UTA Culture Promoting Internal Competition Discussion Responses

Respond to 2 posts and provide a contradiction of one of their conclusions.  Find a valid reason – based on ethical standards or reasoning – to object to or nullify their element or conclusion.

POST 1
Conclusion.
I have concluded that Enron’s arrogance and greed for high performance led to their
organizational failure. The corporation fell apart due to their greed and cocky culture.
Reason.
Enron had a cocky representation through its executives and the corporation itself. The remarks
that the company and executives said about being better than other companies was due to the
belief that their workers can take high risk with no consequences possible. Enron encouraged the
breaking of rules to get higher profits. These actions against rules and regulations don’t typically
occur just the one time. It becomes a problem and, in this case, a part of the culture. Employees
of Enron now are under the impression that it is okay to cheat, which led to their organizational
failure.
Evidence.
I was able to gather some evidence from the Enron: Not Accounting for the Future case in the
textbook. The textbook mentioned Enron having a larger banner in their lobby proclaiming
“Enron ‘The World’s Leading Company.’” (Ferrell et al., 2018, p. 575) It also mentioned that
“Enron executives believed that competitors had no chance against it.” (Ferrell et al., 2018, p.
575) These two quotes relate to the notorious culture of Enron being arrogant. The textbook also
stated that “Enron’s corporate culture reportedly encouraged flouting the rules in pursuit of
profit.” (Ferrell et al., 2018, p. 575) They were encouraging their employees to cut corners in
order to reach their desired high-performance numbers.
Conclusion.
I was also able to conclude that Enron’s “rank and yank” system contributed to their
organizational failure. Enron’s employees had to face a toxic workplace year-round.
Reason.
Enron’s CEO, Skilling, had created a system to turnover lower performing employees. The
system involved evaluating and ranking the employees every 6 months. After ranking the
employees, the bottom 20% get booted out while the top 80% keep their job. With this type of
system creating competitive attitudes in the workplace, the employees are forced to try and
outperform one another. The employees were ultimately fighting to keep their jobs by any
means. These pressures can influence employees to commit fraudulent activity with their
numbers in order to maintain high performance. From that point, the corporate culture of Enron
would tarnish and lead to organizational failure.
Evidence.
While reading the Enron case from the textbook, I gathered some evidence for my conclusion
regarding their “rank and yank” system. The textbook states, “this ‘rank and yank’ system helped
create a fierce environment in which employees competed against rivals not only outside the
company but also at the next desk.” (Ferrell et al., 2018, p. 575) This quote explains that the
employees were in a highly competitive work environment against coworkers and the competing
companies. This system is the reason for the intense environment that was created.
SOURCES OR REFERENCES
Ferrell, O. C., et al. “Business Ethics: Ethical Decision Making.” Ebooks.Cenreader.Com, 30
Jan. 2018, ebooks.cenreader.com/#!/reader/62e14938-4d77-4cc3-81bfa92c5847ff9b/page/c88b6a78d0b6badca3371e1bb92a00bf. (accessed June 17, 2023).
POST 2
Conclusion
The type of culture a company establishes has a substantial influence on the
way people conduct their business regardless of their personal morals and beliefs. In the
case of Enron, it was clear that the “corporate culture” had a significant impact on how
the employees handled their business and what they felt were reasonable practices. The
company culture is described as arrogant with the CEO, Jeffrey Skilling, being the face of
it. (Ferrell et al., 2018). Unfortunately, the misguided policies of the company and the
cutthroat practices for employee retention ultimately led to the company’s demise.
Reason
The culture of encouraging “flouting the rules in pursuit of profit” (Ferrell et al.,
2018), set the foundation for how Enron handled their business. With their top
managers pushing the boundaries between ethical and unethical, it became a muddled
area for all employees on what exactly they could get away with. In addition to the
questionable practices by upper management, Enron was known for their cutthroat
policy of eliminating anyone that was ranked at the bottom 20 percent (Ferrell et al.,
2018). Although a widespread practice, this created an environment that eliminated
camaraderie and made coworkers competitors.
Evidence
These issues are what led to the downfall of Enron. Managers are the ones that
are supposed to embody the company culture. They are the leaders that others rely on
to know how to perform. So, when you have a CEO that continuously boasts about their
success and does not feel as though they can fail, this begins to carry over to other
entities within the business. Although Enron’s executives ultimately paid the price, there
were several other areas that helped the unethical practices go on for so long. This is
evident when the off-balance finances were able to get through the accounting firm,
lawyers, and chair/former-CEO, Ken Lay. This could be attributed to the copious
amounts of profit these individuals were making from the shady dealings.
The cutthroat policy that caused employees to be “less concerned with
generating profits for shareholders than with enriching officer wealth (Ferrell et al.,
2018)” was another contributing factor to the bankruptcy. This caused employees to find
their biggest competition in the cubicle next to them rather than at competing
companies. When employees are at risk of losing their job if they do not perform as well
as others, they will begin to push their morals aside to keep their head afloat another
day. As stated by Ferrell et al. (2018), the intense competition creates a culture where
loyalty and ethics are cast aside. A company’s success is bound to dwindle when they no
longer have the loyalty of their shareholders.
References
Ferrell, O. C., Fraedrich, J., & Ferrell, L. (2018). Case 20 – Enron: Not Accounting for
the Future. In Business ethics: Ethical decision making and cases (pp. 574–583). essay,
Cengage.
Thirteenth Edition
Business ETHICS
Ethical Decision Making and Cases
O.C. Ferrell
Auburn University
John Fraedrich
Southern Illinois University—Carbondale
Linda Ferrell
Auburn University
Australia • Brazil • Canada • Mexico • Singapore • United Kingdom • United States
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O.C. Ferrell, John Fraedrich and Linda Ferrell
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To James Collins Ferrell and
George Collins Ferrell.
—O.C. Ferrell
To Emma, Matthew, Hyrum, and
Ammon, who are the future generation.
—John Fraedrich
To Brett Nafziger.
—Linda Ferrell
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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
BRIEF CONTENTS
Part 1: An Overview of Business Ethics
1
1: The Importance of Business Ethics 1
9: Home Depot Works on Stakeholder
Relationships 421
2: Stakeholder Relationships, Social Responsibility, and
Corporate Governance 26
11: Google’s Search for Solutions to Privacy Issues
3: Sustainability: Social and Ethical Dimensions
Part 2: Ethical Issues and the
Institutionalization of Business Ethics
53
84
4: The Institutionalization of Business Ethics 84
5: Emerging Business Ethics Issues 110
Part 3: The Decision-Making Process
6: Ethical Decision Making
135
135
7: Individual Factors: Moral Philosophies and
Values 158
8: Organizational Factors: The Role of Ethical Culture and
Relationships 184
Part 4: Implementing Business Ethics
in a Global Economy 208
9: Developing and Implementing an Effective Ethics
Program 208
10: Global Business Ethics Issues 235
11: Ethical Leadership 269
10: Brewed to Perfection: New Belgium Brewing 431
441
12: Big-Box Retailer Walmart Makes Big Moves in Social
Responsibility 457
13: Volkswagen Cleans Up Reputation After Emissions
Scandal 468
14: Zappos Finds the Perfect Fit 475
15: Starbucks Serves Up Its Social Responsibility
Blend 484
16: The Hershey Company’s Bittersweet Success
17: Wells Fargo Banks on Recovery
496
508
18: Whole Foods Market Refreshes Its Commitment to
Stakeholders 516
19: The NCAA Enforces Penalties in College
Athletics 526
20: Enron: Not Accounting for the Future 535
Endnotes
546
Glossary
576
Index
583
12: Technology: Ethics and Social Responsibility
Issues 305
Part 5: Cases
330
1: From the Outside In: Corporate Social Responsibility at
Patagonia 332
2: Tesla Accelerates the Transition to Sustainable
Energy 338
3: An Apple a Day: Ethics at Apple Inc. 349
4: TOMS Reinvents the One for One Movement 364
5: CVS Smokes the Competition in Corporate Social
Responsibility 374
6: Bayer Rounds Up Monsanto 387
7: Uber Collides with Controversy 398
8: Herbalife Nutrition Achieves Success by Managing
Risks 407
iv
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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
CONTENTS
Part 1: An Overview of
Business Ethics 1
Issues in Social Responsibility 35
Social Responsibility and the Importance of a Stakeholder
Orientation 37
Chapter 1: The Importance of Business Ethics 1
Chapter Objectives, 1 | Chapter Outline, 1
An Ethical Dilemma
Views of Corporate Governance, 41 • The Role
of Boards of Directors, 42 • Greater Demands for
Accountability and Transparency, 43 • Executive
Compensation, 43
2
Business Ethics Defined
4
Why Study Business Ethics?
5
A Crisis in Business Ethics, 5 • Specific Issues, 6 •
The Reasons for Studying Business Ethics, 7
The Development of Business Ethics
8
Before 1960: Ethics in Business, 8 • The 1960s: The
Rise of Social Issues in Business, 9 • The 1970s:
Business Ethics as an Emerging Field, 10 • The 1980s:
Business Ethics Reaches Maturity, 10 • The 1990s:
Institutionalization of Business Ethics, 11 • The 2000s:
Twenty-First Century Business Ethics, 11 • The 2010s:
New Challenges in Business Ethics, 12 • The 2020s and
Beyond, 15
Developing Organizational and Global Ethical
Cultures 16
The Benefits of Business Ethics
16
Ethics Contributes to Employee Commitment, 17 •
Ethics Contributes to Investor Loyalty, 18 • Ethics
Contributes to Customer Satisfaction, 18 • Ethics
Contributes to Profits, 19
Our Framework For Studying Business Ethics
Summary
Corporate Governance Provides Formalized Responsibility
to Stakeholders 38
20
22
Implementing a Stakeholder Perspective 45
Step 1: Assessing the Corporate Culture, 46 •
Step 2: Identifying Stakeholder Groups, 46 • Step 3:
Identifying Stakeholder Issues, 46 • Step 4: Assessing
Organizational Commitment to Stakeholders and
Social Responsibility, 47 • Step 5: Identifying Resources
and Determining Urgency, 47 • Step 6: Gaining
Stakeholder Feedback, 47
Contributions of a Stakeholder Perspective
Summary 48
Important Terms for Review, 50 | Resolving Ethical
Business Challenges, 51 | Check Your EQ, 52
Chapter 3: Sustainability: Social and Ethical
Dimensions 53
Chapter Objectives, 53 | Chapter Outline, 53
An Ethical Dilemma
54
Defining Sustainability 55
How Sustainability Relates to Ethical Decision Making and
Social Responsibility 56
Important Terms for Review, 23 | Resolving Ethical
Business Challenges, 24 | Check Your EQ, 25
Global Environmental Issues 58
Chapter 2: Stakeholder Relationships, Social
Responsibility, and Corporate Governance 26
Environmental Legislation 66
Chapter Objectives, 26 | Chapter Outline, 26
An Ethical Dilemma
Atmospherics, 58 • Water, 61 • Land, 62
Environmental Protection Agency (EPA), 67 •
Environmental Regulations, 67
Alternative Energy Sources 71
27
Stakeholders Define Ethical Issues in Business
Identifying Stakeholders, 30 • A Stakeholder
Orientation, 31
Social Responsibility and Business Ethics
48
33
28
Wind Power, 71 • Geothermal Power, 71 • Solar Power,
72 • Nuclear Power, 72 • Biofuels, 72 • Hydropower, 73
Business Response to Sustainability Issues 73
Green Marketing, 74 • Greenwashing, 75
v
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CONTENTS (Continued)
Chapter 5: Emerging Business Ethics Issues
Strategic Implementation of Environmental
Responsibility 76
Recycling Initiatives, 77 • Stakeholder Assessment, 77 •
Risk Analysis, 77 • The Strategic Environmental Audit, 78
Summary
110
Chapter Objectives, 110 | Chapter Outline, 110
79
Important Terms for Review, 81 | Resolving Ethical
Business Challenges, 82 | Check Your EQ, 83
An Ethical Dilemma
111
Recognizing an Ethical Issue (Ethical Awareness) 112
Foundational Values for Identifying Ethical Issues 113
Integrity, 113 • Honesty, 114 • Fairness, 114
Emerging Ethical Issues and Dilemmas in Business 115
Misuse of Company Time and Resources, 115 • Abusive
or Intimidating Behavior, 116 • Lying, 118 • Conflicts of
Interest, 119 • Bribery, 119 • Corporate Intelligence, 120
• Discrimination, 122 • Sexual Harassment, 123 • Fraud,
124 • Consumer Fraud, 126 • Financial Misconduct, 128
• Insider Trading, 129
Part 2: Ethical Issues and
the Institutionalization of
Business Ethics 84
The Challenge of Determining an Ethical Issue in
Business 130
Chapter 4: The Institutionalization
of Business Ethics 84
Chapter Objectives, 84 | Chapter Outline, 84
Summary 131
An Ethical Dilemma 85
Important Terms for Review, 132 | Resolving Ethical
Business Challenges, 133 | Check Your EQ, 134
Managing Ethical Risk Through Mandated, Core, and
Voluntary Practices 86
Mandated Requirements for Legal Compliance
88
Laws Regulating Competition, 90 • Laws Protecting
Consumers, 92 • Laws Promoting Equity and Safety, 94
The Sarbanes–Oxley (SOX) Act 95
Public Company Accounting Oversight Board, 96 •
Auditor and Analyst Independence, 97 • Whistle-Blower
Protection, 98 • Cost of Compliance, 98
Dodd–Frank Wall Street Reform and Consumer
Protection Act 98
Financial Agencies Created by the
Dodd–Frank Act, 99 • Consumer Financial Protection
Bureau, 99 • Whistle-Blower Bounty Program, 99
Laws that Encourage Ethical Conduct
100
Federal Sentencing Guidelines for Organizations
Core or Best Practices
101
103
Voluntary Responsibilities, 103 • Cause-Related
Marketing, 104 • Strategic Philanthropy, 104 • Social
Entrepreneurship, 105
Part 3: The DecisionMaking Process 135
Chapter 6: Ethical Decision Making 135
Chapter Objectives, 135 | Chapter Outline, 135
An Ethical Dilemma
136
A Framework for Ethical Decision Making in
Business 137
Ethical Issue Intensity, 137 • Individual Factors, 139 •
Organizational Factors, 141 • Opportunity, 144 • Business
Ethics Intentions, Behavior, and Evaluations, 146
Using the Ethical Decision-Making Model to Improve
Ethical Decisions 147
Normative Considerations in Ethical
Decision Making 148
Institutions as the Foundation for Normative Values, 148
• Implementing Principles and Core Values in Ethical
Business Decision Making, 151
The Importance of Institutionalization in
Business Ethics 105
Understanding Ethical Decision Making 153
Summary
Summary 154
106
Important Terms for Review, 107 | Resolving Ethical
Business Challenges, 108 | Check Your EQ, 109
Important Terms for Review, 155 | Resolving Ethical
Business Challenges, 156 | Check Your EQ, 157
vi
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Part 4: Implementing
Business Ethics in a
Global Economy 208
Chapter 7: Individual Factors: Moral
Philosophies and Values 158
Chapter Objectives, 158 | Chapter Outline, 158
An Ethical Dilemma
159
Moral Philosophy Defined
Moral Philosophies
Chapter 9: Developing and Implementing
an Effective Ethics Program 208
160
162
Instrumental and Intrinsic Goodness, 163 • Teleology, 164
• Deontology, 166 • Relativist Perspective, 167 • Virtue
Ethics, 169 • Justice, 170
Applying Moral Philosophy to Ethical Decision
Making 173
Cognitive Moral Development and Limitations
White-Collar Crime
174
179
Summary 180
Important Terms for Review, 181 |
Resolving Ethical Business Challenges, 182 |
Check Your EQ, 183
Chapter 8: Organizational Factors: The Role
of Ethical Culture and Relationships 184
Chapter Objectives, 184 | Chapter Outline, 184
An Ethical Dilemma
185
Defining Corporate Culture
186
The Role of Corporate Culture in Ethical Decision
Making 188
Ethical Frameworks and Evaluations of Corporate
Culture, 188 • Ethics as a Component of Corporate
Culture, 190 • Compliance Versus Values-Based Ethical
Cultures, 192 • Differential Association, 193 • WhistleBlowing, 193
Organizational Structure
197
Group Dimensions of Corporate Structure and
Culture 199
Types of Groups, 200 • Group Norms, 201
Variation in Employee Conduct 202
Can People Control Their Actions Within a Corporate
Culture? 203
Summary
An Ethical Dilemma
209
The Responsibility of the Corporation to
Stakeholders 210
The Need For Organizational Ethics Programs
176
Individual Factors in Business Ethics
Chapter Objectives, 208 | Chapter Outline, 208
204
Important Terms for Review, 205 |
Resolving Ethical Business Challenges, 206 |
Check Your EQ, 207
211
An Effective Ethics Program 213
An Ethics Program Can Help Avoid
Legal Problems, 213 • Values versus Compliance
Programs, 215
Codes of Conduct
Ethics Officers
215
217
Ethics Training and Communication 218
Systems to Monitor and Enforce Ethical Standards
220
Continuous Improvement of an Ethics Program, 222 •
Common Mistakes in Designing and Implementing an
Ethics Program, 222
The Ethics Audit 223
The Auditing Process, 224 • Informal Ethics Audits, 225 •
Integrity Measurement Frameworks, 227 • Implementing
Programs, Audits, and Measurements to Sustain an
Ethical Culture, 230
Summary 230
Important Terms for Review, 232 | Resolving Ethical
Business Challenges, 233 | Check Your EQ, 234
Chapter 10: Global Business Ethics Issues 235
Chapter Objectives, 235 | Chapter Outline, 235
An Ethical Dilemma
236
Global Culture, Values, and Practices 237
Economic Foundations of Business Ethics 240
Economic Systems, 242
Multinational Corporations
245
Global Organizations to Support Responsible Business 247
United Nations Global Compact, 247 • Global Business
Organizations that Affect Ethical Behavior, 248
vii
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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
CONTENTS (Continued)
Global Ethics Issues
250
Defining Technology 307
Bribery, 250 • Antitrust Activity, 254 • Internet
Security and Privacy, 255 • Human Rights, 257
• Healthcare, 258 • Supply Chain, 259 • Labor
and Right to Work, 259 • Compensation, 260 •
Consumerism, 261
The Importance of Ethical Decision Making
in Global Business 262
Summary
Ethics Issues in Technology
314
Privacy, 315 • Intellectual Property, 317 •
Cybercrime, 318 • The Digital Divide, 320 •
Biotechnology, 320
Managing Ethics Issues in Technology 322
The Future of Technology Ethics 324
264
Important Terms for Review, 265 |
Resolving Ethical Business Challenges, 266 |
Check Your EQ, 268
Chapter 11: Ethical Leadership
Technology Ethics, 308 • Technologies to Watch, 309
269
Summary
326
Important Terms for Review, 327 |
Resolving Ethical Business Challenges, 328 |
Check Your EQ, 329
Chapter Objectives, 269 | Chapter Outline, 269
An Ethical Dilemma 270
Defining Ethical Leadership
Part 5: Cases
271
Requirements for Ethical Leadership
Benefits of Ethical Leadership
Case 1: From the Outside In: Corporate Social
273
Responsibility at Patagonia 332
276
Ethical Leadership and Organizational Culture
277
Power, 279 • Motivating Ethical Behavior, 282
Managing Ethical Business Conflicts
283
286
Ethical Leaders Empower Employees 288
Ethical Leadership Communication
289
Ethical Leadership Communication Skills, 290
Leader–Follower Relationships
293
Ethics Programs and Communication, 293 • Power
Differences and Workplace Politics, 294 • Feedback, 295
Leadership Styles and Ethical Decisions
The RADAR Model
Case 2: Tesla Accelerates the Transition to Sustainable
Energy 338
Case 3: An Apple a Day: Ethics at Apple Inc. 349
Case 4: TOMS Reinvents the One for One
Conflict Management Styles, 283
Ethical Crisis Management and Recovery
330
296
298
Summary 300
Movement 364
Case 5: CVS Smokes the Competition in Corporate Social
Responsibility 374
Case 6: Bayer Rounds Up Monsanto 387
Case 7: Uber Collides with Controversy 398
Case 8: Herbalife Nutrition Achieves Success by Managing
Risks
407
Case 9: Home Depot Works on Stakeholder
Relationships
421
Case 10: Brewed to Perfection: New Belgium
Brewing 431
Important Terms for Review, 302 |
Resolving Ethical Business Challenges, 303 |
Check Your EQ, 304
Case 11: Google’s Search for Solutions to Privacy
Chapter 12: Technology: Ethics and
Social Responsibility Issues 305
Social Responsibility 457
Issues 441
Case 12: Big-Box Retailer Walmart Makes Big Moves in
Case 13: Volkswagen Cleans Up Reputation After
Chapter Objectives, 305 | Chapter Outline, 305
Emissions Scandal 468
An Ethical Dilemma 306
Case 14: Zappos Finds the Perfect Fit 475
viii
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Case 15: Starbucks Serves Up Its Social Responsibility
Case 19: The NCAA Enforces Penalties in College
Case 16: The Hershey Company’s Bittersweet
Case 20: Enron: Not Accounting for the Future 535
Blend
484
Success 496
Case 17: Wells Fargo Banks on Recovery 508
Case 18: Whole Foods Market Refreshes Its Commitment
to Stakeholders
516
Athletics
526
Endnotes
546
Glossary
576
Index 583
ix
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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Preface
The 13th edition of Business Ethics: Ethical Decision Making and Cases is a complete and
comprehensive revision and includes the most up-to-date content and cases as well as a new
chapter on technology ethics. We provide current coverage of changes in the ethical, legal,
social, and political environments. As the first ethics textbook with a managerial framework,
we continue to address ethical decision making in an organizational context.
Our approach is to help students understand and participate in effective ethical decision making in organizations. We approach business ethics from an applied perspective,
focusing on conceptual frameworks, risks, issues, and dilemmas that will be faced in the real
world of business. We prepare students for the challenges they will face in understanding
how organizational ethical decision making works. We describe how ethical decisions in
an organization involve collaboration in groups, teams, and discussions with peers. Many
decisions fall into gray areas where the right decision may not be clear and require the use
of organizational resources and the advice of others. Our approach helps prepare students
to understand and address ethical dilemmas in their careers. One approach to business ethics education is to include only a theoretical foundation related to ethical reasoning. Our
method is to provide a balanced approach that includes the concepts of ethical reasoning as
well as the organizational environment that influences ethical decision making.
The 13th edition provides new examples and cases that make foundational concepts come
to life. Each chapter has been revised based on the latest research and best practices available.
A new chapter, “Technology: Ethics and Social Responsibility Issues,” has been added to examine technology and its economic impact, understand how technology creates ethics issues,
examine ways to manage ethics issues in technology, and explore the future of technology
ethics. There are five new cases, and the remaining cases have been completely revised. Most of
the case titles are new, reflect current developments, and are designed to engage students. The
five new cases are Tesla Accelerates the Transition to Sustainable Energy; From the Outside In:
Corporate Social Responsibility at Patagonia; TOMS Reinvents the One for One Movement;
Home Depot Works on Stakeholder Relationships; and The Hershey Company’s Bittersweet
Success. All of the new cases were developed with the author’s oversight and are crafted to
provide students an opportunity to apply what they are learning to real-world business ethics
challenges. They are also designed to enhance critical thinking skills.
Using a managerial framework, we explain how ethics can be integrated into strategic
business decisions. This framework provides an overview of the concepts, processes, mandatory, core, and voluntary business practices associated with successful business ethics programs. Some approaches to business ethics are excellent as exercises in intellectual reasoning,
but they cannot deal with the many actual issues and considerations that people in business
organizations face. Our approach supports ethical reasoning and the value of individuals
being able to face ethical challenges and voice their concerns about appropriate behavior.
Employees in organizations are ultimately in charge of their own behavior and need to be
skillful in making decisions in gray areas where the appropriate conduct is not always obvious.
We have been diligent in this revision to provide the most relevant examples of how
the lack of business ethics has challenged our economic viability and entangled countries
and companies around the world. This book remains the market leader because it addresses
the complex environment of ethical decision making in organizations and pragmatic, actual
x
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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Preface
business concerns. Every individual has unique personal principles and values, and every
organization has its own set of values, rules, and organizational ethical culture. Business
ethics must consider the organizational culture and interdependent relationships between
the individual and other significant persons involved in organizational decision making.
Without effective guidance, a businessperson cannot make ethical decisions while facing a
short-term orientation, feeling organizational pressure to perform well and seeing rewards
based on outcomes in a challenging competitive environment.
By focusing on individual issues and organizational environments, this book gives students the opportunity to see the roles and responsibilities they will face in business. The past
decade has reinforced the value of understanding the role of business ethics in the effective
management of an organization. Widespread misconduct reported in the mass media every
day demonstrates that businesses, governments, nonprofits, and institutions of higher learning need to address business ethics.
Our primary goal has always been to enhance the awareness and the ethical decision-making skills that students will need to make business ethics decisions that contribute to responsible business conduct. By focusing on these concerns and issues of
today’s challenging business environment, we demonstrate that the study of business
ethics is imperative to the long-term well-being of not only businesses but also our
economic system.
Philosopy of This Text
The purpose of this book is to help students improve their ability to make ethical decisions
in business by providing them with a framework that they can use to identify, analyze, and
resolve ethical issues in business decision making. Individual values and ethics are important
in this process. By studying business ethics, students begin to understand how to cope with
conflicts between their personal values and those of the organization.
Many ethical decisions in business are close calls. It often takes years of experience in
a particular industry to know what is acceptable. In this book, we do not provide ethical
answers but instead attempt to prepare students to make informed ethical decisions. First,
we do not moralize by indicating what to do in a specific situation. Second, although we provide an overview of moral philosophies and decision-making processes, we do not prescribe
any one philosophy or process as best or most ethical. Third, by itself, this book will not
make students more ethical, nor will it tell them how to judge the ethical behavior of others.
Rather, its goal is to help students understand and use their current values and convictions
in making business decisions and to encourage everyone to think about the effects of their
decisions on business and society.
Many people believe that business ethics cannot be taught. Although we do not
claim to teach ethics, we suggest that by studying business ethics, a person can improve
ethical decision making by identifying ethical issues and recognizing the approaches
available to resolve them. An organization’s reward system can reinforce appropriate
behavior and help shape attitudes and beliefs about important issues. For example, the
success of some campaigns to end racial or gender discrimination in the workplace
provides evidence that attitudes and behavior can be changed with new information,
awareness, and shared values.
Content and Organization
In writing Business Ethics, 13th Edition, we strived to be as informative, complete, accessible, and up-to-date as possible. Instead of focusing on one area of ethics, such as moral
philosophy or social responsibility, we provide balanced coverage of all areas relevant to the
current development and practice of ethical decision making. In short, we have tried to keep
pace with new developments and current thinking in teaching and practices.
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xi
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Preface
The first half of the text consists of 12 chapters, which provide a framework to identify,
analyze, and understand how businesspeople make ethical decisions and deal with ethical
issues. Several enhancements have been made to chapter content for this edition. Some of
the most important are listed in the next paragraphs.
Part 1, “An Overview of Business Ethics,” includes three chapters that help provide a
broader context for the study of business ethics. Chapter 1, “The Importance of Business
Ethics,” has been revised with many new examples and survey results to describe issues
and concerns important to business ethics. Chapter 2, “Stakeholder Relationships, Social
Responsibility, and Corporate Governance,” has been significantly reorganized and updated
with new examples and issues. Chapter 3, “Sustainability: Social and Ethical Dimensions,”
is a chapter on sustainability that examines the ethical and social responsibility dimensions
of sustainability.
Part 2, “Ethical Issues and the Institutionalization of Business Ethics,” consists of two
chapters that provide the background that students need to identify ethical issues and
understand how society, through the legal system, has attempted to hold organizations
responsible for managing these issues. Chapter 4, “The Institutionalization of Business
Ethics,” examines key elements of core or best practices in corporate America today along
with legislation and regulation requirements that support business ethics initiatives.
The chapter is divided into three main areas: mandated, core, and voluntary practices.
Chapter 5, “Emerging Business Ethics Issues,” provides expanded coverage of ethical
issues in the context of organizational ethics and highlights emerging ethical issues and
dilemmas in business.
Part 3, “The Decision-Making Process” consists of three chapters, which provide a
framework to identify, analyze, and understand how businesspeople make ethical decisions and deal with ethical issues. Chapter 6, “Ethical Decision Making,” has been revised
and updated to reflect current research and understanding of ethical decision making
and contains a section on normative considerations in ethical decision making. Chapter
7, “Individual Factors: Moral Philosophies and Values,” has been updated and revised to
explore the role of moral philosophies and moral development as individual factors in the
ethical decision-making process. Chapter 8, “Organizational Factors: The Role of Ethical
Culture and Relationships,” considers organizational influences on business decisions, such
as role relationships, differential association, and other organizational pressures, as well as
whistle-blowing.
Part 4, “Implementing Business Ethics in a Global Economy,” looks at specific measures that companies can take to build an effective ethics program as well as how these
programs may be affected by global issues, leadership, and technology issues. Chapter
9, “Developing and Implementing an Effective Ethics Program,” has been refined and
updated to discuss corporate best practices for developing effective ethics programs and
examine the role of the ethics audit. Such audits can help companies pinpoint problem
areas, measure their progress in improving conduct, and even provide a “debriefing”
opportunity after a crisis. Chapter 10, “Global Business Ethics Issues,” has been updated
to reflect the complex and dynamic events that occur in global business. This chapter
will help students understand the major issues involved in making decisions in a global
environment. Chapter 11, “Ethical Leadership,” defines ethical leadership and discusses
its impact on organizational culture. Reviewers indicated that they wanted more information provided on the importance of leadership to an ethical culture, and this chapter answers these requests. Chapter 12, “Technology: Ethics and Social Responsibility
Issues,” examines technology and its economic impact as well as the ethical implications
of technology.
Part 5 consists of 20 cases that bring reality into the learning process. Five of these
cases are new to the 13th edition, and the remaining 15 have been revised and updated. The
companies and situations portrayed in these cases are real; names and other facts are not
disguised; and all cases include developments up to the beginning of 2021. By reading and
analyzing these cases, students can gain insight into ethical decisions and the realities of
making decisions in complex situations.
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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Preface
Text Features
Many tools are available in this text to help both students and instructors in the quest to
improve students’ ability to make ethical business decisions.
•
•
•
•
•
•
Each chapter opens with an outline and a list of learning objectives.
Immediately following is “An Ethical Dilemma” that should provoke discussion about
ethical issues related to the chapter. The short vignette describes a hypothetical incident
involving an ethical conflict. Questions at the end of the “Ethical Dilemma” section
focus discussion on how the dilemma could be resolved.
Each chapter has a “Debate Issue” that reflects current ethical issues in business and
challenges students to take a stand. These debate issues have been found to stimulate
thoughtful discussion relating to content issues in the chapter. Topics of the debate
issues include the downsides of technology, workplace bullying, white-collar crime, the
impact of ethical conduct to financial performance, privacy in the workplace, and the
impact of carbon emission restrictions.
Each chapter has a “Business Ethics in the Real World” boxed feature that makes foundational concepts come to life through ethics issues in the real world of business. Topics
include bid rigging, auditing, sustainability, drones, and more. Companies discussed
include Ernst & Young, Airbus, and Patagonia, among others.
At the end of each chapter are a chapter summary and an important terms’ list, both of
which are handy tools for review. Also included at the end of each chapter is a “Resolving
Ethical Business Challenges” section. The vignette describes a realistic drama that helps
students experience the process of ethical decision making. The “Resolving Ethical
Business Challenges” minicases presented in this text are hypothetical; any resemblance
to real persons, companies, or situations is coincidental. Keep in mind that there are
no right or wrong solutions to the minicases. Each chapter concludes with a series of
questions that allow students to test their EQ (Ethics Quotient).
In Part 5, following each real-world case are questions to guide students in recognizing
and resolving ethical issues. For some cases, students can conduct additional research
to determine recent developments because many ethical issues in companies take years
to resolve.
Effective Tools for Teaching and Learning
MindTap. MindTap is a digital learning solution that powers students from memorization to mastery. MindTap is a personalized teaching experience that gives you complete
ownership of your course. With it, you can challenge all students, build their confidence,
and empower them to be unstoppable.
•
•
•
Access Everything You Need in One Place. Cut down on prep with MindTap’s
preloaded, organized course materials. Teach more efficiently with interactive
multimedia, concept quizzes, assignments, and more. And give your students the power
to read, listen, and study on their phones, so they can learn on their terms.
Empower Your Students to Reach Their Potential. Twelve distinct metrics give you
actionable insights into student engagement. Identify topics troubling your entire class
and instantly communicate with struggling students. And students can track their
scores to stay motivated toward their goals. Together, you can accelerate progress.
Your Course, Your Content. Only MindTap gives you complete control over your course.
You have the flexibility to reorder textbook chapters, add your own notes, and embed a
variety of content including OER. Personalize course content to your students’ needs.
They can even read your notes, add their own, and highlight key text to aid their progress.
Copyright 2022 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
xiii
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Preface
•
A Dedicated Team Whenever You Need Them. MindTap isn’t just a tool, it’s backed
by a personalized team eager to support you. We help you set up your course and tailor
it to your specific objectives, so you’ll be ready to make an impact from day one. And
we’ll be standing by to help you and your students until the final day of the term.
Cengage Instructor Center.
protected instructor site.
•
•
•
•
•
•
•
•
You can find the following teaching tools on the password-
Case Notes. Case notes for every chapter provide additional context around each
case, discussion questions, and resource links. This tool includes talking points to help
instructors lead student discussion and debate.
PowerPoints. PowerPoint continues to be a very popular teaching device, and a special effort has been made to upgrade the PowerPoint program to enhance classroom
teaching. Lecture slides, containing such content as tables, graphs, and data, have been
created to provide instructors with up-to-date content to supplement in-class chapter
discussion. Lecture slides for students are also available via MindTap.
Instructor’s Manual. The Instructor’s Manual contains a wealth of information.
Teaching notes for every chapter include a brief chapter summary, detailed lecture
outline, chapter objectives, key terms, links to relevant YouTube videos along with
suggested discussion questions, and notes for using the “Ethical Dilemma” and
“Resolving Ethical Business Challenges” sections.
Role-Play Exercises. The 13th edition provides eight behavioral simulation role-play
exercises developed for use in the business ethics course. Role-play exercises simulate a
complex, realistic, and timely business ethics situation. Students form teams and make
decisions based on an assigned role. The role-play exercise complements and enhances
traditional approaches to business learning experiences because it (1) gives students
the opportunity to practice ethical decision-making; (2) recreates the power, pressures,
and information that affect decision making at various levels of management; and
(3) provides students with a team-based experience that enriches their understanding of
group processes and dynamics. The role-play exercises can be used with classes of any size.
Cengage Learning Testing Powered by Cognero. This is a flexible online system that
allows you to author, edit, and manage test bank content from multiple Cengage Learning solutions; create multiple test versions in an instant; and deliver tests from your
LMS, your classroom, or wherever you want.
Case Bank. Four short cases are available on the Cengage Instructor Center: The
­Challenges of Expense Account Fraud, The Cocoa Exchange Finds a Sweet Spot in the
Supply Chain, The Container Store: An Employee-Centric Retailer, and The Ethics
Program at Eaton Corporation.
Additional Teaching Resources. The Center for Ethical Organizational Cultures
in the Raymond J. Harbert College of Business at Auburn University offers teaching
resources, including cases and debate issues, that are not included with the textbook.
These resources have been developed by the authors to allow open-source access to
enhance customization in teaching. The Center for Ethical Organizational Cultures provides other information related to business ethics education. The teaching resources can
be accessed at https://harbert.auburn.edu/research-faculty/centers/center-for-ethicalorganizational-cultures/index.html.
Ethical Leadership Certification. Students also have the ability to receive ethical
leadership certification from the National Association of State Boards of Accountancy
(NASBA) Center for Public Trust. This program encompasses six modules of online
content (delivered through Brain-shark, containing videos, graphics, and a voiceover).
At the end of each of the six modules, students will take an online examination through
NASBA. When students complete all six modules successfully, they will receive NASBA
Center for the Public Trust Ethical Leadership Certification. As business ethics increases
in importance, such certification can give your students an edge in the workplace. For
more information, visit https://learning.thecpt.org/.
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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
xv
Preface
Acknowledgments
A number of individuals provided reviews and suggestions that helped to improve this text.
We sincerely appreciate their time and effort.
Carolyn Ashe
University of Houston—Downtown
Walter Hill
Green River Community College
Laura Barelman
Wayne State College
Jack Hires
Valparaiso University
B. Barbara Boerner
Brevard College
David Jacobs
Morgan State University
Serena Breneman
University of Arkansas at Pine Bluff
R. J. Johansen
Montana State University—Bozeman
Lance Brown
Miami Dade College
Jeff Johnson
Athens State University
Judie Bucholz
Guilford College
Eduard Kimman
Vrije Universiteit
Hoa Burrows
Miami Dade College
Janet Knight
Purdue North Central
Robert Chandler
Lipscomb University
Anita Leffel
University of Texas at San Antonio
April Chatham-Carpenter
University of Northern Iowa
Barbara Limbach
Chadron State College
Leslie Connell
University of Central Florida
Victor Lipe
Trident Tech
Peggy Cunningham
Dalhousie University
Nick Lockard
Texas Lutheran College
Carla Dando
Idaho State University
Terry Loe
Kennesaw State University
James E. Donovan
Detroit College of Business
Nick Maddox
Stetson University
Douglas Dow
University of Texas at Dallas
Isabelle Maignan
Dutchwaters B.V.
Philip E. Esler
University of Gloucestershire
Phylis Mansfield
Pennsylvania State University—Erie
Joseph M. Foster
Indiana Vocational Technical
College—Evansville
Robert Markus
Babson College
Lynda Fuller
Wilmington University
Robert Giacalone
University of Richmond
Suresh Gopalan
Winston-Salem University
Karen Gore
Ivy Technical College
Therese Maskulka
Kutztown University
Randy McLeod
Harding University
Francy Milner
University of Colorado
Ali Mir
William Paterson University
Charles E. Harris, Jr.
Texas A&M University
Debi P. Mishra
Binghamton University State University of
New York
Kenneth A. Heischmidt
Southeast Missouri State University
Patrick E. Murphy
University of Notre Dame
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xvi
Preface
Lester Myers
Georgetown University
Karen Smith
Columbia Southern University
Catherine Neal
Northern Kentucky University
Filiz Tabak
Towson University
Cynthia Nicola
Carlow College
Debbie Thorne
Texas State University—San Marcos
Carol Nielsen
Bemidji State University
Wanda V. Turner
Ferris State College
Sharon Palmitier
Grand Rapids
Community College
Gina Vega
Salem State College
Lee Richardson
University of Baltimore
William M. Sannwald
San Diego State University
Ruth Schaa
Black River Technical College
Zachary Shank
Central New Mexico
Community College
Cynthia A. M. Simerly
Lakeland Community College
William C. Ward
Mid-Continent University
David Wasieleski
Duquesne University
Jim Weber
Duquesne University
Ed Weiss
National-Louis University
Joseph W Weiss
Bentley University
Jan Zahrly
University of North Dakota
We wish to acknowledge the many people who assisted us in writing this book. We are
deeply grateful to Kelsey Reddick for helping to manage the chapter revision, supporting in
the revision of MindTap activities and textbook supplements, and for helping to develop the
cases and revise the case notes. Additionally, we thank Gwyn Walters for her work on the
cases. Finally, we express appreciation to the administration and to colleagues at the Auburn
University and Southern Illinois University at Carbondale for their support.
We invite your comments, questions, or criticisms. We want to do our best to provide
teaching materials that enhance the study of business ethics. Your suggestions will be sincerely appreciated.
– O.C. Ferrell
– John Fraedrich
– Linda Ferrell
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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Chapter 1
The Importance of
Business Ethics
Chapter Objectives
•• Explore conceptualizations
of business ethics from an
organizational perspective
•• Examine the historical foundations
and evolution of business ethics
•• Provide evidence that ethical
value systems support business
performance
•• Describe the extent of ethical
misconduct in the workplace and the
pressures for unethical behavior
Chapter Outline
1-1 Business Ethics Defined
1-2 Why Study Business Ethics?
1-2a A Crisis in Business Ethics
1-2b Specific Issues
1-2c The Reasons for Studying
Business Ethics
1-3 The Development of Business
Ethics
1-3a Before 1960: Ethics
in Business
1-3b The 1960s: The Rise of
Social Issues in Business
1-3c The 1970s: Business Ethics
as an Emerging Field
1-3d The 1980s: Business
Ethics Reaches Maturity
1-3e The 1990s: Institutionalization
of Business Ethics
1-3f The 2000s: Twenty-First
Century Business Ethics
1-3g The 2010s: New Challenges
in Business Ethics
1-3h The 2020s and Beyond
1-4 Developing Organizational and
Global Ethical Cultures
1-5 The Benefits of Business Ethics
1-5a Ethics Contributes to
Employee Commitment
1-5b Ethics Contributes to
Investor Loyalty
1-5c Ethics Contributes to
Customer Satisfaction
1-5d Ethics Contributes to Profits
1-6 Our Framework for Studying
Business Ethics
iStock.com/sbelov
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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
An Ethical Dilemma*
Madison slips into bed in the early hours of the
morning after a long day at Alpha Beta Corporation. She
automatically opens the TikTok app on her phone to watch
a few videos. As she scrolls, a notification pops up of a
new follower. The name is unfamiliar, so she taps the
profile and browses.
As she continues, a video of someone
recognizable appears. Madison watches it a second
time and realizes it’s her coworker, Mark. As the
video plays, Mark is visible wearing an AB Corporation
shirt, talking to friends, and playing truth or dare. It
becomes apparent that Mark and his friends are visibly
intoxicated. She turns up the volume and hears Mark
talking about a possible merger/acquisition of AB as
well as some salty language about AB and some of the
managers.
“Alpha Beta really sucks. Work, work, work, for little
pay. And I always have to listen to Terry, AB’s golden
child, about his problems, his hit list, and how he’s going
to be promoted or fire us if he doesn’t get what he wants.
He even told me AB is going to buy Viper Inc. With our
customer database and Viper’s IPTV and VPN third-party
services, we’ll kill the competition,” slurred Mark. At the
end of the video, Mark falls on the ground, taking others
with him.
Though Madison doesn’t particularly like Terry, she
is concerned about the video, Mark’s comments about
Terry, his AB shirt, and that he spoke about something
that was confidential. She knows, via the code of conduct
and various meetings, that when you wear AB’s logo, you
represent the firm and not just yourself.
“That idiot,” Madison murmurs, and then she notices
the number of views on the video: several thousand.
The next day, Madison eats lunch with Caroline, her
friend and coworker, and tells her all about Mark and the
video.
“What do you think I should do?” asks Madison.
“Just keep quiet,” Caroline says. “Mark was just
stressed. Haven’t you said things when you were drunk
with someone videoing you? Besides, who are you going
to squeal to? Remember, he who squeals usually gets
made into pork patties as well,” quipped Caroline.
“What if I send an anonymous email to Terry with the
link to the TikTok video?” says Madison.
Caroline counters with, “Yeah, and Mark may or may
not get fired. But remember that Terry and Mark were
buddies in college. Who knows what Mark has on Terry and
vice versa? And if someone reverse checks your email, you
may not be as anonymous as you think,” says Caroline.
“You would still be snitching, and Mark would still
probably get fired. Think of his family. They are counting
on him to support them. It was just a silly TikTok video.
Who really cares that much about it? It’s not worth
anyone losing their job, is it?” adds Caroline.
“But if I don’t speak up, more and more people
will see the video, and it could be really damaging to
the company. No one is supposed to know of the merger
because it could cause employees to panic,” said Madison.
Caroline pursed her lips and lowered her voice and
says, “Look, I wasn’t going to say anything, but that’s
actually my profile you found, not Mark’s. I was with him
at the bar filming the video with a few other coworkers.
He doesn’t even know I posted it. If you do anything, I
may be on the chopping block.”
What should Madison do in this situation?
Questions
| Exercises
1. Identify the issues Madison has to resolve.
2. What is Madison’s responsibility to the firm and Terry?
3. Do you think Madison should report Mark and
Caroline?
*This case is strictly hypothetical; any resemblance to real persons,
companies, or situations is coincidental.
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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Chapter 1: The Importance of Business Ethics
T
he ability to anticipate and deal with business ethics issues and dilemmas has become
a significant priority in the twenty-first century. In recent years, a number of wellpublicized scandals resulted in public outrage about deception, fraud, and distrust in
business and a subsequent demand for improved business ethics, greater corporate responsibility, and laws to protect the public. The publicity and debate surrounding highly publicized
legal and ethical lapses at well-known firms highlight the need for businesses to integrate
ethics and responsibility into all business decisions. On the other hand, most businesses have
a few major ethical lapses and are rarely recognized in the mass media for their good conduct. Companies doing business based on responsible and ethical decisions do not generate
media interest. The reality of such inattention for rewarding good practices can lull firms
and employees into complacency, leaving them vulnerable to ethical lapses. Minor lapses
are often forgotten—only to be resurrected into larger, more impactful ethical or legal issues
and dilemmas by media sources down the line. The result is bad press and distrust from
stakeholders. Organizations need to develop an ethical culture and deal with instances of
minor lapses in conduct.
Highly visible business ethics issues influence the public’s attitudes toward business and
destroy trust. Ethically charged decisions are a part of everyday life for those who work in
organizations at all levels. Business ethics is not just an isolated personal issue; codes, rules,
and informal communications for responsible conduct are embedded in an organization’s
operations. This means ethical or unethical conduct is the province of everyone who works
in an organization, from the lowest level employee to the CEO.
Making good business ethical decisions is just as important to business success as mastering management, marketing, finance, and accounting. While education and training
emphasize functional areas of business, business ethics is often viewed as easy to master,
something that happens with little effort. You will hear the suggestion that business ethics is
just doing what is right. All you have to do is remember your values and stick to them. The
exact opposite is the case. Decisions with an ethical component are an everyday occurrence
requiring people to identify issues and make quick decisions. Ethical behavior in business
requires understanding and identifying issues, areas and types of risk, and approaches to
making choices in an organizational environment. Businesses need to be vigilant and understand both their employees and other groups of employees outside the firm. They need to
understand the drivers of positive behavior and how to help those who have difficulty in
adhering to codes of conduct. On the other hand, people can act unethically simply by failing to identify a situation that has an ethical issue. Ethical blindness results from individuals
who fail to sense the nature and complexity of their decisions.1
Some approaches to business ethics look only at the philosophical backgrounds of individuals and the social consequences of decisions. This approach fails to address the complex
organizational environment of businesses and pragmatic business concerns. By contrast, our
approach is managerial and incorporates real-world decisions that impact the organization
and stakeholders. Our book will help you better understand what, how, and why ethics is
important in the business world.
It is important to learn how to make decisions in the internal environment of an organization to achieve personal and organizational goals. But business does not exist in a vacuum.
As stated, decisions in business have implications for investors, employees, customers, suppliers, and society. Ethical decisions must take these stakeholders into account, for unethical
conduct can negatively affect people, companies, industries, and society as a whole. Our
approach focuses on the practical consequences of decisions and on positive outcomes that
have the potential to contribute to individuals, business, and society at large. The field of
business ethics deals with questions about whether specific conduct and business practices
are acceptable. For example, should a salesperson omit facts about a product’s poor safety
record in a sales presentation to a client? Should accountants report inaccuracies they discover in an audit of a client, knowing the auditing company will probably be fired by the
client for doing so? Should an automobile tire manufacturer intentionally conceal safety
concerns to avoid a massive and costly tire recall? Regardless of their legality, others will
certainly judge the actions in such situations as right or wrong, ethical or unethical. By its
very nature, the field of business ethics is controversial, and there is no universally accepted
Copyright 2022 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
3
4
Part 1: An Overview of Business Ethics
approach for resolving its dilemmas. All organizations have to deal with misconduct, but
some highly visible misconduct creates damaging publicity for firms. Wells Fargo experienced a loss of confidence when its sales department opened new accounts for clients
without their knowledge.2 The opportunity for the sales department to manipulate clients
was created by an unethical culture that top managers supported. The result was loss of trust
and closed accounts as well as loss of many potential clients.
Before we get started, it is important to state our approach to business ethics. First, we
do not moralize by stating what is right or wrong in a specific situation, although we offer
background on normative guidelines for appropriate conduct. Second, although we provide
an overview of group and individual decision-making processes, we do not prescribe one
approach or process as the best or most ethical. However, we provide many examples of successful ethical decision making. Third, by itself, this book will not make you more ethical,
nor will it tell you how to judge the ethical behavior of others. Rather, its goal is to help you
understand, use, and improve your current values and convictions when making business
decisions so that you think about the effects of those decisions on business and society.
Our approach will help you understand what businesses are doing to improve their ethical
conduct. To this end, we aim to help you learn to recognize and resolve ethical issues within
business organizations. As a manager, you will be responsible for your decisions and the
conduct of the employees you supervise. For this reason, we provide a chapter on ethical
leadership. The framework we developed focuses on how organizational decisions are made
and ways companies can improve their ethical conduct. This process is more complex than
many think. People who believe they know how to make the “right” decision usually come
away with more uncertainty about their own decision skills after learning about the complexity of ethical decision making. This is a normal occurrence, and our approach will help
you evaluate your own values as well as those of others. It will also help you to understand
the nature of business ethics and incentives found in the workplace that change the way you
make decisions in business versus at home.
In this chapter, we first develop a definition of business ethics and discuss why it has
become an important topic in business education. We also discuss why studying business ethics can be beneficial. Next, we examine the evolution of business ethics in North
­America. Then we explore the performance benefits of ethical decision making for businesses. Finally, we provide a brief overview of the framework we use for examining business
ethics in this text.
1-1 Business Ethics Defined
morals
A person’s personal
philosophies about what is
right or wrong
business ethics
Comprises organizational
principles, values, and norms
that may originate from
individuals, organizational
statements, or from the legal
system that primarily guide
individual and group behavior
in business
principles
Specific and pervasive
boundaries for behavior that
should not be violated
values
Enduring beliefs and ideals
that are socially enforced
To understand business ethics, you must first recognize that most people do not have specific
definitions they use to define ethics-related issues. The terms morals, principles, values, and
ethics are often used interchangeably, and you will find this is true in companies as well.
Consequently, there is much confusion regarding this topic. To help you understand these
differences, we discuss these terms.
For our purposes, morals refer to a person’s personal philosophies about what is right
or wrong. The important point is that when one speaks of morals, it is personal or singular.
Morals relate to you and you alone. You may use your personal moral convictions in making ethical decisions in any context. Business ethics comprises organizational principles,
values, and norms that may originate from individuals, organizational statements, or from
the legal system that primarily guide individual and group behavior in business. Principles
are specific and pervasive boundaries for behavior that should not be violated and often
become the basis for rules. Some examples of principles could include human rights, freedom of speech, and the fundamentals of justice. Values are enduring beliefs and ideals that
are socially enforced. Several desirable or ethical values for business today are teamwork,
trust, and integrity. Morals, values, and principles describe positive or good traits that are
often applied to the business organization or industry. When they are identified and applied,
they usually represent what is called “best practices.” Investors, employees, customers, interest groups, the legal system, and the community often determine whether a specific action or
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5
Chapter 1: The Importance of Business Ethics
standard is ethical or unethical. Although these groups influence the determination of what
is ethical or unethical for business, they also can be at odds with one another. Even though
this is the reality of business and such groups may not necessarily be right, their judgments
influence society’s acceptance or rejection of business practices.
Ethics is defined as behavior or decisions made within a group’s values or morals. In our
case, we are discussing decisions made in business by groups of people that represent the business organization. One can have business ethics such as healthcare, accounting, marketing,
management, or financial ethics. But one can also have engineering, architectural, or publishing ethics as related to different disciplines or associations. The important concept in business
ethics is that right and wrong behavior is defined by the group, which might be a company
or an industry. Because the Supreme Court defined companies as having limited individual
rights, it is logical such groups have an identity that includes core values.3 This is known
as being part of a corporate culture. Within this culture, there are rules and ­regulations—
both written and unwritten—that determine what decisions employees consider right or
wrong as it relates to the firm. Such evaluations are judgments by the organization and are
defined as its ethics (or, in this case, their business ethics). One difference between an ordinary decision and an ethical one lies in “the point where the accepted rules no longer serve,
and the decision maker is faced with the responsibility for weighing values and reaching
a judgment in a situation which is not quite the same as any he or she has faced before.”4
Another difference relates to the amount of emphasis decision makers place on their own
values and accepted practices within their company. Consequently, values and judgments
play a critical role when we make ethical decisions.
Building on these definitions, we begin to develop a concept of business ethics. Most
people agree that businesses should hire individuals with sound moral principles. However,
some special aspects must be considered when applying ethics to business. First, to survive
and contribute to society, businesses must earn a profit. There is no conflict or trade-offs
between profits and business ethics. For instance, Canon, Intel, and Volvo are highly profitable companies that have earned a reputation for ethical conduct.5 Second, to be successful,
businesses must address the needs and desires of stakeholders. The good news is that the
world’s most ethical companies often have superior stock performance.6 To address these
unique aspects of the business world, society has developed rules—both legal and implicit—
to guide businesses in their efforts to earn profits in ways that help individuals or society and
contribute to social and economic well-being.
ethics
Behavior or decisions made
within a group’s values or
morals
1-2 Why Study Business Ethics?
1-2a A Crisis in Business Ethics
Business ethics has become a major concern. The Ethics & Compliance Initiative (ECI)
conducts the Global Business Ethics Survey (GBES) that measures workplace integrity in
leading world economies. Sample sizes average 1,000 employees per country and gather
reliable data on key ethics and compliance outcomes to help identify and better understand
the ethics issues that are important to employees. The GBES measures workplace integrity as
the pressure to compromise organizational standards, observed misconduct, reporting of
misconduct when observed, and retaliation against reports. Table 1–1 provides an overview
of observed misconduct in the United States.
Business ethics decisions and activities have come under greater scrutiny by many different stakeholders, including consumers, employees, investors, government regulators, and
special interest groups.7 Figure 1–1 shows the percentage of global respondents who say
they trust a variety of businesses in various industries. Financial services have some of the
lowest ratings, indicating that the financial sector has not been able to restore its reputation
since the most recent recession. There is no doubt negative publicity associated with major
misconduct lowered the public’s trust in certain business sectors.8 Decreased trust leads
to a reduction in customer satisfaction and customer loyalty, which in turn can negatively
impact the firm or industry.9
workplace integrity
The pressure to compromise
organizational standards,
observed misconduct,
reporting of misconduct when
observed, and retaliation
against reports
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6
Part 1: An Overview of Business Ethics
Table 1–1 Observed Misconduct in the U.S. Workforce
Observed misconduct
49%
Abusive behavior
22%
Lying to employees and external stakeholders
25%
Conflicts of interest
23%
Health violations
22%
Pressure to compromise standards
30%
Report observed misconduct
81%
Experience retaliation for reporting
79%
Source: Ethics and Compliance Initiative, Global Business Ethics Survey, The State of Ethics & Compliance in the Workplace, March 2021,
(Arlington, VA: Ethics and Compliance Initiative, 2021), 16–22.
1-2b Specific Issues
There are a number of ethical issues that must be addressed to prevent misconduct. Misuse
of company resources, abusive behavior, harassment, accounting fraud, conflicts of interest, defective products, bribery, product knock-offs, and employee theft are all problems
cited as potential risk areas. For example, former British Airway executive Steven Clark was
indicted for accepting bribes in exchange for offering contracts at JFK airport to Ground
Services International (GSI), a ground handling company. The bribery was concealed by
phony invoices, and money was laundered through fake companies.10
Generally, ethics plays an important role in the public sector as well. In government or
political ethics, several politicians and high-ranking officials have experienced significant
negative publicity. Israeli prime minister Benjamin Netanyahu was indicted on bribery and
fraud charges for exchanging official favors for positive publicity. Though the charges could
potentially lead to a 10-year prison sentence, Netanyahu denies the charges and says he
will remain as prime minister.11 Some officials have even resigned in disgrace over ethical
indiscretions. For example, Martin Sandoval, an Illinois senator of 16 years, resigned while
under investigation for bribery and fraud.12
These examples demonstrate the legal aspect of business ethics. Within political ethics,
those who do not violate the law but nonetheless are judged to be unethical can be expelled,
censured, or reprimanded. For example, expulsion usually occurs if a g­ overnment official is
convicted of a crime. Former New York Congressman Charles B. Rangel was censured for
improper solicitation of funds, inaccurate financial disclosure statements, and failure to pay
Figure 1–1 Global Trust in Industry Sectors
68%
Technology
Food and Beverage
65%
Telecommunications
61%
Automotive
60%
Consumer Packaged Goods
60%
Energy
59%
Financial Services
52%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Source: Edelman, Edelman Trust Barometer 2021, https://www.edelman.com/sites/g/files/aatuss191/files/2021-01/2021-edelman-trustbarometer.pdf (accessed March 11, 2021).
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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
7
Chapter 1: The Importance of Business Ethics
taxes.13 A reprimand and fine can occur, as was the case for former California representative
Laura Richardson who used official resources for personal purposes in her reelection campaign and faced a $10,000 fine.14 Such political scandals demonstrate that political ethical
behavior must be proactively practiced at all levels of public service.
Every organization has the potential for unethical behavior. For instance, William
Singer, the founder of a college preparatory business, was the mastermind behind the largest
college admissions prosecution ever by the Department of Justice. He accepted millions of
dollars in order to falsify standardized test results and bribe athletic coaches and university
administrators at universities such as Stanford and Yale. More than 50 people were charged
in the admissions scandal, including celebrities, business leaders, and college coaches.15
Even nonprofits can be subject to ethical lapses. William Weatherby, former president of
Christian-based nonprofit Feed My Lambs, stole more than $500,000 for personal use. The
funds were intended to go toward the education of underprivileged children.16 This incident
highlights the need for greater accountability for nonprofit leaders as well.
Whether they are made in the realm of business, politics, science, or sports, most decisions are judged as right or wrong, ethical or unethical. Regardless of what an individual
believes about a particular action, if society judges it to be unethical or wrong, new legislation usually follows. Whether correct or not, that judgment directly affects a company’s
ability to achieve its business goals. You should be aware that the public is more tolerant of
questionable consumer practices than of similar business practices. Double standards are at
least partly due to differences in wealth and the success between businesses and consumers.
The more successful a company, the more the public is critical when misconduct occurs.17
For this reason alone, it is important to understand business ethics and recognize ethical
issues.
1-2c The Reasons for Studying Business Ethics
Studying business ethics is valuable for several reasons. Business ethics is more than an
extension of an individual’s own personal values. Many people believe if a company hires
good people with strong values, then it will be a “good citizen” organization. But as we show
throughout this text, an individual’s personal moral values are only one factor in the ethical
decision-making process. True, moral values can be applied to a variety of situations in life,
and some people do not distinguish everyday ethical issues and dilemmas from business
ones. Our concern, however, is with the application of principles, values, and standards in
the business context. Many important issues are not related to a business context, although
they remain complex moral dilemmas in a person’s own life. For example, although abortion
and human cloning are moral issues, they are not an issue in most business organizations.
Professionals in any field, including business, must deal with individuals’ personal
moral dilemmas because such dilemmas affect everyone’s ability to function on the job. A
moral dilemma is defined as a situation where the person is faced with multiple choices, all of
which are undesirable as defined by the person. A value dilemma is the same, only that the
individual’s beliefs are grounded in societal norms. Normally, a business does not dictate a
person’s morals. Such policies would be illegal. Only when a person’s morals influence his or
her performance on the job does it involve a dimension within business ethics.
Just being a good person and having sound personal values may not be sufficient to handle the ethical issues that arise in a business organization. Although truthfulness, honesty,
fairness, and openness are often assumed to be self-evident and accepted, business-strategy
decisions involve complex and detailed discussions. For example, there is considerable
debate over what constitutes antitrust, deceptive advertising, and violations of the Foreign
Corrupt Practices Act that defines bribery in global business. A high level of personal moral
development may not prevent an individual from violating the law in a complicated organizational context where even experienced lawyers debate the exact meaning of the law. For
instance, the National Labor Relations Board ruled that employees have the right to use
company email systems to discuss working conditions and unionization as long as it is not on
company time. Employer groups claim that employees have plenty of options for discussing
these topics and maintain that it will be hard to ensure employees are not using company
moral dilemma
Two or more morals in conflict
with one another
value dilemma
Two or more beliefs/ideals in
conflict with one another
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8
Part 1: An Overview of Business Ethics
computer servers for these purposes during work hours. The right of employees versus
employers is more controversial and will continue to need clarification from the courts.18
Some approaches to business ethics assume ethics training is for people whose personal moral development is unacceptable, but that is not the case. Because organizations
are culturally diverse and personal morals must be respected, ensuring collective agreement
on organizational ethics (that is, codes reasonably capable of preventing misconduct) is as
vital as any other effort an organization’s management may undertake. Failure to establish
shared values and ethics codes will result in a wide range of conduct when faced with the
same ethical issues.
Many people with limited business experience suddenly find themselves making decisions about product quality, advertising, pricing, sales techniques, hiring practices, and
pollution control. The morals they learned from family, religion, and school may not provide specific guidelines for these complex business decisions. In other words, a person’s
experiences and decisions at home, in school, and in the community may be quite different from his or her experiences and decisions at work. Many business ethics decisions are
close calls. In addition, managerial responsibility and ethical leadership for the conduct of
others requires knowledge of ethics and compliance processes and systems. Years of experience in a particular industry may be required to know what is acceptable. For example,
when are advertising claims more exaggeration than truth? When does such exaggeration
become unethical? Unilever Australia came under fire for an ice cream advertisement in
New Zealand that said, “Ice cream makes you happy.” Although Unilever Australia defended
the tagline as puffery—an exaggerated claim that customers should not take seriously—the
Advertising Standards Authority ordered the company to remove the ad because it could
undermine the health of consumers by linking ice cream and level of happiness.19
Studying business ethics will help you begin to identify ethical issues when they arise
and recognize the approaches available for resolving them. You will learn more about the
ethical decision-making process and about ways to promote ethical behavior within your
organization. By studying business ethics, you may also begin to understand how to cope
with conflicts between your own personal values and those of the organization in which you
work. As stated earlier, if after reading this book you feel a little more unsettled about potential decisions in business, your decisions will be more ethical, and you will have knowledge
within this area.
1-3 The Development of Business Ethics
The study of business ethics in North America has evolved through distinct stages and
continues to evolve in the twenty-first century (see Table 1–2).
1-3a Before 1960: Ethics in Business
Before 1960, the United States endured several agonizing phases of questioning the concept
of capitalism. In the 1920s, the progressive movement attempted to provide citizens with a
“living wage,” defined as income sufficient for education, recreation, health, and retirement.
Businesses were asked to check unwarranted price increases and any other practices that
would hurt a family’s living wage. In the 1930s came the New Deal that specifically blamed
business for the country’s economic woes. Business was asked to work more closely with
the government to raise family income. By the 1950s, the New Deal evolved into President Harry S. Truman’s Fair Deal, a program that defined such matters as civil rights and
environmental responsibility as ethical issues that businesses had to address. Government
relationships, social issues, and economic fairness were major concerns in the first half of
the twentieth century.
Until 1960, ethical issues related to business were often discussed within the domain
of theology or philosophy or in the realm of legal and competitive relationships. Religious
leaders raised questions about fair wages, labor practices, and the morality of capitalism. For
example, Catholic social ethics, expressed in a series of papal encyclicals, included concern
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9
Chapter 1: The Importance of Business Ethics
Table 1–2 Timeline of Ethical and Socially Responsible Concerns
1960s
1970s
1980s
1990s
2000s
2010s and 2020s
Environmental
issues
Employee
militancy
Bribes
and illegal
contracting
practices
Sweatshops and
unsafe working
conditions in thirdworld countries
Cybercrime
Uses of big data
Civil rights
issues
Human rights
issues
Influence
peddling
Rising corporate
liability for personal
damages (for
example, cigarette
companies)
Financial
misconduct
Social media and
networking exposing new
areas of vulnerability
Increased
employee–
employer
tension
Covering up
rather than
correcting
issues
Deceptive
advertising
Financial
mismanagement
and fraud
Global issues,
product safety,
bribery
Tension between
increasing transparency
and protecting privacy
Changing
work ethic
Disadvantaged
consumers
Financial
fraud (for
example,
savings and
loan scandal)
Organizational
ethical misconduct
Sustainability
Responsible use of technology
in the workplace
Rising
drug use
Transparency
issues
Intellectual
property theft
Diversity, equity, and inclusion
Source: Adapted from Ethics & Compliance Initiative, “Business Ethics and Compliance Timeline,” www.ethics.org/resources/free-toolkit/ethics-timeline (accessed December 6, 2019).
for morality in business, workers’ rights, and living wages; for humanistic values rather than
materialistic ones; and for improving the conditions of the poor. The Protestant work ethic
encouraged individuals to be frugal, to work hard, and to attain success in the capitalistic
system. Such religious traditions provided a foundation for the future field of business ethics.
The first book on business ethics was published in 1937 by Frank Chapman Sharp and
Philip G. Fox. The authors separated their book into four sections: fair service, fair treatment
of competitors, fair price, and moral progress in the business world. This early textbook
discusses ethical ideas based largely on economic theories and moral philosophies. However,
the section’s titles indicate the authors also take different stakeholders into account. Most
notably, competitors and customers are the main stakeholders emphasized, but the text also
identifies stockholders, employees, business partners such as suppliers, and government
agencies.20 Although the theory of stakeholder orientation would not evolve for many more
years, this earliest business ethics textbook demonstrates the necessity of the ethical treatment of different stakeholders.
1-3b The 1960s: The Rise of Social Issues in Business
During the 1960s, American society witnessed the development of an antibusiness trend
because many critics attacked the vested interests that controlled the economic and political aspects of society—the so-called military–industrial complex. The 1960s saw the decay
of inner cities and the growth of ecological problems such as pollution and the disposal of
toxic and nuclear wastes. This period also witnessed the rise of consumerism—activities
undertaken by independent individuals, groups, and organizations to protect their rights as
consumers. In 1962, President John F. Kennedy delivered a “Special Message on Protecting
the Consumer Interest” that outlined four basic consumer rights: the right to safety, the right
to be informed, the right to choose, and the right to be heard. These came to be known as
the Consumers’ Bill of Rights.
The modern consumer movement is generally considered to have begun in 1965 with
the publication of Ralph Nader’s Unsafe at Any Speed that criticized the auto industry as a
consumers’ bill of rights
From President John F.
Kennedy’s 1962 “Special
Message on Protecting the
Consumer Interest” that
outlined four basic consumer
rights: the right to safety, the
right to be informed, the right
to choose, and the right to be
heard
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10
Part 1: An Overview of Business Ethics
whole, and General Motors Corporation (GM) in particular, for putting profit and style
ahead of lives and safety. GM’s Corvair was the main target of Nader’s criticism. His consumer protection organization, popularly known as Nader’s Raiders, fought successfully for
legislation requiring automobile makers to equip cars with safety belts, padded dashboards,
stronger door latches, head restraints, shatterproof windshields, and collapsible steering
columns. Consumer activists also helped secure passage of consumer protection laws such as
the Wholesome Meat Act of 1967, the Radiation Control for Health and Safety Act of 1968,
the Clean Water Act of 1972, and the Toxic Substance Act of 1976.21
After Kennedy came President Lyndon B. Johnson and the “Great Society,” a series of
programs that extended national capitalism and told the business community the U.S. government’s responsibility was to provide all citizens with some degree of economic stability,
equality, and social justice. Activities that could destabilize the economy or discriminate
against any class of citizens began to be viewed as politically unethical and unlawful.
1-3c The 1970s: Business Ethics as an Emerging Field
corporate social
responsibility (CSR)
An organization’s obligation to
maximize its positive impact
on stakeholders and minimize
its negative impact
Business ethics began to develop as a field of study in the 1970s. Theologians and philosophers laid the groundwork by suggesting certain moral principles could be applied to business activities. Using this foundation, business professors began to teach and write about
corporate social responsibility (CSR), an organization’s obligation to maximize its positive
impact on stakeholders and minimize its negative impact. Philosophers increased their
involvement, applying ethical theory and philosophical analysis to structure the discipline
of business ethics. Companies became more concerned with their public image, and as social
demands grew, many businesses realized they needed to address ethical issues more directly.
The Nixon administration’s Watergate scandal focused public interest on the importance
of ethics in government. Conferences were held to discuss the social responsibilities and
ethical issues of business. Centers dealing with issues of business ethics were established.
Interdisciplinary meetings brought together business professors, theologians, philosophers,
and businesspeople. President Jimmy Carter attempted to focus on personal and administrative efforts to uphold ethical principles in government. The Foreign Corrupt Practices
Act (FCPA) was passed during his administration, making it illegal for U.S. businesses to
bribe government officials of other countries. Today, this law is the highest priority of the
U.S. Department of Justice.
By the end of the 1970s, a number of major ethical issues had emerged, including
bribery, deceptive advertising, price collusion, product safety, and ecology. Business ethics
became a common expression. Academic researchers sought to identify ethical issues and
describe how businesspeople might choose to act in particular situations. However, only
limited efforts were made to describe how the ethical decision-making process worked and
to identify the many variables that influence this process in organizations.
1-3d The 1980s: Business Ethics Reaches Maturity
defense industry
initiative on business
ethics and conduct
An organization developed to
guide corporate support for
ethical conduct
In the 1980s, business academics and practitioners acknowledged business ethics as a field of
study, and a growing and varied group of institutions with diverse interests promoted it. Centers for business ethics provided publications, courses, conferences, and seminars. R. Edward
Freeman was among the first scholars to pioneer the concept of stakeholders as a foundational theory for business ethics decisions. Freeman defined stakeholders as “any group or
individual who can affect or is affected by the achievement of the organizations objectives.”22
Freeman’s defense of stakeholder theory had a major impact on strategic management and
corporations’ views of their responsibilities. Business ethics were also a prominent concern
within leading companies such as General Electric, Hershey Foods, General Motors, IBM,
Caterpillar, and S. C. Johnson & Son, Inc. Many of these firms established ethics and social
policy committees to address ethical issues.
In the 1980s, the Defense Industry Initiative on Business Ethics and Conduct was developed
to guide corporate support for ethical conduct. In 1986, 18 defense contractors drafted
principles for guiding business ethics a…