Business Ethics
Case Studies and Selected Readings
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Business Ethics
Case Studies and Selected Readings
EIGHTH EDITION
MARIANNE MOODY JENNINGS
Arizona State University
Australia • Brazil • Japan • Korea • Mexico • Singapore • Spain • United Kingdom • United States
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Business Ethics: Case Studies and
Selected Readings, Eighth Edition
Marianne Moody Jennings
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Brief Contents
Preface xiv
Acknowledgments
UNIT 1
SECTION
SECTION
A
B
xxii
Ethical Theory, Philosophical Foundations, Our Reasoning Flaws,
and Types of Ethical Dilemmas 1
Defining Ethics 2
Resolving Ethical Dilemmas
33
UNIT 2
Solving Ethical Dilemmas and Personal Introspection
A
SECTION B
SECTION C
Business and Ethics: How Do They Work Together? 54
What Gets in the Way of Ethical Decisions in Business? 65
Resolving Ethical Dilemmas in Business 79
SECTION
UNIT 3
SECTION
A
B
C
SECTION D
SECTION
SECTION
UNIT 4
A
SECTION B
SECTION C
SECTION D
SECTION E
SECTION F
SECTION G
SECTION
UNIT 5
SECTION
SECTION
A
B
UNIT 6
SECTION
A
SECTION
B
UNIT 7
A
SECTION B
SECTION C
SECTION D
SECTION
53
Business, Stakeholders, Social Responsibility, and Sustainability
Business and Society: The Tough Issues of Economics,
Social Responsibility, and Business 110
Applying Social Responsibility and Stakeholder Theory
Social Responsibility and Sustainability 170
Government as a Stakeholder 179
Ethics and Company Culture
109
126
189
Temptation at Work for Individual Gain and That Credo 190
The Organizational Behavior Factors 194
The Psychological and Behavior Factors 219
The Structural Factors: Governance, Example, and Leadership 246
The Industry Practices and Legal Factors 274
The Fear-and-Silence Factor 303
The Culture of Goodness 342
Ethics and Contracts
357
Contract Negotiations: All Is Fair and Conflicting Interests
Promises, Performance, and Reality 368
Ethics in International Business
358
387
Conflicts Between the Corporation’s Ethics and
Business Practices in Foreign Countries 388
Bribes, Grease Payments, and “When in Rome …” 415
Ethics, Business Operations, and Rights
Workplace
Workplace
Workplace
Workplace
423
Safety 424
Loyalty 439
Diversity and Atmosphere 455
Privacy and Personal Lives 461
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v
vi
Brief Contents
SECTION
SECTION
E
F
UNIT 8
A
B
SECTION C
SECTION D
SECTION
SECTION
UNIT 9
A
SECTION B
SECTION C
SECTION
Workplace Confrontation 471
Workplace and the Environment
Ethics and Products
482
491
Advertising Content 492
Product Safety 503
Product Sales 527
Products and Social Issues
543
Ethics and Competition
547
Covenants Not to Compete 548
All’s Fair, or Is It? 558
Intellectual Property and Ethics 565
The Ethical Common Denominator (ECD) Index: The Common Threads
of Business Ethics 573
Alphabetical Index 585
Business Discipline Index 591
Product/Company/Individuals Index 601
Topic Index 639
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Contents
Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xiv
Acknowledgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xxii
U N I T
1
Ethical Theory, Philosophical Foundations,
Our Reasoning Flaws, and Types of Ethical
Dilemmas
SECTION A
2
Defining Ethics
Reading 1.1
Reading 1.2
Reading 1.3
Reading 1.4
Reading 1.5
Case 1.6
Reading 1.7
Case 1.8
You, Your Values, and a Credo 2
The Parable of the Sadhu: Pressure, Small Windows of Opportunity, and
Temptation 4
What Are Ethics? From Line-Cutting to Kant 9
The Types of Ethical Dilemmas: From Truth to Honesty
to Conflicts 17
On Rationalizing and Labeling: The Things We Do That Make Us
Uncomfortable, but We Do Them Anyway 23
“I Was Just Following Orders”: The CIA, Interrogation, and the
Role of Legal Opinions 27
The Slippery Slope, the Blurred Lines, and How We Never Do Just
One Thing 30
Hank Greenberg and AIG, and Steve Cohen and SAC Capital 31
SECTION B
Resolving Ethical Dilemmas
Reading 1.9
Reading 1.10
Reading 1.11
Case 1.12
Case
Case
Case
Case
Case
1.13
1.14
1.15
1.16
1.17
Case 1.18
Case 1.19
Case 1.20
33
Some Simple Tests for Resolving Ethical Dilemmas 33
Some Steps for Analyzing Ethical Dilemmas 38
On Plagiarism 39
The Little Teacher Who Could: Piper, Kansas, and Term
Papers 40
Dog Walkers and Scoopers 42
Puffing Your Résumé 43
Dad, the Actuary, and the Stats Class 46
Wi-Fi Piggybacking 46
Stuyvesant High School and the Cheating Culture of
Excellence 47
Speeding: You Can’t Survive on the Road unless
You Do 48
Hazing Drinking, and Campuses 50
The Pack of Gum 51
vii
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viii
Contents
U N I T
2
Solving Ethical Dilemmas and Personal Introspection
SECTION A
Business and Ethics: How Do They Work Together?
Reading 2.1
Reading 2.2
Reading 2.3
54
What’s Different about Business Ethics? 54
The Ethics of Responsibility 55
Is Business Bluffing Ethical? 56
SECTION B
What Gets in the Way of Ethical Decisions in Business?
Reading 2.4
Reading 2.5
Reading 2.6
Case 2.7
Case 2.8
65
How Leaders Lose Their Way: What Price Hubris? 65
Moral Relativism and the Either/or Conundrum 67
P = f(x) The Probability of an Ethical Outcome Is a Function of the Amount of
Money Involved: Pressure 68
MF Global, Jon Corzine, and a Bankruptcy 69
On Saying One Thing and Doing Another: Public Perception and Deception
Covering for the CEO 75
SECTION C
Resolving Ethical Dilemmas in Business
Reading 2.9
Case 2.10
Case 2.11
Case
Case
Case
Case
Case
Case
U N I T
3
2.12
2.13
2.14
2.15
2.16
2.17
79
Framing Issues Carefully: A Structured Approach for Solving Ethical Dilemmas
and Trying Out Your Ethical Skills on Some Business Cases 79
Galleon Hedge Fund: Expert Networks, Friendly Discussions or Insider
Trading? 80
What Was Up with Wall Street? The Goldman Standard and Shades of
Gray 82
Making Believe We Are at Work or Being Loyal: The Alibis of Technology 93
Make-Believe Reality TV: Storage Wars and Reconstructed Home Sales 94
Travel Expenses: A Chance for Extra Income 95
Do Cheaters Prosper? 96
The Home Repair Contractor Tempted By Customers and Contracts 96
Penn State: Framing Ethical Issues 97
Business, Stakeholders, Social Responsibility, and
Sustainability
SECTION A
Business and Society: The Tough Issues of Economics,
Social Responsibility, and Business
Reading 3.1
Reading 3.2
Reading 3.3
Reading
Reading
Reading
Reading
3.4
3.5
3.6
3.7
110
The Social Responsibility of Business Is to Increase Its Profits 110
A Look at Stakeholder Theory 115
Business with a Soul: A Reexamination of What Counts in Business
Ethics 118
Appeasing Stakeholders with Public Relations 121
Conscious Capitalism: Creating a New Paradigm for Business 122
Marjorie Kelly and the Divine Right of Capital 123
Schools of Thought on Social Responsibility 124
SECTION B
Applying Social Responsibility and Stakeholder Theory
Case 3.8
Case 3.9
Case 3.10
126
Skittles, Trayvon Martin, and Social Responsibility 126
Guns, Stock Prices, Safety, Liability, and Social Responsibility 127
The Craigslist Connections: Facilitating Crime 133
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ix
Contents
Case 3.11
Reading 3.12
Case 3.13
Case
Case
Case
Case
3.14
3.15
3.16
3.17
Planned Parenthood Backlash at Companies and Charities 133
The Regulatory Cycle, Social Responsibility, Business Strategy, and
Equilibrium 135
Fannie, Freddie, Wall Street, Main Street, and the Subprime Mortgage Market:
Of Moral Hazards 139
Cruises, Comfort, and Costs 150
Ice-T, the Body Count Album, and Shareholder Uprisings 156
Athletes and Doping: Costs, Consequences, and Profits 162
Back Treatments and Meningitis in an Under-the-Radar Industry 168
SECTION C
Social Responsibility and Sustainability
Reading 3.18
Case 3.19
Case 3.20
Case 3.21
Case 3.22
Case 3.23
170
The New Environmentalism 170
GM, the Volt, and Halted Sales and Production 172
Buying Local: The Safety Issues in Farmers’ Markets 173
Biofuels and Food Shortages in Guatemala 174
The Dictator’s Wife in Louboutin Shoes Featured in Vogue Magazine 174
Herman Miller and Its Rain Forest Chairs 175
SECTION D
Government as a Stakeholder
Case
Case
Case
Case
U N I T
4
3.24
3.25
3.26
3.27
179
Solyndra: Bankruptcy of Solar Resources 179
Stanford University and Government Payment for Research 180
Minority-Owned Businesses and Reality 183
Prosecutorial Misconduct: Ends Justifying Means? 183
Ethics and Company Culture
SECTION A
Temptation at Work for Individual Gain and That Credo
Reading 4.1
Reading 4.2
190
The Moving Line 190
Not All Employees Are Equal When It Comes to Moral Development 191
SECTION B
The Organizational Behavior Factors
Reading 4.3
Case 4.4
Reading 4.5
Case 4.6
Case 4.7
Case 4.8
194
Why Corporations Can’t Control Chicanery 194
Swiping Oreos at Work: Is It a Big Deal? 202
The Effects of Compensation Systems: Incentives, Bonuses, Pay, and
Ethics 202
A Primer on Accounting Issues and Ethics and Earnings Management 206
Law School Application Consultants 216
The Daiquiri Concession and Ferragamo Shoes and the County
Supervisors 217
SECTION C
The Psychological and Behavior Factors
Reading 4.9
Case 4.10
Case 4.11
Case 4.12
Case 4.13
219
The Layers of Ethical Issues: Individual, Organization, Industry, and
Society 219
Rogues: Bad Apples or Bad Barrel: Jett and Kidder, Leeson and Barings Bank,
Kerviel and Société General, the London Whale and Chase, Kweku Adoboli
and UBS, and LIBOR Rates for Profit 228
FINOVA and the Loan Write-Off 239
Inflating SAT Scores for Rankings and Bonuses 244
Hiding the Slip-Up on Oil Lease Accounting: Interior Motives 244
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x
Contents
SECTION D
The Structural Factors: Governance, Example, and Leadership
Reading 4.14
Case 4.15
Case 4.16
Reading 4.17
Case 4.18
246
Re: A Primer on Sarbanes-Oxley and Dodd-Frank 246
WorldCom: The Little Company That Couldn’t After All 250
Bank of America: The Merrill Takeover, the Disclosures, and
the Board 267
Getting Information from Employees Who Know to Those Who Can
and Will Respond 269
Westland/Hallmark Meat Packing Company and the Cattle Standers 272
SECTION E
The Industry Practices and Legal Factors
Reading 4.19
Case 4.20
Case 4.21
Case 4.22
274
The Subprime Saga: Bear Stearns, Lehman, Merrill, and CDOs 274
Enron: The CFO, Conflicts, and Cooking the Books with Natural Gas and
Electricity 281
Arthur Andersen: A Fallen Giant 295
The Ethics of Walking Away 302
SECTION F
The Fear-and-Silence Factors
Case
Case
Case
Case
4.23
4.24
4.25
4.26
Reading 4.27
Case 4.28
Case 4.29
Case 4.30
Case 4.31
303
HealthSouth: The Scrushy Way 303
Royal Dutch and the Reserves 311
Dennis Kozlowski: Tyco and the $6,000 Shower Curtain 313
Bausch & Lomb and Krispy Kreme: Channel Stuffing and
Cannibalism 323
A Primer on Whistleblowing 328
Beech-Nut and the No-Apple-Juice Apple Juice 328
NASA and the Space Shuttle Booster Rockets 334
Diamond Walnuts and Troubled Growers 337
New Era: If It Sounds Too Good to Be True, It Is Too Good to
Be True 338
SECTION G
The Culture of Goodness
Case 4.32
Case 4.33
Case 4.34
Case 4.35
Case 4.36
Case 4.37
U N I T
5
342
Bernie Madoff: Just Stay Away from the Seventeenth Floor 342
Adelphia: Good Works via a Hand in the Till 344
The Atlanta Public School System: Good Scores by Creative
Teachers 348
The NBA Referee and Gambling for Tots 350
Giving and Spending the United Way 351
The Baptist Foundation: Funds of the Faithful 354
Ethics and Contracts
SECTION A
Contract Negotiations: All Is Fair and Conflicting Interests
Case 5.1
Case
Case
Case
Case
5.2
5.3
5.4
5.5
358
The Governor and Negotiations for Filling a President’s Senate
Seat 358
Facebook and the Pre-IPO 359
Finding a Way Around Government Regulations 361
Subway: Is 11 Inches the Same as 12 Inches? 362
Sears and High-Cost Auto Repairs 363
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Contents
xi
SECTION B
Promises, Performance, and Reality
U N I T
6
Case
Case
Case
Case
Case
5.6
5.7
5.8
5.9
5.10
Case
Case
Case
Case
5.11
5.12
5.13
5.14
368
Payday Loans and Checking Account Deductions 368
Pensions: Promises, Payments, and Bankruptcy 369
Department Store Returns or Rentals 374
Government Contracts, Research, and Double-Dipping 375
Yale University and the Compensation of Professors for Government
Research: Double-Dipping or Confusion? 377
When Corporations Pull Promises Made to Government 378
Intel and the Chips: When You Have Made a Mistake 380
Mortgage Foreclosure: Robo-Signatures and “Close Enough” 384
Red Cross and the Use of Funds 385
Ethics in International Business
SECTION A
Conflicts Between the Corporation’s Ethics and
Business Practices in Foreign Countries
Reading 6.1
Case 6.2
Case 6.3
Case 6.4
Case 6.5
Case 6.6
Case 6.7
Case 6.8
Case 6.9
388
Why an International Code of Ethics Would Be Good for Business 388
Chiquita Banana and Mercenary Protection 392
Pirates: The Bane of Transnational Shipping 395
The Former Soviet Union: A Study of Three Companies and Values in
Conflict 397
Product Dumping 399
Bangladesh, Sweatshops, Suicides, Nike, Apple, Foxconn, Apple, and Campus
Boycotts 400
Bhopal: When Safety Standards Differ 407
Nestlé: Products That Don’t Fit Cultures 409
The Internet, Censorship, and Human Rights in China 412
SECTION B
Bribes, Grease Payments, and “When in Rome …”
Reading 6.10
Case 6.11
Case 6.12
Case 6.13
U N I T
7
415
A Primer on the FCPA 415
Siemens and Bribery, Everywhere 418
Walmart in Mexico 420
Italy’s Freeway Corruption 421
Ethics, Business Operations, and Rights
SECTION A
Workplace Safety
Reading 7.1
Case 7.2
Case 7.3
Case 7.4
Case 7.5
424
Two Sets of Books on Safety 424
Sleeping on the Job and on the Way Home 425
Cintas and OSHA 425
Massey Coal Mines, Fatalities, and Indictments 426
BP and the Deepwater Horizon Explosion: Safety First? 427
SECTION B
Workplace Loyalty
Case 7.6
Case 7.7
Case 7.8
Aaron Feuerstein and Malden Mills 439
JCPenney and Its Wealthy Buyer 441
The Trading Desk, Perks, and “Dwarf Tossing” 442
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439
xii
Contents
Case
Case
Case
Case
7.9
7.10
7.11
7.12
Case 7.13
Case 7.14
The Analyst Who Needed a Preschool 443
Taser and Stunning Behavior 447
Boeing and the Recruiting of the Government Purchasing Agent 448
Kodak, the Appraiser, and the Assessor: Lots of Backscratching on
Valuation 450
Medtronics, Journal Articles, Consulting, and Ethics 451
Cornell Researchers and Foundation Funding 454
SECTION C
Workplace Diversity and Atmosphere
Case
Case
Case
Case
Case
7.15
7.16
7.17
7.18
7.19
455
English-Only Employer Policies 455
Employer Tattoo and Piercing Policies 456
On-the-Job Fetal Injuries 457
Office Romances 458
Employee Screening: Personality, Intelligence, and Disparate Impact 459
SECTION D
Workplace Diversity and Personal Lives
Case
Case
Case
Case
7.20
7.21
7.22
7.23
461
Julie Roehm: The Walmart Ad Exec with Expensive Tastes 461
Facebook, YouTube, Instagram, LinkedIn, and Employer Tracking 462
Tweeting, Blogging, Chatting, and E-Mailing: Employer Control 465
Jack Welch and the Harvard Interview 468
SECTION E
Workplace Confrontation
Reading 7.24
Reading 7.25
Case 7.26
Case 7.27
471
The Ethics of Confrontation 471
The Ethics of Performance Evaluations 474
Ann Hopkins and Price Waterhouse 476
The Glowing Recommendation 480
SECTION F
Workplace and the Environment
Case 7.28
Case 7.29
U N I T
8
482
Exxon and Alaska 482
Biofuels and Hunger in Guatemala 488
Ethics and Products
SECTION A
Advertising Content
Case 8.1
Case 8.2
Case 8.3
Case 8.4
492
Skechers and the Muscle-Building Shoes 492
Joe Camel: The Cartoon Character Who Sold Cigarettes and Nearly Felled an
Industry 493
Cereal Claims of Health, Better Grades, Immunity, and Sugar Content 498
Eminem vs. Audi 501
SECTION B
Product Safety
Reading 8.5
Case 8.6
Case 8.7
Case 8.8
Case 8.9
503
From Shunning to Anonymity 503
Peanut Corporation of America: Salmonella and Indicted Leaders 506
Tylenol: The Swing in Product Safety 507
Merck and Vioxx 512
Ford and Its Pinto and GM and Its Malibu: The Repeating Exploding Gas Tank
Problem 516
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Contents
Case 8.10
Case 8.11
Case 8.12
xiii
E. Coli, Jack-in-the-Box, and Cooking Temperatures 523
Bucky Balls and Safety 524
Energy Drinks: Healthy or Risky? 525
SECTION C
527
Product Sales
Case
Case
Case
Case
Case
Case
8.13
8.14
8.15
8.16
8.17
8.18
Cardinal Health, CVS, and Oxycodone Sales 527
Pfizer, Pharmas, Fines, and Sales Tactics 528
The Mess at Marsh McLennan 530
Selling Your Own Products for Higher Commissions 533
Frozen Coke and Burger King and the Richmond Rigging 533
Slotting: Facilitation, Costs, or Bribery? 537
SECTION D
Products and Social Issues
Case 8.19
Case 8.20
Case 8.21
U N I T
9
543
The Mommy Doll 543
Fast-Food Liability 543
Barbie Doesn’t Like Math 545
Ethics and Competition
SECTION A
Covenants Not to Compete
Reading 9.1
Case 9.2
Case 9.3
548
A Primer on Covenants Not to Compete: Are They Valid? 548
Boeing, Lockheed, and the Documents 549
Starwood, Hilton, and the Suspiciously Similar New Hotel Designs 554
SECTION B
All’s Fair, or Is It?
Reading 9.4
Case 9.5
Case
Case
Case
Case
Case
9.6
9.7
9.8
9.9
9.10
558
Adam Smith: An Excerpt from The Theory of Moral Sentiments 558
Sabotaging Your Employer’s Information Lists before You Leave to Work for a
Competitor 559
Bad-Mouthing the Competition: Where’s the Line? 560
Online Pricing Differentials and Customer Questions 560
Brighton Collectibles: Terminating Distributors for Discounting Prices 561
Electronic Books and the Amazon War 562
Mattel and the Bratz Doll 562
SECTION C
Intellectual Property and Ethics
Case 9.11
Case 9.12
Case 9.13
565
Tiffany, Louis Vuitton, eBay, Landlords, and Knock-Offs 565
The Little Intermittent Windshield Wiper and Its Little Inventor 569
Copyright, Songs, and Charities 570
The Ethical Common Denominator (ECD) Index: The Common Threads
of Business Ethics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .573
Alphabetical Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .585
Business Discipline Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .591
Product/Company/Individuals Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .601
Topic Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .639
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Preface
“Never trust the people you
cheat with. They will throw
you under the bus. Just ask
Michael Vick.”
—Marianne M. Jennings
“Three people can keep a
secret if two are dead.”
—Hell’s Angels (Quoting Ben
Franklin)
“Ethical standards and
practices in the workplace
are the pillars of successful
employment and ultimately
the benchmark for a strong
business.”
—Franklin Raines, former CEO of
Fannie Mae (ousted in 2005);
with a $6 billion restatement of
its financials, the board
concluded that “[management
was] manipulating earnings and
creating an ‘unethical and
arrogant culture.’”
“We are doing God’s work.”
—Jeffrey Skilling, former CEO of
Enron (completing a 24.6-year
sentence for fraud)’”
—Lloyd Blankfein, CEO of
Goldman Sachs
T
he Josephson Institute released its data for 2012 on cheating in high school and
found that 52 percent of the students surveyed say that they have cheated on an
exam in the past year, and 82 percent say that they have lied to a teacher in the
past year. A New York Times survey of high school students puts the cheating level at
90 percent.1 When the Josephson researchers asked the high school students if they had
copied another’s homework, 76 percent said that they had but did not consider it cheating. “Team work” was their label for this practice. The Center for Academic Integrity at
Clemson University and Professor Donald McCabe of Rutgers report that college cheating has grown from 11 percent in 1963 to 49 percent in 1993 to 75 percent in 2006.2
Another study puts the level at 85 percent.3 Professor McCabe also found that MBAs
have the highest rate of self-reported academic dishonesty (57 percent) of all graduate
disciplines. In the spring of 2013, Harvard expelled 60 students for cheating on an
exam in their required course on Congress.4 Longitudinally, it would seem we have a
decline. Many argue that there is no decline; rather, they offer, we are simply more honest about our ethical breaches. There is little comfort in this reassurance that we’re more
honest about our cheating. And there remains a disconnect between this conduct and an
understanding of what ethics is. The Josephson Institute also found that the high school
students who report that they cheat feel very comfortable about their behavior, with
95 percent saying they are satisfied with their character and ethics. Perhaps we are
more honest about our cheating. But perhaps that honesty results from our belief that
cheating is not an ethical issue.
Research indicates that if students cheat in high school, they will bring the practices
into college. And if they cheat in college, they will bring those practices into the workplace. A look at some of the events in business since the publication of the seventh edition of this book tells us that we are not quite there yet in terms of helping business
people understand when they are in the midst of an ethical dilemma and how those
dilemmas should be resolved. Following the collapses of Enron and WorldCom, and
the ethical lapses at Tyco and Adelphia, we entered the Sarbanes-Oxley era with fundamental changes in the way we were doing business and audits. However, we did not
make it even five years before we found ourselves in the midst of the collapse of the
housing market and revelations about shoddy and undisclosed lending practices for
mortgages. The end result was a dramatic drop in the stock market and a recession
because of all the secondary instruments tied to the risky mortgages. The reforms enacted
by the Dodd-Frank bill (Wall Street Reform and Consumer Protection Act) have not yet
been implemented, and as the work of implementation proceeds, we find that British
banks were fixing the LIBOR interest rate; MF Global was using funds from customer
accounts to cover margin calls; and Bernie Madoff pulled off an 18-year, $50 billion
Ponzi scheme. Government pension plans collapsed for lack of funding based on flawed
“Main Street Woes,” Forbes, November 17, 2008, p. 20.
1
2
The Center for Academic Integrity study has been conducted by Professor Donald McCabe on a regular basis over
the years. This survey had 4,500 student respondents. For more information on Professor McCabe and his work on
academic integrity and the Center for Academic Integrity, go to http://www.cai.org.
Corey Ciochetti, “The Uncheatable Class,” Proceedings, Academy of Legal Studies in Business, August 2013
(unpublished paper).
3
Richard Pérez-Peña, “Students Accused of Cheating Return Awkwardly to a Changed Harvard,” New York Times,
September 17, 2013, p. A12.
4
xiv
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Preface
xv
actuarial studies, and municipal bankruptcies have revealed that government officials
received personal benefits for awarding everything from bond underwriting agreements
to construction contracts. Insider trading charges affected more than a dozen traders at
SAC Capital, with SAC agreeing to settle civil and criminal charges.
And then there are those events that fall short of criminal conduct or civil fines misconduct. These are the day-to-day ethical breaches that capture media headlines and
cause continuing concerns about the ethical culture of business. There are the questions
about television reality shows: Was the storage locker a setup, or were those things really
in there? And why did Facebook not disclose the problems it knew about on its advertising revenues before its IPO? Did Subway really cut us short with an 11-inch sub sandwich when we thought we were buying a footlong? The world of sports brought us
questions such as, “Is it really cheating if everyone does the same thing?” Lance Armstrong’s admissions about his use of performance-enhancing drugs found us all debating
that issue. BP’s spill from the Deepwater Horizon rig off the coast of Louisiana resulted
in a $20 billion down payment by the company on damages, and resulting issues of fraud
in claims against that fund.
From analysts not offering their true feelings about a company’s stock to the factory
workers producing peanut base for cookies and crackers, pressure often got in the way of
moral clarity in business decisions. Those pressures then translated into ethical lapses
that involve everything from pushing the envelope on truth to earnings management
that crosses over into cooking the books and fraud. Weak product designs and products’
defects often produce a chain of memos or e-mails in the company that reflect employee
concerns about product safely. College sports, baseball, and politics all have their ethical
issues. The cycles between major ethical and financial collapses seem to be growing
shorter. Businesses do exist to make a profit, but business ethics exists to set parameters
for earning that profit. Business ethics is also a key element of business decision processes
and strategies, because the cases in this book teach us that the long-term perspective, not
the short-term fix, serves businesses better in that profit role.
This book of readings and cases explores those parameters and their importance. This
book teaches, through detailed study of the people and companies, that business conducted without ethics is a nonsustainable competitive model. Ethical shortcuts translate
into a short-term existence. Initially, these shortcuts produce a phenomenon such as
those seen with Lehman Brothers, Merrill Lynch, and Countrywide Mortgage. These
companies are no longer viable entities because they crossed ethical lines. For a time,
they were at the top of their game—flummoxing their competitors on how they were
able to do what they were doing—and so profitably. But then that magnificent force of
truth finds its way to the surface, and the company that does not factor in the ethics of its
decisions, and conduct finds itself falling to the earth like a meteor’s flash. Long-term
personal and business success demand ethics. This edition takes a look at everything
from the subprime lending market, a market that brought easy pickings in terms of profit
so long as real-estate values held firm, to the world of sports and the downfall of so
many. This book connects the moral sentiments of markets with the wealth of nations.
Business without ethics is self-destructive.
New to This Edition
A Slightly New Structure and Approach to Address the Chronic
Repetition of the Ethical Lapses
We’ve been down this road before, and the historic patterns are now emerging for study
and insight. In 1986, before Ivan Boesky was a household name and Michael Douglas
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xvi
Preface
was Gordon Gekko in Wall Street, I began teaching a business ethics course in the MBA
program in the College of Business at Arizona State University. The course was an elective. I had trouble making the minimum enrollments. However, two things changed: my
enrollments and my fate. First, the American Association of Collegiate Schools of Business
(AACSB) changed the curriculum for graduate and undergraduate business degree programs and required the coverage of ethics. The other event actually was a series of events.
Indictments, convictions, and guilty pleas by major companies and their officers—from
E.F. Hutton to Union Carbide, to Beech-Nut, to Exxon—brought national attention to
the need to incorporate values in American businesses and instill them in business
leaders.
Whether out of fear, curiosity, or the need for reaccreditation, business schools and
students began to embrace the concept of studying business ethics. My course went from
a little-known elective to the final required course in the MBA program. In the years
since, the interest in business ethics has only increased. Following junk bonds and insider
trading, we rolled into the savings and loan collapses; and once we had that straightened
out, we rolled into Enron, WorldCom, HealthSouth, Tyco, and Adelphia, and we even
lost Martha Stewart along the way. We were quite sure—what with all the SarbanesOxley changes and demands on boards, CEO, CFOs, and auditors—that we were through
with that level of misconduct. We were, however, wrong. New Century Financial, one of
the first of the subprime lenders to collapse, found one angry bankruptcy trustee. The
trustee’s report concluded that he found astonishing the acquiescence of the auditor to
the client’s refusal to write down the bad loans in what he called “the post-Enron era.”
The Lehman Brothers bankruptcy trustee found a letter from a risk officer at the investment banker who tried to warn the CEO and CFO that the firm’s financial reports violated its code of ethics. The trustee also found that the risk officer was fired.
Three decades plus after Boesky, we have the SAC Capital insider trading web emerge
in 2012 with a staggering repetitiveness that finds us wondering, “Do they not see the
ethical and legal issues? Do they just not know that they are crossing these lines? Do
they see the patterns from business history?” The good thing about repetitive patterns
is that we gain insight into the paths, the reasoning, and the pressures of those involved.
The key is to bring out those patterns and train our new business leaders to recognize
them and, most importantly, to stop the train of self-destruction those patterns set off.
This edition is reorganized to offer greater insights, knowledge, and perspective on these
patterns for a new generation of leaders. Today, nearly 100 percent of the Fortune 500
companies have a code of ethics. We are up to over 75 percent of companies having
some form of ethics training. But we are not quite there until our business leaders
grasp the perspective of ethics and its relationship to economics, organizational behavior,
company culture, reputation, and financial performance. This edition is structured to
walk us through all aspects and types of ethical dilemmas and how we can cope with
the pressures that often deprive us of good ethical analysis.
Unit 1: Our Ethics
Unit 1 addresses the following questions: What is this ethics thing? How do I manage to
work philosophy into my decision processes? How do I find solutions to ethical dilemmas? How do I know when I am really analyzing as opposed to rationalizing or succumbing to pressure? This unit begins with introspection, a right-out-of-the-blocks
focus on developing a credo—a way of helping us to think about ethical issues in advance
and decide what we would and would not do in a situation. If we think about issues in
advance, then when the pressure hits, we at least have the cognitive dissonance of realizing that we did see the issues differently when we were not under so much pressure.
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Preface
xvii
Unit 2: Solving Ethical Dilemmas and Personal
Introspection
Once we have focused on our ethical standards and ourselves, we move into analysis of
ethical issues in business. This unit offers the introspection of this question: Are my personal ethical standards different when I am at work? Should they be? Why are they different? Further, the magnitude of the mistakes that business people continued to make,
despite all the warnings from ongoing debacles, did not indicate that these were close
calls. Something had gone awry in their ethics training in business school for them to
drift so far from virtue. I continue to emphasize in teaching, consulting, and writing
that helping students and business people see that personal ethics and business ethics
are one and the same is critical to making virtue a part of business culture. Virtue is
the goal for most of us in all aspects of our lives. Whether we commit to fidelity in a
personal relationship or honesty in taking the laundry detergent back into the store to
pay because we forgot it was on the bottom of our grocery cart, we show virtue. Ethics in
business is no different, and we need not behave differently at work than we do in that
grocery store parking lot as we make the decision to be honest and fair with the store
owner. Substitute a shareholder and the disclosure of option dates and true costs, and we
have our laundry detergent example with a stock market twist.
This unit also focuses on the patterns that interfere with good ethical analysis in business such as pressure, hubris, and a singular focus on moral relativism as opposed to a
deeper look at the consequences of reliance on that model. This unit allows us to switch
back and forth from personal dilemmas to business dilemmas so that we are able to see
that the ethical issues are the same in our personal lives as they are in business—only the
fact patterns change. We can see that honesty is important, whether studying the complexities of Goldman’s laddering sales structures or the simple questions contractors face
when homeowners ask them to include additional repair work as part of a storm damage
claim to their insurers. Instructors and students gain the ability to reduce the most complex of financial cases to the common denominators found in returning that laundry
detergent to the store—is this honest? Is this fair? With this understanding of the common denominators, we are free to focus on the psychology of our decision processes
rather than on the details of the underlying transactions. The obligation of good faith
in dealing with each other does not change simply because we are buying a CDO rather
than Tide. This unit also includes the overarching theme of the book over all of its editions: plenty of real-life examples from newspapers, business journals, and my experiences as a consultant and board member. Knowing that other instructors and students
were in need of examples, I have turned my experiences into cases and coupled them
with the most memorable readings in the field to provide a training and thoughtprovoking experience on business ethics.
Unit 3: Business, Stakeholders, Social Responsibility,
and Sustainability
Unit 3 offers us the bigger perspective—once we slog through the decision processes of
fraud, embezzlement, puffing résumés, and cheating on our travel expenses, we move to
discussion and understanding of the role of business in society. The cases in this unit are
broken into an introduction to business and society, the obligations of business toward
our moral ecology, and the issues of the environment and sustainability.
Unit 4: Ethics and Organizational Culture
Unit 4 is the psychology section that tackles companies’ ethical lapses, with the realization that beyond individual ethical lapses (as with one bad apple), there are barrel factors
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xviii
Preface
that must be addressed to prevent ethical lapses. This section, through the finance cases
and the weaving in of corporate governance, explores those barrel factors with the recognition that beyond individual lapses there are company, industry, and societal norms that
do cause companies and individuals to move that line away from ethical standards to
“everybody does it” here at the company, in our industry, and in society. The cases
here explore how incentives, organizational behavior practices and processes, reporting
mechanisms, industry practices, and societal norms contribute to poor ethical analysis,
decisions, and that self-destructive behavior. Recognizing and addressing those barrel
issues is the theme of Unit 4.
New to this edition is a restructuring that becomes clear in Unit 4. The cases on government and nonprofit ethical lapses have been integrated into the other units. The cases
in these two areas were set aside in separate units in previous editions. Through reviews
and the study of ethical debacles in these two sectors, a realization brought about the
structural change: The psychology of organizations and employee decision making in
those organizations does not change because they work in a nonprofit or government
agency. Nonprofit employees have the pressures of raising funds. Government employees
experience the pressure of dealing with the powerful and the prospect of losing their jobs.
The issues these employees and organizations face are the same as those in for-profit
businesses. Indeed, the addition of their issues in an integrative fashion in this edition
helps drive home the point that the questions and dilemmas are the same. The principles
of ethics are universally applicable.
Unit 5: Ethics and Contracts
Unit 5 is new to this edition, with a special focus on the ethics of contracts, from advertising through negotiations, to performance. Issues related to pension promises and certification of minority status for government contracts are a part of this new unit. The
ethical challenges in contract formation and performance, again, cross all sectors, so
this unit has nonprofit and government examples integrated as well.
Unit 6: Ethics in International Business
This unit helps students understand the need for better and deeper ethical analysis of the
issues in international business and the importance of analyzing the countries and their
ethical standards prior to doing business there. The section addresses the risks and costs
of ethical lapses and succumbing to local standards as opposed to establishing company
standards prior to those pressure points that occur in international competition. New to
this edition is a discussion of the emerging safety issues in international production facilities. Fires, collapsing buildings, and unsafe working conditions have brought headlines,
and a great deal of backlash toward companies that use these facilities for product
manufacturing.
Unit 7: Ethics, Operations, and Rights
This new unit is one that draws together all the cases on workplace issues that affect
employees and managers: from safety to conflicts, to privacy, to diversity, to the lost art
of confrontation about employee conduct, this section is the one for understanding how
ethics bumps shoulders with production demands, technology, profits, and privacy. From
honesty in letters of recommendations to office romances, all matters that affect employers and employees are now in one unit.
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Preface
xix
Unit 8: Ethics and Products
Unit 8 includes all the issues related to product development, sales, safety, and advertising.
From recalls to racy dolls, to advertising, to the contracts themselves, this section focuses
on the ethical issues that involve the how, what, and where of sales of products. The issues
of social responsibility and products are found here in cases that address everything from
Barbie not liking math to Bucky Balls, the product that could not be made safe.
Unit 9: Ethics and Competition
Unit 9 has the luxury of focusing entirely on competition. With the contracts issues
grouped in Unit 7 on products, this unit has expanded coverage of the ever-growing
concerns about covenants not to compete and employee breaches of those covenants.
The societal issues of infringement are emphasized as students analyze cases that illustrate the costs of not honoring intellectual property rights.
What’s New and What’s Back
The eighth edition continues the features students and instructors embraced in the first
seven editions, including both short and long cases, discussion questions, hypothetical
situations, and up-to-the-moment current, ongoing, and real ethical dilemmas. Some of
the long-standing favorites remain by popular demand—such as the Nestlé infant formula experience and Union Carbide in Bhopal, with their long-standing lessons in
doing the right thing. There are so many “oldies but goodies” when it comes to ethics
cases, but length constraints do not allow me to continue to include in this book all the
oldies along with the new cases that promise to be “oldies but goodies.” Check out the
availability of custom options noted at the end of this section in order to keep using
those “oldies but goodies.” Now there are further opportunities to integrate cases from
previous editions into your course.
The eighth edition continues the new training tool introduced in the previous edition to
help business people who are working their way through an ethical dilemma. Following the
discussion questions for many of the cases, the “Compare and Contrast” questions continue. These are questions provide an example of a company making a decision different
from the one made by management in the case at hand. For example, in the Tylenol case
(Case 8.7—an “oldie but goodie” that has been updated for this edition to include the company’s recent problems with metal flecks in its infant products), students find a question
that highlights this company’s past conduct in comparison with its conduct in a current
situation in which the FDA has accused the company of surreptitiously buying up tainted
product in order to avoid a recall. There is a contrast between its recall of a product in the
1980s, which was so rapid and received so much acclaim, and its behavior in this event.
Why do some companies choose one path, whereas others succumb to pressure? What
was different about their decision-making processes? What did they see that the other companies and their leaders did not take into account? This feature is a response to those who
worry that students are not given examples of “good companies.” The problem with touting goodness is that it is impossible to know everything a company is or is not doing.
For example, Fannie Mae was named the most ethical company in America for two years
running. Yet it had to do a $7 billion restatement of earnings and is now defunct as a
shored-up government entity. BP was an environmental darling for nearly a decade for
its responsible environmental programs. However, recent events cast doubt on how much
environmental and safety dedication the company had. There is a risk in learning of goodness if that goodness is superficial or limited. Studying individual scenarios of contrasting
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xx
Preface
behavior is the learning tool, not the touting of a single company that can always have a
lapse. There are no saints in this journey, and keeping the text credible requires a recognition of that limitation but uses it to emphasize the vigilance we all need, as individuals and
in business, to avoid lapses and progress in moral development.
Finding and Studying the Cases and Readings
The eighth edition continues the classic readings in business ethics that provide insight
into the importance of ethics in business and how to resolve ethical dilemmas. The eighth
edition also continues the presence of integrated readings throughout the book to provide
substantive thoughts on the particular areas covered in each section. The organizational
structure and indexes, continued from the seventh edition, make material, companies,
people, and products easy to locate. A case can be located using the table of contents,
the alphabetical index, the topical index, the people index, or the product index,
which lists both products and companies by name. An index for business disciplines
groups the cases by accounting, management, and the other disciplines in colleges of
business. A case can also be located using the Ethical Common Denominator Chart,”
which is explained below.
How to Use the “Ethical Common Denominators
Across Business Topics Chart”
The Ethical Common Denominators Across Business Topics chart, or simply the ECD
chart, is a tool that appears along with the indexes for the book, can be used to help
students understand the point that only the facts change, but the ethical dilemmas
remain the same. This chart provides some ease for that slight discomfort some instructors have with the financial cases and helps students understand that underlying every
ethical dilemma are the common patterns of psychology and pressure as well as the
need for solid ethical analysis. The ECD chart provides instructors with the opportunity
to structure their courses in a way that is comfortable for them. All an instructor needs to
know is a general business term; that term can then be referenced in the ECD chart in
various ways for instruction, according to instructor preference, needs, and time constraints. The chart groups the cases by the usual business and ethics topics. If, for example, you wanted to cover the environmental cases all in one fell swoop, simply go to
“environmentalism” or “sustainability,” and you find the cases and readings listed there.
However, if you are looking for a variety of fact patterns to teach, for example, pressure’s
role in ethical decision making, you could look under that topic and find the BP case
(also an environmental case) as well as the financial factors in the Enron case. If you
wanted students to see what pressure can do in the area of contracts, you can use the
Facebook decision not to publicly disclose the realization of their losses of ad revenues
on the eve of the company’s IPO. Students will learn that pressure affects all aspects of
business operations. Adam Smith and his theories on markets appear in Section 9, but
there is no reason this reading could not be shifted back to the coverage of the philosophical foundations.
An instructor can mix in cases from all the units in covering ethical analysis. The ECD
includes a case from each unit under “Ethical Analysis,” because you can pick and choose
what topics to cover as you teach how to analyze ethical issues. The ECD chart allows
you to introduce that broad exposure to the pervasiveness of ethical issues early in your
course, or you can simply use the cases in that unit and go on to topical areas. The chart
also allows you to break up the finance cases into areas of discussion on psychology,
culture, organizational behavior, hubris, and pressure. You need not focus on the
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Preface
xxi
structure of CDOs and secondary instruments markets to understand the culture at Lehman and how its culture led its sales force and managers down a path that proved to be
self-destructive. Likewise, you can mix in a Ponzi scheme in a nonprofit with Bernie
Madoff, to help students understand how similar the cases are in the issues missed as
those running the organizations pursued a business model that could not be sustained
over time. The case on the Medtronics and research funding and journal publication teaches students about conflicts, but it would fit well in Unit 1 as you ask students to deal
with the importance of speaking up when they see an ethical dilemma. The ECD chart
allows a mix-and-match approach or a straight topical approach—both of which allow us
to see that the facts change, but good ethical analysis applies, always.
Supplements
Access to Companion Site Resources
To access additional course materials and companion resources, please visit www
.cengagebrain.com. At the CengageBrain.com home page, search for this book’s ISBN
(found on the back cover of your book), using the search box at the top of the page.
This will take you to this book’s product page, where free companion resources can be
found. Instructors must go to login.cengage.com for access to instructor materials.
Instructor’s Manual with Test Bank
The instructor’s manual with Test Bank is updated with more sample test objective- and
essay-answer questions of varying lengths and structures. The questions have been coded
for topic and even some for case-specific questions so that exams can be created by subject area. The PowerPoint package, which includes illustrative charts to assist instructors
in walking classes through the more complex cases, has been updated and expanded.
Instructors can access the Instructor’s Manual with Test Bank at login.cengage.com.
PowerPoint Slides
Developed by the author, Microsoft PowerPoint slides are available for use by students as
an aid to note taking, and by instructors for enhancing their lectures. Instructors can
access PowerPoint files at login.cengage.com.
Business Law Digital Video Library
The Digital Library offers more than 90 videos and helps your students link their everyday experiences to legal ideas; sparks classroom discussion; and reinforces core concepts.
The videos are available with on http://www.cengage.com/blaw/dvl.
The library is organized into five series: Legal Conflicts in Business (includes specific
modern business and e-commerce scenarios); Ask the Instructor (presents straightforward explanations of concepts for student review); Drama of the Law (features classic
business scenarios that spark classroom participation); Real World Legal (explores conflicts that arise in a variety of business environments); and LawFlix (contains clips from
many popular films). Access for students is provided via a code when bundled with a
new textbook, or it can be purchased at www.cengagebrain.com.
Customized Selections of Case Studies and Readings
Instructors always have the option to customize your choice of cases and readings. Case
studies and readings from both the sixth and seventh editions of Jennings’s Business
Ethics are available by working with your learning consultant. Selections can be used to
create an affordable course companion or to integrate material into your customized textbook. Visit www.compose.cengage.com.
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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Acknowledgments
T
his book is not mine. It is the result of the efforts and sacrifices of many. I am
grateful to the reviewers for their comments and insights. Their patience, expertise, and services are remarkable. I have many colleagues around the world who
continue to provide me with insights, input, and improvements, but my colleagues listed
below provided the time and effort of a page-by-page review.
Bradford Anderson
Cal Poly State University
Karen Gore
Ivy Tech Community College
Kay Biga
University of Wisconsin – Superior
John P. Gray
Faulkner University
Joseph Bucci
Philadelphia University
Glenn Greenfield
Lawrence Technological University
Julia Clark
Brown Mackie College
Diane Hagan
Ohio Business College
Pat Creech
Northeastern Oklahoma
A&M College
Deborah Hedger
Southeastern Community College
Patrick Creehan
Flagler College
Michael Cross
Reinhardt University
Eric Heiser
Central Wyoming College
Phil Hupfer
Benedictine University
Sally Dixon
Skagit Valley College
Kent Kauffman
Indiana University—Purdue
University—Fort Wayne
Mary Doran
Northcentral University
Paul Kelbaugh
Lynchburg College
Ann Marie Dudek
St. Thomas Aquinas College
Greg Lauer
North Iowa Area Community College
CristenDutcher
Kennesaw State University
Skip Maffei
Northcentral University
De Vee Dykstra
University of South Dakota
John Malec
Benedictine University
Teressa Elliott
Northern Kentucky University
John McGee
Texas State University
Johnica Ellis-Kiser
Edgecombe Community College
Joseph Miele
Eastern University
Mac Forsyth
University of Southern Mississippi
Tom Mihok
Eastern University
Ann Gibson
Andrews University
John Moran
Wagner College
xxii
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Acknowledgments
Sam Myatt
Union University
Melissa Speck
Ivy Tech Community College
Gregory O’Connor
Massachusetts College of Liberal Arts
Brad Trid
Lipscomb University
S. Park
University of Connecticut
Lori L. Wadsworth
Brigham Young University
Jeffrey D. Penley, J.D.
Catawba Valley Community College
Edd Welsh
Mesa Community College
Jacqueline A. Perry
West Virginia University, Institute of
Technology
Lorrie Willey
Western Carolina University
Joseph E. Potchen
Michigan State University
Catherine Reynolds
Remington College
Ruth Schaa
Black River Technical College
xxiii
Scott Williams
Alaska Career College
R.G. Vanderpool
Northwest Nazarene University
Jay Zortman
Eastern University
I am grateful for the students and professors who continue to help me with ideas for new
cases, corrections (those typos!), and insights that help me as I work on each edition.
I am fortunate to have Ted Knight as my content developer. He may be the only one
who really understood the ECD index and helped me refine it so that the rest of the
world could benefit from its use. It has been reassuring and a joy to work, once again,
with Tamborah Moore as the production editor for this edition. Neither of us is quite
sure how many years we have been working together, but long enough to be able to send
one-word e-mail messages with the other fully comprehending the message. I am grateful
to Vicky True-Baker and Mike Worls for their continuing support of all my work. I continue to love editors. Where I see only deadlines, they see both the big picture of the book
and its details: They have vision. I am grateful for their vision in supporting this book at
a time when ethics was not a hot topic. They trusted me and understood the role of
ethics in business and supported a project that was novel and risky. From the headlines,
we now know that ethics instruction in business and business schools is a growth
industry.
I am grateful to my parents for the values they inculcated in me. Their ethical perspective has been an inspiration; a comfort; and, in many cases, the final say in my decisionmaking processes. I am especially grateful to my father for his continual research on and
quest for examples of ethical and not-so-ethical behavior in action in the world of business. I am grateful for my family’s understanding and support. I am most grateful for the
reminder their very presence gives me of what is truly important. In a world that measures success by “stuff” acquired, they have given me the peace that comes from devotion, decisions, and actions grounded in a personal credo of “others first.” This road less
taken offers so many rich intangibles that we can, with that treasure trove, take or leave
“the stuff.” My hope is that those who use this book gain and use the same perspective on
“stuff.”
Marianne M. Jennings
Professor Emeritus of Legal and Ethical Studies in Business
W. P. Carey School of Business
Arizona State University
marianne.jennings@asu.edu
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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Copyright 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
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Ethical Theory, Philosophical
Foundations, Our Reasoning Flaws,
and Types of Ethical Dilemmas
U N I T
O N E
In the 21st century will
occur something worse
than the great wars,
namely, the total eclipse of
all values. The pain the
human beast will feel when
he realizes he can believe
in … nothing … will be
worse than any he has felt
before.”
B
efore we begin the study of business ethics, we should do some introspection:
What does ethics mean to you personally? The purpose of this unit is to provide
you with an introspective look at yourself and your views on ethics before we
bring the business component to you and ethics.
This unit explains three things: what ethics are, why we should care about ethics, and
how to resolve ethical dilemmas. The materials in this unit serve as the foundation for
the study of issues in business ethics. We begin with a personal look at ethics, discuss
why it matters, and then decide how to resolve ethical dilemmas.
—Nietzsche
I respect them and think
they have integrity.
They’re proud of their
achievements in college,
and sometimes the only
way you could have gotten
there is to kind of botch
your ethics for a couple of
things.
—Stuyvesant High
School (elite New York
City high school)
student on revelations
that seventy-one
Stuyvesant students
cheated in most of their
courses, a discovery
made after the students
had gone on to elite
colleges1
Vivian Yee, “The How and Why of Cheating,” New York Times, September 26, 2012, p. A1.
1
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1
S
E
C
T
I
O
N
A
Defining Ethics
Reading 1.1
You, Your Values, and a Credo
We have a tendency to look at folks who get into ethical and legal trouble and say,
“I know I would never behave like that.” You probably would not, but you are only seeing them at their last step. You did not see the tiny steps that led to their eventual downfall. Study how and why they made the decisions they made. The idea is to try to avoid
feeling superior to those who have made mistakes; real learning comes with understanding how easily we can fall into ethical missteps through flaws in our analyses and reasoning processes and because of pressures that allow us to feel justified in our actions. Your
goal is to develop a process for analysis and reasoning, one that finds you looking at
ethical issues more deeply instead of through the prism of emotions, desires, and pressures. You are not just studying ethics; you are studying business history. And you are
also studying you. Try to relate your vulnerabilities to theirs. Remember as you read
these cases that you are reading about bright, capable, and educated individuals who
made mistakes. The mistakes often seem clear when you study them in hindsight. But
the ethical analyses of those who made those mistakes were flawed whether through
poor perspective; pressure; or sometimes, the stuff of Greek tragedies, hubris.
One of the goals of this text is to help you avoid the traps and pitfalls that consume
some people in business. As you study the cases in this unit and the others that follow,
try not to be too hard on the human subjects. Learn from them and try to discover the
flaws in their ethical analyses.
One step that can give us greater clarity when we face ethical dilemmas is a credo. A
credo is different from a code of ethics and does not consist of the virtues that companies usually list in a code of ethics, such as, for example, “We are always honest; we follow the laws.” The credo demands more because it sets the parameters for those virtues.
A credo is virtue in action. A credo defines you and your ethical boundaries.
You get your personal credo with introspection on two areas of questions:
1. Who are you? Many people define themselves by the trappings of success, such as how much money they
have or make, the type of cars they drive, their clothes, and all things tangible and material. A credo grounds
you and means that you need to find a way to describe yourself in terms or qualities that are part of you no
matter what happens to you financially, professionally, or in your career. For example, one good answer to
“Who are you?” might be that you have a talent and ability for art or writing. Another may be that you are
kind and fair, showing those Solomon-like virtues to others around you. List those qualities you could have
and keep regardless of all the outer trappings.
2. The second part of your credo consists of answering these questions: What are the things that you would
never do to get a job? To keep a job? To earn a bonus? To win a contract or gain a client? The answers to
these questions result in a list, one that you should be keeping as you read the cases and study the individual businesspeople who made mistakes. Perhaps the title of your list could be “Things I Would Never Do to
Be Successful,” “Things I Would Never Do to Be Promoted,” or even “Things I Would Never Do to Make
2
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Defining Ethics
Section A
3
Money.” One scientist reflected on the most important line that he would never cross, and after you have
studied a few of the product liability cases, you will come to understand why this boundary was important
to him, “I would never change the results of a study to get funding or promise anyone favorable results in
exchange for funding.” A worker at a refinery wrote this as his credo: “I would never compromise safety to
stay on schedule or get my bonus.” An auditor in a state auditor general’s office wrote, “I would never sign
a document that I know contains false information.” The credo is a detailed list, gleaned from reading
about the experiences of others, that puts the meat on Polonius’s immortal advice to his son, Laertes, in
Shakespeare’s Hamlet: “To thine own self be true” (Hamlet, Act I, Scene III). We quote Polonius without
really asking, “What does that mean?” The credo takes us from eloquent advice to daily action. The credo
is a personal application of the lessons in the cases. You will spot the lack of definitive lines in these case
studies and begin to understand how their decision processes were so shortsighted. The goal is to help you
think more carefully, deeply, and fully about ethical issues.
A woman who had been a lawyer for thirty years reflected back on her career and realized that she had conducted her professional life in line with two admonitions a senior
partner had given to her on her first day as a young associate and new hire in a law firm.
The senior partner came into her office and said, “I want you to remember two things:
Don’t ever lie to a client. Don’t ever lie to the FBI.” She recalled wondering most of that
first day, “What kind of firm am I working for that these are the only two rules? I would
never lie to a client. I would never lie to the FBI.” Within days she would understand the
senior partner’s wisdom, as well as that she had a credo. A client called and wondered
how far along she was on a project for him. She had not even begun the project, but
human tendency is to want to say, “Fine. Making progress. Coming along.” However,
because of the credo parameters, she told the truth. “I have not started the project yet,
but I have set aside two days next week to really get at it—could I call you then?” The
client stayed with her and the firm.
She also noted that she came up short on her billable hours that first month and considered adding a few minutes here and there to clients’ bills, but then reasoned, “That
would be lying to a client!” She stopped herself over what might have been rationalized
away as, “Oh, it’s such a little thing!” She then had a government agent (not FBI) visit
her to ask questions about a classmate who had applied for a government job and had to
be vetted. She recalled thinking that she should paint the best picture possible about the
classmate, even though he had a checkered past. “Instead,” she explained, “I just told the
truth.” As she reflected on her decades-long career she noted, “I can’t tell you how many
times those two simple rules from that first day have saved me from mistakes.” That’s
what a credo does for you.
As you think about your credo, especially who you are, keep the following thought
from Jimmy Dunne III in mind. Mr. Dunne was the only partner who survived the
near destruction of his financial firm, Sandler O’Neill, when the World Trade Center collapsed on September 11, 2001. Only seventeen of Sandler O’Neill’s eighty-three employees survived the tower’s collapse. Mr. Dunne has been tireless in raising money for the
families of the employees who lost their lives that day. When asked by Forbes magazine
why he works so hard, Mr. Dunne responded, “Fifteen years from now, my son will meet
the son or daughter of one of our people who died that day, and I will be judged on what
that kid tells my son about what Sandler O’Neill did for his family.” His personal credo
focuses on both the long-term reputation of his firm and the impact his choices can have
on his children’s reputations.
Discussion Question
Explain the role that “How do I want to be remembered?” plays in your credo?
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4
Unit One
Ethical Theory, Philosophical Foundations, Our Reasoning Flaws, and Types of Ethical Dilemmas
Reading 1.2
The Parable of the Sadhu: Pressure, Small
Windows of Opportunity, and Temptation2
Bowen H. McCoy
[In 1982], as the first participant in the new six-month sabbatical program that Morgan
Stanley has adopted, I enjoyed a rare opportunity to collect my thoughts, as well as do
some traveling. I spent the first three months in Nepal, walking 600 miles through 200
villages in the Himalayas and climbing some 120,000 vertical feet. On the trip my sole
Western companion was an anthropologist who shed light on the cultural patterns of
the villages we passed through.
During the Nepal hike, something occurred that has had a powerful impact on my
thinking about corporate ethics. Although some might argue that the experience has no
relevance to business, it was a situation in which a basic ethical dilemma suddenly
intruded into the lives of a group of individuals. How the group responded I think
holds a lesson for all organizations, no matter how defined.
The Sadhu
The Nepal experience was more rugged and adventuresome than I had anticipated. Most
commercial treks last two or three weeks and cover a quarter of the distance we traveled.
My friend Stephen, the anthropologist, and I were halfway through the 60-day
Himalayan part of the trip when we reached the high point, an 18,000-foot pass over a
crest that we’d have to traverse to reach the village of Muklinath [sic], an ancient holy
place for pilgrims.
Six years earlier I had suffered pulmonary edema, an acute form of altitude sickness,
at 16,500 feet in the vicinity of Everest base camp, so we were understandably concerned
about what would happen at 18,000 feet. Moreover, the Himalayas were having their
wettest spring in 20 years; hip-deep powder and ice had already driven us off one
ridge. If we failed to cross the pass, I feared that the last half of our “once in a lifetime”
trip would be ruined.
The night before we would try the pass, we camped at a hut at 14,500 feet. In the
photos taken at that camp, my face appears wan. The last village we’d passed through
was a sturdy two-day walk below us, and I was tired.
During the late afternoon, four backpackers from New Zealand joined us, and we spent
most of the night awake, anticipating the climb. Below we could see the fires of two other
parties, which turned out to be two Swiss couples and a Japanese hiking club.
To get over the steep part of the climb before the sun melted the steps cut in the ice,
we departed at 3:30 A.M. The New Zealanders left first, followed by Stephen and myself,
our porters and Sherpas, and then the Swiss. The Japanese lingered in their camp. The
sky was clear, and we were confident that no spring storm would erupt that day to close
the pass.
At 15,500 feet, it looked to me as if Stephen were shuffling and staggering a bit, which
are symptoms of altitude sickness. (The initial stage of altitude sickness brings a headache and nausea. As the condition worsens, a climber may encounter difficult breathing,
Reprinted by permission of Harvard Business Review. From “The Parable of the Sadhu,” by Bowen H. McCoy,
Harvard Business Review, 61 (September/October 1983), pp. 103–108. Copyright © 1983 by the Harvard Business
School Publishing Corporation; all rights reserved.
2
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Defining Ethics
Section A
5
disorientation, aphasia, and paralysis.) I felt strong, my adrenaline was flowing, but I was
very concerned about my ultimate ability to get across. A couple of our porters were also
suffering from the height, and Pasang, our Sherpa sirdar (leader), was worried.
Just after daybreak, while we rested at 15,500 feet, one of the New Zealanders, who
had gone ahead, came staggering down toward us with a body slung across his shoulders.
He dumped the almost naked, barefoot body of an Indian holy man—a sadhu—at my
feet. He had found the pilgrim lying on the ice, shivering and suffering from hypothermia. I cradled the sadhu’s head and laid him out on the rocks. The New Zealander was
angry. He wanted to get across the pass before the bright sun melted the snow. He said,
“Look, I’ve done what I can. You have porters and Sherpa guides. You care for him.
We’re going on!” He turned and went back up the mountain to join his friends.
I took a carotid pulse and found that the sadhu was still alive. We figured he had
probably visited the holy shrines at Muklinath [sic] and was on his way home. It was
fruitless to question why he had chosen this desperately high route instead of the safe,
heavily traveled caravan route through the Kali Gandaki Gorge. Or why he was almost
naked and with no shoes, or how long he had been lying in the pass. The answers weren’t going to solve our problem.
Stephen and the four Swiss began stripping off outer clothing and opening their
packs. The sadhu was soon clothed from head to foot. He was not able to walk, but he
was very much alive. I looked down the mountain and spotted below the Japanese climbers marching up with a horse.
Without a great deal of thought, I told Stephen and Pasang that I was concerned
about withstanding the heights to come and wanted to get over the pass. I took off
after several of our porters who had gone ahead.
On the steep part of the ascent where, if the ice steps had given way, I would have slid
down about 3,000 feet, I felt vertigo. I stopped for a breather, allowing the Swiss to catch
up with me. I inquired about the sadhu and Stephen. They said that the sadhu was fine
and that Stephen was just behind. I set off again for the summit.
Stephen arrived at the summit an hour after I did. Still exhilarated by victory, I ran
down the snow slope to congratulate him. He was suffering from altitude sickness, walking fifteen steps, then stopping, walking fifteen steps, then stopping, walking fifteen steps,
then stopping. When I reached them, Stephen glared at me and said: “How do you feel
about contributing to the death of a fellow man?”
I did not fully comprehend what he meant.
“Is the sadhu dead?” I inquired.
“No,” replied Stephen, “but he surely will be!”
After I had gone, and the Swiss had departed not long after, Stephen had remained
with the sadhu. When the Japanese had arrived, Stephen had asked to use their horse
to transport the sadhu down to the hut. They had refused. He had then asked Pasang
to have a group of our porters carry the sadhu. Pasang had resisted the idea, saying
that the porters would have to exert all their energy to get themselves over the pass. He
had thought they could not carry a man down 1,000 feet to the hut, reclimb the slope,
and get across safely before the snow melted. Pasang had pressed Stephen not to delay
any longer.
The Sherpas had carried the sadhu down to a rock in the sun at about 15,000 feet and
had pointed out the hut another 500 feet below. The Japanese had given him food and
drink. When they had last seen him he was listlessly throwing rocks at the Japanese
party’s dog, which had frightened him.
We do not know if the sadhu lived or died.
For many of the following days and evenings Stephen and I discussed and debated
our behavior toward the sadhu. Stephen is a committed Quaker with deep moral vision.
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6
Unit One
Ethical Theory, Philosophical Foundations, Our Reasoning Flaws, and Types of Ethical Dilemmas
He said, “I feel that what happened with the sadhu is a good example of the breakdown
between the individual ethic and the corporate ethic. No one person was willing to
assume ultimate responsibility for the sadhu. Each was willing to do his bit just so long
as it was not too inconvenient. When it got to be a bother, everyone just passed the buck
to someone else and took off. Jesus was relevant to a more individualist stage of society,
and how do we interpret his teaching today in a world filled with large, impersonal organizations and groups?”
I defended the larger group, saying, “Look, we all cared. We all stopped and gave aid
and comfort. Everyone did his bit. The New Zealander carried him down below the
snow line. I took his pulse and suggested we treat him for hypothermia. You and the
Swiss gave him clothing and got him warmed up. The Japanese gave him food and
water. The Sherpas carried him down to the sun and pointed out the easy trail toward
the hut. He was well enough to throw rocks at a dog. What more could we do?”
“You have just described the typical affluent Westerner’s response to a problem.
Throwing money—in this case food and sweaters—at it, but not solving the fundamentals!” Stephen retorted.
“What would satisfy you?” I said. “Here we are, a group of New Zealanders, Swiss,
Americans, and Japanese who have never met before and who are at the apex of one of
the most powerful experiences of our lives. Some years the pass is so bad no one gets
over it. What right does an almost naked pilgrim who chooses the wrong trail have to
disrupt our lives? Even the Sherpas had no interest in risking the trip to help him
beyond a certain point.”
Stephen calmly rebutted, “I wonder what the Sherpas would have done if the sadhu
had been a well-dressed Nepali, or what the Japanese would have done if the sadhu had
been a well-dressed Asian, or what you would have done, Buzz, if the sadhu had been a
well-dressed Western woman?”
“Where, in your opinion,” I asked instead, “is the limit of our responsibility in a situation like this? We had our own well-being to worry about. Our Sherpa guides were
unwilling to jeopardize us or the porters for the sadhu. No one else on the mountain
was willing to commit himself beyond certain self-imposed limits.”
Stephen said, “As individual Christians or people with a Western ethical tradition,
we can fulfill our obligations in such a situation only if (1) the sadhu dies in our care,
(2) the sadhu demonstrates to us that he could undertake the two-day walk down to the
village, or (3) we carry the sadhu for two days down to the village and convince someone
there to take care of him.”
“Leaving the sadhu in the sun with food and clothing, while he demonstrated handeye coordination by throwing a rock at a dog, comes close to fulfilling items one and
two,” I answered. “And it wouldn’t have made sense to take him to the village where
the people appeared to be far less caring than the Sherpas, so the third condition is
impractical. Are you really saying that, no matter what the implications, we should, at
the drop of a hat, have changed our entire plan?”
The Individual vs. the Group Ethic
Despite my arguments, I felt and continue to feel guilt about the sadhu. I had literally
walked through a classic moral dilemma without fully thinking through the consequences. My excuses for my actions include a high adrenaline flow, a superordinate
goal, and a once-in-a-lifetime opportunity—factors in the usual corporate situation, especially when one is under stress.
Real moral dilemmas are ambiguous, and many of us hike right through them, unaware that they exist. When, usually after the fact, someone makes an issue of them,
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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Defining Ethics
Section A
7
we tend to resent his or her bringing it up. Often, when the full import of what we have
done (or not done) falls on us, we dig into a defensive position from which it is very
difficult to emerge. In rare circumstances we may contemplate what we have done from
inside a prison.
Had we mountaineers been free of physical and mental stress caused by the effort and
the high altitude, we might have treated the sadhu differently. Yet isn’t stress the real test
of personal and corporate values? The instant decisions executives make under pressure
reveal the most about personal and corporate character.
Among the many questions that occur to me when pondering my experience are:
What are the practical limits of moral imagination and vision? Is there a collective or
institutional ethic beyond the ethics of the individual? At what level of effort or commitment can one discharge one’s ethical responsibilities?
Not every ethical dilemma has a right solution. Reasonable people often disagree;
otherwise, there would be no dilemma. In a business context, however, it is essential
that managers agree on a process for dealing with dilemmas.
The sadhu experience offers an interesting parallel to business situations. An immediate response was mandatory. Failure to act was a decision in itself. Up on the mountain
we could not resign and submit our résumé to a headhunter. In contrast to philosophy,
business involves action and implementation—getting things done. Managers must come
up with answers to problems based on what they see and what they allow to influence
their decision-making processes. On the mountain, none of us but Stephen realized the
true dimensions of the situation we were facing.
One of our problems was that as a group we had no process for developing a consensus. We had no sense of purpose or plan. The difficulties of dealing with the sadhu were
so complex that no one person could handle it. Because it did not have a set of preconditions that could guide its action to an acceptable resolution, the group reacted instinctively as individuals. The cross-cultural nature of the group added a further layer of
complexity. We had no leader with whom we could all identify and in whose purpose
we believed. Only Stephen was willing to take charge, but he could not gain adequate
support to care for the sadhu.
Some organizations do have a value system that transcends the personal values of the
managers. Such values, which go beyond profitability, are usually revealed when the
organization is under stress. People throughout the organization generally accept its
values, which, because they are not presented as a rigid list of commandments, may be
somewhat ambiguous. The stories people tell, rather than printed materials, transmit
these conceptions of what is proper behavior.
For twenty years I have been exposed at senior levels to a variety of corporations
and organizations. It is amazing how quickly an outsider can sense the tone and style
of an organization and the degree of tolerated openness and freedom to challenge
management.
Organizations that do not have a heritage of mutually accepted, shared values tend to
become unhinged during stress, with each individual bailing out for himself. In the great
takeover battles we have witnessed during past years, companies that had strong cultures
drew the wagons around them and fought it out, while other companies saw executives,
supported by their golden parachutes, bail out of the struggles.
Because corporations and their members are interdependent, for the corporation to be
strong the members need to share a preconceived notion of what is correct behavior, a
“business ethic,” and think of it as a positive force, not a constraint.
As an investment banker I am continually warned by well-meaning lawyers, clients,
and associates to be wary of conflicts of interest. Yet if I were to run away from every
difficult situation, I wouldn’t be an effective investment banker. I have to feel my way
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8
Unit One
Ethical Theory, Philosophical Foundations, Our Reasoning Flaws, and Types of Ethical Dilemmas
through conflicts. An effective manager can’t run from risk either; he or she has to confront and deal with risk. To feel “safe” in doing this, managers need the guidelines of an
agreed-on process and set of values within the organization.
After my three months in Nepal, I spent three months as an executive-in-residence at
both Stanford Business School and the Center for Ethics and Social Policy at the Graduate Theological Union at Berkeley. These six months away from my job gave me time to
assimilate twenty years of business experience. My thoughts turned often to the meaning
of the leadership role in any large organization. Students at the seminary thought of
themselves as antibusiness. But when I questioned them, they agreed that they distrusted
all large organizations, including the church. They perceived all large organizations as
impersonal and opposed to individual values and needs. Yet we all know of organizations where people’s values and beliefs are respected and their expressions encouraged.
What makes the difference? Can we identify the difference and, as a result, manage more
effectively?
The word “ethics” turns off many and confuses more. Yet the notions of shared
values and an agreed-on process for dealing with adversity and change—what many people mean when they talk about corporate culture—seem to be at the heart of the ethical
issue. People who are in touch with their own core beliefs and the beliefs of others and
are sustained by them can be more comfortable living on the cutting edge. At times, taking a tough line or a decisive stand in a muddle of ambiguity is the only ethical thing to
do. If a manager is indecisive and spends time trying to figure out the “good” thing to
do, the enterprise may be lost.
Business ethics, then, has to do with the authenticity and integrity of the enterprise.
To be ethical is to follow the business as well as the cultural goals of the corporation, its
owners, its employees, and its customers. Those who cannot serve the corporate vision
are not authentic business people and, therefore, are not ethical in the business sense.
At this stage of my own business experience I have a strong interest in organizational
behavior. Sociologists are keenly studying what they call corporate stories, legends, and
heroes as a way organizations have of transmitting the value system. Corporations such
as Arco have even hired consultants to perform an audit of their corporate culture. In a
company, the leader is the person who understands, interprets, and manages the corporate value system. Effective managers are then action-oriented people who resolve conflict, are tolerant of ambiguity, stress, and change, and have a strong sense of purpose for
themselves and their organizations.
If all this is true, I wonder about the role of the professional manager who moves
from company to company. How can he or she quickly absorb the values and culture
of different organizations? Or is there, indeed, an art of management that is totally transportable? Assuming such fungible managers do exist, is it proper for them to manipulate
the values of others?
What would have happened had Stephen and I carried the sadhu for two days back to
the village and become involved with the villagers in his care? In four trips to Nepal my
most interesting experiences occurred in 1975 when I lived in a Sherpa home in the
Khumbu for five days recovering from altitude sickness. The high point of Stephen’s
trip was an invitation to participate in a family funeral ceremony in Manang. Neither
experience had to do with climbing the high passes of the Himalayas. Why were we so
reluctant to try the...
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