Is Business Bluffing Ethical?
Albert Carr
• Private morality is based on a respect for the
truth.
– Therefore, we should respect a business person the
closer he/she adheres to the truth.
• However, most bluffing in business can be
regarded as game strategy—like bluffing in poker.
– Therefore, bluffing in business does NOT reflect on the
morality of the bluffer.
• Henry Taylor, a British diplomat, once said:
“Falsehood ceases to be falsehood when it is
understood on all sides that the truth is not expected
to be spoken.”
– This describes exactly bluffing in poker, diplomacy, and
in business.
Deception in Business
• Corporate executives are often compelled—in the
interests of the company or themselves—to practice
some form of deception when negotiating with
customers, suppliers, unions, or government.
• Through conscious misstatements, concealment of
facts, or exaggerations—in other words, through
bluffing—they seek to persuade other parties to agree
with them.
• If a business executive refused to bluff and
always told the entire truth, he/she would be
ignoring opportunities permitted under the
rules of the business game—and would
therefore be at a heavy disadvantage.
The Business Game
• Business—as practiced by individuals and
corporations—has the character of an
impersonal game.
• The business game has its own special rules,
strategy, & ethics.
• Consider some examples:
• Example 1: A student graduates with honors
from Cornell University, and applies for a job with
a large corporation.
• As a job candidate, he must take a psychological
test that asks:
– “Which of the following magazines have you read
regularly or from time to time?
Time, Fortune, Life, New Republic, Newsweek,
Ramparts, National Review, Business Week, The
Nation, Playboy, Sports Illustrated”
• Even though the candidate often looks at
Playboy, and subscribes to The Nation and
Ramparts, he does not check any of these.
• He wasn’t sure whether Playboy would hurt
him, but worried that being a reader of The
Nation and Ramparts would make he seem
too liberal or radical.
• So, he checks a couple of the more
conservative magazines.
• The candidate later receives a job offer.
• The candidate’s action is consistent with the
rules and ethics of the business game.
• Example 2: A 58-year old man suddenly finds
himself unemployed, due to a corporate
merger & elimination of his position.
• The man is in good health, has lots of energy,
with grey hair the only sign of his age.
• He decides to dye his hair, and he & his wife
agree that he can pass for 45-years old.
• The man lists age 45 on his resume and begins
to apply for new jobs.
• The man’s action is consistent with the rules
and ethics of the business game.
The Poker Analogy
• Consider the game of Poker:
• The game involves some element of chance or luck.
• However, the eventual winner is usually the person
who plays with skill over the long-run.
• Success involves intimate knowledge of the rules,
insight into the psychology of other players, putting on
a bold face, exercising self-discipline, and responding
quickly & efficiently to opportunities presented by
chance.
• Furthermore, we don’t play Poker according to
our rules of private morality.
• For example, it is perfectly acceptable to bluff
a friend who has a better hand, and strip him
of the rest of his chips.
• The friend is the one who is expected to
defend himself.
• Poker operates according to its own special
rules or ethic.
• Ordinary private morality may call for trust of
others, value claims of friendship, and
emphasize being kind and openhearted.
• The game of Poker, by contrast, calls for
distrust of others, ignores claims of friendship,
and treats deception & concealment of one’s
strengths as vitally important.
• However, this does NOT mean the game of
Poker has no rules.
• For example, the rules of Poker forbid
cheating, such as keeping an Ace up your
sleeve or marking the cards.
• Business is like Poker:
– It is a game of strategy.
– It does not operate according to the rules of
private morality.
– Instead, it operates according to its own special
rules or ethic.
• The rules of business are the law.
– As long as corporate executives & other business
people comply with the letter of the law, they may
do as they see fit.
– Business people regularly violate the rules of
private morality, but often these are not violations
of the rules of business.
The Illusion of Business Ethics
• The illusion that business people can afford to be
guided by private morality is often fostered by
speeches, articles, & so forth.
• Business people will sometimes say things such as “It
pays to be ethical” or “Sound ethics is good business.”
• However, these statements are actually just a selfserving calculation.
• These statements simply mean that, in the long-run, an
individual or company will make more money if it does
not provoke hostility from competitors, suppliers,
employees, & customers by squeezing them too hard.
• In other words, statements about “business ethics” are
really statements of game strategy, not of ethics.
“A Stakeholder Theory of the
Modern Corporation”
R. Edward Freeman
Stockholder Theory
• The central question in the CSR debate is this: In
whose interest and for whose benefit should the
corporation be managed?
• Stockholder Theory answers this question by
appealing to the assumption of “stockholder
primacy.”
• This assumption holds that since stockholders
own shares in the firm, management has a duty
to give precedence to the rights and interests of
stockholders over the rights and interests of
others.
• Essentially, Stockholder Theory holds that in
return for the right to control the firm,
management should vigorously pursue the
interests of stockholders.
• And that means management should pursue
transactions with suppliers, employees,
customers, and others in an unconstrained
manner, with the only goal being pursuit of
the stockholders’ interests.
• Freeman argues that Stockholder Theory, and its
assumption of “stockholder primacy,” is wrong.
• Instead, he argues in favor of Stakeholder Theory.
• Stakeholder Theory holds that corporate
management has a duty to pursue the interests
of all stakeholders in the firm.
• “Stakeholders” are those groups who have a
stake in, or claim on, the firm.
• These groups include suppliers, customers,
employees, management, stockholders, and the
local community.
Arguments for Stockholder Theory
• The Legal Argument:
• The law states that corporations:
– Are legal entities that exist as a “legal person”
– Have limited liability for their actions
– Have immortality (since their existence transcends
that of its members).
• The law also states that management:
– Has a duty to conduct the affairs of the corporation in
the best interest of the stockholders.
• Furthermore, the law allows stockholders to
sue management if management fails to carry
out this duty.
• Therefore, management should act to
maximize stockholders’ profits.
• Objection:
• The problem with this argument is that it
appeals to the law to justify Stockholder
Theory, but overlooks developments in the
law that have occurred during the past
century.
• The law has actually developed in ways that
require the claims of customers, employees,
and communities to be taken into
consideration.
• The interests of customers have been given
some priority through the development of
product liability law.
• The law has essential changed from a policy of
“buyer beware” to a policy of “seller beware.”
• The Consumer Product Safety Commission
(CPSC) has been created and given the power
to enact product recalls.
• In 1980, the CPSC actually required one
automobile manufacturer to recall more cars
than it built that year!
• The interests of employees have been given some
priority through various pieces of legislation.
• The National Labor Relations Act (1935) gave
employees the right to unionize and engage in
collective bargaining.
• The Equal Pay Act (1963) and Civil Rights Act
(1964) forbid management to discriminate
against women and minorities when it comes to
pay and hiring practices.
• The Age Discrimination in Employment Act (1967)
forbids management from discriminating in pay
and hiring when it comes to age.
• The interests of communities have also been
given some priority through various pieces of
legislation.
• The Clean Air Act (1963) and the Clean Water
Act (1972) constrain the degree to which
management can pollute the air and water.
• So the Legal Argument fails, because it looks
at only one aspect of law, while ignoring
others parts of the law that give priority to the
rights and interests of other stakeholders
besides the stockholders.
• The Economic Argument:
• Free markets create the greatest good through
the “invisible hand,” and thus governments
should not intervene (Adam Smith’s argument).
• So governments should not interfere in the
market by creating legislation that requires
management to give priority to the rights and
interests of other stakeholders.
• Therefore, the greatest good will be realized in a
free-market economy where management acts to
maximize stockholders’ profits.
• Objections:
• The problem with this argument is that it claims free,
unregulated markets create the greatest good, but
historical experience has shown this to be false.
• First, free markets are plagued by the problem of
externalities (exemplified by the “tragedy of the
commons”), which occur when economic transactions
have a cost for non-consenting bystanders.
• Firms seek to internalize the benefits and externalize
the costs of their actions.
• For example, no one has an incentive to incur the cost
of non-pollution, and since every firm reasons in that
way, the result is polluted air and water.
• http://www.youtube.com/watch?v=aCGTD5Bn1m0
• Second, free markets are plagued by the
problem of moral hazard, which occurs when
the purchaser of a good is willing to take a
risk, because the costs of that risk can be
passed along to others.
• This means there is no incentive to economize
on the part of either the producer or the
consumer, which results in excessive use of
the resources involved.
• For example, the recent Wall Street bail-out or
the Russia bail-out in 1998.
• Third, free markets are plagued by the
problem of monopolies, which occur when a
single entity is the only supplier of a particular
commodity.
• This occurs because each firm is seeking to
monopolize a small portion of the market and
not compete with one another.
• Monopolies result in reduced competitiveness
and allow for abuses, such as monopoly
pricing.
• In order to avoid these negative effects of the
free market, we have introduced government
regulation in an attempt to create an economy
that produces the greatest good.
• And part of that regulation includes
requirements that management give priority
to the interests of other stakeholders (over
the interests of stockholders).
Stakeholder Theory
• “Stakeholders” are groups or individuals who
benefit from or are harmed by corporate actions.
• We can divide stakeholders into two categories:
• 1) “Narrow stakeholders” are those who are vital
to the survival and success of the corporation.
– These include suppliers, customers, employees,
management, stockholders, and the local community.
• 2) “Broad stakeholders” include anyone who can
affect or is affected by the corporation.
• Stakeholder Theory holds that each of the
Narrow Stakeholder groups has a right not to
be treated as a means to an end (Kantian
theory).
• Therefore, Narrow Stakeholders must be able
to participate in determining the future
direction of the firm in which they have a
stake.
• Stockholders (owners) have financial stakes in the
firm in the form of stocks, bonds, etc.
• Therefore, they have a right to expect some kind
of financial return on this investment.
• Employees have their jobs, and usually their
livelihoods at stake.
• Employees are expected to give their labor and
loyalty to the firm.
• Therefore, they have a right to wages, benefits,
and meaningful work.
• Additionally, the firm is expected to provide for
them and carry them through difficult times.
• Suppliers depend on the firm as a customer, and
thus suppliers may have their success and
survival at stake.
• Suppliers contribute raw materials to the firm,
which determine the quality and price of the
firm’s final products, and may respond when the
firm is in need.
– Example: Chrysler’s suppliers cut prices and accepted
late payment and financing when Chrysler was on the
brink of failing.
• Therefore, suppliers have a right to be treated as
valued members of the stakeholder network.
• Customers depend on the firm to meet some of
their needs, and thus have a stake in continuing
to have these needs met.
• Customers buy the products and services of the
firm, which provides the lifeblood of the firm in
the form of revenue.
• Re-investment of revenue in R&D also means that
customers indirectly benefit from the
development of new products and services.
• Therefore, customers have a right to receive
benefits from the products and services that they
purchase, and that the firm pay attention to their
needs.
• The local community benefits from the tax base
and economic and social contributions of the
firm, and thus has its prosperity at stake.
• The local community gives the firm the right to
build facilities and operate there, and also
provides the firm with local services (fire, police,
road crews, etc.).
• Therefore, the local community has a right to
expect the firm to be a good citizen, and not to
expose the community to hazards in the form of
pollution, toxic waste, etc.
• Also, if the firm intends to leave, it has an
obligation to work with the local community to
make the transition as easy as possible.
• Management has a special position because:
– (a) It is a stakeholder
– (b) It also has the role of looking after the other
stakeholders.
• Like employees, management has their jobs
(and perhaps livelihoods) at stake.
• Management is expected to give their labor
and loyalty to the firm.
• Therefore, they have a right to wages,
benefits, & meaningful work.
• But management is also expected to look after
the firm, which involves balancing the
multiple claims of conflicting stakeholders.
• Unlike Stockholder Theory, which gives
primacy to stockholders, Stakeholder Theory
does NOT give primacy to any one group of
stakeholders over others.
• Thus, according to Stakeholder Theory,
management must keep the relationships
among the various stakeholders in balance.
3 Principles of Stakeholder Theory
• 1) Stakeholder Enabling Principle: A corporation shall
be managed in the interests of its stakeholders, defined
as employees, owners (stockholders), mangers,
customers, suppliers, & community.
• 2) Principle of Management Responsibility: Managers
of the corporation shall have a duty of care to use
reasonable judgment to define and direct the
corporation in accordance with the Stakeholder
Enabling Principle.
• 3) Principle of Stakeholder Recourse: Stakeholders may
bring an action against management for failure to
perform the required duty of care.
A Simplified Account of Kant’s
Ethics
Onora O’Neill
The Basis of Kant’s Ethics
• For Kant rationality has ultimate value, and this
provides the basis for morality.
• Rationality allows a being to have autonomy: the
ability to choose, make plans, and to formulate and
act upon principles.
• Since human beings are the bearers of rationality,
human life is of ultimate value, and should never be
sacrificed for anything of lesser value.
Kant’s Ethics
• Kant Believes there is one supreme principle of morality from
which all the other particular moral principles can be
derived.
• He calls this supreme principle the “Categorical Imperative”
(CI).
• The Categorical Imperative has a few different formulations.
• According to Kant, these formulations are logically
equivalent, which is why they are all formulations of the
same principle.
• We will focus on two formulations of the CI.
Formula of Universal Law
• The first formulation of the Categorical Imperative is
called the “Formula of Universal Law.”
• This formula states: “Act only on that maxim
(principle) which you can will to be universal law.”
• Every time we act, Kant believes that our action reflects
some principle upon which the action is based.
• The morality of an action should be determined by the
principle on which it is based (NOT by the consequences
the action will produce).
• This formula provides a two-step process for determining
whether an action is moral:
• 1) Identify the principle upon which the action is based.
• 2) Determine whether or not you could will that principle to
be a universal law that everyone follows at all times.
Examples
• Example 1: A woman finds herself in a situation where she
desperately needs to borrow money. In order to get the money, she
must promise to repay a loan that she knows she will never be able to
repay.
• Principle: When I find myself in need of money, I will borrow money
and promise to repay it, although I know that I cannot. (Lyingpromise)
• Universal Law?: If this principle were a universal law, then
promises would become impossible because no one would
believe them.
• Thus, we cannot will this principle to be a universal law, because it is selfcontradictory and undermines itself.
• Example 2: A rich and prosperous man sees a person who is
poor and desperately in need of help. He considers whether
to ignore this person and not be troubled with him.
• Principle: If I see someone in need, I will not trouble myself
to assist or contribute to the welfare of that person.
• Universal Law?: There will be occasions in life when I need
help because we humans are dependent creatures. If this
principle were a universal law, then this would deprive me of
any help from others.
• Thus, we cannot will this principle to be a universal law, because it is selfcontradictory given the type of creatures that we are.
Formula of the End in Itself
• The second formulation of the Categorical
Imperative is called the “Formula of the End in
Itself.”
• This formula state: “Act in such a way that you
always treat humanity (whether yourself or
another person), never simply as a means, but
always at the same time as an end.”
• This formula states that we should never act on
principles that treat a person only as a means,
and should always act on principles that also
treat a person as an end.
• To understand this formula, we need to know what
it means to treat a person as a “means” and as an
“end.”
Treating a Person as a Means
• To treat someone as a means, is to use the person as an
instrument to achieve my goals.
• To treat someone only as a means, is to involve the person in
a scheme of action to which he/she could not in principle
consent.
• Consider some examples:
• Example 1: I go to the bank to cash a check. I use the bank teller to
get the cash. The bank teller uses me to earn a living.
• In this case, both parties treat each other as a means (to each get
something they want).
• However, since each party consents to the transaction, we
have NOT treated each other only as a means.
• Each person assumes:
• i) the other party has principles of his/her own that are being
acted upon.
• ii) the other party is NOT a mere thing to be manipulated.
• This example shows that it is not wrong to treat another
person as a means; we do this all the time.
• Example 2: I go to the bank to get a loan. In order to get this
loan, I make a promise to the loan officer to repay it, knowing
that I will never be able to do this. I use the loan officer to get
the loan. The loan officer uses me to earn a living.
• In this case, both parties treat each other as a means (to get
something they want).
• However, I have also deceived the loan officer by making a
false-promise (a lie).
• This means the loan officer is unaware of the true principle
underlying my action, and is therefore unable to consent to
my course of action.
• If the loan officer was aware of my true principle of action, then
she would not consent to my course of action.
• Since the loan officer is unable to consent to my course of
action, I have used her only as a means.
• In other words, I have manipulated the loan officer—as if she
were only an instrument or a tool—in order to get what I
want.
Two Standard Ways of Using a Person
Only as a Means
• 1) Deceit: misleading, lying, tricking, or dealing
fraudulently with another person, so that he/she is
unable to consent to the true course of action.
• 2) Coercion: threatening or forcing another person to
do something, so the person is not consenting to what
I am making him/her do.
Treating a Person as an End
• To treat someone as an end is to:
• i) Never treat the person only as a means
• ii) Sometimes seek to promote the person’s plans and
principles by sharing some of his goals.
• When we treat someone as an end, we try to achieve
when that person wants.
• However, it is impossible to achieve everything that
others want, because their goals are too:
• numerous—they want so many things it would be impossible
for me to help achieve all of them.
• diverse—they want things that I am not in a position to help
them achieve.
• incompatible—they want things that conflict and cannot all be
achieved.
• Therefore, we will have to be selective about which goals
we try to help others achieve.
Moral Duties
• This framework yields two types of moral duties:
• 1) Duties of Justice—require that we do NOT act on
principles that treat others only as a means.
• Since this type of duty involves things we should never do,
they remain constant at all times.
• For example, we should never deceive or coerce another
person.
• 2) Duties of Beneficence—require that we act on
some principles that advance others as an end.
• Since these duties involve things that we must sometimes do,
they are not constant and require discretion.
• For example, we must sometimes give charitably to a person
who is in need.
Duties and the Basis of Kant’s Ethics
• Recall that for Kant, rationality has ultimate value, and
provides the basis of morality.
• Rationality is of such value that it should never be sacrificed
for something of lesser value.
• This means no rational being (human) should be sacrificed
for something of lesser value.
• Therefore, no human should be treated only as a means for
the enjoyment or happiness of another.
• This explains why it is wrong to deceive or coerce
another person into scheme of action to which that
person would not consent.
• Doing so fails to treat the other person as a rational
being who possesses autonomy: the ability to choose,
make plans, and formulate and act upon principles.
The Ethics of Whistleblowing
Major Whistleblower Cases
• In 2002, Time Magazine chose three whistleblowers
as its “Persons of the Year.”
• Two of the three were
corporate whistleblowers,
who exposed two of the
biggest corporate scandals in
U.S. history: WorldCom and
Enron.
• WorldCom
• WorldCom was the second largest
telecommunications company (after AT&T) in
the United States.
• Cynthia Cooper was Vice President of Internal
Audit at WorldCom.
• Cooper began to discover suspicious entries in
the company’s books.
• In 2002, Cooper and her staff began doing a
series of mini-audits—often late at night & on
weekends—to investigate these entries.
• The investigation ultimately led to the
discovery of $3.8 billion in fraudulent
accounting entries, as well as a questionable
$400 million loan to the CEO Bernie Ebbers.
• Cooper took her findings to the audit
committee of WorldCom’s board of directors,
because her superiors, CEO Ebbers and CFO
Scott Sullivan, were deeply implicated.
• Sullivan retaliated, asking Cooper to stay out
of these matters.
• However, the audit committee of the board
took action and contacted the SEC.
• After the SEC investigated WorldCom:
– Ebbers was found guilty of conspiracy & securities
fraud
– Sullivan was found guilty of filing false reports &
securities fraud.
– In 2002, WorldCom filed for bankruptcy, which
was the biggest bankruptcy in U.S. history up to
that time.
• Wells Fargo
• Wells Fargo is currently involved in an account
fraud scandal, which involved opening millions of
savings & checking accounts for customers
without their consent.
• The scandal first erupted in 2016.
• However, Jessie Guitron, a Wells Fargo bank
employee, had attempted to bring the issue to
the company’s attention seven years earlier in
2009.
• In 2010, the company retaliated & fired her.
• Guitron was unable to find another bank that
would hire her.
• https://www.cbsnews.com/video/wells-fargowhistleblower-on-fraudulent-banking-practices/
What is a Whistleblower?
• A whistleblower:
• (i) is a member of an organization
• (ii) who releases information outside the
normal chain of command or channels of
communication
• (iii) that shows evidence of significant
misconduct on the part of the organization or
its members.
DeGeorge’s Criteria for Whistleblowing
• Permissive Whistleblowing:
• 1) The harm that will be done to the public by the product
or company action is serious and considerable.
• 2) The employee has made the concerns known to his/her
supervisor.
• 3) If the supervisor has taken no actions, the employee
exhausts complaint mechanisms within the organization.
• Mandatory Whistleblowing:
• 4) The employee has documented evidence that would
convince an impartial observer that the organization is
doing wrong.
• 5) There is strong evidence that making the information
public will prevent the harm.
Ethical Analysis of Whistleblowing
• Why is whistleblowing potentially
problematic?
• It involves weighing the values of:
• (i) Loyalty
• (ii) The agent-principal relationship
• (iii) Avoiding retaliation
• Against the value of:
• (iii) Making corruption publicly known
• Loyalty
• Loyalty is a virtue that involves giving strong
support or allegiance to a person or
institution, even when the commitment is
costly.
• It is generally held that employees owe loyalty
to their employer.
• However, cases of potential whistleblowing
involve the employer acting wrongfully, and
the employee being either (i) involved in the
wrongful acts, or (ii) aware of the wrongful
acts.
• If the employee takes part in the acts, she can
be accused of doing wrong.
• If the employee is simply aware of the acts,
she can be accused of silent complicity.
• This raises the following question: Can a
person act virtuously when doing a wrongful
act?
• Bill Maher example: Did the 9/11 terrorists act
bravely?
– https://www.youtube.com/watch?v=JhZNqtJVBy0
• Ancient ethicists (such as Plato & Aristotle) believed
in the “unity of the virtues.”
• This view holds that in order to embody any of the
virtues, a person must have mastered them all.
– In other words, if a person has any of the virtues, then
the person has all of the virtues.
• This implies that if a person is brave, then he will
also be just.
• However, we might object that even if the 9/11
terrorists acted bravely, but they did not act justly.
• Modern ethicists tend to reject the “unity of
the virtues.”
• Instead, they believe in the “modular view” of
the virtues.
• This view holds that a person can possess
some virtues without possessing all of the
virtues.
– A person can be brave, without being just.
• Back to whistleblowing: Is an employee being loyal if
she commits, or is silently complicit in, wrongful acts
for her employer?
• The “unity of the virtues” view holds that if a person
acts wrongfully, the person is not acting virtuously.
– Therefore, if the employee remains silent about the
employer’s misconduct, this is NOT an act of loyalty.
• The “modular view” holds that a person can act
wrongfully, while still exhibiting a virtue.
– Therefore, if the employee remains silent about the
employer’s misconduct, this can be an act of loyalty.
• Since modern ethicists tend to hold the “modular
view,” perhaps loyalty can obligate an employee to
remain silent.
• A further issue: What does “loyalty” mean?
• 1) Loyalty involves merely following orders and
not causing problems.
• Whistleblowers are disloyal employees.
• 2) Loyalty involves a commitment to the true
interests or goals of the organization.
• Whistleblowers may be extremely loyal
employees.
• Studies have suggested that whistleblowers are
often very loyal to their organizations:
– They have long histories of successful employment
– They are not alienated & not active members of
movements advocating major social changes
– They began as firm believers in their organizations
– They naively believed that if they took a grievance to
superiors, there would be an appropriate response
– They found that their earlier service & dedication
provided little protection against charges of
undermining organizational morale & effectiveness
• This suggests that at least from the perspective of
actual whistleblowers, they believe themselves
committed to the true interests or goals of the
organization.
• Agent-Principal Relationship
• The employee and employer are in an agentprincipal relationship.
• The primary ethical obligations of an agent are
to:
– (i) work as directed
– (ii) perform tasks with compliance & care
– (iii) act in the interest of the principal in all matters
within this role
• When an employee becomes a whistleblower,
she seems to violate (i) and perhaps also (iii).
• However, the agent-principal relationship falls
within one domain of business ethics: The Ethics
of Relationships & Firms.
• There is another domain of business ethics:
Market Ethics.
• The most important obligations of market ethics
are:
– (i) Observing agreements & contracts
– (ii) Avoiding force & fraud (deception & manipulation)
• While an agent has obligations to the principal,
these obligations do not extend to violating the
other domain of business ethics: market ethics
• If an employer is directing an employee to be
complicit in activities that defraud customers, this
is a violation of market ethics.
• However, the agent-principal relationship has
limits:
– The agent has an obligation to act as directed (and in
the interest of the principal)
– These obligations do not extend to violating market
ethics.
• Therefore, the obligations of the agent-principal
relationship do not obligate an employee to
remain silent about fraudulent conduct.
• Avoiding Retaliation
• Retaliation against whistleblowers is
extremely common.
• This can include poor evaluations, demotion,
or being fired.
• It is also common for whistleblowers to be
“blacklisted,” so they cannot obtain jobs in the
same industry.
• Whistleblowers often suffer career disruption &
financial hardship due to job dislocation & legal
expenses.
• There is also severe emotional strain on
whistleblowers & their families, as coworkers,
friends, & neighbors may turn against them.
• Making Corruption Publicly Known
• Whistleblowing attempts to making wrongful
acts publicly known.
• The value of this is fairly obvious:
– Ideally, it puts an end to the wrongful action, and
the victims may receive compensation for the
wrong done to them.
Utilitarianism & Deontology
• The issue of whistleblowing involves four values: loyalty, the
agent-principal relationship, avoiding retaliation, & making
corruption publicly know.
• Which of the previous consideration is most important to
Utilitarianism?
• Avoiding retaliation
• Making corruption publicly known
• Which of the considerations is most important to
Deontology?
• Loyalty
• Agent-principal relationship
DeGeorge’s Criteria Revisited
•
•
•
Permissive Whistleblowing:
1) The harm that will be done to the public by the product or company action is
serious and considerable.
Consequences
•
•
2) The employee has made the concerns known to his/her supervisor.
Loyalty/Duty
•
3) If the supervisor has taken no actions, the employee exhausts complaint
mechanisms within the organization.
Loyalty/Duty
•
•
•
•
Mandatory Whistleblowing:
4) The employee has documented evidence that would convince an impartial
observer that the organization is doing wrong.
Loyalty/Duty = Employer; Consequences = Action will succeed
•
•
5) There is strong evidence that making the information public will prevent the harm.
Consequences
Truth & Deception in Advertising
Case Study: Selling Hope
• In 1986, a billboard was displayed in an
economically depressed community on the west
side of Chicago.
• The billboard read: “Your way out.”
• It was an advertisement for the Illinois state
lottery.
• While most lottery advertisements are less blunt,
the industry commonly relies on the theme of a
life-changing event in its advertising.
• In reality, lotteries are a cruel disappointment to
all but a few lucky winners.
• 44 (of the 50) states, plus D.C., have lotteries.
• Lotteries are big business:
– In 2008, they brought in nearly $53 billion in revenues.
– They have an average payout of 61%, which means states were
left with about $18 billion (after expenses).
• Lottery marketing:
– Lotteries spend about $400 million annually on marketing.
– Since lotteries are monopolies with no competitors, their
advertising does NOT have the traditional aim of attracting
customers away from competing brands.
– The goal of lottery advertising is to (i) recruit new players, and
(ii) encourage existing players to increase their activity.
– Most of the advertising is focused on the second objective,
encouraging players to play more games and spend more on
each one.
• Lottery marketing begins with the development of a
product mix, because different games appeal to different
players
– Variations include number & size of payouts, degree of
complexity, and timeframe (instant scratch, daily numbers,
weekly drawings, etc.).
– Focus groups, surveys, and other research are used to determine
peoples’ preferences and responses to proposed games.
• Marketing campaigns are further developed by identifying
which demographics groups are most likely to play and
which games appeal to these groups.
– For example, research shows that among Latin Americans, African
Americans and whites, African Americans are mostly likely to play,
whites second most likely, and Latin Americans least likely.
– Men play more than women.
– Playing increases with age.
– Playing is correlated with less education and lower income.
• Is the Illinois Lottery billboard a case of deceptive
advertising?
• Lottery advertising has often been criticized for being
deceptive:
– 1) Ads highlight the maximum award, but seldom disclose
the odds of winning.
• For example, a CT ad correctly listed the odds of winning something,
which were 1 in 30, but not the odds of winning the prominently
displayed jackpot prize (which were 1 in 13 million).
– 2) The advertised jackpot prize will be much less after
taxes, and may be split among multiple winners.
– 3) Psychological research shows that people’s perceptions
of probability are increased by tangible examples of
successful outcomes.
• For this reason, ads often counter awareness of the long odds by including
profiles of previous winners and using slogans like “Every single second,
someone is cashing a winning ticket.”
Marketing & Advertising
• Marketing is an essential function of any business.
– The purpose of a business is to create and keep a customer.
– In order to do this, a business must develop products & services
that customers want at prices they are willing to pay.
• However, marketing is also an area of conflict in the
market place:
– Marketers have strong incentive to sell products and have
powerful means for doing so.
– Consumers are vulnerable to the vast power of companies to
determine what goods are offered, and through advertising,
what consumers want.
• Advertising is the aspect of marketing that
involves persuading/influencing people to buy.
• Advertising can have negative aspects:
– It pervades our lives and can be irritating or offensive.
• However, there also benefits provided by
advertising:
– It provides us with information about products.
– It boosts the economy as a whole (1 to 2% of GNP is
spent on advertising).
• Furthermore, companies that sell products &
services regard advertising as a valuable and
indispensable marketing tool.
• For these reasons, advertising is both a significant
& an essential part of doing business.
Deception & Manipulation
• Like sales, advertising can involve deception and
manipulation.
• Deception occurs when a customer is led to have a
false belief about a product.
– Examples: markdown from a “suggested retail price” that is
never changed, “introductory offers” that falsely claim to
offer savings, “special sales” that end today (and the same
sale starts again tomorrow), misleading pictures, etc.
• Manipulation consists in taking advantage of the
customer’s psychology to make a sale.
– Examples: “Bait & switch” (luring customers into a store
with a low-priced item that is unavailable or of horrible
quality, and then selling a high-priced item), taking
advantage a vulnerable buyer such as a child, etc.
Complaints and Regulation of
Advertising
• There are many complaints against advertising:
– Outright falsehoods
– Exaggerated claims
– Offensive/Bad taste (e.g. excessive use of sex & violence,
negative stereotypes about certain groups, etc.)
– Irritating repetition
– Targeting children (e.g. alcohol, tobacco, etc.)
– Concerns about behavior control
• These complaints have led to demands for
government regulation & industry selfregulation:
– Deceptive advertising is subject to regulation by the
Federal Trade Commission (as are deceptive sales
practices)
– The American Association of Advertising Agencies has
adopted a code of ethics that addresses issues
concerning fairness & good taste
Deceptive Advertising
• A deceptive ad is one that has a tendency to deceive
• Deceptiveness can depend not only on the truth or falsity of
the claims, but also on the impact of the ad on those who see
or hear it:
• It is possible for an ad to contain false claims, but not be
deceptive.
• A hair restorer offers an ad with patently false claims, but it fails to
deceive anyone.
• Every razor blade is advertised as giving the closest, most comfortable
shave; every tire is advertised as giving the smoothest, safest ride, etc.
(this is usually considered harmless)
• It is possible for an ad to be deceptive, but not contain any
false claims.
• In 1973, Anacin offered an ad that claimed it has a unique painkilling
formula that is superior to other non-prescription analgesics.
• Anacin contains only aspirin & caffeine.
• Aspirin is unique (in the sense that all chemical compounds are different
from each other), and it was the best non-prescription pain reliever at the
time. (Both claims are true.)
• However, the ad is deceptive because it misleadingly implies that Anacin
is superior to other pain relievers that also contain aspirin.
• A key issue is whether there is any evidence to support
an advertising claim:
– The Federal Trade Commission has regularly imposed an
evidence standard:
• In 2014, a L’Oreal advertisement claimed that its skincare product would
“boost genes activity and stimulate the production of youth proteins.”
• The FTC held that this gave consumers the impression that there were
unique scientific properties of the skincare product, but there is no
evidence to support this claim.
• Thus, the FTC found that L’Oreal had engaged in deceptive advertising.
• However, while evidence is a key issue, it has
proven difficult to offer an adequate definition of
deceptive advertising.
– Marketing theorists have not successfully defined deception in
advertising.
– The FTC has not offered a precise legal definition of deceptive
advertising (only general features).
• Without a clear definition, it is difficult to
understand the ethical issues involved and to
enforce legal prohibitions against deceptive
advertising.
• Crucial questions for an adequate definition of
deceptive advertising:
• 1) Is deception due to the ad or to the consumer? (Is an
ad deceptive if it deceives a few ignorant consumers, or
only if it deceives many reasonable consumers?)
• In the 1940’s, Clairol advertised a dye that will “color hair
permanently.”
• A few ignorant people failed to realize you would still need to dye
new hair growth.
• However, the FTC used an ignorant consumer standard & found
this claim was deceptive.
• 2) Is an ad deceptive if it does not create a false belief,
but simply takes advantage of people’s ignorance?
• Some brands of peanut butter advertise their product as
“cholesterol-free”
• However, cholesterol is only present in animals fats, not plant fats.
So no peanut butter contains cholesterol.
• While the ad contains no false claims, it plays on consumer’s
ignorance and leads them to believe the product is healthy.
Case Study: Campbell Soup Ads
• In 1970, Campbell Soup ran a TV ad showing a bowl of
vegetable soup that appeared chocked full of solids.
• This effect was achieved by placing a bunch of marbles
on the bottom of the bowl, which held the solids near
the surface.
• The FTC began an investigation, and ultimately
Campbell’s agreed not to use the technique again.
• But how does this differ from an ad for iced tea, which
shows the tea in a glass with plastic ice cubes?
• In both cases, false beliefs are created in the
consumer’s mind.
• The difference between the ads seems to be this:
– In the case of the iced tea ad, the false belief created by the
plastic ice cubes will have no bearing on a decision to purchase
the tea.
– In the case of the Campbell Soup ad, the false belief created by
the marbles can definitely have an influence on the decision to
buy the soup.
• In 1991, Campbell Soup ran an ad that stressed
the low-fat, low-cholesterol content of some of
its soups, and linked these qualities to a reduced
risk of heart disease.
• The soups do have reduced amounts of fat and
cholesterol, but the ad failed to mention the
soups are high in sodium, which increases the risk
of some forms of heart disease.
• Once again, the FTC conducted an investigation:
– They charged Campbell with implying that its soups
could be part of a healthy diet that reduces heart
disease, while failing to state that they contain high
sodium which should be avoided by people concerned
about heart disease.
• Campbell agreed to withdraw the health claim,
and to disclose the amount of sodium in its ads.
• Is this Campbell Soup ad deceptive advertising?
• It will likely have different affects on different consumers:
– Consumers who are unaware of the sodium content of canned soups
might purchase these soups as part of a diet aimed at reducing the risk
of heart disease.
• Indeed, these soups are better & help to avoid heart disease in
comparison to soups that are high in fat & cholesterol.
– Consumers who are health-conscious and aware of the high sodium
content in canned soup would likely make a different, more rational
consumer choice.
• This ad does not directly create a false belief in any
consumer.
– However, the ad’s success depends on taking advantage of consumer
ignorance about the sodium content of canned soup & its link to heart
disease.
• Did Campbell have an ethical obligation to disclose
the sodium content of its soups?
• One strong reason for thinking Campbell has an
obligation:
– (i) The ad led people concerned about heart disease to buy its
product.
• There are two additional reasons why Campbell may
have an ethical obligation to disclose, which relate to
consumers making a rational choice:
– (ii) The sodium content of the soup cannot be easily verified by
customers (unlike the amount of vegetable solids in the soup).
– (iii) The decisions consumers make to protect their health are of
great importance. (This is somewhat similar to disclosure of
safety information when risk of physical injury is possible.)
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