Merck and River Blindness Case Study Rubric for BUS4474
Quality of Information
Mechanics
Considers and
identifies stakeholders
Chooses a course of
action
Analysis
5
Exceeds Expectations
Information clearly
related to the main
topic. It includes several
supporting details
and/or examples.
0-1 grammatical,
spelling, or punctuation
errors
Identifies and prioritizes
the impacts on all
relevant stakeholders,
their various
perspectives; and
identifies who should
be involved in the
decision-making.
Formulates a decision;
articulates a plan for
implementing that
decision; and evidences
an understanding of the
ecological, social, and
economic implications
of that decision.
Uses inductive or
deductive reasoning to
make inferences
regarding premises;
addresses implications
and consequences.
3-4
Meets Expectations
Information clearly
related to the main
topic. It provides 1-2
supporting details
and/or examples.
2-4 grammatical,
spelling, or punctuation
errors
Accurately identifies
some key stakeholders,
but demonstrates no, or
insufficient, awareness
of whether, or how,
they should, or can, be
involved in the decisionmaking.
Formulates a decision
that articulates a plan
for implementing it, but
does not demonstrate
an understanding of the
ecological, social and
economic
consequences of that
decision.
Uses logical reasoning
to make inferences
regarding premises;
addresses implications
and consequences.
0-2
Below Expectations
Information has little or
nothing to do with the
main topic. No details
and/or examples are
given.
5 or more grammatical,
spelling, or punctuation
errors
Fails to identify relevant
stakeholders and who
should be involved in
the decision-making.
Does not identify
and/or explain any
appropriate decision or
a course of action from
among alternatives
available.
Uses superficial
reasoning or
unreasonable
inferences regarding
solutions.
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3GFFIRS1
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Page i
MANAGING BUSINESS ETHICS
Straight Talk about How To Do It Right
Sixth Edition
~
LINDA KLEBE TREVINO
Distinguished Professor of Organizational Behavior and Ethics
Smeal College of Business
The Pennsylvania State University
KATHERINE A. NELSON
Instructor
Fox School of Business
Temple University
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VICE PRESIDENT & EXECUTIVE PUBLISHER
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Library of Congress Cataloging-in-Publication Data
Trevi~no, Linda Klebe.
Managing business ethics: straight talk about how to do it right/Linda Klebe Trevi~
no, Katherine A. Nelson.—
Sixth edition.
pages cm
Includes bibliographical references and index.
ISBN 978-1-118-58267-1 (pbk.)
1. Business ethics. 2. Business ethics--Case studies. I. Nelson, Katherine A. II. Title.
HF5387.T734 2014
1740 .4–dc23
2013024205
Printed in the United States of America
10 9 8 7 6 5 4 3 2 1
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BRIEF CONTENTS
SECTION I
CHAPTER 1
INTRODUCTION
INTRODUCING STRAIGHT TALK ABOUT MANAGING
BUSINESS ETHICS: WHERE WE’RE GOING AND WHY
2
SECTION II ETHICS AND THE INDIVIDUAL
CHAPTER 2
CHAPTER 3
CHAPTER 4
DECIDING WHAT’S RIGHT:
A PRESCRIPTIVE APPROACH
38
DECIDING WHAT’S RIGHT:
A PSYCHOLOGICAL APPROACH
70
ADDRESSING INDIVIDUALS’
COMMON ETHICAL PROBLEMS
110
SECTION III MANAGING ETHICS IN THE ORGANIZATION
CHAPTER 5
ETHICS AS ORGANIZATIONAL CULTURE
CHAPTER 6
MANAGING ETHICS AND LEGAL COMPLIANCE
CHAPTER 7
MANAGING FOR ETHICAL CONDUCT
CHAPTER 8
ETHICAL PROBLEMS OF MANAGERS
150
207
251
288
SECTION IV ORGANIZATIONAL ETHICS AND SOCIAL RESPONSIBILITY
CHAPTER 9
CORPORATE SOCIAL RESPONSIBILITY
318
CHAPTER 10 ETHICAL PROBLEMS OF ORGANIZATIONS 351
CHAPTER 11 MANAGING FOR ETHICS AND SOCIAL RESPONSIBILITY
IN A GLOBAL ENVIRONMENT
INDEX
400
447
iii
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CONTENTS
PREFACE
XIII
ACKNOWLEDGMENTS
XVII
SECTION I
INTRODUCTION
CHAPTER 1
1
INTRODUCING STRAIGHT TALK ABOUT MANAGING
BUSINESS ETHICS: WHERE WE’RE GOING AND WHY
Introduction 2
The Financial Disaster of 2008 4
Borrowing Was Cheap 4
Real Estate Became the Investment of Choice 5
Mortgage Originators Peddled “Liar Loans” 5
Banks Securitized the Poison and Spread it Around 6
Those Who Were Supposed to Protect Us Didn’t 7
Moving Beyond Cynicism 9
Can Business Ethics Be Taught? 14
Aren’t Bad Apples the Cause of Ethical Problems in Organizations? 14
Shouldn’t Employees Already Know the Difference between Right and Wrong?
Aren’t Adults’ Ethics Fully Formed and Unchangeable? 16
This Book is about Managing Ethics in Business 19
Ethics and the Law 21
Why Be Ethical? Why Bother? Who Cares? 21
Individuals Care about Ethics: The Motivation To Be Ethical 22
Employees Care about Ethics: Employee Attraction and Commitment 23
Managers Care about Ethics 24
Executive Leaders Care about Ethics 25
Industries Care about Ethics 26
Society Cares about Ethics: Business and Social Responsibility 26
The Importance of Trust 27
The Importance of Values 29
How This Book Is Structured 30
Conclusion 31
Discussion Questions 32
2
15
v
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CONTENTS
Exercise 33
Your Cynicism Quotient
Notes 34
33
SECTION II
ETHICS AND THE INDIVIDUAL
CHAPTER 2
37
DECIDING WHAT’S RIGHT:
A PRESCRIPTIVE APPROACH
38
Ethics and the Individual 38
Ethical Dilemmas 38
Prescriptive Approaches to Ethical Decision Making in Business
Eight Steps to Sound Ethical Decision Making in Business 51
Practical Preventive Medicine 58
Conclusion 61
Discussion Questions 61
Exercise 62
Clarifying Your Values 62
Introducing the Pinto Fires Case 63
Case: Pinto Fires 63
Short Cases 68
Notes 68
CHAPTER 3
DECIDING WHAT’S RIGHT:
A PSYCHOLOGICAL APPROACH
39
70
Ethical Awareness and Ethical Judgment 70
Individual Differences, Ethical Judgment, and Ethical Behavior 74
Ethical Decision-Making Style 75
Cognitive Moral Development 76
Locus of Control 83
Machiavellianism 84
Moral Disengagement 85
Facilitators of and Barriers to Good Ethical Judgment 87
Thinking about Fact Gathering 87
Thinking about Consequences 88
Consequences as Risk 89
Thinking about Integrity 90
Thinking about Your Gut 92
Unconscious Biases 93
Emotions In Ethical Decision Making 94
Toward Ethical Action 96
Revisiting the Pinto Fires Case: Script Processing and Cost-Benefit Analysis
Cost-Benefit Analysis 102
Conclusion 104
100
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Exercise 104
Understanding Cognitive Moral Development
Discussion Questions 105
Short Case 106
Notes 106
CHAPTER 4
104
ADDRESSING INDIVIDUALS’
COMMON ETHICAL PROBLEMS
110
Identifying Your Values—and Voicing Them 111
People Issues 113
Discrimination 114
Harassment, Sexual and Otherwise 118
Conflicts of Interest 122
What Is It? 122
How We Can Think about This Issue 124
Why Is It an Ethical Problem? 125
Costs 125
Customer Confidence Issues 126
What Is It? 126
How We Can Think about This Issue 130
Why Is It an Ethical Problem? 130
Costs 130
Use of Corporate Resources 131
What Is It? 131
How We Can Think about This Issue 135
Why Is It an Ethical Problem? 136
Costs 136
When all Else Fails: Blowing the Whistle 136
When Do You Blow the Whistle? 139
How to Blow the Whistle 140
Conclusion 144
Discussion Questions 145
Short Cases 145
Notes 147
SECTION III
MANAGING ETHICS IN THE ORGANIZATION
CHAPTER 5
149
ETHICS AS ORGANIZATIONAL CULTURE
Introduction 150
Organizational Ethics as Culture 151
What Is Culture? 151
Strong versus Weak Cultures 151
150
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How Culture Influences Behavior: Socialization and Internalization 152
Ethical Culture: A Multisystem Framework 153
Alignment of Ethical Culture Systems 154
Ethical Leadership 156
Executive Leaders Create Culture 156
Leaders Maintain or Change Organizational Culture 157
Other Formal Cultural Systems 165
Selection Systems 165
Values and Mission Statements 167
Policies and Codes 168
Orientation and Training Programs 170
Performance Management Systems 171
Organizational Authority Structure 174
Decision-Making Processes 177
Informal Cultural Systems 178
Role Models and Heroes 179
Norms: “The Way We Do Things around Here” 180
Rituals 181
Myths and Stories 181
Language 182
Organizational Climates: Fairness, Benevolence,
Self-Interest, Principles 184
Developing and Changing the Ethical Culture 185
How an Ethical Culture Can Become an Unethical Culture 186
Becoming a More Ethical Culture 187
A Cultural Approach to Changing Organizational Ethics 189
Audit of the Ethical Culture 190
A Cultural Systems View 190
A Long-Term View 191
Assumptions about People 191
Diagnosis: the Ethical Culture Audit 191
Ethical Culture Change Intervention 193
The Ethics of Managing Organizational Ethics 195
Conclusion 195
Discussion Questions 195
Case: Culture Change at Texaco 196
Case: An Unethical Culture In Need of Change: Tap Pharmaceuticals 198
Case: “Bad to the Bone” 200
Notes 202
CHAPTER 6
MANAGING ETHICS AND LEGAL COMPLIANCE
Introduction 207
Structuring Ethics Management 208
Making Ethics Comprehensive and Holistic
211
207
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Managing Ethics: The Corporate Ethics Office 211
Ethics and Compliance Officers 211
The Ethics Infrastructure 213
The Corporate Ethics Committee 214
Communicating Ethics 215
Basic Communications Principles 215
Evaluating the Current State of Ethics Communications 218
Multiple Communication Channels for Formal Ethics Communication 220
Interactive Approaches to Ethics Communication 222
Mission or Values Statements 225
Organizational Policy 226
Codes of Conduct 227
Communicating Senior Management Commitment to Ethics 229
Formal and Informal Systems to Resolve Questions and Report Ethical Concerns
Using the Reward System to Reinforce the Ethics Message 238
Evaluating the Ethics Program 239
Surveys 240
Values or Compliance Approaches 241
Globalizing an Ethics Program 242
Conclusion 245
Discussion Questions 245
Short Case 246
Appendix: How Fines Are Determined under the U.S. Sentencing Guidelines 247
Notes 249
CHAPTER 7
MANAGING FOR ETHICAL CONDUCT
251
Introduction 251
In Business, Ethics is about Behavior 251
Practical Advice for Managers: Ethical Behavior 252
Our Multiple Ethical Selves 252
The Kenneth Lay Example 253
The Dennis Levine Example 255
Practical Advice for Managers: Multiple Ethical Selves 255
Rewards and Discipline 256
People Do What Is Rewarded and Avoid Doing What Is Punished 256
People Will Go the Extra Mile to Achieve Goals Set by Managers 257
How Goals Combined with Rewards Can Encourage Unethical Behavior
Practical Advice for Managers: Goals, Rewards, and Discipline 259
Recognize the Power of Indirect Rewards and Punishments 260
Can Managers Really Reward Ethical Behavior? 262
What About the Role of Discipline? 263
Practical Advice for Managers: Discipline 265
People Follow Group Norms 266
“Everyone’s Doing It” 266
Rationalizing Unethical Behavior 266
258
235
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Pressure to Go Along 267
Practical Advice for Managers: Group Norms 267
People Fulfill Assigned Roles 268
The Zimbardo Prison Experiment 269
Roles at Work 270
Conflicting Roles Can Lead to Unethical Behavior 271
Roles Can Also Support Ethical Behavior 271
Practical Advice for Managers: Roles 272
Obedience to Authority: People Do What They’re Told 272
The Milgram Experiments 273
Obedience to Authority at Work 275
Practical Advice for Managers: Obedience to Authority 275
Responsibility is Diffused in Organizations 275
“Don’t Worry—We’re Taking Care of Everything” 276
Diffusing Responsibility in Groups 276
Diffusing Responsibility by Dividing Responsibility 277
Diffusing Responsibility by Creating Psychological Distance 278
Practical Advice for Managers: Personal Responsibility 279
Conclusion 280
Am I Walking My Ethical Talk? 280
Discussion Questions 281
Case: Sears, Roebuck, and Co.: The Auto Center Scandal 281
Short Case 284
Notes 285
CHAPTER 8
ETHICAL PROBLEMS OF MANAGERS
Introduction 288
Managers and Employee Engagement 288
Managing the “Basics” 291
Hiring and Work Assignments 291
Performance Evaluation 292
Discipline 295
Terminations 297
Why Are These Ethical Problems? 299
Costs 299
Managing a Diverse Workforce 300
Diversity 301
Harassment 302
Family and Personal Issues 304
Why Are These Ethical Problems? 306
Costs 306
The Manager as a Lens 306
The Buck Stops with Managers 307
Managers Are Role Models 309
288
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CONTENTS
Managing Up and Across 310
Honesty Is Rule One 311
Standards Go Both Ways 312
Conclusion 313
Discussion Questions 313
Short Cases 314
Notes 315
SECTION IV
ORGANIZATIONAL ETHICS AND SOCIAL RESPONSIBILITY
CHAPTER 9
CORPORATE SOCIAL RESPONSIBILITY
317
318
Introduction 318
Why Corporate Social Responsibility? 318
Types of Corporate Social Responsibility 325
Economic Responsibilities 325
Legal Responsibilities 326
Ethical Responsibilities 326
Philanthropic Responsibilities 327
Triple Bottom Line and Environmental Sustainability 330
Is Socially Responsible Business Good Business? 334
The Benefit of a Good Reputation 334
Socially Responsible Investors Reward Social Responsibility 335
The Cost of Illegal Conduct 335
The Cost of Government Regulation 337
What the Research Says about Social Responsibility and Firm Performance
Being Socially Responsible Because It’s the Right Thing to Do 342
Conclusion 344
Discussion Questions 344
Case: Merck and River Blindness 345
Short Case 346
Notes 347
CHAPTER 10 ETHICAL PROBLEMS OF ORGANIZATIONS
Introduction 351
Managing Stakeholders 352
Ethics and Consumers 353
Conflicts of Interest 354
Product Safety 362
Advertising 367
Ethics and Employees 372
Employee Safety 372
Employee Downsizings 377
351
339
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CONTENTS
Ethics and Shareholders 380
Ethics and the Community 385
Why Are These Ethical Issues? 388
Costs 388
Conclusion 389
Short Cases 390
Discussion Questions 395
Notes 395
CHAPTER 11 MANAGING FOR ETHICS AND SOCIAL
RESPONSIBILITY IN A GLOBAL ENVIRONMENT
400
Introduction 400
Focus on the Individual Expatriate Manager 401
The Difficulties of Foreign Business Assignments 401
The Need for Structure, Training, and Guidance 401
Foreign Language Proficiency 402
Learning about the Culture 402
Recognizing the Power of Selective Perception 404
Assumption of Behavioral Consistency 405
Assumption of Cultural Homogeneity 405
Assumption of Similarity 406
How Different Are Ethical Standards in Different Cultures—Really? 413
Development of Corporate Guidelines and Policies for Global Business Ethics
The Organization in a Global Business Environment 418
Deciding to Do Business in a Foreign Country 419
Development of a Transcultural Corporate Ethic 426
Conclusion 431
Discussion Questions 431
Short Case 432
Case: Selling Medical Ultrasound Technology in Asia 432
Case: Google Goes to China 436
Notes 441
INDEX
447
414
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PREFACE
WHY DOES THE WORLD
NEED ANOTHER BUSINESS
ETHICS TEXT?
The popular business press is replete with feature stories describing ethical
meltdowns and how those corporate misdeeds have eroded the public trust of
business leaders and their organizations. As most of us learned at our parents’ knees,
trust and reputation are built over many years and take but an instant to be destroyed.
So here we stand at a crossroads. Is it going to be business as usual for business?
Or are businesspeople going to commit to regaining the trust of our peers, our
families, and our fellow citizens?
In response to this crisis of trust, universities across the country are scrambling to
design new courses that incorporate leadership, communication skills, the basics of
human resources management, and ethics. That’s why we wrote this book; we want to
make the study of ethics relevant to real-life work situations. We want to help businesspeople regain the trust that’s been squandered in the last few years. This book is different
from other business ethics texts in several key ways: First, it was written by an unusual
team. Linda Trevi~
no is Distinguished Professor of Organizational Behavior and Ethics in
the Management and Organization Department of the Smeal College of Business at the
Pennsylvania State University. Her prolific research on the management of ethical
conduct in organizations is published in the field’s best journals and is internationally
known and referenced. She has more than 25 years of experience in teaching students and
executives in university and nonuniversity settings, and she also has experience as a
corporate consultant and speaker on ethics and management issues. Kate Nelson is a fulltime faculty member at the Fox School of Business at Temple University in Philadelphia,
where she teaches management, business ethics, and human resources to undergraduates.
Before joining Temple’s faculty, Kate worked for more than 30 years in strategic
organizational communication and human resources at a variety of companies including
Citicorp, Merrill Lynch, and Mercer HR Consulting. She also has worked as a consultant
specializing in ethics and strategic employee communications and has designed ethics
programs for numerous organizations. We think that bringing together this diverse mix of
theory and practice makes the book unique.
Second, the approach of this book is pragmatic, and that approach is a direct response
to complaints and suggestions we have heard from students, employees, and corporate
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PREFACE
executives. “Make it real,” they have said. “Tell us what we need to know to effectively
manage people. Take the mystery out of this subject that seems so murky. Get to the
point.” This book starts with the assumption that ethics in organizations is about human
behavior in those organizations. We believe that behavior results from a number of factors,
many of which can be influenced by managers and the organizations themselves. As a
result, this book is organized into sections about individuals, managing in an organizational context, and organizations in their broader environment, the ethical dilemmas
managers face, and how they might solve them. It also features philosophical and
psychological factors of decision making, ethical culture, how managers can influence
employees’ behavior through ethical leadership, what corporations are doing to encourage ethical behavior and corporate social responsibility, and international business ethics.
Third, we have used a different mix of examples than is found in conventional
business ethics texts. Most texts focus on high-level, corporate dilemmas: “Should
senior executives be paid at a particular level? Should this industry do business in
China? Should American environmental laws apply to American companies operating
overseas?” Although these are interesting issues, the vast majority of students and
employees will never have to face them. However, they will have to hire, manage,
assess performance, discipline, fire, and provide incentives for staff, as well as produce
quality products and services and deal effectively and fairly with customers, vendors,
and other stakeholders. As a result, although we do feature some classic corporate
ethics cases, many of the cases in this book center on the kinds of problems that most
people will encounter during the course of their careers. All of the “hypothetical” cases
in this text are based on actual incidents that have happened somewhere—it’s the real
stuff that goes on every day in offices across the country.
Fourth, this book was developed with the help of students at a number of
universities and with guidance from numerous managers and senior executives from
various corporations and organizations. We have incorporated the latest research on
ethics and organizational behavior into this text, and much of the material that
appears within these pages has been tested in both university and corporate settings.
Fifth, we believe this book is easy to use because it is organized to be flexible. It
can be used alone to teach an ethics course, or it can be used as a supplement to a more
conventional, philosophical text. The sections in this book basically stand alone and
can be taught in a different sequence than is presented here, and the book also has
many cases and vignettes you can use for class discussion. Wiley will create custom
versions of the text with selected chapters if requested to do so. To help teach this
course, the instructor’s guide provides resources such as outlines, overheads, discussion questions, and additional cases for class discussion; it also supplies references to
many other resources that can be used to teach the course.
A NOTE TO STUDENTS
This book was written for you. We have listened to your complaints and your wish
lists and have tried to pare this complicated subject down to a digestible size. The
cases that appear in this book all happened to people just like you, who were not as
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PREFACE
xv
prepared to deal with the dilemmas as you will be after taking this course. Before
you get into this book, we have one suggestion: know that regardless of how large an
organization you find yourself in, you’re not some little cog in a giant wheel. You
have the power to change not only your own behavior and knowledge of ethics but
also the behavior and knowledge of the people you work with. Use that power: the
job you save may be your own.
We also want to suggest that when interviewing for your next job, you try to make
sure that you’re joining an organization that values ethics. Are ethics and values
described in the firm’s recruiting materials? Do organizational representatives talk
about ethics and values during their interviews with you? When you ask about how
their organization demonstrates ethics and values, does your interviewer respond
enthusiastically, or does he or she look like a deer caught in headlights so you instantly
know that he or she has never even considered this question before? It’s much easier to
get into an ethical organization in the first place than try to get out of an unethical one
later on.
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ACKNOWLEDGMENTS
It takes a lot of work by a lot of people to make a project like this come together. We’ll
begin with some joint thank-yous. Then, because this process has been so meaningful
for each of us, we will separately share our more personal thanks.
We both offer our heartfelt appreciation to current and former executives who
helped us with this and previous editions, in particular, Larry Axline, Jeffrey Braun,
Jacquelyn Brevard, Earnie Broughton, Craig Cash, Frank Daly, Srinivas Dixit, Ray
Dravesky, Kent Druyvesteyn, Kim Ingham, Dennis Jorgensen, John O’Byrne, Kevin
O’Connor, Joe Paterno, Robert Paul, Jo Pease, Shirley Peterson, Vin Sarni, Carl
Skooglund, Phil Tenney, and George Wratney. All shared their valuable time and
advice, some of them on multiple occasions. Their wisdom can be found throughout
this book, but especially in Chapter 6. They helped bring the subject of managing
business ethics to life.
We also wish to thank Gary Weaver (University of Delaware) for being our
philosophy adviser for the first edition, and Dennis Gioia (Penn State faculty member
and dear friend) for sharing his Pinto fire case and especially his reflections.
John Wiley & Sons, Inc. is a fine publisher with a superb team. These people
encouraged, nudged, nudged, and nudged again. We have many Wiley people to thank
for helping to make this book a success.
The book’s past and present reviewers also contributed significantly to making
this a better book, and we thank them as well. We also thank our students and
particularly Penn State undergraduate, MBA, and Executive MBA students who
provide us with excellent feedback and advice semester after semester.
SPECIAL ACKNOWLEDGMENTS—FROM
~
LINDA K. TREVINO
I have always wondered what makes people do especially good and bad things. As the
child of Holocaust survivors, I have a unique perspective on and curiosity about such
issues. My parents and their families escaped Nazi Germany before Hitler began
killing Jews en masse, but not before my maternal grandfather was severely beaten and
not before my fraternal grandfather was taken to a concentration camp (euphemistically referred to as a work camp at the time). My father’s family received papers
allowing them to emigrate from Germany to the United States shortly before the war
began (in spring 1939), allowing my grandfather to be released from the camp where
he was being held (once they were able to find him!). Both families landed in New
York, where they survived through sheer grit, perseverance, and belief in the American
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ACKNOWLEDGMENTS
dream. Although my family never dwelled on their experiences in Germany, I grew up
with a special sensitivity and concern for equality and fair treatment.
I traveled to Germany with my dad and brother about 35 years ago. We visited
the tiny towns where Mom and Dad were born and met some wonderful German
people who had helped them or at least tried to. I walked through a German village
holding hands with the elderly woman who had been my maternal grandmother’s
best friend and who urged the family to leave Germany because she anticipated the
worst. I met another elderly woman who had cared for my father and aunt when they
were children and who tried to take care of their home when they were forced to
leave everything behind. These were special people, and the opportunity to connect
with them holds a special place in my heart. So my family and background
influenced me in ways I can’t fully grasp with my mind but in ways that I feel
in my soul. And I know that my quest to understand what makes people do good and
bad things has something to do with that influence.
Many special people have helped along the path that brought me to the writing
of this book. I’ll begin by thanking my mentors in the doctoral program at Texas
A&M University’s management department. Many thanks to Stuart Youngblood
(now at Texas Christian University), Don Hellriegel, Richard Woodman, Dick Daft
(now at Vanderbilt University), and Mary Zey, who encouraged my early theorizing
and research in business ethics. They told me to go with my gut and to do what was
important, and they supported my every step. My exceptional colleagues in the
Management and Organizational Department at Penn State have also been supportive all along the way. They have read my papers and challenged me to think harder
and make my work ever better.
My thanks also to the colleagues who have worked with me on ethics-related
research over the years and who have been partners in learning about the management
of business ethics: particularly Gail Ball, Michael Brown, Ken Butterfield, Derron
Bishop, Niki den Nieuwenboer, James Detert, David Harrison, Laura Hartman,
Jennifer Kish Gephart, Glen Kreiner, Don McCabe, Bart Victor, Gary Weaver, and
more. This shared learning has contributed to the book in important ways.
Shortly after becoming a faculty member at Penn State, I had the good fortune to
meet my friend and coauthor, Kate Nelson. I was intrigued by a brief Wall Street
Journal article about Kate’s work at Citibank (you’ll read more about that later). We
met and became fast friends, who (believe it or not) loved talking about business
ethics. We decided to write an article together, and the rest, as Kate says, is history.
Kate brought the real world into this book. She was also willing to tell me when I was
getting too academic (not her words exactly). It became clearer and clearer to me that
we were supposed to write this book together, and I’m very glad we did. Thanks, Kate!
The article became a book proposal that we first shared with publishers at the
Academy of Management meeting in 1992 (almost 20 years ago now). Shortly
thereafter, Bill Oldsey (formerly publisher at John Wiley & Sons, Inc.) showed up
in my office at Penn State. His enthusiasm for the book was immediate and infectious,
and he talked us into writing a textbook rather than a trade book. I want to thank Bill
for the special part he played.
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ACKNOWLEDGMENTS
xix
Over the years, Penn State colleagues, administrators, and donors have continued
to support my efforts in the area of business ethics. I am grateful to the Cook family,
especially the late Ann Cook, for supporting business ethics at Smeal and the Cook
Fellowship that I held for a number of years. My thanks also to Mrs. Mercedes
Shoemaker (and her late husband, Albert) for supporting the Shoemaker program in
Business Ethics that has brought us wonderful speakers on the topic of business ethics
year after year. Finally, I am especially grateful to Dean James Thomas for naming me
Distinguished Professor of Organizational Behavior and Ethics. My association with
the Ethics Resource Center Fellows program (see www.ethics.org) has connected me
with executives who manage ethics in large business organizations as well as consultants
and those in government who are interested in making the business world (and the rest
of the world, for that matter) a more ethical place. I appreciate the relationships and
the learning that have come from this association as well as the time these executives
have shared with me. In particular, I appreciate the funding that this group has provided
for research that has found its way into this book, especially research on executive ethical
leadership.
My heartfelt thanks also go to family members, colleagues, and many dear friends
not only for cheering me on (as usual) but also for their many contributions to this
book. They have served as readers and interviewees. They have provided clipping
services, helped me make contacts, and offered ideas for cases. They were there when
I was overwhelmed. I can’t thank them enough. Finally, I thank the light of my life,
Dan, for the inspiration, love, and support he provides every day of my life and for
being one of the most ethical human beings I know.
SPECIAL ACKNOWLEDGMENTS—FROM
KATHERINE A. NELSON
I began to learn about ethics and integrity as a very young child in a family where
“doing it right” was the only option. I was blessed to grow up hearing about how your
reputation is priceless and you must always guard it and act in ways that enhance that
reputation. As a result, my biggest debt is to my parents, the late Harry R. and
Bernadette Prendergast Nelson (formerly of New Hartford, New York), and my
brother, James V. Nelson of Pasadena, California. My parents worked tirelessly to
set Jim and me on the right path, and Jim’s generosity and enthusiastic support
encouraged me not only to teach ethics but also to write this book. (Jim proved to me
that one can be an investment banker and have high ethical standards, and I’m very
proud of him.) I’m also grateful to Jim’s wife, Susan, for her many encouraging words
of support and for giving our family its two most precious additions, Conor Vincent
and James Patrick Nelson.
Thanks to my dearest friends, for their friendship, love, and support: Debra Besch,
Loren Hart, Rose Ciotta, Elizabeth Dow, Carol Dygert, Ann Frazier Hedberg, and Gail
Martin. Thanks also to the educational institutions that provided me with a sound
footing in values: Utica Catholic Academy in Utica, New York, and the College of
Mount St. Vincent in Riverdale, New York.
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ACKNOWLEDGMENTS
If I had ever known how much fun it is to teach, I might have made the transition
to academia much earlier. Many thanks to the deans at the Fox School of Business
at Temple University—including Moshe Porat, Rajan Chandran, and Diana Breslin
Knudson, who took a chance on my teaching ability—and thanks to my many students
past and present, who have enriched my life in ways I could not have imagined.
Sincere thanks also to my many colleagues at Temple, who were so welcoming to
this corporate refugee and who made me feel so much a part of this wonderful
institution, especially Norm Baglini, Gary Blau, Debbie Campbell, Deanna Geddes,
Terry Halbert, and John McClendon.
Thanks go to the many executives who, each in his or her own way, taught me that
business ethics need not be an oxymoron: Christopher York, Don Armiger, Peter Thorp,
Judith Fullmer, Jerry Lieberman, and Jane Shannon—all formerly with Citicorp in New
York City; and Eugenie Dieck, Charlie Scott, and Lea Peterson, all formerly with Mercer
HR Consulting in Philadelphia and Boston. And thank you to Allan Kennedy, the
coauthor of the groundbreaking book from the late 1970s, Corporate Cultures. While
working at Citicorp as a McKinsey consultant back in 1985, Allan was the very first
person who encouraged me to go into ethics by helping me germinate the idea of
designing an ethics game for Citicorp.
The most important thank-you goes to my wonderful husband, Stephen J. Morgan—
an honorable man if there ever was one—who inspires and loves me every day. This
book and my teaching would not be possible without his support, wisdom, and
encouragement.
Of course, a final thank-you goes to my coauthor, Linda Trevi~no, for her dear, dear
friendship and for working with me to produce this book in what, in comparison to
accounts from other writing teams, was an almost painless experience.
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Page 1
I
INTRODUCTION
1
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1
INTRODUCING STRAIGHT
TALK ABOUT MANAGING
BUSINESS ETHICS: WHERE
WE’RE GOING AND WHY
INTRODUCTION
Back in 1993, when we sat down to write the first edition of this book, people
wondered if business ethics was just a fad. At that point, companies were just
beginning to introduce ethics into new-hire orientations and management training
programs. In academia, business ethics was just beginning to gain traction as a subject
for serious academic study, and some business schools were going so far as to require a
business ethics course to graduate.
Back then there was still the feeling among many experts that business ethics—like
time management, quality circles, and other management buzzwords of the day—
would soon become a footnote in texts that described business fads of the late
twentieth century. Despite multiple waves of scandal over the years, these have often
been portrayed as temporary blips. For example, one prominent business writer for
Fortune Magazine wrote an article in 2007 entitled “Business is Back!” Here’s a
choice excerpt: “It must be said: The shaming is over. The 51/2 year humiliation of
American business following the tech bubble’s burst and the Lay-Skilling-FastowEbbers-Kozlowski-Scrushy perp walks that will forever define an era has run its
course. After the pounding and the ridicule, penance has finally been done. No longer
despised by the public, increasingly speaking up and taking stands, beloved again by
investors, chastened and much changed—business is back.”1 Could he have been more
wrong? Business managed to outdo itself on the shame index yet again just about a
year later. We’ve seen these ethical debacles occur regularly for the past 25 years. As a
result, we’re convinced that business ethics is far from a fad. It’s an ongoing
phenomenon that must be better understood and managed and for which business
professionals must be better prepared.
We tell our students that serious ethical scandals often result from multiple
parties contributing in their own small or large ways to the creation of a catastrophe.
As you’ll read later on in this book, Enron’s collapse in 2001 was not just the failure
of Enron executives and employees, but also the failure of Enron’s auditors, the
2
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3
bankers who loaned the company money, and the lawyers who never blew the
whistle on Enron’s shenanigans. However, no scandal of recent years—not even
Enron—matches the financial industry debacle in 2008. Like Enron, many players
contributed to this colossal failure. But the financial crisis was unparalleled in its
scope and has fueled public outrage like no other business disaster in our lifetime.
The aftermath has people around the world angry and mistrustful of companies,
governments, regulators, rating agencies, and the people who work in them. If there
was ever a crisis of trust and confidence, this is it. It is also a textbook-perfect
example of how numerous people’s actions (and inactions) can conspire to spawn an
almost unimaginable calamity.
Recent business history has proven beyond any doubt that divorcing business from
ethics and values runs huge risks. Rushworth Kidder,2 the highly regarded ethics writer
and thinker who died in 2012, wrote about the financial debacle and the resulting
public anger. He eloquently described how free marketers cite Adam Smith’s Wealth
of Nations to justify a breed of capitalism that abhors regulation and focuses on shortterm profits over long-term stewardship. Kidder wisely noted that 17 years before his
more famous book, Smith wrote another one entitled The Theory of Moral Sentiments.
Smith’s first book deserves more attention because he always presumed that the
messages from these two books would go hand in hand. Smith’s “moral sentiments”
work rests on the assumption that human beings are empathetic; they care about others,
and they derive the most joy from human love and friendship. His book opened with the
following statement: “How selfish soever man may be supposed, there are evidently
some principles in his nature, which interest him in the fortune of others. . . . ”3 Smith
believed that a good life derives from the expression of “beneficence,” not from material
wealth. He proposed that self-love (which he also acknowledged) can spur the
individual to better his own condition by besting competitors. But he argued that
this must be done in a just manner and in the spirit of fair play as judged by an informed,
ethical, and impartial spectator. We care what others think of us because we are first and
foremost social beings. But we also are moral beings who want to do the right thing
because it is the right thing to do (not just to win the praise of others). According to Smith,
virtuous persons balance prudence (mature self-love), strict justice, and benevolence,
and ideal societies are comprised of such persons. Finally, a flourishing and happy
society is built upon a foundation of justice and rules of conduct that create social order.
Smith was confident that humankind would progress toward this positive ethical state;
he called on leaders to avoid the arrogance of power and, instead, to be virtuous
statesmen. Kidder’s point was that capitalism will succeed only when firmly tethered to
a moral base, and he reminds us that Adam Smith—that hero of free marketers—knew
this better than anyone.
We completely agree. We began this book almost 20 years ago with the firm belief
that business isn’t just “better” when companies and businesspeople are ethical, but
rather that good ethics is absolutely essential for effective business practice. This is not
just empty rhetoric. Work is essential to life, and most people work for a business of
some kind. How we work and the standards we uphold while we are working affect
much more than just commerce. Our business behavior also affects our personal and
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company reputations, politics, society at large, and even our national reputation. For
example, the 2008 financial crisis, while global in scope, had its roots in the United
States, and the nation’s reputation has suffered because of the behavior of individuals
and companies. Similarly, China’s reputation has suffered because of contaminants
found in Chinese exports such as infant formula, drywall (used in construction), and
children’s toys. So, corporate misbehavior does not happen in a vacuum, and it’s not
just corporate reputations that suffer as a result. These scandals cast long shadows, and
they often affect entire industries and countries. In this complex and increasingly
transparent world, where reputation influences everything from who wants to hire you
or trade with you to who buys your products to who finances your debt—and much
more—unethical behavior in business is a very big deal indeed. So, let’s take a closer
look at the elephant in the room: the near collapse of the financial markets in 2008 and
what it has to do with business ethics.
THE FINANCIAL DISASTER OF 2008
The implosion of the financial markets in 2008 was largely not the result of illegal
behavior. For the most part, the activities that brought down the U.S. economy and
others around the world were not against the law, at least not yet (government
regulators and the legal system often play catch-up after ethical debacles in business).
Many of those activities, however, were unethical in that they ultimately produced
great harm and were contrary to a number of ethical principles such as responsibility,
transparency, and fairness. Let’s start with some of the factors that laid the groundwork
for the disaster in the United States.
Borrowing Was Cheap
First, borrowing money became really cheap. In 2000, stocks in high-technology
companies had soared to unsustainable heights, and that bubble finally burst. To soften
the effects on the U.S. financial markets, Alan Greenspan, who headed the Federal
Reserve at that time, lowered the Federal Funds rate (the rate banks charge each other
for overnight loans, which has a direct impact on short-term interest rates, including
the prime rate) to almost zero. That move, seemingly innocent at the time, injected
huge amounts of money into the U.S. financial system. It made the cost of borrowing
so low that it fueled a glut of consumer borrowing. Suddenly, it was amazingly cheap
to buy a new car, a wide-screen television, a backyard pool, a larger home, a second
home, and all sorts of designer goodies. There was even encouragement to indulge.
Following the terrorist attacks in September 2001, President George W. Bush told
people that if they wanted to help the economy they should go shopping. And people
did. Household debt levels rose to $13.9 billion in 2008, almost double what households owed in 2000, and savings dipped into negative territory. Responsible borrowers
should have thought about what they could afford rather than what bankers would lend
to them. And responsible lenders should have established that borrowers could
actually afford to pay back the loans before lending them money.
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Real Estate Became the Investment of Choice
Of course, people also want to invest in something safe, and what could be safer than
real estate? There had been relatively few instances of real estate values declining, and
when they did the declines were generally shallow and short-lived. A point of pride in
the United States was the high percentage of Americans who owned their own homes.
Investing in a home traditionally had been a very safe investment and one that was slow
to appreciate in value. But suddenly in the early 2000s, real estate investing became a
real moneymaker. With a backdrop of historically low interest rates, real estate became
such a popular way to invest that demand soon outstripped supply and prices soared.
The value of homes skyrocketed—homes that were selling for $300,000 in one year
sold for $450,000 the next. Prices rose so fast that speculation grew tremendously.
People bought houses with almost no down payment, remodeled them or waited a few
months, and then resold the houses for a quick profit. A number of popular television
programs showed viewers how to “flip” real estate properties for profit.
Since the cost of borrowing was so low and home equity had grown so quickly,
many consumers borrowed on the equity in their homes and purchased additional real
estate or a new car or financed a luxury vacation. For example, suppose someone
purchased a house for $500,000 in 2003. By 2005, the home might have been worth
$800,000. The home owner refinanced the mortgage—borrowing as much as the entire
current worth of the house (because its value could only go up, right?), which resulted
in a $300,000 cash infusion for the home owner. This practice was very popular, and it
laid the groundwork for a huge disaster when the housing values fell off a cliff in 2008
and 2009. Imagine the home owner who refinanced the home just described. Imagine
that he took the $300,000 and purchased a summer home and a sports car and paid for
his children’s college educations. Suddenly, home values plummeted and his house
lost 30 percent of its value, which was common in markets such as California, Florida,
Nevada, and Arizona, where the real estate bubble was particularly inflated. After the
real estate bubble burst, his house was worth $560,000. Now suppose he loses his job
and needs to sell his house because he can’t afford the mortgage payments. He can’t
get $800,000 for his home, which is what he owes on his mortgage. His only choice is
to work with the mortgage holder (probably a bank) to refinance (unlikely) or declare
bankruptcy and walk away from the house. This is what a lot of home owners have
done, and it is one of the factors at the heart of the current financial crisis. Lots of folks
were in on this bubble mentality, getting what they could in the short term and not
thinking very much about the likelihood (or inevitability) that the bubble would burst.
Mortgage Originators Peddled “Liar Loans”
In the early 2000s, as housing investments increased in popularity, more and more
people got involved. Congress urged lenders Freddie Mac and Fannie Mae to expand
home ownership to lower-income Americans. Mortgage lenders began to rethink the
old rules of financing home ownership. As recently as the late 1990s, potential home
owners not only had to provide solid proof of employment and income to qualify for a
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mortgage, but they also had to make a cash down payment of between 5 and 20 percent
of the estimated value of the home. But real estate was so hot and returns on
investment were growing so quickly that mortgage lenders decided to loosen those
“old-fashioned” credit restrictions. In the early 2000s, the rules for obtaining a mortgage
became way less restrictive. Suddenly, because real estate values were rising so quickly,
borrowers didn’t have to put any money down on a house. They could borrow the entire
estimated worth of the house; this is known as 100-percent financing. Also, borrowers
no longer needed to provide proof of employment or income. These were popularly
called “no doc” (no documentation) or “liar loans” because banks weren’t bothering
to verify the “truth” of what borrowers were claiming on their mortgage applications.
This complete abandonment of lending standards opened the mortgage market to
rampant fraud, and it was not exactly a secret. The FBI warned of an “epidemic” of
mortgage fraud back in 2004, four years before that epidemic torpedoed the financial
industry.4
Banks Securitized the Poison and Spread It Around
At about the same time liar loans were becoming popular, another new practice was
introduced to mortgage markets. Investors in developing countries were looking
to the United States and its seemingly “safe” markets for investment opportunities.
Cash poured into the country from abroad—especially from countries like China
and Russia, which were awash in cash from manufacturing and oil, respectively. Wall
Street bankers developed new products to provide investment vehicles for this new
cash. One new product involved the securitization of mortgages. (Note: structured
finance began in 1984, when a large number of GMAC auto receivables were bundled
into a single security by First Boston Corporation, now part of Credit Suisse.) Here’s
how it worked: Instead of your bank keeping your mortgage until it matured, as had
traditionally been the case, your bank would sell your mortgage—usually to a larger
bank that would then combine your mortgage with many others (reducing the bank’s
incentive to be sure you would pay it back). Then the bankers sold these mortgagebacked securities to investors, which seemed like a great idea at the time. Real estate
was traditionally safe, and “slicing and dicing” mortgages divided the risk into small
pieces with different credit ratings and spread the risk around.
Of course, the reverse was also true, as the bankers learned to their horror. This
method of dividing mortgages into little pieces and spreading them around could also
spread the contagion of poor risk. However, starting in 2002 and for several years
thereafter, people couldn’t imagine housing values falling. So much money poured
into the system, and the demand for these mortgage-backed security products was so
great, that bankers demanded more and more mortgages from mortgage originators.
That situation encouraged the traditional barriers to getting a home mortgage to fall
even farther. These investment vehicles were also based upon extremely complex
mathematical formulas (and old numbers) that everyone took on faith and few
attempted to understand. It looks like more people should have followed Warren
Buffett’s sage advice not to invest in anything you don’t understand!
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Add to that toxic mix the relatively new idea of credit-default swaps (CDS). These
complex financial instruments were created to mitigate the risk financial firms took
when peddling products such as securitized mortgages. CDS are insurance contracts
that protect the holder against an event of default on the part of a debtor. One need not
own the loan or debt instrument to own the protection, and the amount of capital tied
up in trading CDS is very small compared to trading other debt instruments. That is a
very significant part in the increase in the popularity of CDS at sell-side and buy-side
trading desks. The insurance company AIG was a huge player in this market, and so
were the large banks. The firms that were counterparties to CDS never stepped back
from the trading frenzy to imagine what would happen if both the structured finance
market and the real estate bubble burst (as all bubbles eventually do) at the same time.
Both underwriters and investors would be left holding the bag when the music stopped
playing—and the U.S. taxpayer has had to bail out most of the financially stressed
firms to save the entire financial system from collapse. Please note that all of this
happened in a part of the market that was virtually unregulated.
Those Who Were Supposed to Protect Us Didn’t
One protection against financial calamity was thought to be the rating agencies, including
Standard and Poor’s and Moody’s. They rate the safety or soundness of securities, including those securitized mortgage products. A credit opinion is defined as one which
rates the timeliness and ultimate repayment of principal and interest. But, like everyone
else, the rating agencies say they didn’t foresee a decline in housing prices; and consequently, they rated the mortgage securities as being AAA—the highest rating possible,
which meant that the rating agencies considered these securities to be highly safe.
The agencies are the subject of much criticism for their role in the crisis. If they
had done a better job analyzing the risk (their responsibility), much of the crisis might
have been avoided. But note that these rating agencies are hired and paid by the
companies whose products they rate, thus causing a conflict of interest that many
believe biased their ratings in a positive direction. So, people who thought they were
making responsible investments because they checked the ratings were misled.
Another protection that failed was the network of risk managers and boards of
directors of the financial community. How is it that one 400-person business that was
part of the formerly successful insurance behemoth, AIG, could invest in such a way
that it brought the world’s largest insurance company to its knees? The risk was
underestimated all around by those professionals charged with anticipating such
problems and by the board of directors that didn’t see the problem coming. The U.S.
government (actually taxpayers) ended up bailing out AIG to the tune of $170 billion.
The risk managers and boards of other financial firms such as Citigroup, Merrill
Lynch, Lehman Brothers, Bear Stearns, and Wachovia were similarly blind.
On Wall Street, there were other contributing factors. First, bank CEOs and other
executives were paid huge salaries to keep the price of their firms’ stocks at high
levels. If their institutions lost money, their personal payouts would shrink. As a result,
bank executives focused on short-term financial results often to the exclusion of
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long-term planning or organizational strategy. Since their compensation packages were
directly tied to the company stock price, they were paid handsomely for their efforts to
bolster short-term profits. The Wall Street traders were similarly compensated—they
were paid multimillion-dollar bonuses for taking outsized risks in the market. What
seemed to matter most were the short-term profits of the firm and the short-term
compensation of those making risky decisions. The traders took risks, the bets were at
least temporarily successful, and the bankers walked off with multimillion-dollar
bonuses. It didn’t matter that the risk taking was foolish and completely irresponsible
in the long run. The bonus had already been paid. Consequently, a short-term mentality
took firm root among the nation’s bankers, CEOs, and boards of directors.
If you thought that bankers’ behavior would change as a result of the financial
debacle, think again. In 2012, JPMorgan Chase—which in the wake of the financial
crisis was described by many experts as being the best managed U.S. bank—
suffered a huge loss at the hands of a rogue trader in its London office. The initial
losses were estimated to be $2 billion, but later revised to be perhaps as high as
$9 billion—in the same exact type of investments that created the financial
catastrophe just a few years earlier.5
Finally, we cannot examine the financial crisis without questioning the role
of regulatory agencies and legislators. For example, for a decade, investor Harry
Markopolos tried on numerous occasions to spur the Securities and Exchange
Commission to investigate Bernard L. Madoff. The SEC never did uncover the largest
Ponzi scheme in the history of finance. The 65-billion-dollar swindle unraveled
only when Madoff admitted the fraud to his sons, who alerted the SEC and the U.S.
attorney’s office in New York in December 2008.
Others who are culpable in the financial crisis are members of the U.S. Congress,
who deregulated the financial industry, the source of some of their largest campaign
contributions. Among other things, they repealed the Glass-Steagall Act, which had
been passed after the U.S. stock market crash in 1929 to protect commercial banking
customers from the aggression and extreme risk taking of investment bank cultures.
The act created separate institutions for commercial and investment banks, and they
stayed separate until the merger of Citicorp and Travelers to form Citigroup in 1998.
The two companies petitioned Congress to eliminate Glass-Steagall, claiming that it
was an old, restrictive law and that today’s markets were too modern and sophisticated
to need such protection. And Congress listened.
Those 1930s congressmen knew that if the two banking cultures tried to exist
in the same company—the staid, conservative culture of commercial banking (our
savings and checking accounts) and the razzle-dazzle, high-risk culture of investment
banking—the “eat what you kill” investment bank culture would win out. Some said
that staid old commercial banks turned into “casinos.” But, interestingly, casinos are
highly regulated and are required to keep funds on hand to pay winners. In the coming
months, we expect to learn more about the behavior that led to this crisis. As we noted
earlier, much if not most of it was probably legal because of the lack of regulation in
the mortgage and investment banking industries. But look at the outcome! If only
ethical antennae had been more sensitive, more people might have questioned
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products they didn’t understand, or spoken out or refused to participate in practices
that were clearly questionable. As just one tiny example, could anyone have thought it
was ethical to sell a product they called a liar loan, knowing that the customer surely
would be unable to repay (even if it was legal to do so)?
In 2010, the U.S. Congress passed the Dodd-Frank Financial Regulation
Legislation— an attempt to rein in the most egregious practices in the financial industry.
Financial institution lobbyists continue trying to water down the effects of this bill as
regulators work to implement its complex regulations. Several European countries may
be ahead of the U.S. when it comes to comprehensive financial regulation reform.6
What’s increasingly clear is that corruption exists among the world’s leading
financial institutions and that sometimes they collude in that corruption. If you think
that is an exaggeration, please read about the LIBOR scandal that broke during the
summer of 2012. LIBOR, which stands for the London Interbank Offered Rate, is the
interest rate by which banks can borrow from one another. LIBOR is important
because so many of the loans around the world—mortgage rates, car loans, corporate
debt, etc., are pegged to those LIBOR rates. Experts estimate that hundreds of trillions
of dollars worth of financial contracts and derivatives are tied to LIBOR.
Regulators in several countries have accused a number of global financial
institutions with cooperating with one another to rig LIBOR rates to make themselves
appear healthier in the wake of the financial collapse of 2008–2009. As this book goes
to press, two huge banks have already settled charges that they manipulated LIBOR
rates. Barclays paid $450 million and UBS is paying $1.5 billion to U.S., U.K., and
Swiss regulators for their part in the crisis. This crisis is far from over, because the UBS
settlement not only charges that UBS manipulated rates to make itself look healthier,
but also that it colluded with other global banks to make money from the manipulated
rates. This is the equivalent of the big players admitting that the game is fixed. The
banks under investigation include the largest firms in the world: Bank of America,
JPMorgan Chase, Morgan Stanley, Citigroup, and Bank of England, among others.7
One Wall Street veteran described the scandal this way: “It’s like finding out that the
whole world is on quicksand.”8
Let’s delve into the cynicism that this and previous scandals have created and then
try to move beyond it so that you can do things differently in the future.
MOVING BEYOND CYNICISM
After multiple waves of business scandals, some cynicism (a general distrust) about
business and its role in society is probably healthy. However, cynicism about business
has truly become an epidemic in the United States. To be fair, we should note that
although the financial industry screwed up royally, at the same time most other
mainstream American companies were “running their companies with strong balance
sheets and sensible business models.”9 Most companies were responsible, profitable,
and prudent. Because they had serious cash reserves, many of them have actually
managed to weather the recent crises reasonably well. But the attention has not been on
these responsible companies. It’s been on the financial sector and its irresponsibility.
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How bad is the cynicism? According to the 2012 Edelman Trust Barometer10—a
survey of almost 30,000 college-educated people around the world—it’s very bad,
especially in the United States. (Edelman is the world’s largest independent public
relations firm with 53 offices around the world. Its business is helping companies build
and maintain reputations.) Edelman’s study shows that consumer trust in corporations
has declined precipitously. More than half of the respondents stated that they trust
business less than they did four years ago (in 2008). The decrease is particularly acute
in the United States, where citizens have traditionally had higher opinions of business
than they do in Europe. For example, only 35 percent of Americans surveyed trust
banks to be ethical—a 34-point drop since 2008. The only part of the world where trust
levels have not declined is in the developing world—the so-called BRIC nations
(Brazil, Russia, India, China).
The Edelman study also highlights the importance of consumer trust—the degree
to which consumers trust organizations has a direct impact on their buying patterns and
much more. Over a one-year period, 91 percent of consumers stated that they purchased
a product of service from a company they trust, and 77 percent of consumers refused to
purchase a product or service from a company that they mistrusted. These figures
suggest that corporate reputations affect consumer buying patterns, and companies risk
harming their bottom line when they do not act to protect their good name.
However, consistent with our idea that business ethics is not a fad, neither is
public cynicism about business ethics new. We have written about it in every edition
of our book (since 1995). Surely, the factor that has contributed the most to cynicism
in recent years is the highly visible behavior of some of the nation’s leading
corporations and executives, whose activities have garnered so much space in the
business press and on the evening news. How do you watch hour after hour of such
reporting and not walk away jaded? In the last few years, all you had to do was read
about or watch the news to feel cynical, and business school students are no
exception. We also note that business is not alone in its scandalous behavior. In
recent years, we’ve learned about government employees who stole or misused funds,
academics who falsified their research results, ministers who stole from their
congregations, priests who abused children, and athletes who took bribes or used
performance-enhancing drugs. It seems that no societal sector is immune.
Many of our readers are business school students, the current or future managers
of business enterprises. Surveys suggest that many business students are themselves
surprisingly cynical about business (given that they’ve chosen it as their future
profession). They may believe that they’ll be expected to check their ethics at the
corporate door or that they will be pressured to compromise their own ethical
standards in order to succeed.11 Consider this scenario that took place at a large
university: A professor asked his class to name management behaviors that are morally
repugnant. His class struggled to name one! In another of his classes, the professor
asked if the students would dump carcinogens in a river. This time the class agreed that
they would do so because if they didn’t, someone else would. When the professor
asked if they really wanted to live in such a cynical environment, the class insisted that
they already did. The dismayed professor believed that the attitudes of his students
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were formed long before they landed in his classroom. He agreed with other observers
that the problem goes way beyond business and business schools and that our society,
with its emphasis on money and material success, is rearing young people who strive
for achievement at any cost. One symptom: cheating is pervasive in many high schools
and colleges.12
This scenario is enough to make anyone wonder about today’s business students.
But at the same time, we know that students at many colleges and universities,
including business schools, are encouraging their own faculty and administrators to
establish newly invigorated academic integrity policies and honor codes. In an honor
code community, students take responsibility for implementing the academic integrity
policy and for holding each other accountable to it. They manage study-run judiciaries
that mete out serious discipline to their fellow students who tarnish the community by
cheating. These efforts, which are gaining real traction at many schools, suggest that at
least some students have had enough and are willing to turn from cynicism toward a
proactive approach to change things.
A 2008 Aspen Institute study of nearly 2,000 MBA students from 15 leading
international business schools provides some insight into MBA students’ attitudes,
which appear to be moving in a less cynical direction. Similar to the findings they
obtained in a 2002 survey, the results of Aspen’s 2008 survey of MBA students indicate
that the students anticipate facing difficult conflicts regarding values in their jobs, and
they suggest some cynicism about ethics in the workplace. However, about 40 percent
of these students believe that their business education is preparing them to manage
values conflicts “a lot,” and another 50 percent believe that they’re being prepared
“somewhat.” Also, more than a quarter of the respondents said they are interested in
finding a job that gives them the opportunity to contribute to society (compared to only
15 percent in 2002). More than half believe that safe, high-quality products and responsible governance and transparent business practices are very important in a potential
employer. In addition, more than half said they would advocate alternative values or
approaches in response to values conflicts at work (many more than in 2002).13
The media may be largely responsible for students’ cynical attitudes. Think about
the depiction of business and its leaders in movies and on television. The Media
Research Center conducted a survey of 863 network TV sitcoms, dramas, and movies
in the mid-1990s. Nearly 30 percent of the criminal characters in these programs were
business owners or corporate executives. Entrepreneurs were represented as drug
dealers, kidnappers, or sellers of defective gear to the military.14Fortune magazine
called this “the rise of corporate villainy in prime time.”15 Movies have abounded with
negative messages about corporate America. Think Arbitrage, Avatar, Inside Job, Up
in the Air, The Constant Gardner, Gasland, Wall Street, Boiler Room, Civil Action,
Glengarry Glen Ross, The Insider, Erin Brockovich, Supersize Me, The Corporation,
Enron: The Smartest Guys in the Room, Michael Clayton, The International, Quiz
Show, The Insider, and Bowling for Columbine. And there are more such movies every
year; we’re sure you can add to the list. A much tougher exercise is to generate a list
of movies and television shows that actually create a positive ethical impression of
business. Can you think of any? The consistent negative representation of business
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in the media has its effects. Academic research suggests that cynicism toward
American business increased after study participants viewed the film Roger & Me,
which depicted ruthless plant closings and layoffs at General Motors.16 Imagine the
cumulative, daunting effect of viewing countless movies and television programs that
portray business as corrupt and business leaders as ruthless and unethical.
To counter that media-fueled cynicism at least somewhat, we encourage you
to think about your own life and the hundreds of reliable products and services
you trust and depend on every day as well as the people and businesses that produce
them. These good folks are businesspeople too, but it isn’t nearly as exciting or sexy
for the media to portray businesspeople who do the right thing every day. We also
encourage you to talk with businesspeople you know, perhaps people in your own
family who work for businesses. Do they feel pressured to compromise their ethical
standards, or do they see their employer in a more positive light?
Interestingly, the Ethics Resource Center’s 2011 National Business Ethics Survey
found that only 13 percent of employees of for-profit enterprises report feeling
pressured to compromise their ethical standards. That means that more than 87 percent
say that they’re not feeling such pressure. Also, nearly two-thirds of these employees
said that their own company has a strong or strong-leaning ethical culture. What do
these numbers mean? To us, it means that most Americans who work in business think
that their own company and coworkers are pretty ethical. Still, they read the same
media accounts and see the same movies and TV programs as everyone else, and these
offerings influence cynicism about American business in general.17
Finally, we won’t leave a discussion of cynicism without talking about the events
of September 11, 2001. While the business scandals of 2001–02 left many cynical, the
events of September 11, 2001, showed us some of the best in many individuals and
businesses. We have read about the care, compassion, and assistance that countless
American firms gave to those who were harmed by the terrorist attacks. Few firms
were hit as hard as Sandler O’Neill & Partners, a small but profitable Wall Street
investment bank that lost 66 of its 171 employees—including two of the firm’s
leading partners—on September 11. The firm’s offices were on the 104th floor of the
World Trade Center. Despite its dire financial straits, the firm sent every deceased
employee’s family a check in the amount of the employee’s salary through the end of
the year and extended health-care benefits for five years. Bank of America quickly
donated office space for the firm to use. Competitors sent commissions their way and
freely gave the company essential information that was lost with the traders who had
died. Larger Wall Street firms took it upon themselves to include Sandler in their
deals. The goal was simply to help Sandler earn some money and get back on its
feet.18 This is only one of the many stories that point to the good that exists in the
heart of American business. In this book, we offer a number of positive stories to
counterbalance the mostly negative stories portrayed in the media.
The bottom line is this. We’re as frustrated as you are about the media portrayal
of business and the very real, unethical behavior that regularly occurs in the business
community. But we also know that the business landscape is a varied one that is
actually dominated by good, solid businesses and people who are even heroic and
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extraordinarily giving at times. So, for our cynical readers, we want to help by doing
two things in this book: (1) empowering managers with the tools they need to
address ethical problems and manage for ethical behavior, and (2) providing positive
examples of people and organizations who are “doing things right” to offset some of
the media-fueled negativity.
In May 2009, something notable and quite positive happened. A group of 20
second-year students at Harvard Business School created The MBA Oath in an attempt
to articulate the values they felt their MBA degree ought to stand for:
THE MBA OATH
As a business leader I recognize my role in society.
&
My purpose is to lead people and manage resources to create value
that no single individual can create alone.
&
My decisions affect the well-being of individuals inside and outside
my enterprise, today and tomorrow.
Therefore I promise:
&
&
&
&
I will manage my enterprise with loyalty and care, and will not
advance my personal interests at the expense of my enterprise or
society.
I will understand and uphold, in letter and spirit, the laws and contracts
governing my conduct and that of my enterprise.
I will refrain from corruption, unfair competition, or business
practices harmful to society.
I will protect the human rights and dignity of all people affected by my
enterprise, and I will oppose discrimination and exploitation.
&
I will protect the right of future generations to advance their standard
of living and enjoy a healthy planet.
&
I will report the performance and risks of my enterprise accurately and
honestly.
&
I will invest in developing myself and others, helping the management
profession continue to advance and create sustainable and inclusive
prosperity.
In exercising my professional duties according to these principles, I
recognize that my behavior must set an example of integrity, eliciting trust and
esteem from those I serve. I will remain accountable to my peers and to society
for my actions and for upholding these standards.
This oath I make freely, and upon my honor.
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This focus on positive values among business students and business in general
received significant publicity and turned into something of a movement. More than
400 graduates of Harvard Business School signed the oath, and they were joined by
more than 6,000 business students from 300 other colleges and universities globally.
For more information, go to www.mbaoath.org.
CAN BUSINESS ETHICS BE TAUGHT?
Given all that has happened, you may be wondering whether business ethics can be
taught. Perhaps all of the bad behavior we outlined earlier results from a relatively few
“bad apples” who never learned ethics from their families, clergy, previous schools, or
employers.19 If this were so, ethics education would be a waste of time and money,
and resources should be devoted to identifying and discarding bad apples, not trying
to educate them. We strongly disagree, and the evidence is on our side.
Aren’t Bad Apples the Cause of Ethical Problems
in Organizations?
According to the bad apple theory, people are good or bad and organizations are
powerless to change these folks. This bad apple idea20 is appealing in part because
unethical behavior can then be blamed on a few individuals with poor character.
Although it’s unpleasant to fire people, it’s relatively easier for organizations to
search for and discard a few bad apples than to search for some organizational
problem that caused the apple to rot.
Despite the appeal of the bad apple idea, “character” is a poorly defined concept,
and when people talk about it, they rarely define what they mean. They’re probably
referring to a complex combination of traits that are thought to guide individual
behavior in ethical dilemmas. If character guides ethical conduct, training shouldn’t
make much difference because character is thought to be relatively stable: it’s difficult
to change, persists over time, and guides behavior across different contexts. Character
develops slowly as a result of upbringing and the accumulation of values that are
transmitted by schools, families, friends, and religious organizations. Therefore,
people come to educational institutions or work organizations with an already defined
good or poor character. Good apples will be good and bad apples will be bad.
In fact, people do have predispositions to behave ethically or unethically (we
talk about this in Chapter 3). And sociopaths can certainly slip into organizations
with the sole intent of helping themselves to the organization’s resources, cheating
customers, and feathering their own nests at the expense of others. Famous scoundrels like Bernie Madoff definitely come to mind. Such individuals have little interest
in “doing the right thing,” and when this type of individual shows up in your organization, the best thing to do is discard the bad apple and make an example of the
incident to those who remain.
But discarding bad apples generally won’t solve an organization’s problem with
unethical behavior. The organization must scrutinize itself to determine whether
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something rotten inside the organization is spoiling the apples. For example, Enron
encouraged a kind of devil-may-care, unethical culture that is captured in the film
Enron: The Smartest Guys in the Room. Arthur Andersen’s culture morphed from a
focus on the integrity of audits to a consulting culture that focused almost exclusively
on feeding the bottom line (you’ll read more about that in Chapter 5). In this book
you’ll learn that most people are not guided by a strict internal moral compass. Rather,
they look outside themselves—to their environment—for cues about how to think and
behave. This was certainly true in the financial crisis when the mantra became
“everyone is doing it” (and making a lot of money besides). At work, managers and the
organizational culture transmit many cues about how employees should think and act.
For example, reward systems play a huge role by rewarding short-term thinking and
profits, as they did in the recent financial crisis. In this book, you’ll learn about the
importance of these organizational influences and how to harness them to support
ethical behavior and avoid unethical behavior.
So, apples often turn bad because they’re spoiled by “bad barrels”—bad work
environments that not only condone, but may even expect unethical behavior. Most
employees are not bad to begin with, but their behavior can easily turn bad if they
believe that their boss or their organization expects them to behave unethically or if
everyone else appears to be engaging in a particular practice. In this view, an
organization that’s serious about supporting ethical behavior and preventing misconduct must delve deeply into its own management systems and cultural norms and
practices to search for systemic causes of unethical behavior. Management must take
responsibility for the messages it sends or fails to send about what’s expected. If ethics
problems are rooted in the organization’s culture, discarding a few bad apples without
changing that culture isn’t going to solve the problem. An effective and lasting
solution will rely on management’s systematic attention to all aspects of the
organization’s culture and what it is explicitly or implicitly “teaching” organizational
members (see Chapter 5).
This question about the source of ethical and unethical behavior reflects the
broader “nature/nurture” debate in psychology. Are we more the result of our genes
(nature) or our environment (nurture)? Most studies find that behavior results from
both nature and nurture. So, when it comes to ethical conduct, the answer is not either/
or, but and. Individuals do come to work with predispositions that influence their
behavior, and they should take responsibility for their own actions—but the work
environment can also have a large impact. In this book, you’ll learn a lot about how that
work environment can be managed to produce ethical rather than unethical conduct.
Shouldn’t Employees Already Know the Difference
between Right and Wrong?
A belief associated with the good/bad apple idea is that any individual of good
character should already know right from wrong and can be ethical without special
training—that a lifetime of socialization from parents, school, and religious institutions should prepare people to be ethical at work. You probably think of yourself as an
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individual of good character, but does your life experience to date prepare you to make
a complex business ethics decision? Did your parents, coaches, and other influential
people in your life ever discuss situations like the one that follows? Think about this
real dilemma.
You’re the VP of a medium-sized organization that uses chemicals in its production processes. In good faith, you’ve hired a highly competent scientist to ensure that
your company complies with all environmental laws and safety regulations. This
individual informs you that a chemical the company now uses in some quantity is not
yet on the approved Environmental Protection Agency (EPA) list. However, it has been
found to be safe and is scheduled to be placed on the list in about three months. You
can’t produce your product without this chemical, yet regulations say that you’re not
supposed to use the chemical until it’s officially approved. Waiting for approval would
require shutting down the plant for three months, putting hundreds of people out of
work, and threatening the company’s very survival. What should you do?
The solution isn’t clear, and good character isn’t enough to guide decision making
in this case. As with all ethical dilemmas, values are in conflict here—obeying the letter
of the law versus keeping the plant open and saving jobs. The decision is complicated
because the chemical has been found to be safe and is expected to be approved in a
matter of months. As in many of today’s business decisions, this complex issue requires
the development of occupation-specific skills and abilities. For example, some knowledge in the area of chemistry, worker safety, and environmental laws and regulations
would be essential. Basic good intentions and a good upbringing aren’t enough.
James Rest, a scholar in the areas of professional ethics and ethics education,
argued convincingly that “to assume that any 20-year-old of good general character
can function ethically in professional situations is no more warranted than assuming
that any logical 20-year-old can function as a lawyer without special education.”21
Good general character (whatever that means) doesn’t prepare an individual to deal
with the special ethical problems that are likely to arise in a career. Individuals must be
trained to recognize and solve the unique ethical problems of their particular
occupation. That’s why many professional schools (business, law, medicine, and
others) have added ethics courses to their curricula, and it’s why most large business
organizations now conduct ethics training for their employees.
So, although individual characteristics are a factor in determining ethical behavior, good character alone simply doesn’t prepare people for the special ethical
problems they’re likely to face in their jobs or professions. Special training can
prepare them to anticipate these problems, recognize ethical dilemmas when they see
them, and provide them with frameworks for thinking about ethical issues in the
context of their unique jobs and organizations.
Aren’t Adults’ Ethics Fully Formed and Unchangeable?
Another false assumption guiding the view that business ethics can’t be taught is the
belief that one’s ethics are fully formed and unchangeable by the time one is old enough
to enter college or a job. However, this is definitely not the case. Research has found that
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through a complex process of social interaction with peers, parents, and other significant
persons, children and young adults develop in their ability to make ethical judgments.
This development continues at least through young adulthood. In fact, young adults in
their twenties and thirties who attend moral development educational programs have
been found to advance in moral reasoning even more than younger individuals do.22
Given that most people enter professional education programs and corporations as
young adults, the opportunity to influence their moral reasoning clearly exists.
Business school students may need ethics training more than most, because
research has shown they have ranked lower in moral reasoning than students in
philosophy, political science, law, medicine, and dentistry.23 Also, undergraduate
business students and those aiming for a business career were found to be more likely
to engage in academic cheating (test cheating, plagiarism, etc.) than were students in
other majors or those headed toward other careers.24 At a minimum, professional
ethics education can direct attention to the ambiguities and ethical gray areas that are
easily overlooked without it. Consider this comment from a 27-year-old Harvard
student after a required nine-session module in decision making and ethical values at
the beginning of the Harvard MBA program.
Before, [when] I looked at a problem in the business world, I never
consciously examined the ethical issues in play. It was always subconscious and I hope that I somewhat got it. But that [ethics] was never
even a consideration. But now, when I look at a problem, I have to look at
the impact. I’m going to put in this new ten-million-dollar project. What’s
going to be the impact on the people that live in the area and the
environment. . . . It’s opened my mind up on those things. It’s also
made me more aware of situations where I might be walking down the
wrong path and getting in deeper and deeper, to where I can’t pull back.25
In 2004, Harvard’s MBA class of 1979 met for its 25-year reunion. The alumni
gave the dean a standing ovation when he stated that a new required course on values
and leadership was his highest priority and then pledged to “live my life and lead the
school in a way that will earn your trust.”26
It should be clear from the above arguments that ethics can indeed be taught.
Ethical behavior relies on more than good character. Although a good upbringing may
provide a kind of moral compass that can help the individual determine the right
direction and then follow through on a decision to do the right thing, it’s certainly not
the only factor determining ethical conduct. In today’s highly complex organizations,
individuals need additional guidance. They can be trained to recognize the ethical
dilemmas that are likely to arise in their jobs; the rules, laws, and norms that apply in
that context; reasoning strategies that can be used to arrive at the best ethical decision;
and the complexities of organizational life that can conflict with one’s desire to do the
right thing. For example, businesses that do defense-related work are expected to
comply with a multitude of laws and regulations that go far beyond what the average
person can be expected to know.
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The question of whether ethics should be taught remains. Many still believe that
ethics is a personal issue best left to individuals. They believe that much like
proselytizing about religion, teaching ethics involves inappropriate efforts to impose
certain values and control behavior. But we believe that employers have a real
responsibility to teach employees what they need to know to recognize and deal
with ethical issues they are likely to face at work. Failing to help employees recognize
the risks in their jobs is like failing to teach a machinist how to operate a machine
safely. Both situations can result in harm, and that’s just poor management. Similarly,
we believe that, as business educators, we have a responsibility to prepare you for the
complex ethical issues you’re going to face and to help you think about what you can
do to lead others in an ethical direction.
DEFINING ETHICS Some of the controversy about whether ethics can or should be
taught may stem from disagreements about what we mean by ethics. Ethics can be
defined as “a set of moral principles or values”—a definition that portrays ethics as
highly personal and relative. I have my moral principles, you have yours, and neither
of us should try to impose our ethics on the other.
But our definition of ethics—“the principles, norms, and standards of conduct
governing an individual or group”—focuses on conduct. We expect employers to
establish guidelines for work-related conduct, including such basic matters as what
time to arrive and leave the workplace, whether smoking is allowed on the premises,
how customers are to be treated, and how quickly work should be done. Guidelines
about ethical conduct aren’t much different. Many employers spend a lot of time and
money developing policies for employee activities that range from how to fill out
expense reports to what kinds of client gifts are acceptable to what constitutes a
conflict of interest or bribe. If we focus on conduct, ethics becomes an extension of
good management. Leaders identify appropriate and inappropriate conduct, and they
communicate their expectations to employees through ethics codes, training programs,
and other communication channels.
In most cases, individual employees agree with their company’s expectations and
policies. For example, who would disagree that it’s wrong to steal company property, lie
to customers, dump cancerous chemicals in the local stream, or not comply with regulations on defense contracts? At times, however, an employee may find the organization’s
standards inconsistent with his or her own moral values or principles. For example, a
highly religious employee of a health maintenance organization may object to offering
abortion as an alternative when providing genetic counseling to pregnant women. Or
a highly devoted environmentalist may believe that his or her organization should go
beyond the minimum standards of environmental law when making decisions about
how much to spend on new technology or on environmental cleanup efforts. These
individuals may be able to influence their employers’ policies. Otherwise, the person’s
only recourse may be to leave the organization for one that is a better values match.
Whether or not we like to admit it, our
ethical conduct is influenced (and to a large degree controlled) by our environment.
GOOD CONTROL OR BAD CONTROL?
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In work settings, leaders, managers, and the entire cultural context are an important
source of this influence and guidance. If, as managers, we allow employees to drift
along without our guidance, we’re unintentionally allowing them to be “controlled”
by others. If this happens, we’re contributing to the creation of “loose cannons”
who can put the entire organization at risk. Guidance regarding ethical conduct is
an important aspect of controlling employee behavior. It can provide essential
information about organizational rules and policies, and it can provide explanations
and examples of behavior that is considered appropriate or inappropriate in a variety
of situations.
But should organizations be “controlling” their employees in this way? B. F.
Skinner,27 the renowned psychologist, argued that it’s all right, even preferable, to
intentionally control behavior. He believed that all behavior is controlled, either
intentionally or unintentionally. Therefore what was needed was more intentional
control, not less. Similarly, ethical and unethical behavior in organizations is already
being controlled explicitly or implicitly by the existing organizational culture (see
Chapter 5). Thus, organizations that neglect to teach their members “ethical” behavior
may be tacitly encouraging “unethical behavior” through benign neglect. It’s management’s responsibility to provide explicit guidance through direct management and
through the organization’s culture. The supervisor who attempts to influence the
ethical behavior of subordinates should be viewed not as a meddler but as a part of
the natural management process.
To summarize, we believe that educational institutions and work organizations
should teach people about ethics and guide them in an ethical direction. Adults are
open to, and generally welcome, this type of guidance. Ethical problems are not caused
entirely by bad apples. They’re also the product of bad barrels—work environments
that either encourage unethical behavior or merely allow it to occur. Making ethical
decisions in today’s complex organizations isn’t easy. Good intentions and a good
upbringing aren’t enough. The special knowledge and skill required to make good
ethical decisions in a particular job and organizational setting may be different from
what’s needed to resolve personal ethical dilemmas, and this knowledge and skill must
be taught and cultivated.
THIS BOOK IS ABOUT MANAGING ETHICS
IN BUSINESS
This book offers a somewhat unique approach to teaching business ethics. Instead of
the traditional philosophical or legalistic approach, we take a managerial approach.
Between us, we have many years of experience in management, in consulting, and in
management teaching and research. Based on this experience, we begin with the
assumption that business ethics is essentially about human behavior. We believe that
by understanding human behavior in an organizational context, we can better
understand and manage our own and others’ ethical conduct. Kent Druyvesteyn
was vice president for ethics at General Dynamics from 1985 to 1993 and one of the
first “ethics officers” in an American company. He made a clear distinction between
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SECTION I INTRODUCTION
philosophy and management in his many talks with students and executives over
the years. As he put it, “I am not a philosopher and I am not here to talk about
philosophy. Ethics is about conduct.”
We agree with Mr. Druyvesteyn. After years of study and experience, we’re
convinced that a management approach to organizational ethics is needed. As with any
other management problem, managers need to understand why people behave the way
they do so that they can influence this behavior. Most managers want the people they
work with to be productive, to produce high-quality products, to treat customers well,
and to do all of this in a highly ethical manner. They also want and need help
accomplishing these goals.
Therefore we rely on a managerial approach to understanding business ethics. We
introduce concepts that can be used to guide managers who want to understand their
own ethical behavior and the behavior of others in the organization. And we provide
practical guidance to those who wish to lead their department or organization in an
ethical direction.
We define ethical behavior in business as “behavior that is consistent with the
principles, norms, and standards of business practice that have been agreed upon by
society.” Although some disagreement exists about what these principles, norms, and
standards should be, we believe there is more agreement than disagreement. Many of
the standards have been codified into law. Others can be found in company and
industry codes of conduct and international trade agreements.
Importantly, we treat the decisions of people in work organizations as being
influenced by characteristics of both individuals and organizations. We also recognize
that work organizations operate within a broad and complex global business context.
We will cover individual decision making, group and organizational influences, and
the social and global environment of business. The first part of this perspective, the
influences on individual decision making, is represented in Figure 1.1.
CHARACTERISTICS OF INDIVIDUALS
Individual differences
Cognitive biases
Process of Individual Ethical Decision Making
ETHICAL
AWARENESS
ETHICAL
JUDGMENT
ETHICAL
BEHAVIOR
CHARACTERISTICS OF ORGANIZATIONS
Group and organizational pressures
Organizational culture
FIGURE 1.1 The Ethical Decision-Making Process
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Ethics
Law
FIGURE 1.2 Relationship between Ethics and Law
ETHICS AND THE LAW
It’s important to think about the relationship between the law and business ethics,
because if one could just follow the law, a business ethics book wouldn’t be
n...
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