Abuse, Association of Certified Fraud
1
Examiners, 2014, http://www.acfe.com/rttn/
fying information from visitors.30
docs/2014-report-to-nations-charts-and-graphs.pdf
However, consumer information is valuable
not
only
8
(accessed June 19, 2014).
to businesses but to criminals as well. An identity is stolen approximately once every three seconds.31 2Criminals
privacy issues
may try to steal personal consumer information
T and sell it online. Some Issues that businesses must
of this information comes from publicly accessible sources such as social address that include the
S
networking profiles, but poorly protected corporate
files are another monitoring of employees’
of available technolmajor source for criminals. In one year, 93 percent of U.K. organizations use
ogy, consumer privacy, and
reported an average of 113 security breaches each.32
online marketing.
166
Business and Society
To reassure consumers that their information will be protected, an
increasing number of companies are displaying an online seal from the
Better Business Bureau available to sites that subscribe to certain standards. A similar seal is provided through TRUSTe, a nonprofit global
initiative. These seals assure customers that the websites adhere to certain
policies meant to protect their privacy.
R
UnderstandingOthe Ethical
Decision-Making
B Process
To grasp the significance ofEethics in business decision-making, it is important to understand how ethical decisions are made within the context of
R
an organization. Understanding
the ethical decision-making process can
help individuals and businesses
design
strategies to deter misconduct. Our
T
descriptive approach to understanding ethical decision-making does not
S provides a framework for managing ethiprescribe what to do but, rather,
cal behavior in the workplace.
O Figure 5.2 depicts this framework, which
shows how individual factors, organizational relationships, and opportunities interact to determineNethical decisions in business.
,
Individual Factors
L
Individuals make ethical choices
on the basis of their own concepts of
right or wrong, and they act
accordingly
in their daily lives. Studies sugA
gest that individual ethics are reaching a new low. A Josephson Institute
T of teens showed that 95 percent feel trust
Center for Youth Ethics survey
and honesty are necessary in
R the workplace. In addition to this, 36 percent
of those surveyed feel it is sometimes necessary to lie and cheat in order
E
to succeed. More than one-fourth
of the respondents confessed to cheatC
I
FIGURE 5.2 Factors That Influence
the Ethical Decision-Making Process
A
Individual
Factors
Organizational
Relationships
Opportunity
2
1
8
2
T
S
Ethical or Unethical
Decisions
Chapter 5 Business Ethics and Ethical Decision-Making
167
ing on a test more than once. While this survey indicates teens are more
concerned about ethics when compared with a similar survey from two
years prior, these results show that more needs to be done to teach teens
about the importance of ethical decision-making.33 If today’s students are
tomorrow’s leaders, there is likely to be a correlation between acceptable
behavior today and tomorrow, adding to the argument that the leaders of
today must be prepared for the ethical risks associated with acceptance of
R
unethical behavior.
Significant factors that affect the ethicalOdecision-making process
include an individual’s personal moral philosophy, motivation, and other
B
personal factors such as gender, age, and experience.
E
Moral Philosophy Many people have justified difficult decisions by citR have them do unto
ing the golden rule (“Do unto others as you would
you”) or some other principle. Such principles, or
T rules, which individuals
apply in deciding what is right or wrong, are often referred to as moral
philosophies. Morals refers to the individuals’Sphilosophies about what
is right or wrong. It is important to understand
O the distinction between
moral philosophies and business ethics. A moral philosophy is a person’s
Nimmoral. Moral philosoprinciples and values that define what is moral or
phies are person-specific, whereas business ethics
, is based on decisions in
groups or those made when carrying out tasks to meet business objectives.
In the context of business, ethics refers to what the group, firm, or strategic
L pertaining to its busibusiness unit (SBU) defines as right or wrong actions
ness operations and the objective of profits, earnings
per share, or some
A
other financial measure of success. Socialization by family members, social
groups, religion, and formal education teaches T
moral philosophies. Most
moral philosophies can be classified as consequentialism,
ethical formalR
ism, or justice.
E that considers a deciConsequentialism is a class of moral philosophy
sion right or acceptable if it accomplishes a desired
C result, such as career
growth, the realization of self-interest, or utility in a decision. This looks
at the moral outcome based on the consequencesI associated with decisionmaking. Egoism and utilitarianism are two important
consequentialist
A
philosophies that often guide decision-making in business.
Egoism is a philosophy that defines right or acceptable conduct in
terms of the consequences for the individual. Egoists
believe they should
2
make decisions that maximize their own self-interest, which, depending on
1
the individual, may be defined as career success, power, fame, a satisfying
career, a good family life, wealth, and so forth. 8
In a decision-making situation, the egoist will probably choose the alternative that most benefits his
2
or her self-interest. Many people feel that egoists are inherently unethical,
that they focus on the short term, and that they T
will take advantage of any
opportunity to exploit consumers or employees.S
Utilitarianism is another consequentialist philosophy that is concerned
with seeking the greatest good for the greatest number of people. Using a
cost-benefit analysis, a utilitarian decision-maker calculates the utility of
moral philosophies
Principles, or rules, which
individuals apply in deciding
what is right or wrong;
morals refers to the individuals’ philosophies about
what is right or wrong.
consequentialism
A class of moral philosophy
that considers a decision
right or acceptable if it accomplishes a desired result,
such as career growth, the
realization of self-interest,
or utility in a decision.
egoism
A philosophy that defines
right or acceptable conduct
in terms of the consequences for the individual.
utilitarianism
A consequentialist philosophy that is concerned with
seeking the greatest good
for the greatest number of
people.
168
Business and Society
ethical formalism
A class of moral philosophy
that focuses on the rights
of individuals and on the
intentions associated with
a particular behavior rather
than on its consequences.
justice theory
A class of moral philosophy
that relates to evaluations
of fairness, or the disposition to deal with perceived
injustices of others.
the consequences of all possible alternatives and then chooses the one that
achieves the greatest utility.
In contrast with consequentialism, ethical formalism is a class of moral
philosophy that focuses on the rights of individuals and on the intentions
associated with a particular behavior rather than on its consequences.
Ethical formalists regard certain behaviors as inherently right, and their
determination of rightness focuses on the individual actor, not on society.
R sometimes referred to as nonconsequentialThus, these perspectives are
ism and the ethics of respect
Ofor persons. Contemporary ethical formalism
has been greatly influenced by German philosopher Immanuel Kant, who
B
developed the so-called categorical
imperative: “Act as if the maxim of
thy action were to become E
by thy will a universal law of nature.”34 Unlike
utilitarians, ethical formalists contend that there are some things that
R to maximize utility. For example, an ethical
people should not do, even
formalist would consider itTunacceptable to allow a coalmine to continue
to operate if some workers became ill and died of black lung disease. A
utilitarian, however, mightSconsider some disease or death an acceptable
consequence of a decisionOthat resulted in large-scale employment and
economic prosperity.
Justice theory is a classN
of moral philosophy that relates to evaluations
of fairness, or the disposition
, to deal with perceived injustices of others.
Justice demands fair treatment and due reward in accordance with ethical
or legal standards. In business, this requires that the rules an individual
L based on the perceived rights of individuals
uses to determine justice be
and on the intentions associated
A with a business interaction. Justice, therefore, is more likely to be based on nonconsequentialist moral philosophies
T
than on consequentialist philosophies.
Justice primarily addresses the issue
of what individuals feel they
are
due
based
on their rights and performance
R
in the workplace. For example, the U.S. Equal Employment Opportunity
Commission exists to help E
employees who suspect the injustice of discrimination in the workplace. C
There are three types of justice that can be used to assess fairness in
I
different situations. Distributive
justice evaluates the outcomes or results
of a business relationship.AFor example, if an employee feels that she is
paid less than her coworkers for the same work, she has concerns about
distributive justice. Procedural justice assesses the processes and activities
employed to produce an outcome
or results. Procedural justice concerns
2
about compensation would relate to the perception that salary and benefit
1
decisions are consistent and fair to all categories of employees. Procedural
justice is associated with 8group cohesiveness and helping behaviors.35
Interactional justice evaluates the communication processes used in the
2
business relationship. Being untruthful about the reasons for missing work
T
is an example of an interactional
justice issue.36
It is important to recognize
S that there is no one “correct” moral philosophy to apply in resolving ethical and legal issues in the workplace.
It is also important to acknowledge that each philosophy presents an
ideal perspective and that most people seem to adapt a number of moral
Chapter 5 Business Ethics and Ethical Decision-Making
­ hilosophies as they interpret the context of different decision-making
p
situations. Each philosophy could result in a different decision in a situation requiring an ethical judgment. And depending on the situation, people
may even change their value structure or moral philosophy when making
decisions.37
Strong evidence shows that individuals use different moral philosophies depending on whether they are making a personal decision outside
the work environment or making a work-relatedR
decision on the job.38 Two
possible reasons may explain this. First, in the business
arena, some goals
O
and pressures for success differ from the goals and pressures in a person’s
B view a specific action
life outside of work. As a result, an employee might
as “good” in the business sector but “unacceptable”
in the non-work
E
environment. It is often suggested that business managers are morally difR in that business has two
ferent from other people. In a way, this is correct
variables that are absent from other situations:Tthe profit motive and the
influence of managers and coworkers (corporate culture). The weights on
S philosophy are shifted
the various factors that make up a person’s moral
in a business (profit) situation. The statement “it’s
O not personal, it’s just
business” demonstrates the conflict businesspeople can have when their
personal values do not align with utilitarian orNprofit-oriented decisions.
The second reason people change moral philosophies
could be the corpo,
rate culture where they work. When a child enters school, for example, he
or she learns certain rules such as raising your hand to speak or asking perL
mission to use the restroom. So it is with a new employee.
Rules, personalities, and historical precedence exert pressure onAthe employee to conform
to the new firm’s culture. As this occurs, the individual’s moral philosophy
T
may change to be compatible with the work environment.
The employee
may alter some or all of the values within his or
her
moral
philosophy as
R
he or she shifts into the firm’s different moral philosophy. There are many
E
examples of people who are known for their goodness
at home or in their
communities making unethical decisions in the workplace.
C
Ethical Diversity It is obvious that not everyoneIholds the same ethical values. One person may have values that another person
A does not have, or that
person might value a certain trait more highly than another. Additionally,
individuals can have significantly different values than those of the organization.39 This concept is referred to as ethical diversity.
2 Ethical diversity refers
to the fact that employee values often differ from person to person. Every
1 over a lifetime, and these
employee has developed his or her personal values
values are not likely to disappear just because they
8 differ from others or the
organization. However, it also means that employees cannot be allowed to
2
bring their individual values to the workplace as they see fit. Imagine the
chaos that would happen if each employee actedTin a way that was appropriate in his or her eyes. Instead, members need to accept that some values
S
are superior to others and handle the organizational need to develop consensus among employees. This may result in possible tensions and conflicts
that must be figured out between individual and organizational values.40
ethical diversity
Refers to the fact that
­employee values often
­differ from person to
person.
169
170
Business and Society
However, it is best to follow a consensus approach rather than just having
managers assign and enforce their own individual values to the organization. There should be group discussions, negotiations, and modifications to
determine how organizational values are implemented.41
organizational, or
­corporate, culture
A set of values, beliefs,
and artifacts shared by
members or employees of
an ­organization.
Organizational Relationships
R do make ethical decisions, they do not operAlthough individuals can and
42
choices in business are most often made jointly
ate in a vacuum. Ethical O
in committees and work groups or in conversations with coworkers.
B ethical issues not only from their individual
Moreover, people learn to settle
backgrounds but also fromE
others with whom they associate in the business
environment. The outcome of this learning process depends on the strength
Rvalues, opportunity for unethical behavior, and
of each individual’s personal
exposure to others who behave
T ethically or unethically. Consequently, the
culture of the organization, as well as superiors, peers, and subordinates, can
have a significant impact onSthe ethical decision-making process.
O
Organizational Culture Organizational, or corporate, culture can be
N
defined as a set of values, norms, and artifacts shared by members or
, It answers questions such as “What is imporemployees of an organization.
tant?” “How do we treat each other?” and “How do we do things around
here?” Culture may be conveyed formally in employee handbooks, codes
L
of conduct, memos, and ceremonies,
but it is also expressed informally
through dress codes, extracurricular
activities,
and anecdotes. A firm’s culA
ture gives its members meaning and offers direction as to how to behave
T
and deal with problems within
the organization. The corporate culture
at American Express, for R
example, includes numerous anecdotes about
employees who have gone beyond the call of duty to help customers out of
E tradition of customer service might encourdifficult situations. This strong
age an American Express employee
to take extra steps to help a customer
C
who encounters a problem while traveling overseas.
On the other hand, Ian organization’s culture can also encourage
employees to make decisions
A that others may judge as unethical, or it can
encourage actions that may be viewed as socially responsible. Most misconduct comes from employees trying to attain the performance objectives
2 in financial markets to transfer risk are so
of the firm. Derivatives used
complex, difficult to value, poorly regulated, and have been so widely used
1
that they can bring down a company. They also contributed a great deal to
8 recession, challenging our financial systems.
the severity of the most recent
To make ethical decisions when
2 using derivatives, one requires a great deal
of transparency, financial expertise and competence, and responsibility.43
T derivatives provide openings for manipulation
Because of their complexity,
and misconduct. When a corporation
uses certain compensation systems,
S
employees striving for financial success could be inadvertently rewarded
for their sales of dangerous derivatives. The corporate culture may drive
decisions on developing and selling derivatives because of the difficulty in
applying moral reasoning.
Chapter 5 Business Ethics and Ethical Decision-Making
171
Earth in the Balance
Unilever Embraces Sustainable Palm Oil
Unilever is working toward full sustainability when it
comes to palm oil production. The process of extracting palm oil has gained global attention because of
unsustainable practices such as deforestation, which
has led to the destruction of native animal habitats.
Because Unilever is a large company that works with
an extensive supply chain, maintaining ethical sourcing
practices can be a bit of a burden and are hard to track.
Yet as the buyer, Unilever is responsible for any unethical sourcing practices in its supply chain.
Unilever is attempting to monitor its supply chain in
two ways. First, it has invested $100 million to build a
palm oil processing plant in Indonesia, the source of much
of its palm oil, to ensure responsible practices. This plant
represents a $130 million investment on Unilever’s part.
Second, Unilever is purchasing GreenPalm certificates
from the Roundtable on Sustainable Palm Oil (RSPO)
when it purchases palm oil from other processing companies. Unilever helped to found the RSPO, which monitors
the practices of palm oil processing companies and issues
them certificates when they meet sustainable, environmentally-responsible standards. Belonging to the RSPO is
a signal to consumers that Unilever is adhering to a set of
strict environmental standards. These certificates can then
be purchased by companies like Unilever in an attempt
to ensure ethically sourced supply chains. This alleviates
some of the skepticism about the origins of the palm oil.
Unilever announced that it had reached its target of
purchasing all palm oil from credible sustainable sources
by the end of 2012. Unilever was three years ahead of
schedule on this projection. The certification was issued
R
O
B
E
R
T
S
O
N
,
L
A
T
R
E
C
I
A
through GreenPalm Certificates. However, this method
is not entirely dependable because the processing of all
palm oil is not completely traceable. Additionally, some
have criticized GreenPalm certificates for their confusing language, calling them a type of greenwashing.
However, Unilever is still determined to improve its
palm oil sourcing practices. It has developed a Sustainable
Palm Oil Sourcing Policy based on three principles: (1)
halt deforestation, (2) protect peat land, and (3) drive
economic and social impact. It also announced a few
sustainability goals it aims to attain in the near future.
By 2014 Unilever expects that all of its palm oil sourced
globally will be from traceable sources. The company has
announced that by 2020 all Unilever palm oil will come
from sustainable, traceable, and certified sources.
To continue achieving the company’s sustainability
goals, Unilever is working directly with producers to
purchase segregated supplies of sustainable palm oil
to ensure customers they are delivering a sustainable
product. The company also wants to ensure that its suppliers are being ethical in other ways. For instance, the
company has partnered with leading Asian agribusiness
group Wilmar International in an agreement to ensure
that the company’s farming efforts are free from deforestation and human rights abuses. With such a large
global supply chain, it is important for Unilever to make
certain that their suppliers are following other ethical
practices as well, such as treating farmers fairly. Despite
the difficulty in tracking the sustainability of its palm
oil, Unilever’s initiative demonstrates a commitment
toward reducing its environmental impact.
2
1
Sources: Paul Sonne, “Unilever Takes Palm Oil in Hand,” The Wall Street Journal, April 24, 2012, http://online.wsj.com/article/SB100
82014); “How It Works,” Green Palm Sustainability, http://www.
01424052702303978104577362160223536388.html (accessed July 1,
greenpalm.org/en/what-is-greenpalm/how-it-works (accessed July 1, 2014); “Unilever’s Europe-wide Palm Oil Covered Sustainably,”
2
Unilever, July 4, 2010, http://www.unilever.com/mediacentre/pressreleases/2010/UnileversEuropewidepalmoilcoveredsustainably.aspx
(accessed July 1, 2014); Samantha Neary from Triple Pundit, “Unilever Reaches Sustainable Palm Oil Goal Three Years Early,” TodayEco,
T
August 2, 2012, http://todayeco.com/pages/5657828-unilever-reaches-sustainable-palm-oil-goal-three-years-early (accessed July 1, 2014);
Unilever, “Working with Suppliers,” http://www.unilever.com/sustainable-living-2014/reducing-environmental-impact/sustainableS
sourcing/sustainable-palm-oil/working-with-suppliers/index.aspx (accessed July 1, 2014); Voices for Biodiversity, “Consumer Group
Slams Greenwashing in Sustainable Palm Oil Marketing,” National Geographic, August 8, 2013, http://newswatch.nationalgeographic.
com/2013/08/08/consumer-groups-slam-greenwashing-in-sustainable-palm-oil-marketing/ (accessed July 1, 2014); Unilever, “Roundtable
on Sustainable Palm Oil,” http://www.unilever.com/sustainable-living-2014/reducing-environmental-impact/sustainable-sourcing/sustainable-palm-oil/roundtable-on-sustainable-palm-oil/index.aspx (accessed July 1, 2014); Unilever, “Sustainable Palm Oil,” http://www.unilever.com/sustainable-living-2014/reducing-environmental-impact/sustainable-sourcing/sustainable-palm-oil/ (accessed July 1, 2014).
172
Business and Society
ethical climate
That part of the firm’s
culture that focuses specifically on issues of right and
wrong.
Whereas a firm’s overall culture establishes ideals that guide a wide
range of behaviors for members of the organization, its ethical climate
focuses specifically on issues of right and wrong. We think of ethical
climate as the part of a corporate culture that relates to an organization’s expectations about appropriate conduct. To some extent, ethical climate is the character component of an organization. Corporate
policies and codes, the conduct of top managers, the values and moral
Rand opportunity for misconduct all contribphilosophies of coworkers,
ute to a firm’s ethical climate.
O When top managers strive to establish an
ethical climate based on responsibility and citizenship, they set the tone
B
for ethical decisions.
New Belgium BrewingE(NBB) is an example of a company in which
the top leaders set the tone for the rest of the organization. CEO Kim
Jordan helped co-found R
the company with her former husband Jeff
Lebesch. Before starting the
T company, the two carefully considered the
values they wanted to use as the foundation for the company. These values included sustainabilitySand employee empowerment. Under Jordan’s
leadership, New Belgium’sO
ethical climate places a great deal of emphasis
on these two values. Among a number of sustainability initiatives, New
N
Belgium became the first brewery
to use 100 percent wind power. Over
the years, NBB has become
, a 100 percent employee-owned company,
giving employees the ability to make crucial decisions regarding company operations. Ethical climate also determines whether an individual
L an ethical component. Recognizing ethical
perceives an issue as having
issues and generating alternatives
to address them are manifestations of
A
ethical climate.
T
significant others
Include superiors, peers,
and subordinates in the
organization who influence
the ethical decision-making
process.
Significant Others Significant
others include superiors, peers, and
R
subordinates in the organization who influence the ethical decisionE people outside the firm, such as family
making process. Although
members and friends, also
C influence decision-makers, organizational
structure and culture operate through significant others to influence
I Resource Center’s National Business Ethethical decisions. The Ethics
ics Survey (NBES) found A
that nearly two out of every five employees
surveyed did not report what they saw.44 Reporting misconduct is most
likely to come from upper levels of management compared to lower
level supervisors and non-management
employees. Employees in lower
2
level positions have a greater tendency to not understand misconduct
1
or to be complacent about the misconduct they observe. Figure 5.3
8 mechanisms for reporting misconduct.
shows employees’ preferred
While other options like ethics officers and ethics hotlines exist, the
2
vast majority of employees surveyed prefer to report to supervisors and
other higher management.T
Most experts agree that
S the CEO establishes the ethical tone for the
entire firm. Lower level managers obtain their cues from top managers,
and they in turn impose some of their personal values on the company.
This interaction between corporate culture and executive leadership helps
Chapter 5 Business Ethics and Ethical Decision-Making
FIGURE 5.3 How Employees Report Misconduct
Percent of Reporters who Use This
Mechanism
11%
9%
Supervisor
13%
Higher management
R
Human resoures
O
15%
Hotline
B
16%
Ethics officer
E
R
Outside party
T
Legal
S
Governmental or
52%
regulatory authority
32%
O
N
Source: Ethics Resource Center, 2013 National Business Ethics Survey® of the U.S. Workforce
(Arlington, VA: Ethics Resource Center, 2014).
,
82%
determine the ethical value system of the firm.
L However, obedience to
authority can also explain why many people resolve workplace issues by
A
following the directives of a superior. An employee may feel obligated to
T orders conflict with the
carry out the orders of a superior even if those
employee’s values of right and wrong. If that decision
is later judged to
R
have been wrong, the employee may justify it by saying, “I was only carrying out orders” or “My boss told me to do it E
this way.”
Coworkers’ influence on ethical decision-making
depends on the
C
person’s exposure to unethical behavior in making ethical decisions. The
more a person is exposed to unethical activity Iby others in the organization, the more likely it is that he or she will behave
A unethically, especially
in (ethically) “gray” areas. Thus, a decision maker who associates with
others who act unethically is more likely to behave unethically as well.
Within work groups, employees may be subject
2 to the phenomenon of
“groupthink,” going along with group decisions even when those decisions
1
run counter to their own values. They may rationalize
the decision with
“safety in numbers” when everyone else appears8to back a particular decision. Most businesspeople take their cues or learn from coworkers how to
2
solve problems—including ethical dilemmas.45 Close friends at work exert
T to roles associated with
the most influence on ethical decisions that relate
a particular job.
S
Superiors and coworkers can create organizational pressure, which
plays a key role in creating ethical issues. Although power differences
will exist between supervisors and their employees, ethical leaders
173
174
Business and Society
attempt to reduce these differences when communicating with employees. It is not uncommon for leaders within the organization to adopt
the habit of viewing employee information as unimportant.46 However,
employees who feel that they are not being heard are less likely to
report concerns and more likely to ignore questionable conduct in the
workplace. Ethical leaders can help to reduce these perceived power
differences through frequent employee communication. This interacR relationships with employees, making them
tion creates more beneficial
more comfortable in bringing
O up issues of concern to their supervisors.
Leader–follower congruence occurs when leaders and followers share
the same organizational B
vision, ethical expectations, and objectives.
A crucial way to communicate
ethical values to employees is through
E
codes of ethics and training to familiarize employees with the ethical
decision-making process. R
Nearly all businesspeople
T face difficult issues where solutions are not
obvious or where organizational objectives and personal ethical values
S a salesperson for a Web-based retailer may
may conflict. For example,
be asked by a superior toO
lie to a customer over the telephone about a
late product shipment. A study by the Ethics Resource Center found that
N they felt pressure from other employees or
9 percent of employees said
managers to compromise, standards, which is down from 13 percent
from two years before. However, despite this decline, employees reported
observing managers, supervisors, and top executives engaging in 60 perL
cent of the misconduct throughout
their organizations. In addition, 63
percent of employees reported
misconduct
and 21 percent of these were
A
met with some type of retailiation.47
opportunity
A set of conditions that
limits barriers or provides
rewards.
T
R
Opportunity
Together, organizational E
culture and the influence of coworkers may
foster conditions that either
C hinder or permit misconduct. Opportunity is
a set of conditions that limits barriers or provides rewards. When these
I
conditions provide rewards—be
it financial gain, recognition, promotion, or simply the good feeling
from
a job well done—the opportunity
A
for unethical conduct may be encouraged or discouraged. For example,
a company policy that fails to specify the punishment for employees
who violate the rules provides
an opportunity for unethical behavior
2
because it allows individuals to engage in such behavior without fear of
1
consequences. Thus, company policies, processes, and other factors may
create opportunities to act8unethically. Advancing technology associated
with the internet is challenging companies working to limit opportunities
2
to engage in unethical and illegal behavior. Individual factors as well as
T may influence whether an individual becomes
organizational relationships
opportunistic and takes advantage
of situations in an unethical or even
S
illegal manner.
Opportunity usually relates to employees’ immediate job context—
where they work, with whom they work, and the nature of the work.
Chapter 5 Business Ethics and Ethical Decision-Making
175
This context includes the motivational “carrots and sticks,” or TABLE 5.3 Most Common
rewards and punishments, that superiors can use to influence Office Supplies Stolen by
employee behavior. Rewards, or positive reinforcers, include pay Employees
raises, bonuses, and public recognition, whereas reprimands, pay
  1
Post-It notes
penalties, demotions, and even firings act as negative reinforcers.
  2
Tape
For example, a manager who decides to sell customers’ personal
  3
Scissors
data may be confident that such behavior is an easy way to boost
  4
Toilet paper
R account informarevenue because other companies sell customer
tion. Even if this activity violates the employee’s
O personal value   5 Copy paper
  6
USB memory sticks
system, it may be viewed as acceptable within the organization’s
B by opportunities   7 Notepads
culture. This manager may also be motivated
to thereby improve his or her performance standing
within the
E
  8
Pens
organization. A survey by Kessler International indicates that
R personal use. As   9 Staplers
52 percent of employees take office supplies for
Table 5.3 shows, many employees pilfer office
T supply rooms for 10 Highlighters
matters unrelated to the job. It is possible that the opportunity is Source: “Top Office Supplies
provided for small-scale theft in the company; S
in some cases, there that Are Stolen and the Average
Value of Contents in a Woman’s
are no concerns if employees take pens, Post-its,
O envelopes, note- Purse!” KMLE, May 16, 2012, http://
pads, and paper. Printing large documents at work for their own kmle1079.cbslocal.com/2012/05/16/
or spouse’s use, or even for their children’s N
school assignments, top-office-supplies-that-are-stolen/
is a common form of misconduct. Additionally,
, some indicated (accessed June 20, 2014).
that they take more expensive items such as USB drives, blank disks,
and computer accessories.48 If there is no policy against this practice,
L and will get into the
employees will not learn where to draw the line
habit of taking even more expensive items for A
personal use.
Often, opportunity can arise from someone whose job is to create
T consultant and profesopportunities for others. Barbara Toffler, an ethics
sor, learned firsthand how difficult it can be toRfollow one’s own moral
compass when she worked as a consultant at Arthur Andersen creating
ethics programs for Andersen clients (the firm E
itself had no internal ethics program). After charging a client $1 millionCfor developing an ethics
program that should have cost $500,000, the praise Toffler earned from
Andersen “was the only day in four years that I Ifelt truly valued by Arthur
Andersen.” Despite her expertise, she learned A
that “unethical or illegal
behavior happens when decent people are put under the unbearable pressure to do their jobs and meet ambitious goals without the resources to get
the job done right.”49
2
General Electric has taken steps to place itself at the head of the
1
ethical pack. Its “ecomagination” campaign is designed to “build
8 challenges while drivinnovative solutions for today’s environmental
ing economic growth.” It also has an initiative called “healthymagina2
tion,” which aims to improve the quality of healthcare. In 2013, GE
T to bolster these initiaspent $2 billion in research and development
tives. As part of its investment, GE focuses onSinvestigating clean-tech
research, releasing products that are more eco-friendly, partnering
with community health organizations, and continuing employee
healthcare efforts.50
176
Business and Society
If an employee takes advantage of an opportunity to act unethically
and is rewarded or suffers no penalty, he or she may repeat such acts
as other opportunities arise. Dov Charney, founder and former CEO of
American Apparel, was pushed out of his position by the board after
allegations concerning sexual misconduct and sexual harassment. These
allegations had persisted for more than a decade before he was eventually
terminated.51 His removal as CEO demonstrates the effectiveness of good
corporate governance and R
the duty of the board of directors to maintain
an ethical organizational culture.
When company managers get away with
O
unethical conduct, their behavior is reinforced and a culture of manipulation and misconduct can B
develop. Indeed, the opportunity to engage in
unethical conduct is oftenEa better predictor of unethical activities than
personal values.52
In addition to rewardsR
and the absence of punishment, other elements
in the business environment
T tend to create opportunities. Professional
codes of conduct and ethics-related corporate policies also influence
S what behaviors are acceptable. Compliance
opportunity by prescribing
programs are necessary toO
provide internal controls to prevent situations
just discussed. The larger the rewards and the milder the punishment for
N is the probability that unethical behavior
unethical behavior, the greater
will be practiced.
,
L
A
Organizational ethics and compliance initiatives are developed to
T and core values. The term ethical culture
establish appropriate conduct
refers to the character of R
the decision-making process employees use to
determine if their responses to ethical issues are right or wrong. Ethical
E
culture is that part of corporate culture that encompasses the values and
C as appropriate conduct. The goal of an
norms an organization defines
ethical culture is to curtail the need for enforced compliance of rules
I
and amplify the use of principles that contribute to ethical reasoning in
A Ethical culture is positively related to orgacomplex or new situations.
Developing an Ethical Culture
ethical culture
Refers to the character
of the decision-making
process employees use to
determine if their responses
to ethical issues are right or
wrong.
nizations with hotlines and with employees who confront ethics issues
in the workplace and/or report observed misconduct to management.53
2 involves communicating organizational
Developing an ethical culture
values and norms to employees
1 throughout the organization, developing
effective ethics programs, and appointing ethics officers to run them.
An ethical culture creates 8
shared values and managerial commitment for
ethical decisions.
2
T
Organizational Values
S
Organizational values are abstract ideals distinct from individual values.
Values can evolve over time. They are more subjective and are viewed by
societal members as ethical or unethical. Values-based practices become
Chapter 5 Business Ethics and Ethical Decision-Making
177
the end results and are separate from organizational practices based TABLE 5.4 Organizational
on technical or efficiency considerations.54
Values of Marriott
Both stakeholders and the organizational culture impact the
1. Put people first
development of organizational values. As mentioned earlier, New
2. Pursue excellence
Belgium Brewing has adopted sustainability as an organizational
3. Embrace change
value. The organizational culture strongly supports this value
through initiatives aimed at reducing energy, recycling, and pro4. Act with integrity
R year of employ- 5. Serve our world
viding employees with mountain bikes after one
ment. Because values are more subjective, they
O are influenced by Source: “2011 Annual Report,”
firm, industry, country, and global specific factors.55 For instance, Marriott, 2011, http://investor.
B encourage the shareholder.com/mar/marriottAR11/
firms from countries that stress individualism might
(accessed
ability to work independently, whereas firms from
E more collectiv- pdf/marriott11ar.pdf
June 23, 2014).
ist nations might place more value on teamwork. Additionally,
core values might differ depending upon the R
industry. Although
safety is a core value of many firms, it is more
T likely to be emphasized
in a factory environment than in an office environment. For instance,
S value innovative risk
organizations from countries that value risk may
taking, while organizations from countries more
O averse to risk may have
a different opinion. Table 5.4 provides an example of the organizational
N one can determine
values of Marriot. From its organizational values
that Marriot tries to deliver exceptional customer
service and operate
,
with high ethical standards. Marriott’s values reinforce its vision “to
be the #1 hospitality company in the world.”56 These types of organizational values are critical to organizational Lethical decision-making.
Organizations that have ethics programs based
A upon values tend to
make a greater contribution than those based simply on compliance, or
T
obeying rules.57
R
Normative Considerations of EthicalEDecision-Making
Earlier in the chapter, we described how ethical
Cdecision-making occurs
in an organization. Understanding what impacts the ethical decisionI managing an ethical
making process is necessary for developing and
culture within an organization. However, understanding
how ethical
A
decisions are made is different from determining what ought to guide
ethical decisions. Normative approaches are concerned with how
organizational decision-makers should approach
2 an ethical issue. It is
concerned with providing a vision and recommendations for improv1
ing ethical decision-making. Concepts like fairness, justice, and moral
8
philosophies such as deontology and utilitarianism
are important to
a normative approach. Strong normative approaches in organizations
2
have a positive relationship to ethical decision-making. Besides valT expected behaviors in
ues, norms provide more specific beliefs about
a specific context. Norms may exist about expected
behavior in work
S
groups and teams throughout the organization. Examples of norms
could relate to expected professionalism and how to resolve a reoccurring ethical issue.
normative approaches
Provide a vision and recommendations for improving
ethical decision-making;
they are concerned with
how organizational
decision-makers should
approach an ethical issue.
178
Business and Society
Managing the Ethical Culture: Variations of Employee
Conduct
Despite the creation and implementation of shared organizational values, organizations must recognize that employee behavior will still vary.
Overall, it is up to the organization to take responsibility for an ethical culture and implementation. However, research indicates that there are major
differences in the values and
Rphilosophies influencing how individuals that
comprise organizations make ethical decisions.58 Due to ethical diversity,
O
employees will often interpret situations differently and will vary in their
B
responses to an ethical issue.
Table 5.5 reflects a study
E that measures variation in employee conduct. It demonstrates that approximately 10 percent of employees will
R to further their own personal interests. These
take advantage of situations
employees are often referred
T to as “bad apples” and are more likely to
manipulate, cheat, or be self-serving when the benefits gained from misS penalties. These employees are more likely to
conduct are greater than the
steal office supplies or engage
O in other forms of misconduct. The lower the
risk of penalties, the higher the likelihood that these 10 percent of employN
ees will commit unethical activities.
Approximately 40 percent
, of workers go along with the work group
on most decisions. These employees are most concerned about the social
implications of their actions and desire to be accepted in the organization.
They have their own personal
L opinions but are easily impacted by other
employees around them. For instance, they might be well aware that using
A
office supplies for personal use is improper. However, if it is common for
T supplies for personal use, than these employother employees to take office
ees are likely to do the sameRjust to fit in. These employees tend to rationalize, claiming that the use of office supplies is one of the benefits and that
E policy prohibiting it, then it must be acceptbecause there is no company
able. Coupled with this is the
C belief of safety in numbers. These employees
feel that they will not get into trouble since everybody is doing it.
I
On the other hand, approximately
40 percent of a company’s employees always try to follow company
policies
and rules. These workers have
A
TABLE 5.5 Variation in Employee Conduct
2
40 Percent
10 Percent
1
Follow their own values Always try to follow Go along with the
Take advantage of situand beliefs; believe that company
ations if the penalty is
8policies work group
their values are superior
less than the benefit—
2
to those of others in
the risk of being caught
the company
is low
T
Source: These percentages are based on a number of studies in the popular press and data gathered by the authors. The percentagesS
are not exact and represent a general typology that may
10 Percent
40 Percent
vary by organization. The 10 percent that will take advantage is adapted from John Fraedrich and
O. C. Ferrell, “Cognitive Consistency of Marketing Managers in Ethical Situations,” Journal of the
Academy of Marketing Science 20 (Summer 1992): 243–252.
Chapter 5 Business Ethics and Ethical Decision-Making
a strong understanding of how their corporate culture defines acceptable
behavior and try to comply with organizational codes of ethics, ethics
training, and other communications about ethical conduct. In the office
supply example, if the company has a policy that prohibits taking office
supplies from work for personal use, these employees would most likely
obey the policy. However, they probably would not tell anyone about
the 40 percent who go along with the work group, for these employees
R
prefer to focus on their jobs and avoid any conflicts
or organizational
misconduct. These employees rely heavily on organizational
communicaO
tion and expectations. If the organization fails to communicate standards
Bwill devise their own.
for ethical conduct, then members of this group
The final 10 percent of employees attemptEto uphold formal ethical
standards focusing on rights, duties, and rules. They adopt values that
support certain inalienable rights and actions.RFrom their perspective,
these actions are always ethically correct if Tthey protect inalienable
rights. Overall, these employees believe that their values are correct and
superior to the values of other employees in theSorganization, or even to
the organization’s own value system, when an O
ethical issue arises. These
employees tend to report observed misconduct or report when they view
N are unethical. As a
activities within the organization that they believe
result, these employees would most likely report
, coworkers who steal
office supplies.
It should be clear by now that employees use different approaches
L
when making ethical decisions. Because of the probability
that a large percentage of employees will take advantage of a situation
or
go along with
A
the rest of employees, it is important that companies provide communicaT
tion and internal controls to support an ethical culture.
Organizations that
do not monitor activities and enforce ethical policies
provide
a low-risk
R
environment for employees inclined to take advantage of situations to
E
accomplish their own personal objectives.
Although the percentages in Table 5.5 are only
C estimates, the specific
percentages are not as important as the fact that research has identiI
fied these employee variations as existing within
most organizations.
Organizations should pay particular attention to
managers
who monitor
A
the daily operations of employees. They should also provide ethics training and communication to make certain that the business operates in an
ethical manner, misconduct is caught before it becomes
a major issue, and
2
risk to stakeholders is eliminated or minimized.
1
Maintaining ethical conduct is a business goal that should be no dif8
ferent from increasing profits. If progress in maintaining
an ethical culture
stalls, then the organization must determine the reason and take corrective
2
action through the enforcement of existing standards or setting higher
T and becomes part of
standards. If the code of ethics is strongly enforced
the corporate culture, it can lead to strong improvements
in the ethical
S
conduct within the organization. On the other hand, if the code of ethics
and managerial commitment are merely window-dressing and not truly a
part of the corporate culture, it will not be effective.
179
180
Business and Society
Summary
Business ethics comprises principles and standards that guide individual and
work group behavior in the world of business. Principles are specific and
pervasive boundaries that are absolute, while values are used to develop
norms that are socially enforced. Stakeholders determine these conventions,
and they may change over time. The most basic of these standards have been
codified as laws and regulations.
R Business ethics goes beyond legal issues.
Because individuals and groups within a company may not have
embraced the same set ofOvalues, ethical conflict may occur. An ethical issue is a problem, situation,
or opportunity requiring an individual,
B
group, or organization to choose among several actions that must be evalE
uated as right or wrong, ethical or unethical. Questionable decisions and
actions may result in disputes
R that must be resolved through some type of
negotiation or even litigation. Codifying ethical standards into meaningful
T
policies that spell out what is and is not acceptable gives businesspeople
S possibility of behavior that could create legal
an opportunity to reduce the
problems. Business decisions
O involve complex and detailed discussions in
which correctness may not be clear-cut. It is important that a shared vision
N from an organizational perspective to creof acceptable behavior develops
ate consistent and reliable, relationships with all concerned stakeholders.
Common ethical issues faced by businesses include abusive or intimidating behavior, misuse of company time and resources, conflicts of interest,
bribery, discrimination andLsexual harassment, fraud, and privacy issues.
Understanding the ethical decision-making process can help individuals and businesses design A
strategies to prevent misconduct. Three of the
important components of T
ethical decision-making are individual factors,
organizational relationships, and opportunity.
Significant individual R
factors that affect the ethical decision-making
process include personal moral
E philosophy, stage of moral development,
motivation, and other personal factors such as gender, age, and experiC
ence. Moral philosophies are the principles or rules that individuals apply
I wrong. Most moral philosophies can be clasin deciding what is right or
sified as consequentialism,Aethical formalism, or justice. Consequentialist
philosophies consider a decision to be right or acceptable if it accomplishes
a desired result such as pleasure, knowledge, career growth, the realization
of self-interest, or utility. 2
Consequentialism may be further classified as
egoism and utilitarianism. Ethical formalism focuses on the rights of indi1 associated with a particular behavior rather
viduals and on the intentions
than on its consequences. 8
Justice theory relates to evaluations of fairness
or the disposition to deal with perceived injustices of others.
2
The culture of the organization,
as well as superiors, peers, and subordinates, can have a significant
impact
on the ethical decision-making proT
cess. Organizational, or corporate, culture can be defined as a set of values,
beliefs, goals, norms, and S
rituals shared by members or employees of an
organization. Whereas a firm’s overall culture establishes ideals that guide a
wide range of behaviors for members of the organization, its ethical climate
focuses specifically on issues of right and wrong. Significant others include
Chapter 5 Business Ethics and Ethical Decision-Making
181
superiors, peers, and subordinates in the organization who influence the
ethical decision-making process. Interaction between corporate culture and
executive leadership helps determine the ethical value system of the firm, but
obedience to authority can also explain why many people resolve workplace
issues by following the directives of a superior. The more exposed a person
is to unethical activity in the organization, the more likely it is that he or she
will behave unethically. Superiors and coworkers can create organizational
R issues.
pressure, which plays a key role in creating ethical
Opportunity is a set of conditions that O
limit barriers or provide
rewards. If an individual takes advantage of an opportunity to act unethiB that person may repeat
cally and escapes punishment or gains a reward,
such acts when circumstances favor them.
E
To develop an ethical culture, it is crucial for the organization to develop
R
strong organizational values to guide the organization.
The values often
form the basis of a normative structure. A normative
approach
is concerned
T
with how organizational decision makers should approach an ethical issue.
S ethical behavior in the
Finally, studies have shown that employee
workplace tends to vary. While 10 percent are O
bad apples who will take
advantage of the organization, 40 percent of employees are estimated to
N
go along with the majority in ethical decision-making.
Another 40 percent
are likely to obey policies and procedures themselves
but will not often
,
report the misconduct of others. The final 10 percent view their values as
superior to others. They adhere to their high ethical values and will report
L Organizations should
those employees that they consider to be unethical.
pay particular attention to managers who monitor
A the daily operations of
employees.
T
R
Responsible Business Debate
E
C
Should the FDA Protect Consumers
from
the Potential Harm Caused Iby Antibacterial
A
Issue: Are Consumers Being Harmed by Antibacterial
Soap?
2
1
8
2
T
S
The Food and Drug Administration (FDA) has proposed
that antibacterial soap and body wash manufacturers
provide additional evidence that their products are
more effective than other soap products and safe for
long-term use. A chemical commonly found in antibacterial products has raised concerns. It is estimated that
approximately 75 percent of liquid antibacterial soaps
contain triclosan. Studies have revealed the presence
Soap?
of triclosan in urine samples of a shocking 75 percent
of respondents.
If the proposal of the FDA passes, it will have
significant implications for soap manufacturers.
Antibacterial soap is a strong business within the
United States. If antibacterial soap manufacturers cannot prove their claims of effectiveness, they
might have to relabel their products, reformulate
them, or even remove them completely once they
are deemed unsafe. The FDA expects to make a final
decision in 2016.
182
Business and Society
There are three major concerns over triclosan. First,
there is the question of whether triclosan is actually effective in killing more bacteria than other soap
products. If it is not more effective, then the benefits
of antibacterial soap are untrue. Secondly, consumer
advocates are concerned that triclosan might interfere
with hormones, making long-term use harmful. Finally,
there is the possibility that too much use of triclosan
could lead to bacteria that are not only resistant to
triclosan but to other antibiotics as well.
Since 2005, some scientists have been calling for the
FDA to get involved. Tests on animals have suggested
that prolonged triclosan use could act as endocrine disrupters, negatively impacting a person’s hormone system. So far these tests have been performed largely on
animals, so there is still the question of how this would
affect humans. Research has also revealed the presence
of triclosan in breast milk and umbilical cord blood.
Canada has requested that companies within the country voluntarily phase out triclosan from products.
The American Cleaning Institute counteracts these
claims, stating that triclosan has helped fight against bacteria for decades. More than 600 firms support this claim,
citing studies that have revealed there are fewer microbes
on the hands of those who use antibacterial soap than
on those who do not. There is not much evidence suggesting that triclosan-resistant bacteria exist outside of
labs. Many studies have found that relationships between
antibiotic-resistant bacteria and triclosan are not statistically significant. Even the FDA admits there is no evidence
suggesting that triclosan is harmful to humans.
The soap industry amounts to about $5 billion in
sales of soaps, shower products, and body washes.
Key Terms
business ethics (p. 155)
principles (p. 155)
values (p. 155)
ethical issue (p. 159)
conflict of interest (p. 161)
bribery (p. 162)
sexual harassment (p. 164)
hostile work environment (p. 164)
Forcing the industry to reformulate or relabel their
products would be highly costly. Additionally, many
other industries, including cosmetics, use triclosan in
products as well. Growing concern is causing some
firms to voluntarily remove triclosan. Johnson and
Johnson and Reckitt Benckiser have already begun
phasing out triclosan from their products.
R
O
There Are Two Sides To Every Issue:
B
1. There is enough evidence to support the FDA’s conE cerns about the negative impacts of antibacterial soap.
2. There is not enough evidence to support the FDA’s
R concerns about the effects of antibacterial soap.
T
Source: Thomas M. Burton and Serena Ng, “FDA Seeks Stricter
Rules on Antibacterial Soaps,” The Wall Street Journal,
S
December 16, 2013, http://www.nytimes.com/2011/08/20/business/triclosan-an-antibacterial-chemical-in-consumer-prodO
ucts-raises-safety-issues.html?pagewanted=all&_r=0 (accessed
December 18, 2013); Brian Clark Howard, “Avoid Antibacterial
N
Soaps, Say Consumer Advocates,” National Geographic,
,http://news.nationalgeographic.com/news/2013/12/131217antibacterial-soaps-triclosan-fda-hygiene-safetyhealth/?rptregcta=reg_free_np&rptregcampaign=20131016_
rw_membership_r1p_us_se_w# (accessed December 18, 2013);
Allison E. Aiello, Bonnie Marshall, Stuart B. Levy, Phyllis
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