Ethical Theory
1. Which of the ethical theories discussed in this unit are you most sympathetic to? Why? Which of the ethical theories are you least sympathetic to? Why? 2. Which of the ethical theories discussed in this unit are you most sympathetic to? Why? Which of the ethical theories are you least sympathetic to? Why? 3. Which of the ethical theories discussed in this unit are you most sympathetic to? Why? Which of the ethical theories are you least sympathetic to? Why? Other information: The textbook for this course is below. I need someone who knows and tutor or teaches Business Ethics to respond to this. If you have experience in answering these type of questions let’s do business. About 300 words per question. I need it back as soon as possible less than 1 hour. I have also attached the chapter and the unit study guide Textbook: Beauchamp, T. L., Bowie, N. E., & Arnold, D. G. (2009). Ethical theory and business (8th ed.). Upper Saddle River, NJ: Prentice Hall.
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©
K
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The Importance of
Business Ethics
C H A P T E R 1
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AN ETHICAL DILEMMA*
John Peters had just arrived at the Memphis branch offi ces
of Bull Steins (BS) brokerage fi rm. BS is one of the top
50 fi rms in the industry with a wide range of fi nancial
products. Five years prior, John graduated from Midwest
State University and went to Marell and Pew Brokerage.
While there, he learned that in fi nance one must follow
the letter and spirit of the law. BS started courting John
after working at Marell for four years because he had
a good reputation and an investment portfolio worth
approximately $100 million with some 400 investors.
A hard worker, John acquired his clients through
various networking avenues, including family, the country
club, cocktail parties, and serving on boards of charitable
organizations. He called one client group the Sharks. These
were investors who took risks, made multiple transactions
every month, and looked for short-term, high-yield
investments. The second group he called Cessnas, because
most of them owned twin-engine planes. This group was
primarily employed in the medical fi eld, but included a few
bankers and lawyers. He called the fi nal group the Turtles
because they wanted stability and security. This group
would normally trade only a few times a year.
John was highly trained and was not only comfortable
discussing numbers with bankers and medical billing with
physicians, but also had the people skills to convey complex
fi nancial products and solutions in understandable terms
to his Turtles, who were primarily older and semiretired. This
was one of the main reasons Al Dryer had wanted to hire
him. “You’ve got charisma, John, and you know your way
around people and fi nancial products,” Dryer explained.
At Marell and Pew, Skyler was John’s trainer. Skyler had
been in the business for 15 years and had worked for three
of the top brokerage fi rms in the world. She had chosen
to stay at Marell and Pew for so many years because of
her family. Skyler quickly taught John some complicated
tricks of the trade. For example, “Your big clients (Sharks
and Cessnas) will like IPOs (initial public off erings) but you
have to be careful about picking the right ones,” Skyler said.
“Before suggesting one, look at who is on their board of
directors, cross-reference them to other IPO boards in the
last 5–7 years. Next, cross-check everyone to see where the
connections are, especially if they have good ties to the SEC
CHAPTER OBJECTIVES
• To explore conceptualizations of
business ethics from an organizational
perspective
• To examine the historical foundations
and evolution of
business ethics
• To provide evidence that ethical value
systems support business performance
• To gain insight into the extent of
ethical misconduct in the workplace
and the pressures for unethical
behavior
CHAPTER OUTLINE
Business Ethics Defined
Why Study Business Ethics?
A Crisis in Business Ethics
The Reasons for Studying Business Ethics
The Development of Business Ethics
Before 1960: Ethics in Business
The 1960s: The Rise of Social
Issues in Business
The 1970s: Business Ethics
as an Emerging Field
The 1980s: Consolidation
The 1990s: Institutionalization
of Business Ethics
The Twenty-First Century: A New
Focus on Business Ethics
Developing an Organizational and Global
Ethical Culture
The Benefits of Business Ethics
“Ethics Contribute” to
Employee Commitment
Ethics Contribute to Investor Loyalty
Ethics Contribute to
Customer Satisfaction
Ethics Contribute to Profits
Our Framework for Studying Business
Ethics
*This case is strictly hypothetical; any resemblance to real persons,
companies, or situations is coincidental.
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(Securities and Exchange Commission). Finally, you
want to check these people and the companies
they have been associated with. Check every IPO
these people were involved in and what Moody’s
ratings were prior to the IPO. As you know,
Moody’s is one of two IPO rating companies in
the United States and they’re hurting for revenue
because of the fi nancial downturn. If you see a bias
in how they rate because of personal relations to
the IPO people, you’ve got a winner,” Skyler smiled.
During his fi ve years at the company, Skyler
had taught John about shorting, naked shorting,
and churning. She explained shorting by using an
example. “If I own 1,000 shares at $100/share and
you think the stock is going to tank (go down),
you ‘borrow’ my shares at $100/share, sell them,
and the next week the stock goes down to $80/
share. You call your broker and buy back the 1,000
shares at $80 and give me my 1,000 shares at $80/
share. Do you see what happened?” Skyler asked.
“You borrowed my shares and sold them for
$100,000. The following week, when the company
stock fell to $80, you repurchased those 1,000
shares for $80,000 and gave them back to me. In
the meantime, you pocketed the diff erence of
$20,000.” Skyler went on, “Naked short selling is the
same as shorting but you don’t pay any money
for the stock,” explained Skyler. “There is a three-
day grace period between buying and selling.
That means you have at least three days of FREE
MONEY!”
Al Dryer instructed John to wait to resign until
late on Friday so that BS could send out packets to
each of his accounts about switching companies.
John thought about this, but was told by others
this was standard practice. “But what about the
noncompete clause I signed? It says I can’t do
that,” said John to a few brokers not associated
with either fi rm. Their response was, “It’s done
all the time.” On Friday John did what BS asked
and nothing happened. Six months went by and
John’s portfolio had increased to $150 million.
Other brokers began imitating John’s strategy. For
example, for his Sharks, John would buy and sell
at BS and call some of his buddies to do the same
thing using money from his SHARKS. Another
tactic involved selling futures contracts without
providing evidence that he held the shares sold
(naked shorting). While much of what he was
doing was risky, John had become so successful
that he guaranteed his Turtles against any loss.
Several years later John was buying and
selling derivatives, a form of futures contract that
gets its value from assets such as commodities,
equities (stocks), bonds, interest rates, exchange
rates, or even an index of weather conditions.
While his risk-taking Shark group had expanded
threefold, John’s Cessna pool had all but dried up.
However, his Turtles had grown dramatically to
an average worth of $500,000. The portfolio he
managed had topped $750 million, a lot more
than he had when he started at BS ($500 million in
Sharks and $250 million for Turtles).
“This year is going to be better than last
year,” said John to some of the brokers at BS. But
expenses had been rising fast. John’s expense
account included country club memberships,
sports tickets, trips for clients, etc. Instead of
charging the fi rm, John would always pay them
from his own pocket. By indirectly letting his
clients know it was his money he was spending on
them, his clients were grateful for his largess and
those who would have grumbled about delays in
the delivery of securities purchased were less apt
to do so. John saw a great opportunity to make
his heavy hitters happy with him. Unbeknownst
to them, he would buy and sell stocks for these
clients and later surprise them with the profi ts.
By this time, John was training new hires at BS,
which would have taken away a lot of his personal
and professional time if he had done it right. But
John had a lot of other things on his mind. He had
decided to get married and adopt children. His
soon-to-be wife, Leslie, quit her job to be a full-
time mom and was designing their new 18,000-
square-foot home. With all these activities going
on at once, John was not paying attention to the
four new brokers and their training. Because John
was a senior partner, he had to sign off on every
trade they made. It became so time consuming to
manage everything that he spent an hour a day
just signing the four other brokers’ trades.
Then one Monday morning John received a
call from the SEC asking about some trades made
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The ability to recognize and deal with complex business ethics issues has become a significant priority in twenty-first-century companies. In recent years, a number of well-publicized scandals resulted in public outrage about deception and fraud in
business and a demand for improved business ethics and greater corporate responsibility.
The publicity and debate surrounding highly visible legal and ethical lapses at a number of
well-known firms, including AIG, Countrywide Financial, and Fannie Mae, highlight the
need for businesses to integrate ethics and responsibility into all business decisions. The
global financial crisis took a toll on consumer trust of financial services companies. A study
of 650 U.S. consumers by Lightspeed Research and Cohn & Wolfe revealed that 66 percent
of respondents did not feel that the financial services industry would help them to regain
the wealth that they lost during the recession. Words used to describe this industry included
greedy, impersonal, opportunistic, and distant. Table 1–1 summarizes the survey results.1
Largely in response to this crisis, business decisions and activities have come under
greater scrutiny by many different constituents, including consumers, employees,
investors, government regulators, and special interest groups. Additionally, new
legislation and regulations designed to encourage higher ethical standards in business
have been put in place.
The field of business ethics deals with questions about whether specific 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 an accountant report
inaccuracies that he or she discovered 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 taken 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 approach for resolving its issues.
by the four new brokers. “It appears to us there
may be some nonpublic information your brokers
have concerning several IPOs,” the agent said.
“If they do have such information, this could be
considered insider information. John, I’m calling
you because we go way back to our college days,
but I have to know,” said the agent. John thanked
him and went straight to the new brokers and
asked them about the IPO. One of the new brokers
replied, “John, you told us that in order to excel
in this business, you need to be an expert on
knowing exactly where things become legal and
illegal. You said trust me, I’ve been doing this for
15 years, and I’ve never had a problem. We just did
what you’ve taught us.”
John knew that if they did have insider
information, he’d probably be found partially
responsible because he was supposed to be
training them. At the very minimum, the SEC
would start checking his trades over the past
several years. He also knew that, when subjected
to scrutiny, some of his past trades might be
deemed questionable as well.
What should John do?
QUESTIONS • EXERCISES
1. What is/are John’s ethical issues?
2. Are there any legal considerations for John?
3. Discuss the implications of each decision
John has made and will make.
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6 Part : An Overview of Business Ethics
A Junior Achievement/Deloitte survey of teens showed that 71 percent feel prepared
to make ethical decisions in the workplace. However, of those surveyed, 38 percent feel
it is sometimes necessary to lie, cheat, plagiarize, or engage in violence to succeed. One-
fourth think cheating on a test is acceptable and most can justify it saying that their desire
to succeed is grounds for the behavior.2 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 this
downward trend. According to another poll by Deloitte and Touche of teenagers aged 13 to
18 years old, when asked if people who practice good business ethics are more successful
than those who don’t, 69 percent of teenagers agreed.3 On the other hand, another survey
indicated that many students do not define copying answers from another student’s paper
or downloading copyrighted music or content for classroom work as cheating.4
Before we get started, it is important to state our philosophies regarding this book.
First, we do not moralize by telling you what is right or wrong in a specific situation.
Second, although we provide an overview of group and individual 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 you more ethical, nor will it tell you how to judge
the ethical behavior of others. Rather, its goal is to help you understand and use your
current values and convictions when making business decisions so that you think about
the effects of those decisions on business and society. In addition, this book 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 ethical conduct of the
employees you supervise. The framework we develop in this book therefore focuses on
how organizational ethical decisions are made and on ways companies can improve their
ethical conduct.
TABLE 11 American Distrust of the Financial Services Industry
Negative Responses Related to the Industry %
Greedy 32
Impersonal 32
Opportunistic 26
Distant from me 22
Positive Responses Related to the Industry %
Trustworthy 13
Honest 10
Ethical 5
Transparent 3
Sympathetic 3
Source: “New US Consumer Survey Shows High Distrust of Financial Services Companies,” Business Wire, January 20, 2009, http://findarticles.com/p/
articles/mi_m0EIN/is_2009_Jan_20/ai_n31202849/ (accessed May 27, 2009).
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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.
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7
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.
BUSINESS ETHICS DEFINED
The term ethics has many nuances. It has been defined as “inquiry into the nature and
grounds of morality where the term morality is taken to mean moral judgments, standards
and rules of conduct.”5 Ethics has also been called the study and philosophy of human
conduct, with an emphasis on determining right and wrong. The American Heritage
Dictionary offers these definitions of ethics: “The study of the general nature of morals
and of specific moral choices; moral philosophy; and the rules or standards governing the
conduct of the members of a profession.”6 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.”7 Another difference
relates to the amount of emphasis that 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 can begin to develop a concept of business ethics.
Most people would agree that high ethical standards require both businesses and
individuals to conform to sound moral principles. However, some special aspects must
be considered when applying ethics to business. First, to survive, businesses must earn
a profit. If profits are realized through misconduct, however, the life of the organization
may be shortened. Many firms, including Lehman Brothers and Enron, that made
headlines due to wrongdoing and scandal ultimately went bankrupt or failed because
of the legal and financial repercussions of their misconduct. Second, businesses must
balance their desires for profits against the needs and desires of society. Maintaining
this balance often requires compromises or trade-offs. 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 do not harm individuals or society
as a whole.
Most definitions of business ethics relate to rules, standards, and moral principles
regarding what is right or wrong in specific situations. For our purposes, business ethics
comprises the principles, values, and standards that guide behavior in the world of business.
Principles are specific and pervasive boundaries for behavior that are universal and absolute.
Principles often become the basis for rules. Some examples of principles include freedom of
speech, fundamentals 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, customers, interest groups, the legal system, and the community
often determine whether a specific action is right or wrong, ethical or unethical. Although
these groups are not necessarily “right,” their judgments influence society’s acceptance or
rejection of a business and its activities.
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8 Part : An Overview of Business Ethics
WHY STUDY BUSINESS ETHICS?
A Crisis in Business Ethics
As we’ve already mentioned, ethical misconduct has become a major concern in business
today. The Ethics Resource Center conducted the National Business Ethics Survey (NBES)
of about 3,000 U.S. employees to gather reliable data on key ethics and compliance outcomes
and to help identify and better understand the ethics issues that are important to employees.
The NBES found that observed misconduct is higher in large organizations—those with more
than 500 employees—than in smaller ones and that there are also differences in observed
misconduct across employee levels. Reporting of misconduct is most likely to come from
upper-level management, as compared to lower-level supervisors and nonmanagement
employees. Employees in lower-level positions have more of a tendency to not understand
misconduct or be complacent about what misconduct they observe. Figure 1–1 shows the
percentage of respondents who say that they trust a variety of business categories. Notice
that the levels of consumer trust in most industries is declining. Among senior managers,
77 percent of employees report observed misconduct, while among nonmanagement, only
48 percent of employees report observed misconduct.8
Specific Issues Abusive behavior, harassment, accounting fraud, conflicts of interest,
defective products, bribery, and employee theft are all problems cited as evidence of
declining ethical standards. For example, Satyam Computer Services, an outsourcing firm
in India, worked with more than one-third of the Fortune 500 companies. The chairman of
the company disclosed that $1.04 billion in cash and assets did not exist and that earnings
and assets were inflated for years. The scandal was compared to Enron.9 A survey by
Harris Interactive shows that corporate reputation is at its lowest point in the past decade
of their annual “Reputation Quotient” polls. Eighty-eight percent rated the reputation of
corporate America today as “not good” or “terrible.” Among the least admired companies
0
13 (3% decline)
13 (3% decline)
19 (3% decline)
22 (4% decline)
26 (no change)
24 (3% decline)
24 (3% decline)
33 (1% decline)
31 (6% decline)
41 (5% decline)
42 (6% decline)
55 (4% decline)
59 (6% decline from 2007 survey)
23 (2% increase)
Auto Dealers
Real Estate Brokers
Cell Phones and Wireless Service
Furniture Stores
Gas Stations
Healthcare Insurers
Auto Repair Shops
Contractors/Plumbers/Electricians/Roofers
Electronics/Appliance Stores
Department Stores
Home Improvement
Banks and Financial Institutions
Grocery Stores and Supermarkets
Pharmacies and Drug Stores
20 40
Percent
60 80 100
FIGURE 11 Americans’ Trust in Business (% of respondents who say they trust the following
business categories a great deal or quite a lot)
Source: Better Business Bureau/Gallup Trust in Business Index, April 2008, http://www.bbb.org/us/sitepage.aspx?id =f36f50cc-8cb7-4507-9cfc-
2f2d7aa2c3fc (accessed January 13, 2009).
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Chapter 1: The Importance of Business Ethics 9
are AIG, Halliburton, General Motors, Chrysler, Washington Mutual, Citigroup, Merrill
Lynch, ExxonMobil, and Ford Motor Company. There remain companies that are admired
by respondents, including Johnson & Johnson, Google, Sony, Coca-Cola, Kraft Foods,
Amazon.com, Microsoft, General Mills, 3M, and Toyota Motor. The economic lapses
associated with the recession have damaged the “emotional appeal” of many companies,
which is often the strongest driver of reputation.10
Insider trading remains a serious issue in business and in ethics. Eugene Plotkin,
a former Goldman Sachs executive, was sentenced to almost five years in prison for a
case of insider trading that yielded about $6.7 million. The Harvard graduate worked
with a former Merrill Lynch analyst, a New Jersey postal worker, and two workers at a
Business Week printing press. The former Merrill Lynch employee provided tips to Plotkin
at Goldman on mergers and acquisitions. Another angle involved getting prepublication
copies of Business Week and trading on that information. The third element involved
working with a New Jersey postal worker who served on the Bristol-Myers Squibb grand
jury investigation and shared inside information with Plotkin.11
Inflating earnings involves attempting to embellish or enhance a firm’s profitability
in a manner that is inconsistent with past practice, common regulatory guidelines, or
industry practice. Many companies maintain a focus on making short-term profits and
know that analysts and investors critique the company according to its ability to “make the
numbers.” PricewaterhouseCoopers (PWC) was forced to pay $97.5 million to settle a class
action lawsuit for involvement with AIG in overstating their earnings. This settlement
is a small part of a larger case against both AIG and its former CEO, Hank Greenberg.
AIG’s improper accounting for reinsurance and other dealings led to a restatement of
earnings in the amount of $3.9 billion. The lawsuit normally proceeds against the company
and personnel first, with the related firms (such as PWC) paying a percentage of that
settlement.12 Highly publicized cases such as this one strengthen the perception that ethical
standards in business need to be raised.
Ethics play an important role in the public sector as well. In government, several
politicians and some high-ranking officials have experienced significant negative publicity
and some have had to resign in disgrace over ethical indiscretions. Alaskan Senator
Ted Stevens was convicted of 7 felony counts of corruption weeks before the election of
President Barack Obama. He was charged with hiding $250,000 in gifts he had allegedly
received from oil companies. The U.S. Department of Justice filed a motion to have the
case dismissed against Stevens due to mishandled evidence, and the case was officially
dropped. However, the impact of the negative publicity on the senator was significant and
most likely contributed to his losing his bid for reelection.13
Irv Lewis “Scooter” Libby, a White House advisor, was indicted on five counts of
criminal charges: one count of obstruction of justice, two counts of perjury, and two
counts of making false statements.14 Each count carries a $250,000 fine and maximum
prison term of 30 years.
Several scientists have been accused of falsifying research data, which could invalidate
later research based on their data and jeopardize trust in all scientific research. Bell Labs,
for example, fired a scientist for falsifying experiments on superconductivity and molecular
electronics and for misrepresenting data in scientific publications. Jan Hendrik Schon’s
work on creating tiny, powerful microprocessors seemed poised to significantly advance
microprocessor technology and potentially bring yet another Nobel Prize in physics to the
award-winning laboratory, a subsidiary of Lucent Technologies.15 Hwang Woo-Suk was found
to have faked some of his famous stem cell research in which he claimed to have created 30
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10 Part : An Overview of Business Ethics
cloned human embryos and made stem cell lines from skin cells of 11 people, as well as
producing the world’s first cloned dog. He also apologized for using eggs from his own female
researchers, which was in breach of guidelines, but still denies fabricating his research.16
Even sports can be subject to ethical lapses. Manny Ramirez was suspended for 50 games
from the Los Angeles Dodgers for violating the league’s drug policy. Ramirez tested positive
for a female fertility drug that has been taken by steroid users to increase testosterone levels.
The ban on playing cost Ramirez $7.7 million of his $25 million annual salary. Ramirez
stated that he was under a doctor’s care for a “personal health issue” and indicated
that he thought the medication was allowed. Baseball players are encouraged to
check a hotline that identifies legal and illegal substances and encourages players
to seek “therapeutic use exemptions” for legitimate use of banned substances.17
Whether made in business, politics, science, or sports, most decisions
are judged as either 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, whether correctly or not, that judgment directly affects
the organization’s ability to achieve its business goals. For this reason alone, it
is important to understand business ethics and recognize ethical issues.
The Reasons for Studying Business Ethics
Studying business ethics is valuable for several reasons. Business ethics is
not merely an extension of an individual’s own personal ethics. Many people
believe that if a company hires good people with strong ethical values, then it
will be a “good citizen” organization. But as we show throughout this text, an
individual’s personal values and moral philosophies are only one factor in the
ethical decision making process. True, moral rules can be applied to a variety
of situations in life, and some people do not distinguish everyday ethical issues
from business ones. Our concern, however, is with the application of principles
and standards in the business context. Many important ethical issues do not
arise very often in the business context, although they remain complex moral
dilemmas in one’s own personal life. For example, although abortion and the
possibility of human cloning are moral issues in many people’s lives, they are
usually not an issue in most business organizations.
Professionals in any field, including business, must deal with individuals’
personal moral dilemmas because these issues affect everyone’s ability to
function on the job. Normally, a business does not establish rules or policies on
personal ethical issues such as sex or the use of alcohol outside the workplace;
indeed, in some cases, such policies would be illegal. Only when a person’s
preferences or values influence his or her performance on the job do an
individual’s ethics play a major role in the evaluation of business decisions.
Just being a good person and, in your own view, having sound personal ethics may not
be sufficient to enable you to handle the ethical issues that arise in a business organization.
It is important to recognize the relationship between legal and ethical decisions. Although
abstract virtues linked to the high moral ground of truthfulness, honesty, fairness, and
openness are often assumed to be self-evident and accepted by all employees, 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. A high level of personal moral development may
Regardless
of what an
individual
believes about
a particular
action, if society
judges it to be
unethical or
wrong, whether
correctly or not,
that judgment
directly
aff ects the
organization’s
ability to
achieve its
business goals.
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Chapter 1: The Importance of Business Ethics 11
not prevent an individual from violating the law in a complicated organizational context
where even experienced lawyers debate the exact meaning of the law. Some approaches to
business ethics assume that ethics training is for people whose personal moral development
is unacceptable, but that is not the case. Because organizations are culturally diverse and
personal values 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.
Many people who have limited business experience suddenly find themselves making
decisions about product quality, advertising, pricing, sales techniques, hiring practices,
and pollution control. The values 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 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, Caraco
Pharmaceutical Laboratories, a generic drug manufacturer, voluntarily recalled all tablets
of its digoxin drug used by patients with heart failure and abnormal heart rhythms. The
drug was recalled because of variation in sizing, which could impact the actual dosage
received by a patient. The recall was designed to protect those who were using the drug and
the company had to carefully assess the product and the potential harm it could cause in its
more inconsistent form. Significant medical expertise and testing resulted in the recall.18
Studying business ethics will help you begin to identify ethical issues when they arise
and recognize the approaches available for resolving them. You will also learn more about
the ethical decision making process and about ways to promote ethical behavior within your
organization. By studying business ethics, you may begin to understand how to cope with
conflicts between your own personal values and those of the organization in which you work.
THE DEVELOPMENT OF BUSINESS ETHICS
The study of business ethics in North America has evolved through five distinct
stages—(1) before 1960, (2) the 1960s, (3) the 1970s, (4) the 1980s, and (5) the 1990s—and
continues to evolve in the twenty-first century (see Table 1–2).
Before 1960: Ethics in Business
Prior to 1960, the United States went through 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, which
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 had
evolved into the Fair Deal by President Harry S. Truman; this program defined such matters as
civil rights and environmental responsibility as ethical issues that businesses had to address.
Until 1960 ethical issues related to business were often discussed within the domain
of theology or philosophy. Individual moral issues related to business were addressed in
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12 Part : An Overview of Business Ethics
churches, synagogues, and mosques. Religious leaders raised questions about fair wages,
labor practices, and the morality of capitalism. For example, Catholic social ethics, which
were expressed in a series of papal encyclicals, included concern for morality in business,
workers’ rights, and living wages; for humanistic values rather than materialistic ones; and
for improving the conditions of the poor. Some Catholic colleges and universities began to
offer courses in social ethics. Protestants also developed ethics courses in their seminaries
and schools of theology and addressed issues concerning morality and ethics in business.
The Protestant work ethic encouraged individuals to be frugal, work hard, and attain
success in the capitalistic system. Such religious traditions provided a foundation for the
future field of business ethics. Each religion applied its moral concepts not only to business
but also to government, politics, the family, personal life, and all other aspects of life.
The 1960s: The Rise of Social Issues in Business
During the 1960s, American society turned to causes. An antibusiness attitude developed
as many critics attacked the vested interests that controlled the economic and political
sides 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” in which he 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, which criticized the auto industry
TABLE 12 A Timeline of Ethical and Socially Responsible Concerns
1960s 1970s 1980s 1990s 2000s
Environmental
issues
Employee militancy Bribes and illegal
contracting
practices
Sweatshops and
unsafe working
conditions in third-
world countries
Cybercrime
Civil rights issues Human rights issues Infl uence peddling Rising corporate
liability for personal
damages (for
example, cigarette
companies)
Financial
misconduct
Increased
employee–
employer tension
Covering up rather
than correcting
issues
Deceptive
advertising
Financial
mismanagement
and fraud
Global issues,
Chinese product
safety
Changing work ethic Disadvantaged
consumer
Financial fraud (for
example, savings
and loan scandal)
Organizational
ethical misconduct
Sustainability
Rising drug use Transparency issues Intellectual property
theft
Source: Adapted from “Business Ethics Timeline,” Ethics Resource Center, http://www.ethics.org/resources/business-ethics-timeline.asp (accessed May 27, 2009). Copyright ©
2006, Ethics Resource Center (ERC). Used with permission of the ERC, 1747 Pennsylvania Ave., N.W., Suite 400, Washington, DC 2006, www.ethics.org.
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Chapter 1: The Importance of Business Ethics 13
as a 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 that required 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 several 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 1976.19
After Kennedy came President Lyndon B. Johnson and the Great Society, which
extended national capitalism and told the business community that the U.S. government’s
responsibility was to provide the citizen 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 unethical and unlawful.
The 1970s: Business Ethics as an Emerging Field
Business ethics began to develop as a field of study in the 1970s. Theologians and
philosophers had laid the groundwork by suggesting that certain principles could be applied
to business activities. Using this foundation, business professors began to teach and write
about corporate social responsibility, an organization’s obligation to maximize its positive
impact on stakeholders and to 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 images, and as
social demands grew, many businesses realized that they had 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 business professors, theologians,
philosophers, and businesspeople together. President Jimmy Carter attempted to focus
on personal and administrative efforts to uphold ethical principles in government. The
Foreign Corrupt Practices Act was passed during his administration, making it illegal for
U.S. businesses to bribe government officials of other countries.
By the end of the 1970s, a number of major ethical issues had emerged, such as bribery,
deceptive advertising, price collusion, product safety, and the environment. Business ethics
became a common expression and was no longer considered an oxymoron. 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.
The 1980s: Consolidation
In the 1980s, business academics and practitioners acknowledged business ethics as a field
of study. A growing and varied group of institutions with diverse interests promoted its
study. Business ethics organizations grew to include thousands of members. Five hundred
courses in business ethics were offered at colleges across the country, with more than 40,000
students enrolled. Centers for business ethics provided publications, courses, conferences,
and seminars. Business ethics was also a prominent concern within such leading companies
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14 Part : An Overview of Business Ethics
as General Electric, Chase Manhattan, General Motors, Atlantic Richfield, 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 (DII) was
developed to guide corporate support for ethical conduct. In 1986 eighteen defense contractors
drafted principles for guiding business ethics and conduct.20 The organization has since grown
to nearly 50 members. This effort established a method for discussing best practices and
working tactics to link organizational practice and policy to successful ethical compliance.
The DII includes six principles. First, DII supports codes of conduct and their widespread
distribution. These codes of conduct must be understandable and provide details on more
substantive areas. Second, member companies are expected to provide ethics training for their
employees as well as continuous support between training periods. Third, defense contractors
must create an open atmosphere in which employees feel comfortable reporting violations
without fear of retribution. Fourth, companies need to perform extensive internal audits and
develop effective internal reporting and voluntary disclosure plans. Fifth, DII insists that
member companies preserve the integrity of the defense industry. Finally, member companies
must adopt a philosophy of public accountability.21
The 1980s ushered in the Reagan–Bush eras, with the accompanying belief that self-
regulation, rather than regulation by government, was in the public’s interest. Many tariffs
and trade barriers were lifted, and businesses merged and divested within an increasingly
global atmosphere. Thus, while business schools were offering courses in business ethics, the
rules of business were changing at a phenomenal rate because of less regulation. Corporations
that once were nationally based began operating internationally and found themselves mired
in value structures where accepted rules of business behavior no longer applied.
The 1990s: Institutionalization of Business Ethics
The administration of President Bill Clinton continued to support self-regulation and free
trade. However, it also took unprecedented government action to deal with health-related
social issues such as teenage smoking. Its proposals included restricting cigarette advertising,
banning vending machine sales, and ending the use of cigarette logos in connection with
sports events.22 Clinton also appointed Arthur Levitt as chairman of the Securities and
Exchange Commission in 1993. Levitt unsuccessfully pushed for many reforms that could
have prevented the accounting ethics scandals exemplified by Enron and WorldCom.23
The Federal Sentencing Guidelines for Organizations (FSGO), approved by Congress
in November 1991, set the tone for organizational ethical compliance programs in the
1990s. The guidelines, which were based on the six principles of the DII,24 broke new
ground by codifying into law incentives to reward organizations for taking action to
prevent misconduct such as developing effective internal legal and ethical compliance
programs.25 Provisions in the guidelines mitigate penalties for businesses that strive to root
out misconduct and establish high ethical and legal standards.26 On the other hand, under
FSGO, if a company lacks an effective ethical compliance program and its employees violate
the law, it can incur severe penalties. The guidelines focus on firms taking action to prevent
and detect business misconduct in cooperation with government regulation. At the heart of
the FSGO is the carrot-and-stick approach: By taking preventive action against misconduct,
a company may avoid onerous penalties should a violation occur. A mechanical approach
using legalistic logic will not suffice to avert serious penalties. The company must develop
corporate values, enforce its own code of ethics,
and strive to prevent misconduct.
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Chapter 1: The Importance of Business Ethics 15
The Twenty-First Century: A New Focus on Business Ethics
Although business ethics appeared to become more institutionalized in the 1990s, new
evidence emerged in the early 2000s that more than a few business executives and managers
had not fully embraced the public’s desire for high ethical standards. For example, Bruce
Bent, Sr. and his son Bruce Bent II were accused of engaging in fraud in misleading
investors, ratings firms, and trustees when the assets of their Reserve Primary Fund fell.
The accused reassured investors that the company had ample resources to support the
broader declines in the financial market when, in fact, they did not. The Fund had $785
million in Lehman commercial paper, which ultimately became worthless.27
Arthur Andersen, a “Big Five” accounting firm, was convicted of obstructing justice
after shredding documents related to its role as Enron’s auditor.28 The reputation of the
once venerable accounting firm disappeared overnight, along with most of its clients, and
the firm ultimately went out of business. Later the Supreme Court overruled the Arthur
Andersen obstruction-of-justice conviction, but it was too late for the firm to recover. In
addition to problems with its auditing of Enron, Arthur Andersen also faced questions
surrounding its audits of other companies that were charged with employing questionable
accounting practices, including Halliburton, WorldCom, Global Crossing, Dynegy, Qwest,
and Sunbeam.29 These accounting scandals made it evident that falsifying financial reports
and reaping questionable benefits had become part of the culture of many companies.
Firms outside the United States, such as Royal Ahold in the Netherlands and Parmalat in
Italy, became major examples of accounting misconduct from a global perspective.
Such abuses increased public and political
demands to improve ethical standards in business.
In a survey of 20,000 people across 20 countries, trust
in global companies had declined significantly.30 To
address the loss of confidence in financial reporting
and corporate ethics, Congress in 2002 passed the
Sarbanes–Oxley Act, the most far-reaching change
in organizational control and accounting regulations
since the Securities and Exchange Act of 1934. The
new law made securities fraud a criminal offense and stiffened penalties for corporate fraud.
It also created an accounting oversight board that requires corporations to establish codes
of ethics for financial reporting and to develop greater transparency in financial reports to
investors and other interested parties. Additionally, the law requires top executives to sign
off on their firms’ financial reports, and they risk fines and long prison sentences if they
misrepresent their companies’ financial position. The legislation further requires company
executives to disclose stock sales immediately and prohibits companies from giving loans
to top managers.31
The 2004 amendment to the FSGO requires that a business’s governing authority
be well informed about its ethics program with respect to content, implementation,
and effectiveness. This places the responsibility squarely on the shoulders of the firm’s
leadership, usually the board of directors. The board is required to oversee the discovery
of risks and to design, implement, and modify approaches to deal with those risks.
The Sarbanes–Oxley Act and the FSGO have institutionalized the need to discover and
address ethical and legal risk. Top management and the board of directors of a corporation
are accountable for discovering risk associated with ethical conduct. Such specific industries as
the public sector, energy and chemicals, health care, insurance, and retail have to discover the
Th e company must develop corporate
values, enforce its own code of ethics,
and strive to prevent misconduct.
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16 Part : An Overview of Business Ethics
unique risk associated with their operations and develop an ethics program to prevent ethical
misconduct before it creates a crisis. Most firms are developing formal and informal mechanisms
to have interactive communication and transparency about issues associated with the risk of
misconduct. Business leaders should view that their greatest danger is not discovering serious
misconduct or illegal activities somewhere in the organization. Unfortunately, most managers
do not view the risk of an ethical disaster as important as the risk associated with fires, natural
disasters, or technology failure. Ethical disasters can be significantly more damaging to a
company’s reputation than risks that are managed through insurance and other methods. The
great investor Warren Buffett has stated that it is impossible to eradicate all wrongdoing in a
large organization and that one can only hope that the misconduct is small and is caught in
time. Buffett’s fears came true in 2008 when the financial system collapsed because of pervasive,
systemic use of instruments such as credit default swaps, risky debt such as subprime lending,
and corruption in major corporations. The government was forced to step in and bail out many
financial companies. Later, because of the weak financial system and reduced consumption,
the government also had to step in to help major automotive companies GM and Chrysler.
The U.S. government is now a majority shareholder in GM, an unprecedented move. Not
since the Great Depression and President Franklin Delano Roosevelt has the United States
seen such widespread government intervention and regulation—something that most deem
necessary, but which is nevertheless worrisome to free market capitalists.
The basic assumptions of capitalism are under debate as countries around the world
work to stabilize markets and question those that managed the money of individual
corporations and nonprofits. The financial crisis caused many to question government
institutions that provide oversight and regulation. As changes are made, there is a need
to address issues related to law, ethics, and the required level of compliance necessary for
government and business to serve the public interest.
In the KPMG Forensic Integrity Survey, employees were asked whether they had
“personally seen” or had “firsthand knowledge of” misconduct within their organizations
over the prior 12-month period. Roughly three-quarters of employees— 76 percent—
reported that they had observed misconduct in the prior 12-month period.32
Figure 1–2 shows the results of misconduct by industry; there are generally high levels of
observed misconduct across all industries. Employees in highly regulated financial industries,
such as banking, finance, and insurance, reported relatively lower rates of misconduct within
their organizations compared with others. While employees working in the public sector,
which has not been subject to many of the new regulatory mandates placed on its private-
sector counterparts, reported relatively higher rates of misconduct compared with others.
DEVELOPING AN ORGANIZATIONAL AND
GLOBAL ETHICAL CULTURE
The current trend is away from legally based compliance initiatives in organizations to
cultural initiatives that make ethics a part of core organizational values. To develop more
ethical corporate cultures, many businesses are communicating core values to their employees
by creating ethics programs and appointing ethics officers to oversee them. The ethical
component of a corporate culture relates to the values, beliefs, and established and enforced
patterns of conduct that employees use to identify and respond to ethical issues. The term
ethical culture can be viewed as the character or decision making process that employees
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Chapter 1: The Importance of Business Ethics 17
use to determine whether their responses to ethical issues are right or wrong. Ethical culture
is used to describe the component of corporate culture that captures the values and norms
that an organization defines as appropriate conduct. The goal of an ethical culture is to
minimize the need for enforced compliance of rules and maximize the use of principles
that contribute to ethical reasoning in difficult or new situations. An ethical culture creates
shared values and support for ethical decisions and is driven by top management.
Globally, businesses are working more closely together to establish standards of acceptable
behavior. We are already seeing collaborative efforts by a range of organizations to establish
goals and mandate minimum levels of ethical behavior, from the European Union, the North
American Free Trade Agreement (NAFTA), the Common Market of the Southern Cone
(MERCOSUR), and the World Trade Organization (WTO) to, more recently, the Council on
Economic Priorities’ Social Accountability 8000 (SA 8000), the Ethical Trading Initiative, and
the U.S. Apparel Industry Partnership. Some companies will not do business with organizations
that do not support and abide by these standards. The development of global codes of ethics,
such as the Caux Round Table, highlights common ethical concerns for global firms. The
Caux Round Table (www.cauxroundtable.org) is a group of businesses, political leaders, and
concerned interest groups that desire responsible behavior in the global community.
THE BENEFITS OF BUSINESS ETHICS
The field of business ethics continues to change rapidly as more firms recognize the
benefits of improving ethical conduct and the link between business ethics and financial
performance. Both research and examples from the business world demonstrate that
0 10 20 30 40
Percent
In
du
st
ry
50 60 70
80
65
67
68
69
70
73
74
75
76
77
78
80
80
90
Automotive
Government & Public Sector
Consumer Markets
Chemicals & Diversified
Industrials
Communications & Media
Real Estate & Construction
Aerospace & Defense
Healthcare
Pharmaceuticals & Life Sciences
Energy & Natural Resources
Electronics, Software & Services
Insurance
Banking & Finance
FIGURE 12 Prevalence of Misconduct by Industry During the Prior 12 Months
Source: KPMG LLP (U.S.) 2008, http://www.kpmg.com.br/publicacoes/forensic/Integrity_Survey_2008_2009 (accessed August 4, 2009).
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18 Part : An Overview of Business Ethics
building an ethical reputation among employees, customers, and the general public
pays off. Figure 1–3 provides an overview of the relationship between business ethics
and organizational performance. Although we believe there are many practical benefits
to being ethical, many businesspeople make decisions because they believe a particular
course of action is simply the right thing to do as a responsible member of society.
Ricoh’s Chairman, Masamitsu Sakurai, one of Ethisphere’s 100 Most Influential People
in Business Ethics, states that a foundational commitment to the environment creates a
financial advantage. Ricoh transitioned to a flexible, cell-based production system that
reduced carbon dioxide emissions and increased productivity, implemented additional
emission reductions and waste reduction plans, and selectively placed clean ventilation
points along the production line. These activities, as well as others, managed to cut carbon
dioxide emissions by 85 percent and cut production costs in half.33 Among the rewards
for being more ethical and socially responsible in business are increased efficiency in
daily operations, greater employee commitment, increased investor willingness to entrust
funds, improved customer trust and satisfaction, and better financial performance. The
reputation of a company has a major effect on its relationships with employees, investors,
customers, and many other parties.
Ethics Contribute to Employee Commitment
Employee commitment comes from employees who believe their future is tied to that of
the organization and their willingness to make personal sacrifices for the organization.34
The more a company is dedicated to taking care of its employees, the more likely it is that
the employees will take care of the organization. The NBES survey indicates that 79 percent
of employees agree that ethics is important in continuing to work for their employer. It
is also interesting to note that approximately 20 percent of employees are not concerned
about the ethical environment of their organization.35 This group is very complacent and
has the potential for misconduct without guidance and ethical leadership. Issues that
may foster the development of an ethical culture for employees include the absence of
abusive behavior, a safe work environment, competitive salaries, and the fulfillment of all
Ethical
Culture
Employee
Commitment
and Trust
Investor
Loyalty
and Trust
Prof its
Customer
Satisfaction
and Trust
FIGURE 13 The Role of Organizational Ethics in Performance
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Chapter 1: The Importance of Business Ethics 19
contractual obligations toward employees. An ethics and compliance program can support
values and appropriate conduct. Social programs that may improve the ethical culture
range from work–family programs and stock ownership plans to community service.
Home Depot associates, for example, participate in disaster-relief efforts after hurricanes
and tornadoes by rebuilding roofs, repairing water damage, planting trees, and clearing
roads in their communities. Because employees spend a considerable amount of their
waking time at work, a commitment by the organization to goodwill and respect for its
employees usually increases the employees’ loyalty to the organization and their support
of its objectives. After years of bad publicity regarding environmental damage and its poor
treatment of workers, Wal-Mart appears to have realized the importance of corporate
social responsibility to a company’s bottom line. Over 92 percent of Wal-Mart associates
now have health insurance, and Wal-Mart has been working hard to improve diversity as
well. In 2008 alone, Wal-Mart received 37 separate awards and distinctions for its diversity
efforts. The company has taken strides toward being more sustainable as well—by doing
everything from introducing low-emissions vehicles to its shipping fleet and installing
solar panels on store rooftops. Wal-Mart has even stated a goal to be zero-waste.36
Employees’ perception that their firm has an ethical culture leads to performance-
enhancing outcomes within the organization.37 For the sake of both productivity and
teamwork, it is essential that employees both within and between departments throughout
the organization share a common vision of trust. The influence of higher levels of trust
is greatest on relationships within departments or work groups, but trust is a significant
factor in relationships between departments as well. Consequently, programs that create
a work environment that is trustworthy make individuals more willing to rely and act on
the decisions and actions of their coworkers. In such a work environment, employees can
reasonably expect to be treated with full respect and consideration by their coworkers
and superiors. Trusting relationships between upper management and managers and
their subordinates contribute to greater decision making efficiencies. One survey found
that when employees see values such as honesty, respect, and trust applied frequently
in the workplace, they feel less pressure to compromise ethical standards, observe less
misconduct, are more satisfied with their organizations overall, and feel more valued as
employees.38
The ethical culture of a company seems to matter to employees. According to a
report on employee loyalty and work practices, companies viewed as highly ethical by
their employees were six times more likely to keep their workers.39 Also, employees who
view their company as having a strong community involvement feel more loyal to their
employers and feel positive about themselves.
Ethics Contribute to Investor Loyalty
Ethical conduct results in shareholder loyalty and can contribute to success that supports
even broader social causes and concerns. Former Wal-Mart CEO Lee Scott has stated
that “As businesses, we have a responsibility to society. We also have an extraordinary
opportunity. Let me be clear about this point, there is no conflict between delivering value
to shareholders and helping solve bigger societal problems. In fact, they can build upon
each other when developed, aligned, and executed right.”40
Investors today are increasingly concerned about the ethics, social responsibility, and
reputation of companies in which they invest, and various socially responsible mutual
funds and asset management firms can help investors purchase stock in ethical companies.
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20 Part : An Overview of Business Ethics
Investors are also recognizing that an ethical culture provides a foundation for efficiency,
productivity, and profits. On the other hand, investors know too that negative publicity,
lawsuits, and fines can lower stock prices, diminish customer loyalty, and threaten a
company’s long-term viability. Many companies accused of misconduct have experienced
dramatic declines in the value of their stock when concerned investors divested their stocks
and bonds. Warren Buffett and his company Berkshire Hathaway command significant
respect from investors because of their track record of financial returns and the integrity
of their organizations. Buffett says, “I want employees to ask themselves whether they are
willing to have any contemplated act appear the next day on the front page of 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 accountability and trust Buffett places in
his employees translates into investor trust and confidence.41
TIAA-CREF investor participants were asked would they choose a financial services
company with strong ethics or higher returns. Surprisingly, 92 percent of respondents said
they would choose ethics while only 5 percent chose higher returns.42
Investors look at the bottom line for profits or the potential for increased stock
prices or dividends. But they also look for any potential flaws in the company’s
performance, conduct, and financial reports. Therefore, gaining investors’ trust
and confidence is vital to sustaining the financial stability of the firm.
Ethics Contribute to Customer Satisfaction
It is generally accepted that customer satisfaction is one of the most important
factors in successful business strategy. Although a company must continue
to develop, alter, and adapt products to keep pace with customers’ changing
desires and preferences, it must also seek to develop long-term relationships
with customers and its stakeholders. Patagonia, Inc. has engaged in a broad
array of environmentally, socially responsible and ethical behaviors over many
years to better connect with its target markets. The company has donated more
than $31 million to over 1,000 environmentally oriented causes. Employees can
volunteer for an environmental group and get up to two months pay. The entire clothing line
was sourced using organic cotton in 1996. Targeting Generation Y, the company is selling
“Vote the Environment” t-shirts and donates $5 from each to the League of Conservation
Voters. In addition, the company is currently creating the Patagonia National Park to
protect wildland ecosystems and biodiversity in Chile and Argentina. All new facilities are
being built with LEED certification showing their commitment to green building and the
environment.43
For most businesses, both repeat purchases and an enduring relationship of mutual
respect and cooperation with their customers are essential for success. By focusing on
customer satisfaction, a company continually deepens the customer’s dependence on the
company, and as the customer’s confidence grows, the firm gains a better understanding
of how to serve the customer so the relationship may endure. Successful businesses provide
an opportunity for customer feedback, which can engage the customer in cooperative
problem solving. As is often pointed out, a happy customer will come back, but a disgruntled
customer will tell others about his or her dissatisfaction with a company and discourage
friends from dealing with it.
The public’s trust is essential to maintaining a good long-term relationship between
a business and consumers. The Millennium Poll of 25,000 citizens in 23 countries found
Customer
satisfaction
is one of the
most important
factors in
successful
business strategy.
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Chapter 1: The Importance of Business Ethics 21
that almost 60 percent of people focus on social responsibility ahead of brand reputation or
financial factors when forming impressions of companies.44 As social responsibility becomes
more important for companies, it has been suggested that corporate social responsibility
is a sign of good management and that it may, according to one study, indicate good
financial performance. However, another study indicates that the reverse may be true, that
companies who have good financial performance are able to spend more money on social
responsibility.45 Google would be an example of such a company. Google shows extreme
care for its employees at its Googleplex headquarters in Mountain View, CA. Investment
in their employees satisfaction and retention involves providing bicycles for efficient travel
between meetings, lava lamps, massage chairs, shared work cubicles to allow for intellectual
stimulation and idea generation, laptops for every employee, foosball, pool tables, volleyball
courts, assorted video games, pianos, ping pong tables, lap pools, gyms, yoga and dance
classes, meditation classes, wine tasting groups, film clubs, salsa dancing clubs, healthy
lunches for staff at a wide variety of cafes, outdoor seating for “brainstorming,” and snack
rooms packed with various snacks and drinks.46
When an organization has a strong ethical environment, it usually focuses on the core
value of placing customers’ interests first. Putting customers first does not mean that the
interests of employees, investors, and local communities should be ignored, however. An
ethical culture that focuses on customers incorporates the interests of all employees, suppliers,
and other interested parties in decisions and actions. Employees working in an ethical
environment support and contribute to the process of understanding customers’ demands
and concerns. Ethical conduct toward customers builds a strong competitive position that
has been shown to affect business performance and product innovation positively.
Ethics Contribute to Profits
A company cannot nurture and develop an ethical culture unless it has achieved adequate
financial performance in terms of profits. Businesses with greater resources—regardless
of their staff size—have the means to practice social responsibility while serving their
customers, valuing their employees, and establishing trust with the public. Ethical
conduct toward customers builds a strong competitive position that has been shown to
affect business performance and product innovation positively.47 Green Mountain Coffee
Company, which sells products under the Green Mountain, Newman’s Own, and Keurig
brands, has built a strong reputation on social responsibility. The company donates to
local and coffee-growing communities, as well as buys carbon offsets. Also, 28 percent of
its coffee purchases are Fair Trade certified. Its CSR activities have led to more business.
Organizations such as Creighton University chose to purchase Green Mountain Coffee
products because students and educators appreciate the company’s environmentally
friendly practices.48 Every day, business newspapers and magazines offer new examples
of the consequences of business misconduct. It is worth noting, however, that most of
these companies have learned from their mistakes and recovered after they implemented
programs to improve ethical and legal conduct.
Ample evidence shows that being ethical pays off with better performance. As
indicated earlier, companies that are perceived by their employees as having a high degree
of honesty and integrity have a much higher average total return to shareholders than do
companies perceived as having a low degree of honesty and integrity.49 A recent study
demonstrates that, even using a variety of measurement methods, companies actively
engaging in corporate social responsibility have higher pre-tax income than firms that are
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22 Part : An Overview of Business Ethics
merely focused on financial performance; therefore ambition and performance are not in
conflict with being ethical.50 These results provide strong evidence that corporate concern
for ethical conduct is becoming a part of strategic planning toward obtaining the outcome
of higher profitability. Rather than being just a compliance program, ethics is becoming
one of the management issues within the effort to achieve competitive advantage.
OUR FRAMEWORK FOR STUDYING
BUSINESS ETHICS
We have developed a framework for this text to help you understand how people make
ethical decisions and deal with ethical issues. Table 1–3 summarizes each element in the
framework and describes where each topic is discussed in this book.
In Part One, we provide an overview of business ethics. Chapter 1 defines the term
business ethics and explores the development and importance of this critical business area.
In Chapter 2, we explore the role of various stakeholder groups in social responsibility and
corporate governance.
Part Two focuses on ethical issues and the institutionalization of business ethics. In
Chapter 3, we examine business issues that create ethical decision making in organizations.
In Chapter 4, we look at the institutionalization of business ethics including both mandatory
and voluntary societal concerns.
In Part Three, we delineate the ethical decision making process and then look at both
individual factors and organizational factors that influence decisions. Chapter 5 describes
the ethical decision making process from an organizational perspective. Chapter 6 explores
individual factors that may influence ethical decisions in business, including moral
philosophies and cognitive moral development. Chapter 7 focuses on the organizational
dimensions including corporate culture, relationships, and conflicts.
In Part Four, we explore systems and processes associated with implementing business
ethics into global strategic planning. Chapter 8 discusses the development of an effective
ethics program. In Chapter 9, we examine issues related to implementing and auditing
ethics programs. And finally, Chapter 10 considers ethical issues in a global context.
We hope that this framework will help you to develop a balanced understanding of
the various perspectives and alternatives available to you when making ethical business
decisions. Regardless of your own personal values, the more you know about how
individuals make decisions, the better prepared you will be to cope with difficult ethical
decisions. Such knowledge will help you improve and control the ethical decision making
environment in which you work.
It is your job to make the final decision in an ethical situation that affects you.
Sometimes that decision may be right; sometimes it may be wrong. It is always easy to
look back with hindsight and know what one should have done in a particular situation. At
the time, however, the choices might not have been so clear. To give you practice making
ethical decisions, Part Five of this book contains a number of cases. In addition, each
chapter begins with a vignette, “An Ethical Dilemma,” and ends with a minicase, “Resolving
Ethical Business Challenges,” that involves ethical problems. We hope they will give you a
better sense of the challenges of making ethical decisions in the real business world.
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Chapter 1: The Importance of Business Ethics 23
TABLE 13 Our Framework for Studying Business Ethics
Chapter Highlights
1. The Importance of Business Ethics ● Defi nitions
● Reasons for studying business ethics
● History
● Benefi ts of business ethics
2. Stakeholder Relationships, Social
Responsibility, and Corporate
Governance
● Stakeholder relationships
● Stakeholder infl uences in
social responsibility
● Corporate governance
3. Emerging Business Ethics Issues ● Recognizing an ethical issue
● Honesty, fairness, and integrity
● Ethical issues and dilemmas in business:
abusive and disruptive behavior, lying,
confl icts of interest, bribery, corporate
intelligence, discrimination, sexual harassment,
environmental issues, fraud, insider trading,
intellectual property rights, and privacy
● Determining an ethical issue in business
4. The Institutionalization of Business
Ethics
● Mandatory requirements
● Voluntary requirements
● Core practices
● Federal Sentencing Guidelines for Organizations
●
Sarbanes–Oxley Act
5. Ethical Decision Making and Ethical
Leadership
● Ethical issue intensity
● Individual factors in decision making
● Organizational factors in decision making
● Opportunity in decision making
● Business ethics evaluations and intentions
● The role of leadership in a corporate culture
● Leadership styles infl uence ethical decisions
● Habits of strong ethical leaders
(continued)
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24 Part : An Overview of Business Ethics
TABLE 13 Our Framework for Studying Business Ethics (continued)
Chapter Highlights
6. Individual Factors: Moral Philosophies
and Values
● Moral philosophies, including teleological
development philosophies; and cognitive
moral deontological, relativist, virtue
ethics, and justice philosophies
● Stages of cognitive moral development
7. Organizational Factors: The Role of
Ethical Culture and Relationships
● Corporate culture
● Interpersonal relationships
● Whistle-blowing
● Opportunity and confl ict
8. Developing an Effective Ethics
Program
● Ethics programs
● Codes of ethics
● Program responsibility
● Communication of ethical standards
● Systems to monitor and enforce ethical standards
● Continuous improvement of ethics programs
9. Implementing and Auditing Ethics
Programs
● Implementation programs
● Ethics audits
10. Business Ethics in a Global Economy ● Ethical perceptions economy
● Culture and cultural relations
● Multinational corporations
● Universal ethics
● Global ethics issues
SUMMARY
This chapter provides an overview of the field of business ethics and introduces the
framework for the discussion of business ethics. Business ethics comprises principles and
standards that guide behavior in the world of business. Investors, employees, customers,
interest groups, the legal system, and the community often determine whether a specific
action is right or wrong, ethical or unethical.
Studying business ethics is important for many reasons. Recent incidents of unethical
activity in business underscore the widespread need for a better understanding of the
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Chapter 1: The Importance of Business Ethics 25
factors that contribute to ethical and unethical decisions. Individuals’ personal moral
philosophies and decision making experience may not be sufficient to guide them in the
business world. Studying business ethics will help you begin to identify ethical issues and
recognize the approaches available to resolve them.
The study of business ethics evolved through five distinct stages. Before 1960, business
ethics issues were discussed primarily from a religious perspective. The 1960s saw the
emergence of many social issues involving business and the idea of social conscience
as well as a rise in consumerism, which culminated with Kennedy’s Consumers’ Bill of
Rights. Business ethics began to develop as an independent field of study in the 1970s,
with academics and practitioners exploring ethical issues and attempting to understand
how individuals and organizations make ethical decisions. These experts began to teach
and write about the idea of corporate social responsibility, an organization’s obligation
to maximize its positive impact on stakeholders and to minimize its negative impact.
In the 1980s, centers of business ethics provided publications, courses, conferences, and
seminars, and many companies established ethics committees and social policy committees.
The Defense Industry Initiative on Business Ethics and Conduct was developed to guide
corporate support for ethical conduct; its principles had a major impact on corporate
ethics.
However, less government regulation and an increase in businesses with international
operations raised new ethical issues. In the 1990s, government continued to support self-
regulation. The FSGO sets the tone for organizational ethics programs by providing
incentives for companies to take action to prevent organizational misconduct. The twenty-
first century ushered in a new set of ethics scandals, suggesting that many companies had
not fully embraced the public’s desire for higher ethical standards. The Sarbanes–Oxley Act
therefore stiffened penalties for corporate fraud and established an accounting oversight
board. The current trend is away from legally based ethical initiatives in organizations
toward cultural initiatives that make ethics a part of core organizational values. The
ethical component of a corporate culture relates to the values, beliefs, and established and
enforced patterns of conduct that employees use to identify and respond to ethical issues.
The term ethical culture describes the component of corporate culture that captures the
rules and principles that an organization defines as appropriate conduct. It can be viewed
as the character or decision making process that employees use to determine whether their
responses to ethical issues are right or wrong.
Research and anecdotes demonstrate that building an ethical reputation among
employees, customers, and the general public provides benefits that include increased
efficiency in daily operations, greater employee commitment, increased investor
willingness to entrust funds, improved customer trust and satisfaction, and better financial
performance. The reputation of a company has a major effect on its relationships with
employees, investors, customers, and many other parties and thus has the potential to
affect its bottom line.
Finally, this text introduces a framework for studying business ethics. Each chapter
addresses some aspect of business ethics and decision making within a business context. The
major concerns are ethical issues in business, stakeholder relationships, social responsibility
and corporate governance, emerging business ethics issues, the institutionalization of
business ethics, understanding the ethical decision making process, moral philosophies
and cognitive moral development, corporate culture, organizational relationships and
conflicts, developing an effective ethics program, implementing and auditing the ethics
program, and global business ethics.
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26 Part : An Overview of Business Ethics
business ethics
principles
values
Consumers’ Bill of
Rights
social responsibility
Defense Industry
Initiative on Business
Ethics and Conduct
Federal Sentencing
Guidelines for
Organizations
Sarbanes–Oxley Act
ethical culture
I M P O R T A N T T E R M S F O R R E V I E W
Frank Garcia was just
starting out as a salesperson
with Acme Corporation.
A c m e ’ s c o r p o r a t e
culture was top-down, or
hierarchical. Because of the
competitive nature of the
medical supplies industry,
few mistakes were tolerated.
Otis Hillman was a buyer
for Thermocare, a national hospital chain. Frank’s
first meeting with Otis was a success, resulting
in a $500,000 contract. This sale represented a
significant increase for Acme and an additional
$1,000 bonus for Frank.
Some months later, Frank called on
Thermocare, seeking to increase the contract by
$500,000. “Otis, I think you’ll need the additional
inventory. It looks as if you didn’t have enough at
the end of last quarter,” said Frank.
“You may be right. Business has picked up.
Maybe it’s because of your product, but then again,
maybe not. It’s still not clear to me whether Acme
is the best for us. Speaking of which, I heard that
you have season tickets to the Cubs!” replied Otis.
Frank thought for a moment and said, “Otis,
I know that part of your increases is due to our
quality products. How about we discuss this over
a ball game?”
“Well, OK,” Otis agreed.
By the seventh-inning stretch, Frank had
convinced Otis that the additional inventory was
needed and offered to give Thermocare a pair of
season tickets. When Frank’s boss, Amber, heard
of the sale, she was very pleased. “Frank, this is
great. We’ve been trying
to get Thermocare’s
business for a long
time. You seem to have
connected with their
buyer.” As a result of the
Thermocare account,
Frank received another
large bonus check and
a letter of achievement
from the vice president of marketing.
Two quarters later, Frank had become one of
the top producers in the division. At the beginning
of the quarter, Frank had run the numbers on
Thermocare’s account and found that business
was booming. The numbers showed that Otis’s
business could probably handle an additional
$750,000 worth of goods without hurting return
on assets. As Frank went over the figures with
Otis, Otis’s response was, “You know, Frank, I’ve
really enjoyed the season tickets, but this is a big
increase.” As the conversation meandered, Frank
soon found out that Otis and his wife had never
been to Cancun, Mexico. Frank had never been in
a situation like this before, so he excused himself
to another room and called Amber about what he
was thinking of doing.
“Are you kidding!” responded Amber. “Why
are you even calling me on this? I’ll find the money
somewhere to pay for it.”
“Is this OK with Acme?” asked Frank.
“You let me worry about that,” Amber told
him.
When Frank suggested that Otis and his
wife be his guests in Cancun, the conversation
RESOLVING ETHICAL BUSINESS CHALLENGES*
sh
ut
te
rs
to
ck
im
ag
es
/B
ru
no
M
ed
le
y
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Chapter 1: The Importance of Business Ethics 27
seemed to go smoothly. In Cancun, Otis decided
to purchase the additional goods, for which Frank
received another bonus increase and another
positive letter from headquarters.
Some time later, Amber announced to her
division that they would be taking all of their best
clients to Las Vegas for a thank-you party. One of
those invited was Thermocare. When they arrived,
Amber gave each person $500 and said, “I want
you to know that Acme is very grateful for the
business that you have provided us. As a result
of your understanding the qualitative differences
of our products, we have doubled our production
facilities. This trip and everything that goes with
it for the next few days is our small way of saying
thank you. Every one of you has your salesperson
here. If there is anything that you need, please let
him or her know, and we’ll try to accommodate
you. Have a good time!”
That night Otis saw Frank at dinner and
suggested to him that he was interested in attending
an “adult entertainment” club. When Frank came
to Amber about this, she said, “Is he asking you to
go with him?”
“No, Amber, not me!”
“Well, then, if he’s not asking you to go, I
don’t understand why you’re talking to me. Didn’t
I say we’d take care of their needs?”
“But what will Acme say if this gets out?”
asked Frank.
“Don’t worry; it won’t,” said Amber.
Q U E S T I O N S • E X E R C I S E S
1. What are the potential ethical issues faced by
Acme Corporation?
2. What should Acme do if there is a desire to
make ethics a part of its core organizational
values?
3. Identify the ethical issues of which Frank
needs to be aware.
4. Discuss the advantages and disadvantages of
each decision that Frank could make.
*This case is strictly hypothetical; any resemblance to real
persons, companies, or situations is coincidental.
Check your EQ, or Ethics Quotient, by completing the following. Assess your performance to evaluate
your overall understanding of the chapter material.
1. Business ethics focuses mostly on personal ethical issues. Yes No
2. Business ethics deals with right or wrong behavior within a particular organization. Yes No
3. An ethical culture is based upon the norms and values of the company. Yes No
4. Business ethics contributes to investor loyalty. Yes No
5. The trend is away from cultural or ethically based initiatives to legal initiatives in
organizations.
Yes No
6. Investments in business ethics do not support the bottom line. Yes No
ANSWERS:1. No. Business ethics focuses on organizational concerns (legal and ethical—employees, customers,
suppliers, society). 2. Yes. That stems from the basic defi nition. 3. Yes. Norms and values help create an organizational
culture and are key in supporting or not supporting ethical conduct. 4. Yes. Many studies have shown that trust and
ethical conduct contribute to investor loyalty. 5. No. Many businesses are communicating their core values to their
employees by creating ethics programs and appointing ethics offi cers to oversee them. 6. No. Ethics initiatives cause
consumer, employee, and shareholder loyalty and positive behavior that contributes to the bottom line.
C H E C K Y O U R E Q
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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.
Licensed to:
Chapter 1
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N O T E S
490
51289_29_
_p490-504.indd 49051289_29_Notes_p490-504.indd 490 01/04/10 3:53 PM01/04/10 3:53 PM
Copyright 2011 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.
Licensed to:
Notes 491
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Chapter 2
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as Usual: The Acceptance and Perpetuation of Corruption in
Organizations,” Academy of Management Executive 18, no. 2
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for Corporate Integrity: How to Survive an Ethical Misconduct
Disaster,” (Mason OH: Texere/Thomson, 2006), 11.
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10. Adapted from Isabelle Maignan, O. C. Ferrell, and Linda Ferrell,
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Marketing,” European Journal of Marketing 39 (2005): 956–977.
11. Ibid.
12. Ibid.
13. Thorne, Ferrell, and Ferrell, Business and Society.
14. Isabelle Maignan and O. C. Ferrell, “Corporate Social
Responsibility: Toward a Marketing Conceptualization,” Journal of
the Academy of Marketing Science 32 (2004): 3–19.
15. Ibid.
16. Ibid.
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5, 2009, http://online.wsj.com/article/SB124146383501884323.html
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27. Paige Brady, “Walking the Walk,” Whole Foods Market Blog,
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28. Ibid.
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Copyright 2011 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.
Licensed to:
492 Notes
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51289_29_Notes_p490-504.indd 49251289_29_Notes_p490-504.indd 492 01/04/10 3:53 PM01/04/10 3:53 PM
Copyright 2011 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.
Licensed to:
Notes 493
Chapter 3
1. Kevin Duffy, “Beazer Homes, SEC Reach Settlement on Earnings,”
AJC Media Solutions, September 24, 2008, http://www.ajc.com/
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Ethics?,” Journal of Business Ethics 6 (1987): 81–88. Reprinted by
permission of Kluwer Academic Publishers, Dordrecht, Holland.
4. Carolyn Said, “Ellison Hones His ‘Art of War’ Tactics,” San
Francisco Chronicle, June 10, 2003, A1.
5. Michael Liedtke, “Oracle CEO to Pay $122M to Settle Lawsuit,”
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6. Beversluis, “Is There No Such Thing as Business Ethics?” 82.
7. Vernon R. Loucks, Jr., “A CEO Looks at Ethics,” Business Horizons
30 (1987): 4
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11. Charles Forelle, “EU Plans Fresh Strike on Microsoft,” The
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13. “Panel Seeks Fuller Disclosure of Drug Company Payments,”
Forbes, April 27, 2009, http://www.forbes.com/feeds/
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16. John Byrne, “Fall from Grace,” BusinessWeek, August 12, 2002,
50–56.
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18. Ira Winkler, Corporate Espionage: What It Is, Why It’s Happening
in Your Company, What You Must Do About It (New York:
Prima, 1997); Ira Winkler, Spies Among Us: How to Stop the
Spies, Terrorists, Hackers, and Criminals You Don’t Even Know
You Encounter Every Day (Indianapolis: Wiley, 2005); Kevin D.
Mitnick and William L. Simon, The Art of Intrusion: The Real
Stories Behind the Exploits of Hackers, Intruders and Deceivers
(Indianapolis: Wiley, 2005).
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Street Journal, February 2, 2009, http://online.wsj.com/article/
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21. Bureau of the Census, Statistical Abstract of the United States, 2001
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Discrimination,” Equal Employment Opportunity Commission,
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Lawsuit,” Occupational Health & Safety, April 8, 2008, http://
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24. Sue Shellenberger, “Work and Family,” Wall Street Journal, May
23, 2001, B1.
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27. Ibid
28. Ibid
29. Debbie Thorne McAlister, O. C. Ferrell, and Linda Ferrell,
Business and Society: A Strategic Approach to Social Responsibility,
2nd ed. (Boston: Houghton Mifflin, 2008), 165-166.
30. Joe Millman, “Delayed Recognition; Arab Americans Haven’t Put
Much Effort into Advancing Their Rights as a Minority. Until
Relatively Recently, That Is.” Wall Street Journal, November 14,
2005, R8.
31. See http://www.eeoc.gov/stats/harass.html for EEOC statistics.
32. Paula N. Rubin, “Civil Rights and Criminal Justice: Primer on
Sexual Harassment Series: NIJ Research in Action,” October 1995,
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33. Steve Stecklow, “Sexual-Harassment Cases Plague U.N.,” The
Wall Street Journal, May 21, 2009, http://online.wsj.com/article/
SB124233350385520879.html (accessed June 11, 2009).
34. Zabkowicz v. West Bend Co., 589 F. Supp. 780, 784, 35 EPD Par.34,
766 (E.D. Wis.1984)
35. Iddo Landau, “The Law and Sexual Harassment,” Business Ethics
Quarterly 15, no. 2 (2005): 531–536.
36. “Enhancements and Justice: Problems in Determining the
Requirements of Justice in a Genetically Transformed Society,”
Kennedy Institute Ethics Journal 15, no. 1 (2005): 3–38.
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38. Alex Frangos, “Timber Backs a New ‘Green’ Standard,” The Wall
Street Journal, March 29, 2006, p. B6.
39. Ibid
40. Russell Gold and Ian Talley, “Exxon CEO Advocates Emissions
Tax,” The Wall Street Journal, January 9, 2009, http://online.wsj.
com/article/SB123146091530566335.html (accessed June 4, 2009).
41. William T. Neese, O. C. Ferrell, and Linda Ferrell, “An Analysis of
Mail and Wire Fraud Cases Related to Marketing Communication:
Implications for Corporate Citizenship,” Journal of Business
Research (2005), 58, p. 910-918
42. “Snapshot,” USA Today, October 3, 2002, A1.
43. Donna Kardos, “KPMG Is Sued Over New Century,” The Wall
Street Journal, April 2, 2009, http://online.wsj.com/article/
SB123860415462378767.html (accessed June 11, 2009).
44. Matt Kranz, “More Earnings Restatements on Way,” USA Today,
October 25, 2002, 3B.
51289_29_Notes_p490-504.indd 49351289_29_Notes_p490-504.indd 493 01/04/10 3:53 PM01/04/10 3:53 PM
Copyright 2011 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.
Licensed to:
494 Notes
45. Tess Stynes, “WellCare Swings to Loss on Legal Costs, Investment
Charges,” The Wall Street Journal, May 11, 2009, http://online.wsj.
com/article/SB124204184849506371.html (accessed June 11, 2009).
46. Cassell Bryan-Low, “Accounting Firms Face Backlash over the
Tax Shelters They Sold,” Wall Street Journal online, February 7,
2003, http://online.wsj.com/article/SB1044568358985594893.
html?mod=googlewsj (accessed August 5, 2009)
47. Press release, “Court Bars Global Marketing Group From Payment
Processing,” Federal Trade Commission, February 18, 2009, http://
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48. Gillette Co. v. Wilkinson Sword, Inc., 89-CV-3586, 1991 U.S. Dist.
Lexis 21006, *6 (S.D.N.Y. January 9, 1991).
49. Am. Council of Certified Podiatric Physicians & Surgeons v. Am.
Bd. of Podiatric Surgery, Inc., 185 F.3d 606, 616 (6th Cir. 1999);
Johnson & Johnson-Merck Consumer Pharms. Co. v. Rhone-Poulenc
Rorer Pharms., Inc., 19 F.3d 125, 129–30 (3d Cir. 1994); Coca-Cola
Co. v. Tropicana Prods., Inc., 690 F.2d 312, 317 (2d Cir. 1982).
50. Jeff Bater, “FTC Says Companies Falsely Claim Cellphone Patches
Provide Protection,” Wall Street Journal online, February 21,
2002, http://online.wsj.com/article/SB101423360415658320.
html?mod=googlewsj (accessed August 5, 2009).
51. Archie B. Carroll, Business and Society: Ethics and Stakeholder
Management (Cincinnati: South-Western, 1989), 228–230.
52. “Netgear Settles Suit over Speed Claims,” Wall Street Journal,
November 28, 2005, C5.
53. “AT&T Settles Lawsuit Against Reseller Accused of Slamming,”
Business Wire, via America Online, May 26, 1998.
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55. Keith B. Anderson, “Consumer Fraud in the United States: The
Second FTC Survey,” The Federal Exchange Commission, October
2007, http://www2.ftc.gov/opa/2007/10/fraud (accessed August
5, 2009).
56. Kathy Grannis, “Troubled Economy Increases Shoplifting Rates,
According to National Retail Security Survey,” National Retail
Federation, June 16, 2009, http://www.nrf.com/modules.php?name=
News&op=viewlive&sp_id=746 (accessed August 5, 2009).
57. Liz Rappaport, “Case Opens New Front on Insider Trading,” The
Wall Street Journal, May 6, 2009, http://online.wsj.com/article/
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58. Tami Luhbu, “Countrywide’s Mozilo Accused of Fraud,” CNN
Money, June 4, 2009, http://money.cnn.com/2009/06/04/news/
economy/mozilo_fraud_charges/index.htm (accessed June 11,
2009).
59. Anna Wilde Mathews, “Copyrights on Web Content Are Backed,”
Wall Street Journal, October 27, 2000, B10.
60. “Today’s Briefing,” Commercial Appeal, November 15, 2000, C1.
61. Roger Bate, “China’s Bad Medicine,” The Wall Street Journal, May
5, 2009, http://online.wsj.com/article/SB124146383501884323.
html (accessed August 5, 2009); “Chinese Intellectual Property
Violations,” Idea Buyer, http://www.ideabuyer.com/news/chinese-
intellectual-property-violations/ (accessed August 5, 2009).
62. Deli Yang, Mahmut Sonmez, Derek Bosworth, and Gerald Fryzell,
“Global Software Piracy: Searching for Further Explanations,”
Journal of Business Ethics, September 2008.
63. “Cryptography Policy,” the Electronic Protection Information
Center, //www.epic.org/crypto/ (accessed August 5, 2009).
64. Nora J. Rifon, Robert LaRose, and Sejung Marina Choi, “Your
Privacy Is Sealed: Effects of Web Privacy Seals on Trust and
Personal Disclosures,” Journal of Consumer Affairs 39, no. 2
(2002): 339–362.
65. Steven Ward, Kate Bridges, and Bill Chitty, “Do Incentives Matter?
An Examination of On-line Privacy Concerns and Willingness to
Provide Personal and Financial Information,” Journal of Marketing
Communications 11, no. 1 (2005): 21–40.
66. “2005 Electronic Monitoring and Surveillance Survey: Many
Companies Monitoring, Recording, Videotaping—and Firing—
Employees,” New York Times, May 18, 2005, via http://www.
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2002, via http://www.highbeam.com/doc/1P1-69756506.html
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68. Tamar Lewin, “Chevron Settles Sexual Harassment Charges,”
The New York Times, February 22, 1995, http://www.nytimes.
com/1995/02/22/us/chevron-settles-sexual-harassment-charges.
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69. John Galvin, “The New Business Ethics,” SmartBusinessMag.com
(June 2000): 97.
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5, 2009); Mitch Wagner, “Google’s Pixie Dust,” InformationWeek,
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71. Stephenie Steitzer, “Commercial Web Sites Cut Back on
Collections of Personal Data,” Wall Street Journal, March 28,
2002, http://online.wsj.com/article/SB1017247161553469240.
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72. Christopher Conkey, “FTC Goes After Firm That Installs Spyware
Secretly,” Wall Street Journal, October 6, 2005, D4.
73. Eve M. Caudill and Patrick E. Murphy, “Consumer Online
Privacy: Legal and Ethical Issues,” Journal of Public Policy &
Marketing 19 (2000): 7.
74. Galvin, “The New Business Ethics,” 98.
75. Steitzer, “Commercial Web Sites Cut Back on Collections of
Personal Data.”
Chapter 4
1. “Corporate Information: Corporate Culture,” Google, http://www.
google.com/corporate/culture.html, (accessed June 4, 2009).
2. Alistair Barr, “IRS Tries to Force UBS to Reveal US Tax Dodgers,”
Market Watch, February 19, 2009, http://www.marketwatch.com/
story/ubs-kept-52000-secret-bank-accounts?print=true&dist=print
MidSection (accessed June 4, 2009).
3. “Targeting Illegal Tax Shelters,” Democratic Leadership Council,
July 30, 2008, http://www.dlc.org/ndol_ci.cfm?kaid=139&subid=90
0082&contentid=252601 (accessed January 14, 2009).
4. Kara Scannell, “Assured of SEC’s Survival, Schapiro Now Fights
to Keep Regulatory Teeth,” The Wall Street Journal, June 11,
2009, http://online.wsj.com/article/SB124468047175204449.html
(accessed June 12, 2009).
5. Loretta Chao and Sky Canaves, “Legality of China Web Filter Is
Challenged,” The Wall Street Journal, June 15, 2009, http://online.
wsj.com/article/SB124482083845410171.html?mod=googlenews_
wsj (accessed June 12, 2009).
6. Gregory T. Gundlach, “Price Predation: Legal -Limits and
Antitrust Considerations,” Journal of Public Policy & Marketing 14
(1995): 278.
7. David Goldman, “Obama Vows Antitrust Crackdown,” CNN
Money, May 11, 2009, http://money.cnn.com/2009/05/11/news/
economy/antitrust/index.htm (accessed June 12, 2009).
8. Steve Lohr, “High-Tech Antitrust Cases: The Road Ahead,”
The New York Times, May 13, 2009, http://bits.blogs.
nytimes.com/2009/05/13/high-tech-antitrust-the-road-
ahead/?scp=1&sq=high-tech%20antitrust&st=cse (accessed June
12, 2009).
51289_29_Notes_p490-504.indd 49451289_29_Notes_p490-504.indd 494 01/04/10 3:53 PM01/04/10 3:53 PM
Copyright 2011 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.
Licensed to:
Notes 495
9. “10 Ways to Combat Corporate Espionage,” Data Destruction
News, http://www.imakenews.com/accushred/e_article001225805.
cfm?x=bdtNVCP,bbGvRs5c,w (accessed August 5, 2009).
10. “Baseball’s Antitrust Exemption: Q&A,” ESPN, December 5, 2001,
http://sports.espn.go.com/espn/print?id=1290707&type=story
(accessed June 4, 2009).
11. “A Child Shall Lead the Way: Marketing to Youths,” Credit Union
Executive, May–June 1993, 6–8.
12. Julia Angwin, “How to Keep Kids Safe Online,” The Wall
Street Journal, January 22, 2009, http://online.wsj.com/article/
SB123238632055894993.html (accessed June 12, 2009).
13. Jennifer Levitz, “Laws Take on Financial Scams Against Seniors,”
The Wall Street Journal, May 19, 2009, http://online.wsj.com/
article/SB124269210323932723.html (accessed June 12, 2009).
14. “Women’s Earnings as a Percentage of Men’s 1951–2007,” U.S.
Women’s Bureau and the National Info Please, http://www.
infoplease.com/ipa/A0193820.html (accessed August 5, 2009).
15. Joan Lowy, “Airline Industry Changes Raise Safety Issues,”
USA Today, May 16, 2009, http://www.usatoday.com/news/
nation/2009-05-16-airline-pilots_N.htm (accessed August 5, 2009).
16. “United Nations General Assembly Report,” http://www.un.org/
documents/ga/res/42/ares42-187.htm (accessed June 4, 2009).
17. “Consumer Interest in Environmental Purchasing Not Eclipsed by
Poor Economy,” Cone 2009 Environmental Survey, http://www.
coneinc.com/content2032 (accessed June 12, 2009).
18. “Smackdown: GE, Siemens Duel Over Who’s Greener,” The
Wall Street Journal, May 28, 2009, http://blogs.wsj.com/
environmentalcapital/2009/05/28/smackdown-ge-siemens-duel-
over-whos-greener/ (accessed June 12, 2009).
19. Ibid.
20. Michael Arndt, Wendy Zellner, and Peter Coy, “Too Much
Corporate Power,” BusinessWeek, September 11, 2000, 149.
21. Marilyn Adams, “U.S. Keeps Wary Eye on Cruise Ships for More
Pollution,” USA Today, November 8, 2002, http://www.usatoday.
com/travel/news/2004-05-05-norway-pollution_x.htm (accessed
August 5, 2009).
22. “Electronics Recycling is Making Gains, Says EPA,” PC World,
January 8, 2009, http://www.pcworld.com/businesscenter/
article/156721/article.html?tk=nl_bnxnws (accessed June 12, 2009).
23. Sarah Lynch, “Schapiro: More Oversight Needed for Credit-Rating
Firms,” The Wall Street Examiner, April 15, 2009, http://forums.
wallstreetexaminer.com/index.php?showtopic=807630 (accessed
June 12, 2009).
24. Mike Spector and Shelly Banjo, “Pay at Nonprofits Gets a Closer
Look,” The Wall Street Journal, March 27, 2009, http://online.wsj.
com/article/SB123811160845153093.html (accessed June 12, 2009).
25. Penelope Patsuris, “The Corporate Scandal Sheet,” Forbes
online, August 26, 2002, www.forbes.com/home/2002/07/25/
accountingtracker.html (accessed August 5, 2009).
26. Nelson D. Schwartz, “The Looting of Kmart, Part 2,” Fortune,
February 17, 2003, 30; Elliot Blair Smith, “Probe: Former Kmart
CEO ‘Grossly Derelict,’” USA Today, January 27, 2003, B1.
27. David McHugh, “Business Wants to Restore Public Trust,”
America Online, January 28, 2003.
28. Amy Borrus, “Learning to Love Sarbanes–Oxley,” BusinessWeek,
November 21, 2005, 126–128.
29. Stephen Taub, “SEC:1,300 ‘Whistles’ Blown Each Day” CFO.com,
August 3, 2004, http://www.cfo.com/article.cfm/3015607 (accessed
March 15, 2006).
30. Julie Homer, “Overblown (In the Wake of Sarbanes–Oxley, Some
Serious Misconceptions Have Arisen About What Blowing the
Whistle Actually Means),” CFO Magazine, October 1, 2003,
http://www.cfo.com/article.cfm/3010513/c_2984349/?f=archives
(accessed August 5, 2009).
31. “Foley Study Reveals Continued High Cost of Being Public,” Foley
& Lardner LLP, August 2, 2007, http://www.foley.com/news/
news_detail.aspx?newsid=3074 (accessed June 12, 2009).
32. “Sarbanes–Oxley Act Improves Investor Confidence, But at a Cost,”
CPA Journal, October 2005, http://www.nysscpa.org/cpajournal/
2005/1005/perspectives/p19.htm (accessed March 16, 2006).
33. Tricia Bisoux, “The Sarbanes–Oxley Effect,” BizEd, July/August
2005, 24–29.
34. Ibid.
35. “Sarbox and the Constitution,” The Wall Street Journal, May 20,
2009, http://online.wsj.com/article/SB124268754900032175.html
(accessed June 12, 2009).
36. James C. Hyatt, “Birth of the Ethics Industry,” Business Ethics
(Summer 2005): 20–27.
37. Amy Borrus, “Learning to Love Sarbanes– Oxley,” BusinessWeek,
November 21, 2005, 126–128.
38. Win Swenson, “The Organizational Guidelines’ ‘Carrot and Stick’
Philosophy, and Their Focus on ‘Effective’ Compliance,” in Corporate
Crime in America: Strengthening the “Good Citizenship”-Corporation
(Washington, DC: U.S. Sentencing Commission, 1995), 17–26.
39. United States Code Service (Lawyers’ Edition), 18 U.S.C.S.
Appendix, Sentencing Guidelines for the United States Courts
(Rochester, NY: Lawyers Cooperative Publishing, 1995), sec. 8A.1.
40. O. C Ferrell and Linda Ferrell, “Current Developments in
Managing Organizational Ethics and Compliance Initiatives,”
University of Wyoming, white paper, Bill Daniels Business Ethics
Initiative 2006.
41. Ibid.
42. Lynn Brewer, “Capitalizing on the Value of Integrity: An
Integrated Model to Standardize the Measure of Non-financial
Performance as an Assessment of Corporate Integrity,” in
Managing Risks for Corporate Integrity. How to Survive an Ethical
Misconduct Disaster, ed. Lynn Brewer, Robert Chandler, and O. C.
Ferrell (Mason, OH: Thomson/Texere, 2006), 233–277.
43. “Balanced, Active Lifestyles,” McDonald’s, http://www.mcdonalds.
com/usa/good/balanced__active_lifestyles.html (accessed August
5, 2009).
44. Ingrid Murro Botero, “Charitable Giving Has 4 Big Benefits,”
Business Journal of Phoenix online, January 1, 1999, www.
bizjournals.com/phoenix/stories/1999/01/04/smallb3.html
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45. 2007 Corporate Citizen Report, Wells Fargo, https://www.
wellsfargo.com/downloads/pdf/about/csr/reports/
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46. “Walmart Foundation Fact Sheet,” http://walmartstores.com/
FactsNews/FactSheets/#CharitableGiving (accessed June 4, 2009).
47. “Wal-Mart Giving,” Walmartfacts.com, http://www.walmartfacts.
com/community/walmart-foundation.aspx (accessed March 17,
2006).
48. Steve Hilton, “Bisto: Altogether now, ‘Aah . . .,’” Ethical
Corporation, December 2005, 50.
49. “How We’re Helping,” Home Depot, http://corporate.
homedepot.com/wps/portal/!ut/p/c1/04_SB8K8xLLM9MSS
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50. Swenson, “The Organizational Guidelines’ ‘Carrot and Stick’
Philosophy.”
Chapter 5
1. Thomas M. Jones, “Ethical Decision Making by Individuals
in Organizations: An Issue-Contingent Model,” Academy of
51289_29_Notes_p490-504.indd 49551289_29_Notes_p490-504.indd 495 01/04/10 3:53 PM01/04/10 3:53 PM
Copyright 2011 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.
Licensed to:
496 Notes
Management Review 16 (February 1991): 366–395; O. C. Ferrell and
Larry G. Gresham, “A Contingency Framework for Understanding
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7. Ibid.
8. Ibid.
9. Ibid., 17.
10. Steven A. Holmes, “Fannie Mae Eases Credit to Aid Mortgage
Lending,” New York Times, September 30, 1999, http://www.
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11. Reuters, “Fannie Mae, Freddie Mac Subprime Restrictions Ease,”
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12. T. W. Loe, L. Ferrell, and P. Mansfield, “A Review of Empirical
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13. Steven Kaplan, Kurt Pany, Janet Samuels, and Jian Zhang, “An
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14. Michael J. O’Fallon, and Kenneth D. Butterfield, “A Review of
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15. R. W. Armstrong, “The Relationship Between Culture and
Perception of Ethical Problems in International Marketing,”
Journal of Business Ethics 15 (November 1996): 1199–1208; J.
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Related to the Cognitive Moral Development of Business Students
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Copyright 2011 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.
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Notes 497
34. From Managing Risks for Corporate Integrity: How to Survive an
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Copyright 2011 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.
Licensed to:
498 Notes
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24. Ibid.
25. Adapted from Robert C. Solomon, “Victims of Circumstances? A
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26. Ian Maitland, “Virtuous Markets: The Market as School of the
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27. Ibid.
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29. Joel Brockner, “Making Sense of Procedural Fairness: How High
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31. John Fraedrich and O. C. Ferrell, “Cognitive Consistency of
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Copyright 2011 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.
Licensed to:
Notes 499
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38. Frank Reynolds, “Ex-Worldcom CFO Gets Five Years for Role
in $11 B Fraud,” Findlaw, August 19, 2005, http://news.findlaw.
com/andrews/bf/cod/20050819/20050819sullivan.html (accessed
August 20, 2009).
39. “Valuing Corporate Social Responsibility: McKinsey Survey
Results,” February 2009, http://www.mckinseyquarterly.com/
Surveys/Valuing_corporate_social_responsibility_McKinsey_
Global_Survey_Results_2309 (accessed August 20, 2009); Julie
Hutchinson, “BYOB: Bring Your Own Bag,” Rocky Mountain
News, April 18, 2008, http://www.rockymountainnews.com/
news/2008/apr/18/byob-bring-your-own-bag/ (accessed August
20, 2009).
40. “What Employees Want,” April 2, 2008, http://www.managesmarter.
com/msg/content_display/training/e3i34cf9af7da51e4a7eb30cd7c0
b9b01fa?imw=Y (accessed June 5, 2009).
41. Clayton Alderfer, Existence, Relatedness, and Growth (New York:
Free Press, 1972), 42–44.
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Copyright 2011 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.
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500 Notes
42. Elaine Engeler, “UN: Forced Laborers Losing $21 Billion a
Year,” The San Francisco Chronicle, May 12, 2009, http://www.
sfgate.com/cgi-bin/article.cgi?f=/n/a/2009/05/12/international/
i052329D45.DTL (accessed August 20, 2009).
43. Stanley Holmes, “Cleaning Up Boeing,” BusinessWeek online,
March 13, 2006, http://www.businessweek.com/print/magazine/
content/06_11/b3975088.htm?chan=gl (accessed April 6, 2006).
44. Spencer Ante, “They’re Hiring in Techland,” BusinessWeek online,
January 23, 2006, http://www.businessweek.com/print/technology/
content/jan2006/tc20060123_960426.htm (accessed April 6, 2006).
45. Corporate Governance-Board Committees, Texas Instruments,
http://www.ti.com/corp/docs/csr/corpgov/bcmembership.
shtml (accessed June 5, 2009); “Texas Instruments and the TI
Foundation Committed to United Way,” http://www.ti.com/corp/
docs/csr/factsheets/unitedWay.shtml (accessed June 5, 2009.)
46. Joseph A. Belizzi and Ronald W. Hasty, “Supervising Unethical
Sales Force Behavior: How Strong Is the Tendency to Treat Top
Sales Performers Leniently?” Journal of Business Ethics 43 (2003):
337–351.
47. John Fraedrich and O. C. Ferrell, “Cognitive Consistency of
Marketing Managers in Ethical Situations,” Journal of the Academy
of Marketing Science 20 (1992): 243–252.
48. “Helping Reduce Underage Tobacco Use,” Phillip Morris, http://
www.philipmorrisusa.com/en/cms/Responsibility/Helping_
Reduce_Underage_Tobacco_Use/default.aspx?src=top_nav
(accessed August 20, 2009).
49. Matthew Kirdahy, “Smoke and Mirrors,” Forbes, November 1,
2006, http://www.forbes.com/2006/10/31/smoking-altria-lorillard-
biz-bizhealth-cx_mk_1101smoking.html (accessed August 20, 2009).
Chapter 8
1. Bob Lewis, “Survival Guide: The Moral Compass—Corporations
Aren’t Moral Agents, Creating Interesting Dilemmas for Business
Leaders,” InfoWorld, March 11, 2002, via http://www.findarticles.
com (accessed June 8, 2009).
2. “The 100 Best Corporate Citizens,” March 6, 2009, http://www.
forbes.com/2009/03/05/best-corporate-citizens-leadership-
citizenship-ranking.html (accessed June 8, 2009).
3. Indra Nooyi, “Business Has a Job to Do: Rebuild Trust,” April
22, 2009, http://www.money.cnn.tv/2009/04/19/news/companies/
nooyi.fortune/index.htm (accessed June 8, 2009).
4. Linda K. Trevino and Stuart Youngblood, “Bad Apples in Bad
Barrels: Causal Analysis of Ethical Decision Making Behavior,”
Journal of Applied Psychology 75 (1990): 378–385.
5. Roger Parloff, “Wall Street: It’s Payback Time,” Fortune, January
19, 2009, 69.
6. Trevino and Youngblood, “Bad Apples in Bad Barrels.”
7. “AmericaEconomia Annual Survey Reveals Ethical Behavior of
Businesses and Executives in Latin America,” AmericaEconomia,
December 19, 2002, via http://www.prnewswire.com.
8. Constance E. Bagley, “The Ethical Leader’s Decision Tree,”
Harvard Business Review (February 2003): 18–19.
9. “Wall Street’s Entitlement Culture Hard to Shake,” January 23,
2009, http://www.msnbc.msn.com/id/28817800/ (accessed June 8,
2009).
10. “Forensic Leadership Message,” KPMG Forensic Ethics Survey
2008–2009, http://www.kpmg.com/SiteCollectionDocuments/
Integrity-Survey-2008-2009 (accessed June 17, 2009).
11. “Conducting Ourselves Ethically and Transparently,” http://www.
merck.com/corporate-responsibility/business-ethics-transparency/
approach.html (accessed June 8, 2009).
12. “Special Report: The OCEO 2005 Benchmarking Study Key Findings,”
http://www.oceg.org/Details/18594 (accessed June 9, 2009).
13. “How Am I Doing?” Business Ethics (Fall 2005): 11.
14. KPMG Forensic Integrity Survey 2008–2009, http://www.kpmg.
com/SiteCollectionDocuments/Integrity-Survey-2008-2009
(accessed June 8, 2009).
15. National Business Ethics Survey 2007: An Inside View of Private
Sector Ethics, Ethics Resource Center, 2007, 18.
16. Mark S. Schwartz, “A Code of Ethics for Corporate Code of
Ethics,” Journal of Business Ethics 41 (2002): 37.
17. Ibid.
18. “ASCE: Code of Ethics,” http://www.asce.org/inside/codeofethics.
cfm (accessed June 8, 2009); “Engineers Commit to Ending
Corruption,” http://www.asce.org/pressroom/news/display_press.
cfm?uid=2789, (accessed June 8, 2009).
19. National Business Ethics Survey 2007, 39.
20. “USSC Commissioner John Steer Joins with Compliance and
Ethics Executives from Leading U.S. Companies to Address Key
Compliance, Business Conduct and Governance Issues,” Society
for Corporate Compliance and Ethics, PR Newswire, October 31,
2005.
21. “ECOA Sponsoring Partner Member L’Oreal Sponsors the First
Law and Business Ethics Masters Degree,” October 6, 2008, http://
www.csrwire.com/press/press_release/19336-ECOA-Sponsoring-
Partner-member-L-Oreal-Sponsors-the-first-Law-and-Business-
Ethics-Masters-Degree (accessed June 9, 2009).
22. Jim Nortz “Compliance and Ethics Officers: A Survival Guide
for the Economic Downturn,” March 10, 2009, http://www.
corporatecomplianceinsights.com/2009/compliance-and-ethics-
officers-surviving-economic-downturn (accessed June 9, 2009).
23. Anne M. Simmons “Want to Avoid Unpleasant Compliance
Surprises? Embrace a Strong Whistle-Blowing Policy,” January
8, 2009, http://ethisphere.com/want-to-avoid-unpleasant-
compliance-surprises-embrace-a-strong-whistle-blowing-policy/
(accessed June 9, 2009).
24. “Combat Fraud of Almost $1 Trillion,” April 17, 2009, http://
ethicaladvocate.blogspot.com/2009_04_01_archive.html (accessed
June 9, 2009).
25. Sven Erik Holmes, “The Road to a Model Ethics and Compliance
Program,” May 13, 2009, http://ethisphere.com/the-road-to-a-
model-ethics-and-compliance-program (accessed August 20, 2009).
26. Linda Ferrell and O.C. Ferrell, Ethical Business (DK Essential
Managers Series, May 4, 2009), 1–72.
27. “Key TI Ethics Publications,” http://www.ti.com/corp/docs/csr/
corpgov/ethics/publication.shtml (accessed June 10, 2009).
28. Debbie Thorne LeClair and Linda Ferrell, “Innovation in
Experiential Business Ethics Training,” Journal of Business Ethics
23 (2000): 313–322.
29. Press release, “Top Corporate Ethics Officers Tell Conference
Board that More Ethics Scandals are Ahead” The Conference
Board, June 17, 2002, via Highbeam, http://www.highbeam.com/
doc/1G1-87469997.html (accessed August 20, 2009).
30. Ibid.
31. David Slovin, “The Case for Anonymous Hotlines,” Risk &
Insurance, April 15, 2007, via FindArticles, http://findarticles.
com/p/articles/mi_m0BJK/is_5_18/ai_n27221119/ (accessed
August 20, 2009).
32. Mael Kaptein, “Guidelines for the Development of an Ethics Safety
Net,” Journal of Business Ethics 41 (2002): 217.
33. National Business Ethics Survey 2007, 6.
34. Curt S. Jordan, “Lessons in Organizational Compliance: A Survey
of Government-Imposed Compliance Programs,” Preventive Law
Reporter (Winter 1994): 7.
35. Lori T. Martens and Kristen Day, “Five Common Mistakes in
Designing and Implementing a Business Ethics Program,” Business
and Society Review 104 (1999): 163–170.
51289_29_Notes_p490-504.indd 50051289_29_Notes_p490-504.indd 500 01/04/10 3:53 PM01/04/10 3:53 PM
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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.
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Notes 501
36. Anne C. Mulkern, “Auditors Smelled Trouble,” Denver Post,
October 2, 2002, A1.
Chapter 9
1. John Rosthorn, “Business Ethics Auditing—More Than a
Stakeholder’s Toy,” Journal of Business Ethics 27 (2000): 9–19.
2. Debbie Thorne, O. C. Ferrell, and Linda Ferrell, Business and
Society: A Strategic Approach to Corporate Citizenship, 3rd Edition
(Boston: Houghton Mifflin, 2008).
3. Rosthorn, “Business Ethics Auditing.”
4. BP Sustainability Review 2008, http://www.bp.com/liveassets/
bp_internet/globalbp/STAGING/global_assets/e_s_assets/e_s_
assets_2008/downloads/bp_sustainability_review_2008
(accessed June 11, 2009).
5. “Accountability,” Business for Social Responsibility, http://www.
bsr.org/BSRResources/WhitePaperDetail.cfm?DocumentID=259
(accessed February 13, 2003).
6. Frank Reynolds, “Earnings Announcement Caused 25 Percent
Stock Drop, Suit Says,” November 26, 2008, http://news.findlaw.
com/andrews/bf/cod/20081126/20081126_cadence.html (accessed
June 11, 2009).
7. Kevin J. Sobnosky, “The Value-Added Benefits of Environmental
Auditing,” Environmental Quality Management 9 (1999): 25–32.
8. “Accountability,” Business for Social Responsibility.
9. Trey Buchholz, “Auditing Social Responsibility Reports: The
Application of Financial Auditing Standards,” Colorado State
University, professional paper, November 28, 2000, 3.
10. “Accountability,” Business for Social Responsibility.
11. Fortune’s World’s Most Admired Companies, February 27, 2009,
http://money.cnn.com/magazines/fortune/mostadmired/2009/
index.html (accessed June 11, 2009).
12. “100 Most Influential People in Business Ethics 2008,” December
31, 2008, http://ethisphere.com/100-most-influential-people-in-
business-ethics-2008/ (accessed June 11, 2009).
13. John Pearce, Measuring Social Wealth (London: New Economics
Foundation, 1996) as reported in Warren Dow and Roy Crowe,
What Social Auditing Can Do for Voluntary Organizations
(Vancouver, Canada: Volunteer Vancouver, July 1999), 8.
14. Colin Barr, “Obama Talks Tough on CEO Pay,” February 4, 2009,
http://money.cnn.com/2009/02/04/news/obama.exec.pay.fortune/
index.htm (accessed June 11, 2009).
15. “The Effect of Published Reports of Unethical Conduct on
Stock Prices,” reported in “Business Ethics,” Business for
Social Responsibility, http://www.bsr.org/BSRResources/
WhitePaperDetail.cfm?DocumentID=270 (accessed March 5,
2003).
16. Penelope Patsuris, “The Corporate Accounting Scandal Sheet,”
Forbes online, August 26, 2002, www.forbes.com/2002/07/25/
accountingtracker.html (accessed September 3, 2009).
17. “Managing American Competitiveness,” PricewaterhouseCoopers,
http://www.pwc.com/extweb/pwcpublications.nsf/docid/
B3C7B78DCB0AF4E285257583005001A7 (accessed June 12, 2009).
18. Lynn Brewer, Robert Chandler, and O. C. Ferrell, Managing Risks
for Corporate Integrity: How to Survive and Ethical Misconduct
Disaster (Mason, Ohio: Thompson Higher Education), 49–50.
19. The methodology in this section was adapted from Thorne,
Ferrell, and Ferrell, Business and Society.
20. “Accountability,” Business for Social Responsibility.
21. Ethics Resource Center, “Mission and Values,” http://www.ethics.
org/page/erc-mission-and-values (accessed September 3, 2009).
22. “Verification,” Business for Social Responsibility, http://www.
bsr.org/BSRResources/White PaperDetail.cfm?DocumentID=440
(accessed February 13, 2003).
23. “Ethical Statement,” Social Audit, SocialAudit.org, http://www.
socialaudit.org/pages/ethical.htm (accessed March 4, 2003).
24. “Our Five Core Values,” Franklin Energy, http://www.
franklinenergy.com/corevalues.html (accessed January 14, 2009).
25. “Verification,” Business for Social Responsibility.
26. “Audit and Evaluation,” Open Compliance and Ethics Group,
http://www.oceg.org/view/15839 (accessed September 3, 2009).
27. “Ethical Statement,” Social Audit.
28. “About Us: The Environment,” National Grid, https://www.
nationalgridus.com/niagaramohawk/about_us/environment.asp
(accessed June 17, 2009).
29. “Verification,” Business for Social Responsibility.
30. Green Mountain Coffee, http://www.greenmountaincoffee.com
(accessed June 11, 2009).
31. Buchholz, “Auditing Social Responsibility Reports,” 15.
32. Willem Landman, Johann Mouton, and Khanyisa Nevhutalu,
“Chris Hani Baragwanath Hospital Ethics Audit,” Ethics Institute
of South Africa, 2001, http://ethicssa.intoweb.co.za/UserFiles/
ethicssa.intoweb.co.za//CHBHFinalReport (accessed
September 3, 2009).
33. “Verification,” Business for Social Responsibility.
34. “Introduction to Corporate Social Responsibility,” Business
for Social Responsibility, http;//www.bsr.org/BSRResources/
WhitePaperDetail.cfm?Document ID=138 (accessed March 5,
2003).
35. Landman, Mouton, and Nevhutalu, “Chris Hani Baragwanath
Hospital Ethics Audit.”
36. “Introduction to Corporate Social Responsibility,” Business for
Social Responsibility.
37. Liz Gunnison, “The Best and Worst CEOs Ever,” Condé Nast
Portfolio, May 9, 2009, p. 44.
38. “Accountability,” Business for Social Responsibility.
39. Ibid.
40. Ethics and Compliance Officer Association, http://www.theecoa.
org (accessed June 18, 2009).
41. “Verification,” Business for Social Responsibility.
42. Ibid.
43. “Environment and Sustainability,” BP, http://www.bp.com/
subsection.do?categoryId=6932&contentId=7050724 (accessed
June 18, 2009).
44. Nicole Dando and Tracey Swift, “From Methods to Ideologies,”
Journal of Corporate Citizenship, December 2002, via http://
goliath.ecnext.com/coms2/gi_0199-1001798/From-methods-to-
ideologies-closing.html (accessed September 3, 2009), 81.
45. Buchholz, “Auditing Social Responsibility Reports,” 16–18.
46. Ibid., 19–20.
47. “Accountability,” Business for Social Responsibility.
48. Buchholz, “Auditing Social Responsibility Reports,” 19–20.
49. Mouton, “Chris Hani Baragwanath Hospital Ethics Audit.”
50. “OCEG 2005 Benchmarking Study Key Findings,” Open
Compliance Ethics Group, http://www.oceg.org/Details/18594
(accessed September 3, 2009).
51. International Corporate Responsibility Survey, 2008, KPMG,
http://www.kpmg.com/SiteCollectionDocuments/International-
corporate-responsibility-survey-2008_v2 (accessed June 17,
2009), 28.
52. International Corporate Responsibility Survey, 2008, KPMG,
http://www.kpmg.com/SiteCollectionDocuments/International-
corporate-responsibility-survey-2008_v2 (accessed June 17,
2009).
53. Buchholz, “Auditing Social Responsibility Reports,” 1.
54. Sandra Waddock and Neil Smith, “Corporate Responsibility
Audits: Doing Well by Doing Good,” Sloan Management Review
41 (2000): 75–83.
51289_29_Notes_p490-504.indd 50151289_29_Notes_p490-504.indd 501 01/04/10 3:53 PM01/04/10 3:53 PM
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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.
Licensed to:
502 Notes
55. Buchholz, “Auditing Social Responsibility Reports,” 1.
56. Waddock and Smith, “Corporate Responsibility Audits.”
57. J. C. Collins and J. I. Porras, Built to Last: Successful Habits of
Visionary Companies (New York: HarperCollins, 1997).
58. Waddock and Smith, “Corporate Responsibility Audits.”
Chapter 10
1. Alan K. Reichert, Marion S. Webb, and Edward G. Thomas,
“Corporate Support for Ethical and Environmental Policies: A
Financial Management Perspective,” Journal of Business Ethics 25
(2000): 54.
2. “What Happens when Countries Go Bankrupt?” TimeTurk:
English, November 5, 2008, http://en.timeturk.com/What-
Happens-when-Countries-Go-Bankrupt-10871-haberi.html
(accessed June 13, 2009).
3. Alan S. Blinder, Keynesian Economics, Library of Economics and
Liberty, http://www.econlib.org/library/Enc/KeynesianEconomics.
html (accessed June 1, 2009).
4. Robert L. Formaini, “Milton Friedman—Economist as Public
Intellectual,” Economic Insights, 7, no. 2 (2002), Federal Reserve
Bank of Dallas, http://www.dallasfed.org/research/ei/ei0202.html
(accessed June 5, 2009).
5. E. Roy Wientraub, “Neoclassical Economics,” Library of
Economics and Liberty, http://www.econlib.org/library/Enc1/
NeoclassicalEconomics.html (accessed June 22, 2009).
6. “North Dakota Executive Pleads Guilty to Nine Counts of Tax
Fraud on Eve of Trial,” May 29, 2009, http://www.usdoj.gov/opa/
pr/2009/May/09-tax-533.html (accessed June 1, 2009).
7. Richard Whitely, “U.S. Capitalism: A Tarnished Model?” The
Academy of Management Perspectives (May 2009): 11–22.
8. Thayer Watkins, “The Economy and the Economic History of
Sweden,” San José State University Department of Economics,
http://www.sjsu.edu/faculty/watkins/sweden.htm (accessed June
22, 2009).
9. Tarun Khana, “Learning from Economic Experiments in China
and India,” The Academy of Management Perspectives (May 2009):
36–43.
10. Timothy M. Devinney, “Is the Socially Responsible Corporation
a Myth? The Good, the Bad, and the Ugly of Corporate Social
Responsibility,” The Academy of Management Perspectives (May
2009): 44–56.
11. John (Jack) Ruhe and Monle Lee, “Teaching Ethics in
International Business Courses: The Impacts of Religions,” Journal
Of Teaching In International Business, 19, no. 4 (2008); Andrew
Wilson, editor, World Scripture: A Comparative Anthology of
Sacred Texts, A project of the international religious foundation
(Paragon House: New York, 1995), ISBN: 1-55778-723-9.
12. “Global Roundup,” International Business Ethics Review (Spring/
Summer 2005): 17.
13. The Principles for Responsible Management Education, http://
www.unprme.org/the-6-principles/index.php (accessed June
22, 2009); The United Nations Global Compact, http://www.
unglobalcompact.org/ (accessed June 22, 2009).
14. Neil King, Jr., “WTO Panel Rules Against Law on U.S. Punitive
Import Duties,” Wall Street Journal, June 18, 2002, A2.
15. Emad Mekay, “Trade: U.S. Defies WTO Ruling on Duties,” Inter
Press Service, http://www.ipsnews.net/interna.asp?idnews=25307
(accessed June 22, 2009).
16. Dionne Searcey, “U.S. Cracks Down on Corporate Bribes,” The
Wall Street Journal, May 26, 2009, http://online.wsj.com/article/
SB124329477230952689.html (accessed June 22, 2009).
17. “Blow the Whistle—No Wait: Ethics Hotlines May Be Illegal in
Europe,” Business Ethics (Fall 2005): 10.
18. Ethics Office News, Xerox, http://www.xerox.com/about-xerox/
citizenship/ethics/enus.html (accessed June 21, 2009).
19. “Court Rules Against Part of Wal-Mart Code,” Blog.
WakeupWalMart.com, http://blog.wakeupwalmart.com/
ufcw/2005/06/court_rules_aga.html, accessed June 22, 2009.
20. Anup Shah, “Consumption and Consumerism,” Global Issues,
September 3, 2008,. http://www.globalissues.org/issue/235/
consumption-and-consumerism (accessed June 22, 2009).
21. Keith Bradsher, “China Losing Taste for Debt From U.S.” The New
York Times, January 7, 2009, http://www.nytimes.com/2009/01/08/
business/worldbusiness/08yuan.html (accessed June 22, 2009).
22. Karen Stein, “Understanding Consumption and Environmental
Change in China: A Cross-national Comparison of Consumer
Patterns,” Human Ecology Review; 16, no. 1 (Summer 2009): 41–49.
23. Louisa Lim. “In China, A Roaring Debate Over Hummer,”
National Public Radio, All Things Considered, June 9, 2009,
http://www.npr.org/templates/story/story.php?storyId=105168900
(accessed June 22, 2009).
24. Bay Fang and Thomas Omestad, “Spending Spree,” U.S. News &
World Report, 140 no. 16 (May 1, 2006).
25. “China Mobile Internet Marketplace to Reach CNY 14.88
bn,” TMC News, June 18, 2009, http://www.tmcnet.com/
usubmit/2009/06/18/4232826.htm (accessed June 21, 2009).
26. Eric Bellman, “New Indian Middle Class Gets Caught In the
Whirlwind of Revolving Credit,” The Wall Street Journal, October
28, 2008, http://online.wsj.com/article/SB122515009213974167.
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27. Subhash Agrawal, “India’s Premature Exuberance,” The Wall
Street Journal, June 16, 2009, http://online.wsj.com/article/
SB124513568534118169.html (accessed June 22, 2009).
28. Maryam Niamir Fuller, KEYNOTE SPEECH: The Global Social
and Ethical Context of Sustainable Land Management, UNDP/
GEF Pub, September 4, 2007, http://www.energyandenvironment.
undp.org/undp/index.cfm?DocumentID=6445&module=Library&
page=Document (accessed June 20, 2009).
29. “How Much of the World’s Resource Consumption Occurs in
Rich Countries?” Earth Trends, http://earthtrends.wri.org/updates/
node/236 (accessed June 22, 2009); “The Global Sustainability
Challenge,” http://www.globalsustainabilitychallenge.com/
(accessed September 4, 2009).
30. Matt Villano, “Office Space: Career Couch; The Separation of
Church and Job,” The New York Times, February 5, 2006, http://
query.nytimes.com/gst/fullpage.html?res=9C0CE7D8163EF936A3
5751C0A9609C8B63 (accessed June 22, 2009).
31. “Global Trade Union Rights Situation Worsening,” 2009 ITUC
Annual Survey of Trade Union Rights Violations, http://survey09.
ituc-csi.org/ (June 22, 2009).
32. David Barboza, “McDonald’s in China Agrees to Unions,” The
New York Times, April 10, 2007, http://query.nytimes.com/gst/
fullpage.html?res=9D00E6DC153FF933A25757C0A9619C8B63&
n=Top/Reference/Times%20Topics/Subjects/F/Fringe%20Benefits
(accessed June 16, 2009).
33. David G. Savage, “AT&T Wins Court Case Over Maternity Leave,”
Los Angeles Times, May 19, 2009, http://articles.latimes.com/2009/
may/19/nation/na-court-pregnancy19 (accessed June 22, 2009).
34. Bob Sullivan, “La Difference’ Is Stark in EU, U.S. Privacy Laws”
MSNBC.com, October 19, 2006, http://www.msnbc.msn.com/
id/15221111/ (accessed June 22, 2009).
35. Loretta Chao, “China Squeezes PC Makers,” The Wall
Street Journal, June 8, 2009, http://online.wsj.com/article/
SB124440211524192081.html (accessed June 8, 2009).
36. Anup Shah, “Health Issues,” Global Issues, October 27, 2008,
http://www.globalissues.org/issue/587/health-issues (accessed
June 22, 2009).
51289_29_Notes_p490-504.indd 50251289_29_Notes_p490-504.indd 502 01/04/10 3:53 PM01/04/10 3:53 PM
Copyright 2011 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.
Licensed to:
Notes 503
37. Jeff Aronson, “Dying For Drugs,” British Medical Journal,
May 3, 2003, http://www.pubmedcentral.nih.gov/articlerender.
fcgi?artid=1125906 (accessed June 22, 2009).
38. Robert Pear, “Obama Push to Cut Health Costs Faces Tough
Odds,” The New York Times, May 12, 2009, http://www.nytimes.
com/2009/05/12/us/politics/12health.html (accessed September
4, 2009); John McCormick and Bruce Japsen, “Obama Tells
AMA US Health-Care Costs Are a ‘Ticking Time Bomb’,” The
Chicago Tribune, June 15, 2009, http://www.commondreams.org/
headline/2009/06/15-9 (accessed June 20, 2009).
39. Reed Abelson, “While the U.S. Spends Heavily on Health Care,
a Study Faults the Quality,” The New York Times, July 17,
2008, http://www.nytimes.com/2008/07/17/business/17health.
html?scp=2&sq=U.S.%20Healthcare&st=cse (accessed June 20, 2009).
40. “Germany: Development of the Health Care System,”. Country
Database, http://www.country-data.com/cgi-bin/query/r-4924.
html (accessed June 20, 2009).
41. Dan Butterfield, “China’s ‘Sticky Floor’ Gender Pay Differences,”
The McKinsey Quarterly. May 15, 2009, http://www.
mckinseyquarterly.com/Chinas_sticky_floor_2354 (accessed
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- Chapter 1: The Importance of Business Ethics
AN ETHICAL DILEMMA
BUSINESS ETHICS DEFINED
WHY STUDY BUSINESS ETHICS?
THE DEVELOPMENT OF BUSINESS ETHICS
DEVELOPING AN ORGANIZATIONAL AND GLOBAL ETHICAL CULTURE
THE BENEFITS OF BUSINESS ETHICS
OUR FRAMEWORK FOR STUDYING BUSINESS ETHICS
SUMMARY
IMPORTANT TERMS FOR REVIEW
RESOLVING ETHICAL BUSINESS CHALLENGES
CHECK YOUR EQ
Notes
- SealedMedia_User: iChapters User
Learning Objectives
Upon completion of this unit, students should be able to:
1. Compare and contrast the main features of Kantian ethics and of utilitarian ethics?
2. Describe and discuss the moral point of view and support the idea that business people must operate from the moral point of view.
3. Compare and contrast the stockholder view of the corporation as defended by Milton Friedman and the stakeholder view of the corporation as defended by R. Edward Freeman.
4. Compare and contrast Milton Friedman‟s view of the NYSEG Corporate responsibility program and R. Edward Freeman‟s view of the NYSEG Corporate responsibility program.
5. Discuss John R. Boatright‟s main arguments in “What’s Wrong—and What’s Right—with Stakeholder Management.”
6. Analyze the essay by Wayne F. Cascio, “Decency Means More than „Always Low Prices‟: A Comparison of Costco to Wal-Mart‟s Sam‟s Club,” and determine whether it tends to support the position of Milton Friedman or R. Edward Freeman.
Unit Summary
This unit introduces you to the concepts and problems of ethics or moral philosophy. One of the purposes of this unit is to introduce you to a 2,500 year old tradition of inquiry and analysis of questions of right and wrong. In this unit you will explore the differences between stockholder management and stakeholder management. Utilitarian theories hold that the moral worth of actions or practices is determined by the consequences of the actions or practices. The view is most commonly associated with the work of Jeremy Bentham and John Stuart Mill. Mill defended the principle of utility, which that holds that actions are right or wrong insofar as they promote happiness or pain. He argued that morality taps a natural human tendency to be sensitive to the needs of others.
The idea of respect for persons is a central tenant of Kantian moral philosophy. Kantians argue that persons, because they are self-governing beings, have unique dignity. Persons should not be treated as if they have mere conditional or instrumental value like capital. This does not mean that persons cannot be used by employers as a means. All employers use employees in this way. The point is that employees cannot be used as a means only, as if they were disposable tools of production. Kantians argue that employers must ensure that workers can live a life compatible with basic human dignity, and this entails certain positive obligations regarding wages, working hours, and working conditions.
While Kantian ethics and utilitarianism have been the most influential ethical theories in the Western tradition, three popular replacements, or supplements to these theories, have received considerable attention in recent years. In his article, “The Social Responsibility of Business Is to Increase Its Profits,” Milton Friedman indicates that classic libertarians defend profit maximization as the only legitimate goal of publicly held companies. The social responsibility of business is to maximize profits. Any commitment to fulfilling social responsibilities other than making money is an illegitimate tax, or even theft.
Maximizing profits will produce the best overall consequences for society. As such, private businesses should do the same.
In his new essay, “Managing for Stakeholders,” R. Edward Freeman defends the view that the primary job of managers and executives is to create value for all stakeholders while managing the nexus of relationships among them.
Businesses should be managed so as to create value for customers, suppliers, employees, communities, and financiers. In his article, Freeman discusses the Separation Fallacy: It is useful to believe that sentences like “x is a business decision” have no ethical content or any implicit ethical point of view. Also, it is useful to believe that sentences like “x is an ethical decision” have no business content. He also discusses the Open Question Argument: If this decision is made, for whom is value created and destroyed? Who is harmed and/or benefited by this decision? Whose rights are enabled, and whose values are realized by this decision (and whose are not)? What kind of person will I (we) become if I (we) make this decision? The Integration Thesis is also discussed in Freeman‟s article: Most business decisions have some ethical content, or implicit ethical view. Most have ethical decisions, business content, or an implicit view about business. Additionally, Freeman addresses the Responsibility Principle: Most people, most of the time, want to, actually do, and should, accept responsibility for the defects of their actions on others.