MGT 340 Online Cover Model Project 1.) First, please read Chapter Five: Ethical Decision Making in your textbook. Then, read the Cover Model Student Materials handout. Finally, carefully read Case Study Seven: Walmart Juggles Risks and Rewards (pg. 398-411 in your textbook). 2.) For this project, you are going to practice with the Cover Model decision making model and use it to help analyze the Walmart case study. You must do a separate Cover Model analysis for three of each of the primary ethical issues in the case study. You may choose your three issues from the following list: a. Effects on Competitive Stakeholders b. Relationships with Supplier Stakeholders c. Ethical Issues Involving Employee Stakeholders d. Ethical Leadership Issues e. The Bribery Scandal f. Safety Issues 3.) For this project, you must utilize the Cover Model to analyze each of the three ethical issues you chose. A complete analysis would address Facts, Issues, Alternatives, and Stakeholders followed by Codes, Outcomes, Values, Editorial, and Rules in this order for each ethical issue. A complete analysis will also come to a preliminary conclusion with suggestions for how Walmart can prevent such ethical issues from occurring in the future. You would then repeat this analysis two more times, so that there is a complete FIAS COVER analysis for each of the three ethical issues you chose. 4.) This analysis should be written in paragraph form with proper spelling, grammar, etc. Projects must be typed, double-spaced, in size twelve times new roman font or similar. Projects should contain sub-divided sections of analysis for FIAS COVER for each of the three ethical issues. A minimum of one paragraph (5-7 complete sentences) is required for each of these sections. For example, for ethical issue #1 Effects on Competitive Stakeholders, you would need to write a minimum of one paragraph for Facts, one paragraph for Issues, and so on. Then, you would repeat the process for the remaining two issues. Students may include charts, graphs, etc. if they are helpful to the analysis, however such materials are not required. 5.) Projects should be presented in an approximation of APA format. Students may conduct outside research for this project, however such research is not necessary. If outside research is conducted, please provide an APA format compliant references page with your project. 6.) Projects should be a minimum of four pages in length (of actual content, not supplemental pages). There is no maximum page length for this project. 1 7.) There is no specific rubric for this project, however it will be graded objectively on how well you utilize the Cover Model to analyze each of your ethical issues, as well as the completeness of your analysis. Different students will come to different conclusions regarding the ethical nature of Walmart’s actions, and as such, this subjective component will not be graded. 8.) Projects are worth 100 points. 9.) Projects are due electronically via BBLearn on Tuesday July 2nd by 11:59pm. 2 The COVER model for Ethical Decision Making Student Materials1 I. INTRODUCTION Imagine you work as a salesperson for a company that sells products that are potentially harmful to children and you are paid on a commission basis. How do you approach this issue when attempting to close a sale? Or imagine that you own stock in the company you work for and you have just learned that the Food and Drug Administration is going to deny an application to sell a new drug your company manufactures. Your stock prices will drop dramatically, which could cost you a large sum of money. What do you do? Or consider that you work for a company that pays you on a scale where your salary jumps dramatically when you reach certain thresholds. You come within a small number of that threshold. Do you inflate the number in order to get your increase in pay? What if there is almost no risk of getting caught? The ethical scandals of the past decades (Enron being the most famous), indicate that some people who have reached high levels of government and business possess neither the critical thinking skills nor the ethical decision-making skills necessary for enduring success. If we give those people the benefit of the doubt and refuse to declare that they are “bad people,” at a minimum they lack the tools and awareness to recognize and analyze an ethical dilemma. These materials are intended to approach ethics from a life-skill perspective, helping students develop those critical thinking skills and giving students at least one tool to use when faced with an ethical dilemma. The materials on the following pages introduce a step-by-step model, named with the mnemonic “COVER” to assist in learning the philosophical theories used in the model. The model incorporates a number of ethical theories, practical applications and critical thinking skills. The COVER model contains some of the same ideas that many decision-making models include: analysis of facts, identification of issues and stakeholders and creative identification of alternatives. The COVER model supports other models by incorporating a number of different philosophical theories, encouraging students to look at each situation from a variety of perspectives and to recognize that different theories may point one to different alternatives. Students are led to evaluate the situation under all the theories incorporated, and justify their decision to take action. 1 These materials were prepared by The W. A. Franke College of Business’s Associate Professor Eric D. Yordy and Marketing Lecturer Jennifer M. Mitchell as a basis for class discussion. 1 II. LEARNING OBJECTIVES Once you have learned and practiced with the COVER model, you should be able to • Identify potential ethical dilemmas • Ask relevant factual questions and gather appropriate information to come to a reasoned conclusion • Think creatively about alternatives when faced with an ethical dilemma • Identify and prioritize the stakeholders who will be affected by the decision in an ethical dilemma • Locate and evaluate the appropriate laws, codes of conduct and codes of ethics to inform their decision making • Perform a cost/benefit analysis on the viable alternatives in a situation • Reflect on the impact of the business mission and culture on decision making, as well as your own personal values and beliefs III. THE MODEL The COVER model of ethical-decision making comes from the following mnemonic: First I Ask Some questions to COVER my bases. F = Facts I = Issues A = Alternatives S = Stakeholders C = Codes O = Outcomes V = Values E = Editorial R = Rules The terms in the word COVER, incorporate the following ethical theories which are described in more detail below. The model combines teleological, or outcome-based, and deontological, or duty-based, theories, in order to minimize any arbitrariness in your moral reasoning. • • • • • Code = In this step students evaluate the legal aspects of the decision as well as any Code of Conduct or Code of Ethics adopted by their company, industry or profession. Outcomes = Consequential theory or utilitarianism (Bentham and Mill) Values = Rights theory, Corporate Social Responsibility, Divine Command theory, (Aristotle, Locke) Editorial = Intuitionism. Some of the analysis in this step often is done as well in the Utilitarian analysis as an analysis of the financial effects of good or bad publicity on the stakeholders, but in this step, students are encouraged to think about how they feel (right or wrong) about the public affairs implications of their decisions. Rule = The categorical imperative or universality of decision (Kant), Social Justice theory (Rawls) 2 A. SOME PRELIMINARY ITEMS a. Alternative Selection Followed by Justification One temptation to which many decision-makers easily fall prey is to select an alternative very early in the process and then use a model to justify that decision. Some will select an alternative in the first moments and then fail to analyze any other alternative. It is important to treat the model as a true decision-making model and an information gathering tool and not a tool to justify current opinions or beliefs. b. Alternative elimination While it is important for you to look at legitimate alternatives seriously and not select your recommendation too early, there may be times when you can eliminate an alternative. For example, one alternative may clearly violate the law or a code of conduct for an industry. It is permissible for you to make a note of that, declare that alternative unsuitable and move forward analyzing the remaining alternatives. If you only have two alternatives and you discover that one is illegal or unsuitable, it is perhaps a good time to brainstorm other alternatives. If no other alternatives can be discovered, you should complete the model for the one remaining alternative so that future discussions with stakeholders are fully informed. B. DUE DILIGENCE Prior to any philosophical analysis of a situation, it is important to conduct Due Diligence. This entails defining the scope of the question and conducting an environmental scan. The first four steps of the model will walk you through this phase. The four steps are not sequential and you may find yourself moving among them. For example, you may make a list of known and unknown facts. As you begin to look at alternatives, more questions of fact may arise. With regard to the Due Diligence portion, the model includes the following steps: 1. 2. 3. 4. Determine the facts Identify the ethical issues Consider alternatives Identify the stakeholders The performance of these tasks may not always be easy. For example, a key task when determining the facts is to determine what facts you do not know, to find those facts that you can and to note which facts you do not have the ability to determine. In identifying the ethical issue, it is quite often challenging to frame the question in a neutral way – one that does not lead you to a preselected answer. If, for example, you are faced with a situation where your company has a product that has a high risk of harming someone, you do not want to frame the question as, “Is it ethical to continue to make this product that kills people?” The answer to that question is clearly, “no.” It would be more appropriate to say, “Is it more ethical to continue to make our product as it is, to stop production entirely or to find an alternate method of production?” 3 When considering alternatives, it is important to be creative and use brainstorming techniques (where no idea is considered impossible or “stupid” at this stage). Often ethical dilemmas may seem to have either a yes or no answer – one should either build a factory overseas where labor is cheaper and regulation is looser than in the United States or one should not. More often than not, these yes/no answers are the result of a question that is incorrectly framed. Usually there are multiple alternatives to consider when a question is posed appropriately. Finally, when identifying stakeholders, it is most important to prioritize them. Many times, different stakeholders have opposing interests. Looking at the impact of the potential alternatives on the stakeholders leaves the decision-maker with no viable alternative; someone will be unhappy or hurt in some way by the decision. Prioritizing stakeholders based on the mission or vision of the company can assist in selecting alternatives that hurt the most important stakeholders the least. Once you have completed these tasks, you begin to analyze your alternatives. Please note that you may desire (or need) to return to the Due Diligence aspects throughout the philosophical analysis. The model is purposefully designed to encourage you to analyze the situation from a variety of perspectives, thus provide a well-informed and well-reasoned judgment. Because the analysis is based in philosophical theories, the following paragraphs will share some basic elements of those theories. C. PHILOSOPHICAL ANALYSIS The philosophical analysis of the ethical situation is comprised of numerous philosophical approaches to ethics. Each of these will be described briefly below. 1. Code (C) In the Code analysis, you look to legalistic documents to inform their decision. You should think through areas of law with which you are familiar (any criminal implications to the alternatives, tort issues, contract issues, employment law issues, discrimination issues, etc.) and brainstorm areas of law to research further, as well as apply any areas of law with which you are familiar. You also should review relevant codes of conduct or codes of ethics for the relevant industry and/or company. For example, if a student is evaluating an ethical dilemma related to hiring a new employee, that student should look to employment discrimination laws, employment laws, other state and federal statutes (depending on the details of the scenario), and written codes of conduct and ethics for the industry and the company. As another example, accounting students facing an ethical dilemma related to accounting should look to state and federal statutes, the AICPA Code of Professional Conduct and any codes that exist in the firm or company in question. 4 2. Outcomes (O) The Outcomes analysis is based in Utilitarianism. John Stuart Mill (1806-1873) stated that “actions are right in proportion to their tendency to promote happiness or absence or pain, and wrong insofar as they tend to produce pain or displeasure.”2 Another description of utilitarianism is that it is “committed to the maximization of the good and the minimization of harm and evil.”3 Costbenefit analyses are rooted in utilitarian philosophy. You should include a financial analysis as part of the cost-benefit analysis, even if you are not given specific financial information. Utilitarianism is plagued by several criticisms. First, it may be very hard to put value on consequences. For example, how does one compare the value of a pristine wildlife preserve with the financial benefit of oil drilling?4 Another criticism is that a utilitarian analysis may result in a decision that is not seen as moral by many people. For example, a medication that may cure cancer in 60% of the population but would cause painfully slow and violent deaths in the other 40% would be given to the patient population because it results in the greater good for the greater number. Many students find it helpful to build a table for the Outcome analysis. On the left of the table are the alternatives. Across the top of the table are the words “Benefits” or “Pros” and “Costs” or “Cons.” By creating this table, you can fill in the boxes of the table and visually identify the alternatives where costs clearly outweigh benefits. 3. Values (V) The Values analysis is rooted in many different philosophical theories which are discussed more fully below. Most of these theories are known as deontological, or duty-based, theories. In doing this analysis, you look at a number of different sources of values. Corporations commit to their values (at least on paper) with their mission statement, strategic plans, goals and similar documents. There may be a company motto related to the treatment of customers. In this section, you may have to analyze conflicting values, such as a mission statement that would direct one result, but corporate culture that may lead to a separate result. For example, a corporate mission may focus on production of quality goods, but the corporate culture may be focused entirely on maximizing profit and shareholder value. In this analysis, you are asked to evaluate stated commitments as well as your more personal feelings about the situation. The concept of Corporate Social Responsibility (CSR) also is included in the Values analysis. CSR is the idea that corporations have a duty to go beyond obedience to the law, profit and minimal ethical standards to affirmatively reach out and promote philanthropy. It is in the Values analysis 2 Mill, J.S., Utilitarianism, chapter II, found in Hartman, L.P. (2005). Perspectives in Business Ethics (3rd ed.). New York: McGraw-Hill Irwin. 3 Beauchamp, T.L., Bowie, N.E. & Arnold, D.G. (2009). Ethical Theory and Business (8th ed.). Saddle River, NJ: Pearson Prentice Hall. 4 Beauchamp. 5 that the students looks to the culture of the corporation and its approach to social responsibility. Many corporations have established CSR programs such as the Disney’s “Voluntears,” promoting social responsibility with a very Disney-esque name.5 4. Editorial The Editorial analysis combines some aspects of the Outcome analysis with some aspects of the Values analysis. There may be a mention of the publicity effect in the Outcome analysis – there probably should be for any major decision. This analysis asks you to assess the most negative “newsworthy” aspect of each alternative and apply the Values analysis to determine how one could defend each alternative should it be selected. You should ask the question, “what is the most negative aspect of each alternative in the eyes of the public?” An example of this analysis could be as follows: if a student is asked whether the build a factory overseas, the negative publicity could include loss of jobs for American workers and exploitation of labor in the foreign country. If the company’s mission statement and culture are heavily focused on providing low-cost products, the manager of the company may be able to address the criticisms by stating that it is unfortunate that some jobs will be lost in America, that the company is committed to upholding human rights of its employees but that the overseas factory will allow the company to continue to produce low-cost items which is its top strategic priority. 5. Rule The Rule analysis is based in the “categorical imperative” philosophy of Immanuel Kant (1724 – 1804). In essence, the categorical imperative asks the decision-maker to evaluate each alternative as if that alternative were to become the rule for all others to follow.6 This analysis encourages you to give importance to all decisions. It is impossible under this analysis to rely on notions like, “it is just one small violation,” “we are a small company and our pollution does not really make a difference,” and other such terms. The analysis asks you to view each alternative as if everyone in a similar situation were to choose that alternative and then asks if you believe the world is a better or a worse place with the existence of that “rule.” Students of philosophy will know that Kant’s theories are far more expansive than this one concept or idea, but for the model, this one idea brings an important perspective to the students. 5 6 http://disney.go.com/disneyhand/voluntears/ See Beauchamp, page 27. 6 6. Conclusion To complete the model and bring the decision-making process back to the initial question, it is important for you to make a preliminary conclusion. You may find that different sections of the philosophical analysis point to different alternatives as the appropriate choice. You should select an alternative preliminarily. It is part of the learning process to make a conclusion and justify that conclusion through evidence and analysis. It is important to point out which alternative is selected and which analyses support that conclusion. The conclusion is typically listed as preliminary because quite often you will finish the analysis wanting more information. For example, if a short scenario is given, you may feel that you would need more information on a company’s mission statement or culture. In many courses, you may be able to identify areas of law that should be reviewed and would want to wait to commit to an alternative until that research is complete. 7 ELEVENTH EDITION BUSINESS ETHICS Ethical Decision Making and Cases O.C. Ferrell Belmont University John Fraedrich Southern Illinois University—Carbondale Linda Ferrell Belmont University Australia • Brazil • Japan • Korea • Mexico • Singapore • Spain • United Kingdom • United States Copyright 2017 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. This is an electronic version of the print textbook. Due to electronic rights restrictions, some third party content may be suppressed. Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. The publisher reserves the right to remove content from this title at any time if subsequent rights restrictions require it. For valuable information on pricing, previous editions, changes to current editions, and alternate formats, please visit www.cengage.com/highered to search by ISBN#, author, title, or keyword for materials in your areas of interest. Important Notice: Media content referenced within the product description or the product text may not be available in the eBook version. Copyright 2017 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. Business Ethics: Ethical Decision Making & Cases, 11e O.C. Ferrell, John Fraedrich and Linda Ferrell Vice President, General Manager, Social Science & Qualitative Business: Erin Joyner Product Director: Jason Fremder Product Manager: Mike Roche Content Developer: Zach Fleischer Product Assistant: Brian Pierce Marketing Director: Kristen Hurd Marketing Manager: Emily Horowitz © 2017, 2015 Cengage Learning WCN: 02-200-203 ALL RIGHTS RESERVED. No part of this work covered by the copyright herein may be reproduced or distributed in any form or by any means, except as permitted by U.S. copyright law, without the prior written permission of the copyright owner. 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Cengage Learning products are represented in Canada by Nelson Education, Ltd. To learn more about Cengage Learning Solutions, visit www.cengage.com. Purchase any of our products at your local college store or at our preferred online store www.cengagebrain.com. Printed in Canada Print Number: 01 Print Year: 2015 Copyright 2017 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. To James Collins Ferrell and George Collins Ferrell. To Emma, Matthew, Hyrum, and Ammon. To Brett Nafziger. —O.C. Ferrell —John Fraedrich —Linda Ferrell Copyright 2017 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. BRIEF CONTENTS PART 1: An Overview of Business Ethics 1 1: The Importance of Business Ethics 1 4: Sustainability Challenges in the Gas and Oil Industry 427 2: Stakeholder Relationships, Social Responsibility, and Corporate Governance 28 5: New Belgium Brewing: Engaging in Sustainable Social Responsibility 437 PART 2: Ethical Issues and the Institutionalization of Business Ethics 6: National Collegiate Athletic Association Ethics and Compliance Program 447 59 7: Google: The Quest to Balance Privacy with Profit 461 3: Emerging Business Ethics Issues 59 4: The Institutionalization of Business Ethics PART 3: The Decision-Making Process 8: Zappos: Stepping Forward in Stakeholder Satisfaction 483 93 127 9: Enron: Questionable Accounting Leads to Collapse 496 5: Ethical Decision Making 127 6: Individual Factors: Moral Philosophies and Values 153 10: Lululemon: Encouraging a Healthier Lifestyle 508 7: Organizational Factors: The Role of Ethical Culture and Relationships 183 12: Insider Trading at the Galleon Group 528 11: Frauds of the Century 517 13: Whole Foods Strives to Be an Ethical Corporate Citizen 537 PART 4: Implementing Business Ethics in a Global Economy 215 14: Apple Inc.’s Ethical Success and Challenges 551 15: PepsiCo’s Journey Toward an Ethical and Socially Responsible Culture 566 8: Developing an Effective Ethics Program 215 9: Managing and Controlling Ethics Programs 241 16: Ethical Leadership at Cardinal IG: The Foundation of a Culture of Diversity 581 10: Globalization of Ethical Decision Making 274 11: Ethical Leadership 310 17: Belle Meade Plantation: The First Nonprofit Winery Engages in Social Entrepreneurship 590 12: Sustainability: Ethical and Social Responsibility Dimensions 345 18: Managing the Risks of Global Bribery in Business 599 PART 5: Cases 380 1: Monsanto Attempts to Balance Stakeholder Interests 382 19: Multilevel Marketing under Fire: Herbalife Defends Its Business Model 611 2: Starbucks Mission: Social Responsibility and Brand Strength 396 20: The Mission of CVS: Corporate Social Responsibility and Pharmacy Innovation 631 3: Walmart Manages Ethics and Compliance Challenges 407 Index I-643 iv Copyright 2017 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. CONTENTS PART 1: AN OVERVIEW OF BUSINESS ETHICS 1 Chapter 2: Stakeholder Relationships, Social Responsibility, and Corporate Governance 28 Chapter 1: The Importance of Business Ethics 1 Stakeholders Define Ethical Issues in Business Chapter Objectives, 28 | Chapter Outline, 28 | An Ethical Dilemma 29 Identifying Stakeholders, 32 • A Stakeholder Orientation, 33 Chapter Objectives, 1 | Chapter Outline, 1 An Ethical Dilemma 2 Business Ethics Defined Social Responsibility and Business Ethics 36 4 Why Study Business Ethics? Issues in Social Responsibility 38 5 Social Responsibility and the Importance of a Stakeholder Orientation 40 A Crisis in Business Ethics, 5 • Specific Issues, 6 • The Reasons for Studying Business Ethics, 7 The Development of Business Ethics Corporate Governance Provides Formalized Responsibility to Stakeholders 41 9 Before 1960: Ethics in Business, 9 • The 1960s: The Rise of Social Issues in Business, 10 • The 1970s: Business Ethics as an Emerging Field, 11 • The 1980s: Consolidation, 11 • The 1990s: Institutionalization of Business Ethics, 12 • The Twenty-First Century of Business Ethics, 12 Views of Corporate Governance, 44 • The Role of Boards of Directors, 45 • Greater Demands for Accountability and Transparency, 46 • Executive Compensation, 47 Implementing a Stakeholder Perspective 48 Step 1: Assessing the Corporate Culture, 48 • Step 2: Identifying Stakeholder Groups, 48 • Step 3: Identifying Stakeholder Issues, 49 • Step 4: Assessing Organizational Commitment to Stakeholders and Social Responsibility, 49 • Step 5: Identifying Resources and Determining Urgency, 50 • Step 6: Gaining Stakeholder Feedback, 50 Developing an Organizational and Global Ethical Culture 14 The Benefits of Business Ethics 15 Ethics Contributes to Employee Commitment, 16 • Ethic Contributes to Investor Loyalty, 17 • Ethics Contributes to Customer Satisfaction, 18 • Ethics Contributes to Profits, 19 Contributions of a Stakeholder Perspective 50 Summary Our Framework for Studying Business Ethics, 19 Summary 30 51 Important Terms for Review, 53 | Resolving Ethical Business Challenges, 54 | Check Your EQ, 55 22 Important Terms for Review, 23 | Resolving Ethical Business Challenges, 24 | Check Your EQ, 25 v Copyright 2017 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. viContents PART 2: ETHICAL ISSUES AND THE INSTITUTIONALIZATION OF BUSINESS ETHICS 59 Core or Best Practices 114 Voluntary Responsibilities, 114 • Cause-Related Marketing, 115 • Strategic Philanthropy, 116 • Social Entrepreneurship, 116 Chapter 3: Emerging Business Ethics Issues 59 The Importance of Institutionalization in Business Ethics 117 Chapter Objectives, 59 | Chapter Outline, 59 | An Ethical Dilemma 60 Summary 118 Recognizing an Ethical Issue (Ethical Awareness) 61 63 Foundational Values for Identifying Ethical Issues Integrity, 63 • Honesty, 63 • Fairness, 64 Ethical Issues and Dilemmas in Business 65 Misuse of Company Time and Resources, 66 • Abusive or Intimidating Behavior, 66 • Lying, 69 • Conflicts of Interest, 69 • Bribery, 70 • Corporate Intelligence, 71 • Discrimination, 72 • Sexual Harassment, 74 • Fraud, 75 • Consumer Fraud, 79 • Financial Misconduct, 80 • Insider Trading, 81 • Intellectual Property Rights, 81 • Privacy Issues, 82 The Challenge of Determining an Ethical Issue in Business 83 Summary 84 Important Terms for Review, 85 | Resolving Ethical Business Challenges, 87 | Check Your EQ, 88 Chapter 4: The Institutionalization of Business Ethics 93 Managing Ethical Risk through Mandated and Voluntary Programs 95 97 Laws Regulating Competition, 99 • Laws Protecting Consumers, 101 • Laws Promoting Equity and Safety, 104 The Sarbanes–Oxley (SOX) Act 105 Public Company Accounting Oversight Board, 107 • Auditor and Analyst Independence, 107 • Whistle-Blower Protection, 107 • Cost of Compliance, 108 Dodd–Frank Wall Street Reform and Consumer Protection Act 108 Financial Agencies Created by the Dodd–Frank Act, 108 • Consumer Financial Protection Bureau, 109 • Whistle-Blower Bounty Program, 109 Laws That Encourage Ethical Conduct 110 Federal Sentencing Guidelines for Organizations PART 3: THE DECISIONMAKING PROCESS 127 Chapter 5: Ethical Decision Making 127 Chapter Objectives, 127 | Chapter Outline, 127 An Ethical Dilemma 128 A Framework for Ethical Decision Making in Business 129 Ethical Issue Intensity, 129 • Individual Factors, 131 • Organizational Factors, 133 • Opportunity, 136 • Business Ethics Intentions, Behavior, and Evaluations, 138 Using the Ethical Decision-Making Model to Improve Ethical Decisions 139 Normative Considerations in Ethical Decision Making 140 Chapter Objectives, 93 | Chapter Outline, 93 | An Ethical Dilemma 94 Mandated Requirements for Legal Compliance Important Terms for Review, 120 | Resolving Ethical Business Challenges, 121 | Check Your EQ,122 111 Institutions as the Foundation for Normative Values, 141 • Implementing Principles and Core Values in Ethical Decision Making, 143 Understanding Ethical Decision Making 145 Summary 146 Important Terms for Review, 147 | Resolving Ethical Business Challenges, 148 | Check Your EQ, 149 Chapter 6: Individual Factors: Moral Philosophies and Values 153 Chapter Objectives, 153 | Chapter Outline, 153 An Ethical Dilemma 154 Moral Philosophy Defined 155 Moral Philosophies 157 Instrumental and Intrinsic Goodness, 157 • Teleology, 159 • Deontology, 161 • Relativist Perspective, 163 • Virtue Ethics, 164 • Justice, 166 Applying Moral Philosophy to Ethical Decision Making 167 Copyright 2017 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. vii Contents Cognitive Moral Development and Its Problems White-Collar Crime 171 Individual Factors in Business Ethics Summary 169 Codes of Conduct 225 174 Ethics Officers 175 Important Terms for Review, 177 | Resolving Ethical Business Challenges, 178 | Check Your EQ, 179 Chapter Objectives, 183 | Chapter Outline, 183 Systems to Monitor and Enforce Ethical Standards 231 Important Terms for Review, 236 | Resolving Ethical Business Challenges, 237 | Check Your EQ, 238 185 The Role of Corporate Culture in Ethical Decision Making 187 Ethical Frameworks and Evaluations of Corporate Culture, 189 • Ethics as a Component of Corporate Culture, 190 • Compliance versus Values-Based Ethical Cultures, 191 • Differential Association, 193 • WhistleBlowing, 194 197 Power Shapes Corporate Culture, 198 • Motivating Ethical Behavior, 200 • Organizational Structure, 201 Group Dimensions of Corporate Structure and Culture 203 Chapter 9: Managing and Controlling Ethics Programs 241 Chapter Objectives, 241 | Chapter Outline, 241 An Ethical Dilemma 242 Implementing an Ethics Program 243 The Ethics Audit 245 Benefits of Ethics Auditing 246 Ethical Crisis Management and Recovery, 249 • Measuring Nonfinancial Ethical Performance, 250 • Risks and Requirements in Ethics Auditing, 253 The Auditing Process Types of Groups, 204 • Group Norms, 205 Variation in Employee Conduct 206 Can People Control Their Actions within a Corporate Culture? 208 Summary Ethics Training and Communication 228 Summary 235 An Ethical Dilemma 184 Leaders Influence Corporate Culture 228 Continuous Improvement of an Ethics Program, 232 • Common Mistakes in Designing and Implementing an Ethics Program, 233 Chapter 7: Organizational Factors: The Role of Ethical Culture and Relationships 183 Defining Corporate Culture An Ethics Program can Help Avoid Legal Problems, 222 • Values versus Compliance Programs, 224 209 Important Terms for Review, 210 | Resolving Ethical Business Challenges, 211 | Check Your EQ, 212 254 Secure Commitment of Top Managers and Board of Directors, 256 • Establish a Committee to Oversee the Ethics Audit, 256 • Define the Scope of the Audit Process, 257 • Review Organizational Mission, Values, Goals, and Policies and Define Ethical Priorities, 257 • Collect and Analyze Relevant Information, 259 • Verify the Results, 262 • Report the Findings, 263 The Strategic Importance of Ethics Auditing 264 Summary 267 PART 4: IMPLEMENTING BUSINESS ETHICS IN A GLOBAL ECONOMY 215 Important Terms for Review, 268 | Resolving Ethical Business Challenges, 269 | Check Your EQ, 270 Chapter 8: Developing an Effective Ethics Program 215 Chapter Objectives, 274 | Chapter Outline, 274 Chapter Objectives, 215 | Chapter Outline, 215 Global Culture, Values, and Practices 276 An Ethical Dilemma 216 Economic Foundations of Business Ethics 279 Chapter 10: Globalization of Ethical Decision Making 274 An Ethical Dilemma 275 The Responsibility of the Corporation to Stakeholders 217 The Need for Organizational Ethics Programs An Effective Ethics Program 221 219 Economic Systems, 281 Multinational Corporations 285 Global Cooperation to Support Responsible Business 287 Copyright 2017 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. viiiContents International Monetary Fund, 287 • United Nations Global Compact, 288 • World Trade Organization, 289 Global Ethics Issues 290 Chapter 12: Sustainability: Ethical and Social Responsibility Dimensions 345 Chapter Objectives, 345 | Chapter Outline, 345 Global Ethical Risks, 290 • Bribery, 291 • Antitrust Activity, 293 • Internet Security and Privacy, 294 • Human Rights, 295 • Health Care, 296 • Labor and Right to Work, 298 • Compensation, 298 • Consumerism, 299 An Ethical Dilemma 346 Defining Sustainability 347 How Sustainability Relates to Ethical Decision Making and Social Responsibility 348 The Importance of Ethical Decision Making in Global Business 301 Global Environmental Issues 350 Summary 303 Environmental Legislation 357 Important Terms For Review, 304 | Resolving Ethical Business Challenges, 305 | Check Your EQ, 306 Wind Power, 363 • Geothermal Power, 364 • Solar Power, 364 • Nuclear Power, 364 • Biofuels, 365 • Hydropower, 365 Chapter Objectives, 310 | Chapter Outline, 310 An Ethical Dilemma 311 312 Requirements for Ethical Leadership Benefits of Ethical Leadership Business Response to Sustainability Issues 366 315 Green Marketing, 367 • Greenwashing, 368 317 Ethical Leadership and Organizational Culture 318 Managing Ethical Business Conflicts 320 Conflict Management Styles, 321 Ethical Leaders Empower Employees 323 Ethical Leadership Communication 324 Ethical Leadership Communication Skills, 325 Leader–Follower Relationships Environmental Protection Agency (EPA), 358 • Environmental Regulations, 358 Alternative Energy Sources 363 Chapter 11: Ethical leadership 310 Defining Ethical Leadership Atmospheric, 350 • Water, 352 • Land, 354 Strategic Implementation of Environmental Responsibility 369 Recycling Initiatives, 369 • Stakeholder Assessment, 370 • Risk Analysis, 371 • The Strategic Environmental Audit, 372 Summary 373 Important Terms for Review, 374 | Resolving Ethical Business Challenges, 375 | Check Your EQ, 376 328 Ethics Programs and Communication, 329 • Power Differences and Workplace Politics, 330 • Feedback, 330 Leadership Styles and Ethical Decisions The RADAR Model 331 334 Summary 336 Important Terms for Review , 338 | Resolving Ethical Business Challenges, 339 | Check Your EQ, 340 Copyright 2017 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. ix Contents PART 5: CASES 380 Case 1: Monsanto Attempts to Balance Stakeholder Interests 382 Case 2: Starbucks Mission: Social Responsibility and Brand Strength 396 Case 3: Walmart Manages Ethics and Compliance Challenges 407 Case 4: Sustainability Challenges in the Gas and Oil Industry 427 Case 5: New Belgium Brewing: Engaging in Sustainable Social Responsibility 437 Case 6: National Collegiate Athletic Association Ethics and Compliance Program 447 Case 7: Google: The Quest to Balance Privacy with Profit 461 Case 8: Zappos: Stepping Forward in Stakeholder Satisfaction 483 Case 9: Enron: Questionable Accounting Leads to Collapse Case 11: Frauds of the Century 517 Case 12: Insider Trading at the Galleon Group 528 Case 13: Whole Foods Strives to Be an Ethical Corporate Citizen 537 Case 14: Apple Inc.’s Ethical Success and Challenges 551 Case 15: PepsiCo’s Journey Toward an Ethical and Socially Responsible Culture 566 Case 16: Ethical Leadership at Cardinal IG: The Foundation of a Culture of Diversity 581 Case 17: Belle Meade Plantation: The First Nonprofit Winery Engages in Social Entrepreneurship 590 Case 18: Managing the Risks of Global Bribery in Business 599 Case 19: Multilevel Marketing under Fire: Herbalife Defends Its Business Model 611 Case 20: The Mission of CVS: Corporate Social Responsibility and Pharmacy Innovation Index 631 I-643 496 Case 10: Lululemon: Encouraging a Healthier Lifestyle 508 Copyright 2017 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. PREFACE This is the Eleventh Edition of Business Ethics: Ethical Decision Making and Cases. Our text has become the most widely used business ethics book, with approximately one out of three business ethics courses in schools of business using our text. We were the first major business ethics textbook to use a managerial framework that integrates ethics into strategic decisions. Today in corporate America, ethics and compliance has become a major functional area that structures responsible managerial decision making. Now that ethics has been linked to financial performance, there is growing recognition that business ethics courses are as important as other functional areas such as marketing, accounting, finance, and management. Our approach is to help students understand and participate in effective ethical decision making in organizations. We approach business ethics from an applied perspective, focusing on conceptual frameworks, risks, issues, and dilemmas that will be faced in the real world of business. We prepare students for the challenges they will face in understanding how organizational ethical decision making works. We describe how ethical decisions in an organization involve collaboration in groups, teams, and discussions with peers. Many decisions fall into gray areas where the right decision may not be clear and requires the use of organizational resources and the advice of others. Students will face many ethical challenges in their careers, and our approach helps them to understand risks and be prepared to address ethical dilemmas. One approach to business ethics education is to include only a theoretical foundation related to ethical reasoning. Our method is to provide a balanced approach that includes the concepts of ethical reasoning as well as the organizational environment that influences ethical decision making. The Eleventh Edition includes the most comprehensive changes we have made in any revision. Each chapter has been revised based on the latest research and knowledge available. Throughout the book, up-to-date examples are used to make foundational concepts come to life. There are 4 new cases, and the other 16 cases have been revised with all major changes occurring through the middle of 2015. The most significant change is the inclusion of social entrepreneurship in Chapter 4. Social entrepreneurship is a growing trend as organizations and individuals realize they can use entrepreneurial principles to effect social change. One of our cases, Belle Meade, strongly demonstrates how a nonprofit is able to use the same type of entrepreneurial activities found in business. It develops and sells wine to create sustainability for its organization, making it the nation’s first nonprofit winery. Using a managerial framework, we explain how ethics can be integrated into strategic business decisions. This framework provides an overview of the concepts, processes, x Copyright 2017 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. xi Preface mandatory, core, and voluntary business practices associated with successful business ethics programs. Some approaches to business ethics are excellent as exercises in intellectual reasoning, but they cannot deal with the many actual issues and considerations that people in business organizations face. Our approach supports ethical reasoning and the value of individuals being able to face ethical challenges and voice their concerns about appropriate behavior. Employees in organizations are ultimately in charge of their own behavior and need to be skillful in making decisions in gray areas where the appropriate conduct is not always obvious. We have been diligent in this revision to provide the most relevant examples of how the lack of business ethics has challenged our economic viability and entangled countries and companies around the world. This book remains the market leader because it addresses the complex environment of ethical decision making in organizations and pragmatic, actual business concerns. Every individual has unique personal principles and values, and every organization has its own set of values, rules, and organizational ethical culture. Business ethics must consider the organizational culture and interdependent relationships between the individual and other significant persons involved in organizational decision making. Without effective guidance, a businessperson cannot make ethical decisions while facing a short-term orientation, feeling organizational pressure to perform well and seeing rewards based on outcomes in a challenging competitive environment. By focusing on individual issues and organizational environments, this book gives students the opportunity to see roles and responsibilities they will face in business. The past decade has reinforced the value of understanding the role of business ethics in the effective management of an organization. Widespread misconduct reported in the mass media every day demonstrates that businesses, governments, nonprofits, and institutions of higher learning need to address business ethics. Our primary goal has always been to enhance the awareness and the ethical decisionmaking skills that students will need to make business ethics decisions that contribute to responsible business conduct. By focusing on these concerns and issues of today’s challenging business environment, we demonstrate that the study of business ethics is imperative to the long-term well-being of not only businesses, but also our economic system. PHILOSOPHY OF THIS TEXT The purpose of this book is to help students improve their ability to make ethical decisions in business by providing them with a framework that they can use to identify, analyze, and resolve ethical issues in business decision making. Individual values and ethics are important in this process. By studying business ethics, students begin to understand how to cope with conflicts between their personal values and those of the organization. Many ethical decisions in business are close calls. It often takes years of experience in a particular industry to know what is acceptable. We do not, in this book, provide ethical answers but instead attempt to prepare students to make informed ethical decisions. First, we do not moralize by indicating what to do in a specific situation. Second, although we provide an overview of moral philosophies and decision-making processes, we do not prescribe any one philosophy or process as best or most ethical. Third, by itself, this book will not make students more ethical nor will it tell them how to judge the ethical behavior of others. Rather, its goal is to help students understand and use their current values and Copyright 2017 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. xiiPreface convictions in making business decisions and to encourage everyone to think about the effects of their decisions on business and society. Many people believe that business ethics cannot be taught. Although we do not claim to teach ethics, we suggest that by studying business ethics a person can improve ethical decision making by identifying ethical issues and recognizing the approaches available to resolve them. An organization’s reward system can reinforce appropriate behavior and help shape attitudes and beliefs about important issues. For example, the success of some campaigns to end racial or gender discrimination in the workplace provides evidence that attitudes and behavior can be changed with new information, awareness, and shared values. CONTENT AND ORGANIZATION In writing Business Ethics, Eleventh Edition, we strived to be as informative, complete, accessible, and up-to-date as possible. Instead of focusing on one area of ethics, such as moral philosophy or social responsibility, we provide balanced coverage of all areas relevant to the current development and practice of ethical decision making. In short, we have tried to keep pace with new developments and current thinking in teaching and practices. The first half of the text consists of 12 chapters, which provide a framework to identify, analyze, and understand how businesspeople make ethical decisions and deal with ethical issues. Several enhancements have been made to chapter content for this edition. Some of the most important are listed in the next paragraphs. Part 1, “An Overview of Business Ethics,” includes two chapters that help provide a broader context for the study of business ethics. Chapter 1, “The Importance of Business Ethics,” has been revised with many new examples and survey results to describe issues and concerns important to business ethics. Chapter 2, “Stakeholder Relationships, Social Responsibility, and Corporate Governance,” has been significantly reorganized and updated with new examples and issues. Part 2, “Ethical Issues and the Institutionalization of Business Ethics,” consists of two chapters that provide the background that students need to identify ethical issues and understand how society, through the legal system, has attempted to hold organizations responsible for managing these issues. Chapter 3, “Emerging Business Ethics Issues,” has been reorganized and updated and provides expanded coverage of business ethics issues. Chapter 4, “The Institutionalization of Business Ethics” examines key elements of core or best practices in corporate America today along with legislation and regulation requirements that support business ethics initiatives. The chapter is divided into three main areas: voluntary, mandated, and core boundaries. Part 3, “The Decision-Making Process” consists of three chapters, which provide a framework to identify, analyze, and understand how businesspeople make ethical decisions and deal with ethical issues. Chapter 5, “Ethical Decision Making,” has been revised and updated to reflect current research and understanding of ethical decision making and contains a section on normative considerations in ethical decision making. Chapter 6, “Individual Factors: Moral Philosophies and Values,” has been updated and revised to explore the role of moral philosophies and moral development as individual factors in the ethical decision-making process. Chapter 7, “Organizational Factors: The Role of Ethical Culture and Relationships,” considers organizational influences on business decisions, such as role relationships, differential association, and other organizational pressures, as well as whistle-blowing. Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. xiii Preface Part 4, “Implementing Business Ethics in a Global Economy,” looks at specific measures that companies can take to build an effective ethics program as well as how these programs may be affected by global issues, leadership, and sustainability issues. Chapter 8, “Developing an Effective Ethics Program,” has been refined and updated with corporate best practices for developing effective ethics programs. Chapter 9, “Managing and Controlling Ethics Programs,” offers a framework for auditing ethics initiatives as well as the importance of doing so. Such audits can help companies pinpoint problem areas, measure their progress in improving conduct, and even provide a “debriefing” opportunity after a crisis. Chapter 10, “Globalization of Ethical Decision Making” has been updated to reflect the complex and dynamic events that occur in global business. This chapter will help students understand the major issues involved in making decisions in a global environment. Chapter 11 focuses on ethical leadership. Reviewers indicated that they wanted more information provided on the importance of leadership to an ethical culture, and this chapter answers these requests. Finally, Chapter 12 is a chapter on sustainability. It examines the ethical and social responsibility dimensions of sustainability. Part 5 consists of 20 cases in the texts that bring reality into the learning process. Four of these cases are new to the eleventh edition, and the remaining 14 have been revised and updated. In addition, four shorter cases are available on the Instructor’s Companion website: • • • • Toyota: Challenges in Maintaining Integrity The Container Store: An Employee-centric Retailer The Ethics Program at Eaton Corporation Barrett-Jackson Auction Company: Family, Fairness, and Philanthropy The companies and situations portrayed in these cases are real; names and other facts are not disguised; and all cases include developments up to the middle of 2015. By reading and analyzing these cases, students can gain insight into ethical decisions and the realities of making decisions in complex situations. TEXT FEATURES Many tools are available in this text to help both students and instructors in the quest to improve students’ ability to make ethical business decisions. • • • Each chapter opens with an outline and a list of learning objectives. Immediately following is “An Ethical Dilemma” that should provoke discussion about ethical issues related to the chapter. The short vignette describes a hypothetical incident involving an ethical conflict. Questions at the end of the “Ethical Dilemma” section focus discussion on how the dilemma could be resolved. All new ethical dilemmas have been provided for this edition. Each chapter has a contemporary real-world debate issue. Many of these debate issues have been updated to reflect current ethical issues in business. These debate issues have been found to stimulate thoughtful discussion relating to content issues in the chapter. Topics of the debate issues include the truthfulness of health claims, the universal health care debate, the contribution of ethical conduct to financial performance, legislation concerning whistle-blowing, and the impact of carbon emission restrictions. Copyright 2017 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. xivPreface • At the end of each chapter are a chapter summary and an important terms’ list, both of which are handy tools for review. Also included at the end of each chapter is a “Resolving Ethical Business Challenges” section. The vignette describes a realistic drama that helps students experience the process of ethical decision making. The “Resolving Ethical Business Challenges” minicases presented in this text are hypothetical; any resemblance to real persons, companies, or situations is coincidental. Keep in mind that there are no right or wrong solutions to the minicases. The ethical dilemmas and real-life situations provide an opportunity for students to use concepts in the chapter to resolve ethical issues. Each chapter concludes with a series of questions that allow students to test their EQ (Ethics Quotient). • Cases. In Part 5, following each real-world case are questions to guide students in recognizing and resolving ethical issues. For some cases, students can conduct additional research to determine recent developments because many ethical issues in companies take years to resolve. EFFECTIVE TOOLS FOR TEACHING AND LEARNING Instructor’s Resource Website. You can find the following teaching tools on the passwordprotected instructor site. • • Instructor’s Resource Manual. The Instructor’s Resource Manual contains a wealth of information. Teaching notes for every chapter include a brief chapter summary, detailed lecture outline, and notes for using the “Ethical Dilemma” and “Resolving Ethical Business Challenges” sections. Detailed case notes point out the key issues involved and offer suggested answers to the questions. A separate section provides guidelines for using case analysis in teaching business ethics. Detailed notes are provided to guide the instructor in analyzing or grading the cases. Simulation role-play cases, as well as implementation suggestions, are included. Role-Play Cases. The eleventh edition provides six behavioral simulation role-play cases developed for use in the business ethics course. The role-play cases and implementation methods can be found in the Instructor’s Resource Manual and on the website. Role-play cases may be used as a culminating experience to help students integrate concepts covered in the text. Alternatively, the cases may be used as an ongoing exercise to provide students with extensive opportunities for interacting and making ethical decisions. Role-play cases simulate a complex, realistic, and timely business ethics situation. Students form teams and make decisions based on an assigned role. The role-play case complements and enhances traditional approaches to business learning experiences because it (1) gives students the opportunity to practice making decisions that have business ethics consequences; (2) recreates the power, pressures, and information that affect decision Copyright 2017 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. Preface xv making at various levels of management; (3) provides students with a team-based experience that enriches their skills and understanding of group processes and dynamics; and (4) uses a feedback period to allow for the exploration of complex and controversial issues in business ethics decision making. The role-play cases can be used with classes of any size. • Cengage Learning Testing Powered by Cognero. This is a flexible, online system that allows you to author, edit, and manage test bank content from multiple Cengage Learning solutions; create multiple test versions in an instant; and deliver tests from your LMS, your classroom or wherever you want. B-Reality Simulation: This online simulation helps to reinforce basic business ethics concepts, increases textbook comprehension, and helps the user better understand that business decisions usually have an ethics, moral, and/or legal component. The simulation makes no judgments; rather, it takes what is imputed by the user, and at the end of each year it explains whether the user acted ethically, unethically, legally/illegally, and why. At the end of four decades of decisions, a report is generated giving a list of the user’s morals, income, promotions, and how the company defined which decisions were ethical or unethical and which were legal or illegal. Users better understand all angles of the reality of their business decisions before they confront them in the workplace. Additional Teaching Resources. The University of New Mexico (UNM) Daniels Fund Ethics Initiative is part of a four-state initiative to develop teaching resources to support principle-based ethics education. Their publicly accessible website contains original cases, debate issues, videos, interviews, and PowerPoint modules on select business ethics topics, as well as other resources such as articles on business ethics education. It is possible to access this website at http://danielsethics.mgt.unm.edu. Students also have the ability to receive ethical leadership certification from the National Association of State Boards of Accountancy (NASBA) Center for Public Trust. This program is comprised of six modules of online content (delivered through Brainshark, containing videos, graphics, and a voice over). At the end of each of the six modules, students will take an online examination through NASBA. When students complete all six modules successfully, they will receive NASBA Center for the Public Trust Ethical Leadership Certification. As business ethics increases in importance, such certification can give your students an edge in the workplace. For more information, visit https://www.thecpt. org/ethical-leadership-certification-program/. Copyright 2017 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. xviPreface ACKNOWLEDGMENTS A number of individuals provided reviews and suggestions that helped to improve this text. We sincerely appreciate their time and effort. Donald Acker Brown Mackie College Donna Allen Northwest Nazarene University Suzanne Allen Philanthropy Ohio Carolyn Ashe University of Houston—Downtown Laura Barelman Wayne State College Russell Bedard Eastern Nazarene College B. Barbara Boerner Brevard College Serena Breneman University of Arkansas at Pine Bluff Lance Brown Miami Dade College Judie Bucholz Guilford College Greg Buntz Conflict Resolution Center of Iowa, LLC Hoa Burrows Miami Dade College Robert Chandler University of Central Florida April Chatham-Carpenter University of Northern Iowa Leslie Connell University of Central Florida Peggy Cunningham Dalhousie University Carla Dando Idaho State University James E. Donovan Detroit College of Business Douglas Dow University of Texas at Dallas A. Charles Drubel Muskingum College Philip F. Esler University of Gloucestershire Joseph M. Foster Indiana Vocational Technical College—Evansville Lynda Fuller Wilmington University Terry Gable Truman State University Robert Giacalone University of Richmond Suresh Gopalan Winston-Salem University Karen Gore Ivy Technical College Mark Hammer Northwest Nazarene University Charles E. Harris, Jr. Texas A&M University Kenneth A. Heischmidt Southeast Missouri State University Neil Herndon South China University of Technology Walter Hill Green River Community College Jack Hires Valparaiso University David Jacobs Morgan State University R. J. Johansen Montana State University—Bozeman Jeff Johnson Athens State University Eduard Kimman Vrije Universiteit Janet Knight Purdue North Central Copyright 2017 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. xvii Preface Anita Leffel University of Texas at San Antonio Sharon Palmitier Grand Rapids Community College Barbara Limbach Chadron State College Lee Richardson University of Baltimore Victor Lipe Trident Tech James Salvucci Curry College Nick Lockard Texas Lutheran College William M. Sannwald San Diego State University Terry Loe Kennesaw State University Ruth Schaa Black River Technical College Nick Maddox Stetson University Zachary Shank Central New Mexico Community College Isabelle Maignan Dutchwaters B.V. Cynthia A. M. Simerly Lakeland Community College Phylis Mansfield Pennsylvania State University—Erie Karen Smith Columbia Southern University Robert Markus Babson College Filiz Tabak Towson University Therese Maskulka Kutztown University Debbie Thorne Texas State University—San Marcos Randy McLeod Harding University Wanda V. Turner Ferris State College Francy Milner University of Colorado Gina Vega Salem State College Ali Mir William Paterson University William C. Ward Mid-Continent University Debi P. Mishra Binghamton University, State University of New York David Wasieleski Duquesne University Patrick E. Murphy University of Notre Dame Lester Myers Georgetown University Catherine Neal Northern Kentucky University Cynthia Nicola Carlow College Jim Weber Duquesne University Ed Weiss National-Louis University Joseph W. Weiss Bentley University Jan Zahrly University of North Dakota Carol Nielsen Bemidji State University Copyright 2017 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. xviiiPreface We wish to acknowledge the many people who assisted us in writing this book. We are deeply grateful to Jennifer Sawayda for her work in organizing and managing the revision process. Finally, we express appreciation to the administration and to colleagues at the University of New Mexico, Belmont University, and Southern Illinois University at Carbondale for their support. We invite your comments, questions, or criticisms. We want to do our best to provide teaching materials that enhance the study of business ethics. Your suggestions will be sincerely appreciated. – O. C. Ferrell – John Fraedrich – Linda Ferrell Copyright 2017 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. CHAPTER OBJECTIVES CHAPTER 1 •• Explore conceptualizations of business ethics from an organizational perspective •• Examine the historical foundations and evolution of business ethics •• Provide evidence that ethical value systems support business performance •• 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 Specific Issues 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 IMPORTANCE OF BUSINESS ETHICS The 1970s: Business Ethics as an Emerging Field The 1980s: Consolidation The 1990s: Institutionalization of Business Ethics The Twenty-First Century of Business Ethics Developing an Organizational and Global Ethical Culture The Benefits of Business Ethics Ethics Contributes to Employee Commitment Ethics Contributes to Investor Loyalty Ethics Contributes to Customer Satisfaction Ethics Contributes to Profits Our Framework for Studying Business Ethics © ZoranKrstic/Shutterstock.com Copyright 2017 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. AN ETHICAL DILEMMA* Sophie just completed a sales training course with one of the firm’s most productive sales representatives, Emma. At the end of the first week, Sophie and Emma sat in a motel room filling out their expense vouchers for the week. Sophie casually remarked to Emma that the training course stressed the importance of accurately filling out expense vouchers. Emma replied, “I’m glad you brought that up, Sophie. The company expense vouchers don’t list the categories we need. I tried many times to explain to the accountants that there are more expenses than they have boxes for. The biggest complaint we, the salespeople, have is that there is no place to enter expenses for tipping waitresses, waiters, cab drivers, bell hops, airport baggage handlers, and the like. Even the government assumes tipping and taxes them as if they were getting an 18 percent tip. That’s how service people actually survive on the lousy pay they get from their bosses. I tell you, it is embarrassing not to tip. One time I was at the airport and the skycap took my bags from me so I didn’t have the hassle of checking them. He did all the paper work and after he was through, I said thank you. He looked at me in disbelief because he knew I was in sales. It took me a week to get that bag back.” “After that incident I went to the accounting department, and every week for five months I told them they needed to change the forms. I showed them the approximate amount the average salesperson pays in tips per week. Some of them were shocked at the amount. But would they change it or at least talk to the supervisor? No! So I went directly to him, and do you know what he said to me?” “No, what?” asked Sophie. “He told me that this is the way it has always been done, and it would stay that way. He also told me if I tried to go above him on this, I’d be looking for another job. I can’t chance that now, especially in this economy. Then he had the nerve to tell me that salespeople are paid too much, and that’s why we could eat the added expenses. We’re the only ones who actually generate revenue and he tells me that I’m overpaid!” “So what did you do?” inquired Sophie. “I do what my supervisor told me years ago. I pad my account each week. For me, I tip 20 percent, so I make sure I write down when I tip and add that to my overall expense report.” “But that goes against company policy. Besides, how do you do it?” asked Sophie. “It’s easy. Every cab driver will give you blank receipts for cab fares. I usually put the added expenses there. We all do it,” said Emma. “As long as everyone cooperates, the Vice President of Sales doesn’t question the expense vouchers. I imagine she even did it when she was a lowly salesperson.” “What if people don’t go along with this arrangement?” asked Sophie. “In the past, we have had some who reported it like corporate wants us to. I remember there was a person who didn’t report the same amounts as the co-worker traveling with her. Several months went by and the accountants came in, and she and all the salespeople that traveled together were investigated. After several months the one who ratted out the others was fired or quit, I can’t remember. I do know she never worked in our industry again. Things like that get around. It’s a small world for good salespeople, and everyone knows everyone.” “What happened to the other salespeople who were investigated?” Sophie asked. “There were a lot of memos and even a 30-minute video as to the proper way to record expenses. All of them had conversations with the vice president, but no one was fired.” “No one was fired even though it went against policy?” Sophie asked Emma. “At the time, my conversation with the VP went basically this way. She told me that corporate was not going to change the forms, and she acknowledged it was not fair or equitable to the salespeople. She hated the head accountant because he didn’t want to accept the reality of a salesperson’s life in the field. That was it. I left the office and as I walked past the Troll’s office—that’s what we call the head accountant—he just smiled at me.” This was Sophie’s first real job out of school and Emma was her mentor. What should Sophie report on her expense report? QUESTIONS | EXERCISES 1. Identify the issues Sophie has to resolve. 2. Discuss the alternatives for Sophie. 3. What should Sophie do if company policy appears to conflict with the firm’s corporate culture? *This case is strictly hypothetical; any resemblance to real persons, companies, or situations is coincidental. Copyright 2017 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. Chapter 1: The Importance of Business Ethics 3 T he ability to anticipate and deal with business ethics issues and dilemmas has become a significant priority in the twenty-first century. In recent years, a number of wellpublicized scandals resulted in public outrage about deception, fraud, and distrust in business and a subsequent demand for improved business ethics, greater corporate responsibility, and laws to protect the financially innocent. The publicity and debate surrounding highly publicized legal and ethical lapses at well-known firms highlight the need for businesses to integrate ethics and responsibility into all business decisions. On the other hand, the majority of ethical businesses with no or few ethical lapses are rarely recognized in the mass media for their conduct, mainly because good companies doing business the right way do not generate media interest. Highly visible business ethics issues influence the public’s attitudes toward business and destroy trust. Ethically charged decisions are a part of everyday life for those who work in organizations at all levels. Business ethics is not just an isolated personal issue; codes, rules, and informal communications for responsible conduct are embedded in an organization’s operations. This means ethical or unethical conduct is the province of everyone who works in an organizational environment, from the lowest level employee to the CEO. Making good ethical decisions are just as important to business success as mastering management, marketing, finance, and accounting. While education and training emphasize functional areas of business, business ethics is often viewed as easy to master, something that happens with little effort. The exact opposite is the case. Decisions with an ethical component are an everyday occurrence requiring people to identify issues and make quick decisions. Ethical behavior requires understanding and identifying issues, areas of risk, and approaches to making choices in an organizational environment. On the other hand, people can act unethically simply by failing to identify a situation that has an ethical issue. Ethical blindness results from individuals who fail to sense the nature and complexity of their decisions.1 Some approaches to business ethics look only at the philosophical backgrounds of individuals and the social consequences of decisions. This approach fails to address the complex organizational environment of businesses and pragmatic business concerns. By contrast, our approach is managerial and incorporates real-world decisions that impact the organization and stakeholders. Our book will help you better understand how business ethics is practiced in the business world. It is important to learn how to make decisions in the internal environment of an organization to achieve personal and organizational goals. But business does not exist in a vacuum. As stated, decisions in business have implications for investors, employees, customers, suppliers, and society. Ethical decisions must take these stakeholders into account, for unethical conduct can negatively affect people, companies, industries, and society as a whole. Our approach focuses on the practical consequences of decisions and on positive outcomes that have the potential to contribute to individuals, business, and society at large. The field of business ethics deals with questions about whether specific conduct and business practices are acceptable. For example, should a salesperson omit facts about a product’s poor safety record in a sales presentation to a client? Should accountants report inaccuracies they discover in an audit of a client, knowing the auditing company will probably be fired by the client for doing so? Should an automobile tire manufacturer intentionally conceal safety concerns to avoid a massive and costly tire recall? Regardless of their legality, others will certainly judge the actions in such situations as right or wrong, ethical or unethical. By its very nature, the field of business ethics is controversial, and there is no universally accepted approach for resolving its dilemmas. Copyright 2017 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. 4 Part 1: An Overview of Business Ethics All organizations have to deal with misconduct. Even prestigious colleges such as Harvard and Dartmouth are not exempt. Students at Dartmouth were disciplined for cheating on their attendance and participation in an undergraduate ethics course. Because the course used hand clickers registered to each student as a sign of attendance and participation, students who wanted to cut class would give their hand clickers to other classmates.2 Two administrators at the University of North Carolina at Chapel Hill oversaw courses where the students—often athletes—did not have to show up. The courses included lectures that never met spanning back to the 1990s. 3 Before we get started, it is important to state our approach to business ethics. First, we do not moralize by stating what is right or wrong in a specific situation, although we offer background on normative guidelines for appropriate conduct. Second, although we provide an overview of group and individual decision-making processes, we do not prescribe one approach or process as the best or most ethical. However, we provide many examples of successful ethical decision making. Third, by itself, this book will not make you more ethical, nor will it give you equations on how to judge the ethical behavior of others. Rather, its goal is to help you understand, use, and improve your current values and convictions when making business decisions so you think about the effects of those decisions on business and society. Our approach will help you understand what businesses are doing to improve their ethical conduct. To this end, we aim to help you learn to recognize and resolve ethical issues within business organizations. As a manager, you will be responsible for your decisions and the conduct of the employees you supervise. For this reason, we provide a chapter on ethical leadership. The framework we developed focuses on how organizational decisions are made and on ways companies can improve their ethical conduct. This process is more complex than many think. People who believe they know how to make the “right” decision usually come away with more uncertainty about their own decision skills after learning about the complexity of ethical decision making. This is a normal occurrence, and our approach will help you evaluate your own values as well as those of others. It also helps you to understand the nature of business ethics and incentives found in the workplace that change the way you make decisions in business versus at home. In this chapter, we first develop a definition of business ethics and discuss why it has become an important topic in business education. We also discuss why studying business ethics can be beneficial. Next, we examine the evolution of business ethics in North America. Then we explore the performance benefits of ethical decision making for businesses. Finally, we provide a brief overview of the framework we use for examining business ethics in this text. BUSINESS ETHICS DEFINED To understand business ethics, you must first recognize that most people do not have specific definitions they use to define ethics-related issues. The terms morals, principles, values, and ethics are often used interchangeably, and you will find this is true in companies as well. Consequently, there is much confusion regarding this topic. To help you understand these differences, we discuss these terms. For our purposes, morals refer to a person’s personal philosophies about what is right or wrong. The important point is that when one speaks of morals, it is personal or s­ ingular. Morals, your philosophies or sets of values of right and wrong, relate to you and you alone. Copyright 2017 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. Chapter 1: The Importance of Business Ethics 5 You may use your personal moral convictions in making ethical decisions in any context. Business ethics comprises organizational principles, values, and norms that may originate from individuals, organizational statements, or from the legal system that primarily guide individual and group behavior in business. Principles are specific and pervasive boundaries for behavior that should not be violated. Principles often become the basis for rules. Some examples of principles could include human rights, freedom of speech, and the ­fundamentals of justice. Values are enduring beliefs and ideals that are socially enforced. Several desirable or ethical values for business today are teamwork, trust, and integrity. Such values are often based on organizational or industry best practices. Investors, employees, customers, interest groups, the legal system, and the community often determine whether a specific action or standard is ethical or unethical. Although these groups influence the determination of what is ethical or unethical for business, they also can be at odds with one another. Even though this is the reality of business and such groups may not necessarily be right, their judgments influence society’s acceptance or rejection of business practices. Ethics is defined as behavior or decisions made within a group’s values. In our case we are discussing decisions made in business by groups of people that represent the business organization. Because the Supreme Court defined companies as having limited individual rights,4 it is logical such groups have an identity that includes core values. This is known as being part of a corporate culture. Within this culture there are rules and regulations both written and unwritten that determine what decisions employees consider right or wrong as it relates to the firm. Such evaluations are judgments by the organization and are defined as its ethics (or in this case their business ethics). One difference between an ordinary decision and an ethical one lies in “the point where the accepted rules no longer serve, and the decision maker is faced with the responsibility for weighing values and reaching a judgment in a situation which is not quite the same as any he or she has faced before.”5 Another difference relates to the amount of emphasis decision makers place on their own values and accepted practices within their company. Consequently, values and judgments play a critical role when we make ethical decisions. Building on these definitions, we begin to develop a concept of business ethics. Most people agree that businesses should hire individuals with sound moral principles. However, some special aspects must be considered when applying ethics to business. First, to survive and contribute to society, businesses must earn a profit. There is no conflict or trade-offs between profits and business ethics. For instance, Google, Texas Instruments, and Starbucks are highly profitable companies that have earned a reputation for ethical conduct.6 Second, to be successful businesses must address the needs and desires of stakeholders. The good news is the world’s most ethical companies often have superior stock performance.7 To address these unique aspects of the business world, society has developed rules—both legal and implicit—to guide businesses in their efforts to earn profits in ways that help individuals or society and contribute to social and economic well-being. WHY STUDY BUSINESS ETHICS? A Crisis in Business Ethics Business ethics has become a major concern in business today. The Ethics Resource Center conducts the National Business Ethics Survey (NBES) of more than 6,000 U.S. employees Copyright 2017 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. 6 Part 1: An Overview of Business Ethics FIGURE 1–1 Global Trust in Industry Sectors 78% Technology Automotive 71% Food and Beverage 67% Consumer Packaged Goods 66% Telecommunications 63% Pharmaceuticals 61% Energy 60% Financial Services 54% Banks 53% Media 51% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% Source: Edelman, 2015 Edelman Trust Barometer, http://www.edelman.com/insights/intellectual-property/2015-edelman-trust-barometer/trust-andinnovation-edelman-trust-barometer/global-results/ (accessed January 30, 2015). 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 41 percent of employees reported observing at least one type of misconduct. Approximately 63 percent reported the misconduct to management, an increase from previous years.8 Business ethics decisions and activities have come under greater scrutiny by many different stakeholders, including consumers, employees, investors, government regulators, and special interest groups. For instance, regulators carefully examined risk controls at JP Morgan Chase to investigate whether there were weaknesses in its system that allowed the firm to incur billions of dollars in losses through high-risk trading activities. Regulators are placing financial institutions under greater scrutiny and holding them increasingly accountable. There has been a long conflict between U.S. regulators and Swiss banks regarding whether these banks were being used to evade U.S. taxes. Credit Suisse pled guilty to helping Americans evade their taxes and was forced to pay a $2.6 billion fine.9 Figure 1–1 shows the percentage of global respondents who say they trust a variety of businesses in various industries. Financial institutions and banks have some of the lowest ratings, indicating that the financial sector has not been able to restore its reputation since the most recent recession. There is no doubt negative publicity associated with major misconduct lowered the public’s trust in certain business sectors.10 Decreased trust leads to a reduction in customer satisfaction and customer loyalty, which in turn can negatively impact the firm or industry.11 Specific Issues There are a number of ethical issues that must be addressed to prevent misconduct. Misuse of company resources, abusive behavior, harassment, accounting fraud, conflicts of interest, defective products, bribery, product knockoffs, and employee theft are all problems cited as potential risk areas. Chinese e-commerce giant Alibaba, which trades on the Copyright 2017 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. Chapter 1: The Importance of Business Ethics 7 New York Stock Exchange, was reprimanded by Chinese government authorities for ignoring the sales of knockoff products through Taobao, its biggest e-commerce platform. They also accused Alibaba employees of engaging in anticompetitive behavior such as bullying merchants to stay away from rival sites. As China attempts to secure a more solid reputation in the business world, its government recognizes that it must take steps to eliminate organizational misconduct.12 Other ethical issues relate to recognizing the interests of various stakeholders. For instance, residents of Swansboro, North Carolina attempted to adopt an ordinance to prevent Walmart from opening a superstore in the area. The fear is that smaller independent stores cannot compete when big-box retailers come to town.13 Although large companies like Walmart have significant power, pressures from the community still limit what they can do. General ethics plays an important role in the public sector as well. In government, several politicians and high-ranking officials have experienced significant negative publicity, and some resigned in disgrace over ethical indiscretions. Former New Orleans mayor Ray Nagin was sentenced to 10 years in prison for misconduct during his tenure as mayor, including bribery, money laundering, and conspiracy.14 Such political scandals demonstrate that political ethical behavior must be proactively practiced at all levels of public service. Every organization has the potential for unethical behavior. For instance, the U.S. Defense Secretary ordered a renewed focus on military ethics after cheating scandals occurred in different branches of the military. Air force officers at the Malmstrom Air Force Base in Montana were suspended after it was discovered that there had been widespread cheating on monthly proficiency tests on operating warheads. Similarly, the U.S. Navy was criticized when sailors were found to have cheated on qualification exams for becoming nuclear reactor instructors. The Defense Secretary is concerned that the issue might be systemic, requiring an ethics overhaul in the military.15 Even sports ethics can be subject to lapses. The National Football League was heavily criticized for initially giving Baltimore Ravens player Ray Rice a two-game suspension after videos surfaced of him abusing his girlfriend. The scandal caused outrage among consumers who felt the NFL did not take domestic abuse incidents seriously. The NFL apologized and changed its policies on domestic abuse.16 This incident along with other sports scandals has led to calls for greater accountability among sports players and coaches. Whether they are made in the realm of business, politics, science, or sports, most decisions are judged 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, new legislation usually follows. Whether correct or not, that judgment directly affects a company’s ability to achieve its business goals. You should be aware that the public is more tolerant of questionable consumer practices than of similar business practices. Double standards are at least partly due to differences in wealth and the success between businesses and consumers. The more successful a company, the more the public is critical when misconduct occurs.17 For this reason alone, it is important to understand business ethics and recognize ethical issues. The Reasons for Studying Business Ethics Studying business ethics is valuable for several reasons. Business ethics is more than an extension of an individual’s own personal ethics. Many people believe if a company hires good people with strong ethical values, then it will be a “good citizen” organization. But as Copyright 2017 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. 8 Part 1: An Overview of Business Ethics we show throughout this text, an individual’s personal moral values are only one factor in the ethical decision-making process. True, moral values can be applied to a variety of situations in life, and some people do not distinguish everyday ethical issues from business ones. Our concern, however, is with the application of principles, values, and standards in the business context. Many important issues are not related to a business context, although they remain complex moral dilemmas in a person’s own life. For example, although abortion and human cloning are moral issues, they are not an issue in most business organizations. Professionals in any field, including business, must deal with individuals’ personal moral dilemmas because such dilemmas affect everyone’s ability to function on the job. Normally, a business does not dictate a person’s morals. Such policies would be illegal. Only when a person’s morals influence his or her performance on the job does it involve a dimension within business ethics. Just being a good person and having sound personal values may not be sufficient to handle the ethical issues that arise in a business organization. Although truthfulness, honesty, fairness, and openness are often assumed to be self-evident and accepted, business-strategy decisions involve complex and detailed discussions. For example, there is considerable debate over what constitutes antitrust, deceptive advertising, and violations of the Foreign Corrupt Practices Act. A high level of personal moral development may not prevent an individual from violating the law in a complicated organizational context where even experienced lawyers debate the exact meaning of the law. For instance, the National Labor Relations Board ruled that employees have the right to use company email systems to discuss working conditions and unionization as long as it is not on company time. Employer groups claim that employees have plenty of options for discussing these topics and maintain that it will be hard to ensure employees are not using company computer servers for these purposes during work hours. The right of employees versus employers is a controversial topic that will continue to need clarification from the courts.18 Some approaches to business ethics assume ethics training is for people whose personal moral development is unacceptable, but that is not the case. Because organizations are culturally diverse and personal morals must be respected, ensuring collective agreement on organizational ethics (that is, codes reasonably capable of preventing misconduct) is as vital as any other effort an organization’s management may undertake. Many...
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