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Chapter 1: Ethics and Business End of Chapter Questions, Projects, and Exercises 1. Other than ethical values, what values might a business manager use in reaching decisions? Are there classes in your college curriculum, other than ethics, which advise you about proper and correct ways to act and decide? Challenge the students to integrate knowledge and material from their other courses. In particular, challenge them to articulate any behavioral norms that are implicit in such classes as finance, accounting, economics. Ask students to explain how the norms embedded in these classes differ from ethical norms. Business managers may use a variety of values in reaching decisions, in addition to ethical values. These values can include economic considerations, such as maximizing profits, efficiency, and sustainability. Managers might also consider legal values, ensuring compliance with laws and regulations. Additionally, managers may prioritize values related to organizational goals, such as innovation, customer satisfaction, and employee well-being. In college curricula, besides ethics, classes such as finance, accounting, and marketing can advise students about proper ways to act and decide in business. For example, finance courses emphasize financial management principles, such as risk-return trade-offs and capital budgeting. Accounting courses teach principles of financial reporting and analysis. Marketing courses focus on customer needs and market trends. These classes provide students with a broader understanding of business decision-making beyond ethics, integrating financial, legal, and organizational perspectives. By considering these values alongside ethical values, business managers can make more informed and balanced decisions that align with both ethical standards and organizational objectives. 2. Why might legal rules be insufficient for fulfilling one’s ethical responsibilities? Can you think of cases in which a businessperson has done something legally right, but ethically wrong? What about the opposite – are there situations in which a businessperson might have acted in a way that was legally wrong but ethically right? Direct students to discussion about ethics and the law. This question can also be used to draw parallels between legal and ethical distinctions between what is “required/obligatory” and what is “permitted.” Legal rules may be insufficient for fulfilling one's ethical responsibilities because laws are often based on minimum standards of behavior and are not always aligned with ethical principles. Legal standards are typically established to maintain order and protect basic rights, but they may not encompass all aspects of ethical behavior. Ethical responsibilities go beyond legal requirements and involve considerations of fairness, honesty, and respect for others. There are numerous cases where a businessperson has done something legally right but ethically wrong. For example, a company may comply with environmental regulations but still engage in practices that harm the environment more than necessary, or a business might exploit legal loopholes to avoid taxes, which could be considered ethically questionable. Conversely, there are situations in which a businessperson might have acted in a way that was legally wrong but ethically right. For instance, an employee may whistleblow on their company for engaging in unethical practices, even if it means violating non-disclosure agreements or trade secrets laws. While the action may be illegal, it could be seen as ethically justifiable to prevent harm to the public or the environment. In conclusion, legal rules provide a framework for behavior, but they do not always align with ethical responsibilities. It is important for businesses to consider both legal requirements and ethical principles in their decision-making processes to ensure they are acting responsibly and in the best interests of society. 3. What might be some benefits and costs of acting unethically in business? Distinguish between benefits and harms to the individual and benefits and harms to the firm. Students may need to be challenged to move beyond economic and financial benefits and harms. Acting unethically in business can have both benefits and costs, affecting both individuals and the firm. Benefits to the individual: 1. Short-term financial gain: Acting unethically may lead to immediate financial benefits for the individual, such as receiving a bribe or kickback. 2. Career advancement: Unethical behavior might result in promotions or bonuses in the short term. 3. Competitive advantage: Unethical practices, such as misleading advertising, could provide a competitive edge in the marketplace. Costs to the individual: 1. Damage to reputation: Unethical behavior can tarnish an individual's reputation, leading to long-term consequences in their career. 2. Legal consequences: Unethical actions may result in legal action, fines, or imprisonment. 3. Personal guilt and stress: Acting unethically can lead to feelings of guilt and stress, affecting the individual's well-being. Benefits to the firm: 1. Increased profits: Unethical practices, such as cutting corners on product quality, may lead to higher profits in the short term. 2. Market share growth: Unethical behavior, such as predatory pricing, could help the firm gain market share. 3. Cost savings: Ignoring environmental regulations or labor laws could reduce costs for the firm. Costs to the firm: 1. Reputational damage: Unethical behavior can damage the firm's reputation, leading to loss of customers and business partners. 2. Legal consequences: Unethical actions may result in lawsuits, fines, and legal fees. 3. Employee turnover: Unethical behavior can lead to demotivation and high turnover among employees. 4. Long-term sustainability: Unethical practices are often unsustainable in the long term and can lead to the downfall of the firm. In conclusion, while acting unethically in business may provide short-term benefits to individuals and firms, the long-term costs can be significant and detrimental to both. It is essential for businesses to prioritize ethical behavior to ensure their long-term success and sustainability. 4. Review the distinction between personal morality and matters of social ethics. Can you think of cases in which some decisions would be valuable as a matter of social policy, but bad as a matter of personal ethics? Something good as a matter of personal ethics and bad as a matter of social policy? Lead a class discussion about the nature of personal morality and matters of social ethics based on relevant current events or leaders. Again, consider the hypothetical case of the HR manager mentioned at II.d.5 as a means to highlight this distinction. Other cases might involve individuals who are charged with certain professional responsibilities—lawyers, auditors, physicians. The distinction between personal morality and matters of social ethics lies in the scope of the decisions and the impact they have. Personal ethics typically refer to an individual's own moral principles and values, which guide their behavior and decision-making. Social ethics, on the other hand, relate to broader societal norms, values, and policies that govern interactions and behavior within a community or society as a whole. Cases where decisions would be valuable as a matter of social policy but bad as a matter of personal ethics: 1. Mandatory vaccinations: From a societal perspective, mandatory vaccinations can prevent the spread of disease and protect public health. However, some individuals may view mandatory vaccinations as a violation of personal freedom and autonomy, conflicting with their personal ethics. 2. Environmental regulations: Implementing strict environmental regulations can protect natural resources and mitigate climate change, benefiting society as a whole. However, individuals or businesses may perceive these regulations as burdensome or costly, conflicting with their personal interests. Cases where decisions would be good as a matter of personal ethics but bad as a matter of social policy: 1. Tax evasion: From a personal ethics standpoint, avoiding taxes may be viewed as a way to protect one's own financial interests. However, on a societal level, tax evasion reduces government revenue needed for public services and infrastructure, negatively impacting the community. 2. Exploitative labor practices: Some individuals may justify exploitative labor practices to maximize profits or reduce costs, aligning with their personal ethics. However, these practices can harm workers and violate societal standards of fair labor practices. In these cases, the conflict between personal ethics and social policy highlights the complexity of ethical decision-making, where individual values may differ from societal norms and priorities. It underscores the importance of considering the broader implications of decisions on both personal and societal levels. 5. As described in this chapter, the Americans with Disabilities Act requires firms to make reasonable accommodations for employees with disabilities. Consider such conditions as obesity, depression, dyslexia, arthritis, hearing loss, high blood pressure, facial scars, and the fear of heights. Imagine that you are a business manager and an employee comes to you asking that accommodations be made for these conditions. Under what circumstances might these conditions be serious enough impairments to deserve legal protection under the ADA? What factors would you consider in answering this question? After making these decisions, reflect on whether your decision was more a legal or ethical decision. Refer students to the relevant section in the chapter on the Americans with Disabilities Act. In order for circumstances such as obesity, depression, dyslexia, arthritis, hearing loss, high blood pressure, facial scars, and the fear of heights to be serious enough impairments to deserve legal protection under the ADA, the impairment must substantially limit one or more major life activities. When the law is ambiguous, as is always so in case law, any decision will be made in part on the basis of personal values. Such examples help counter the misleading view that many students adopt that the law is a set of rules that provide unambiguous guidance. In turn, this helps instructors move students beyond the perspective that all one needs do is “obey the law.” Under the Americans with Disabilities Act (ADA), conditions such as obesity, depression, dyslexia, arthritis, hearing loss, high blood pressure, facial scars, and fear of heights can be considered disabilities if they substantially limit one or more major life activities. As a business manager, when determining if these conditions deserve legal protection under the ADA, several factors should be considered: 1. Severity and Duration: The severity and duration of the condition are critical. A condition that significantly impacts an individual's ability to perform major life activities, such as working, walking, or communicating, may be considered a disability. 2. Impact on Job Performance: Consider how the condition affects the employee's ability to perform essential job functions. If the condition substantially limits their ability to perform job-related tasks, they may require accommodations. 3. Mitigating Measures: Evaluate whether the effects of the condition can be mitigated by medication, assistive devices, or other treatments. The ADA considers the condition's impact without considering these mitigating measures. 4. Record of Impairment: Even if the condition does not currently substantially limit major life activities, if there is a history of impairment, it may still be considered a disability. 5. Perceived Disability: If an individual is perceived as having a disability, even if they do not, they may still be protected under the ADA if they face discrimination because of this perception. 6. Interactive Process: Engage in an interactive process with the employee to determine appropriate accommodations. This involves discussing the employee's limitations and potential accommodations that could enable them to perform their job effectively. After considering these factors, if it is determined that the conditions substantially limit major life activities and require accommodations, providing those accommodations would be both a legal requirement under the ADA and an ethical decision to ensure equal opportunities and fair treatment for individuals with disabilities. 6. Do an Internet search for recent news stories about oil spills. Do any of those stories report behaviors that seem especially wise or unwise on the part of the oil companies involved? Do you think that controversies over big pipeline projects like the Keystone Pipeline alter how people evaluate the ethics of oil-spill cleanups? Students can find information about the risks Enbridge’s pipelines still pose in this news article: “Great Lakes at Risk of Major Oil spill, Report Warns” Bloomberg Businessweek, October 18, 2012, http://www.businessweek.com/news/2012-10-18/great-lakes-at-risk-of-major-oil-spill-report-warns For an overview of some issues raised by advocates and critics of the Keystone Pipeline, students can be directed to the following resources: 1) “Where’s the Noise? Keystone XL: The Forgotten Controversy,” Columbia Business Law Review, September 26, 2012, http://cblr.columbia.edu/archives/12292 2) “Why the $7 Billion Keystone XL Pipeline is the Most Controversial Business Venture in America,” Business Insider, November 8, 2011, http://www.businessinsider.com/keystone-xl-project-controversy-2011-11?op=1 In recent years, there have been several news stories about oil spills involving various oil companies. Some of these stories have reported behaviors that can be seen as especially wise or unwise on the part of the companies involved. Wise behaviors: 1. Prompt Response: Companies that respond quickly to contain and clean up spills demonstrate a commitment to minimizing environmental damage. 2. Transparency: Companies that provide clear and timely information to the public about the spill and its cleanup efforts show accountability and transparency. 3. Use of Technology: Companies that utilize advanced technology for spill detection and cleanup can minimize the impact of spills on the environment. Unwise behaviors: 1. Negligence: Companies that are found to have been negligent in their operations, leading to spills, face criticism for failing to prevent avoidable accidents. 2. Lack of Preparedness: Companies that are unprepared for spills, lacking adequate response plans and equipment, are criticized for their failure to mitigate the damage. Controversies over big pipeline projects like the Keystone Pipeline can indeed alter how people evaluate the ethics of oil-spill cleanups. These controversies often raise questions about the environmental impact of oil extraction and transportation. People may scrutinize oil companies' cleanup efforts more closely in light of these controversies, looking for evidence of responsible environmental stewardship or perceived negligence. Overall, the way oil companies respond to oil spills can significantly impact their reputation and how they are perceived by the public. Companies that demonstrate a commitment to environmental responsibility and effective spill cleanup are likely to be viewed more favorably, while those that are perceived as careless or unresponsive may face criticism and reputational damage. 7. Construct a list of all the people who were adversely affected by Bernie Madoff’s Ponzi scheme. Who, among these people, would you say had their rights violated? What responsibilities, if any, did Madoff have to each of these constituencies? The concept of “stakeholders” will be introduced in chapters 2 and 3; therefore this question is to help students get started thinking about the nature of “stakeholders.” Ask students to list the stakeholders in the Madoff situation. An interesting side discussion can be generated by asking students to describe how all of these stakeholders were harmed, and whether or not they view the losses faced by some individuals or organizations (e.g., The Elie Wiezel Foundation for Humanity) differently than those faced by others (e.g., hedge funds or individual celebrities). Bernie Madoff's Ponzi scheme had a wide-reaching impact, adversely affecting numerous individuals and organizations. The list of those affected includes: 1. Investors: Individuals and institutions who invested money with Madoff expecting legitimate returns were defrauded. 2. Family and Friends: Some of Madoff's closest associates, including family members and friends, were unknowingly involved in the scheme or invested with him. 3. Employees: Employees of Madoff's firm who were not aware of the fraud may have lost their jobs and suffered reputational damage. 4. Charities and Nonprofits: Organizations that invested with Madoff, including many charitable foundations, suffered financial losses. 5. Regulatory Authorities: Regulatory bodies responsible for overseeing financial markets and preventing fraud were deceived by Madoff's scheme. Among these people, those who had their rights violated were primarily the investors who were defrauded. Madoff had a responsibility to act honestly and ethically in managing their investments, which he violated by perpetrating the Ponzi scheme. He also had a responsibility to be transparent about the nature of his investment strategy and the risks involved, which he failed to do. Madoff's responsibilities to each of these constituencies varied: 1. Investors: Madoff had a responsibility to act in their best interests, which he failed to do by deceiving them and misappropriating their funds. 2. Family and Friends: While they may not have been directly involved in the scheme, Madoff had a responsibility to be honest with them about his business practices. 3. Employees: Madoff had a responsibility to provide a safe and ethical work environment, which he failed to do by engaging in fraudulent activities. 4. Charities and Nonprofits: Madoff had a responsibility to be honest about the nature of his investments, especially when dealing with organizations that rely on charitable donations. 5. Regulatory Authorities: Madoff had a responsibility to comply with regulations and provide accurate information to regulatory authorities, which he violated by perpetrating the Ponzi scheme. In conclusion, Bernie Madoff's Ponzi scheme had far-reaching consequences, affecting a wide range of individuals and organizations. The scheme violated the rights of investors and others who were deceived by Madoff's actions. Madoff had a responsibility to act ethically and honestly towards all these constituencies, a responsibility which he failed to fulfill. 8. What difference, if any, exists between ethical reasons and reasons of self-interest? If a business performs a socially beneficial act in order to receive good publicity, or if it creates an ethical culture as a business strategy, has the business acted in a less than ethically praiseworthy way? This question introduces the concepts of corporate culture and social responsibility, which will be discussed in chapters 4 and 5. The difference between ethical reasons and reasons of self-interest lies in the motivation behind the actions. Ethical reasons are based on principles of right and wrong, fairness, and moral duty. They involve considering the impact of actions on others and acting in a way that aligns with moral values, even if it may not be personally beneficial. On the other hand, reasons of self-interest are driven by personal gain, profit, or advantage, without necessarily considering the broader ethical implications of the actions. When a business performs a socially beneficial act in order to receive good publicity or creates an ethical culture as a business strategy, it can be seen as acting in a less than ethically praiseworthy way. While the actions themselves may be beneficial to society and align with ethical principles, the motivation behind them is primarily driven by self-interest. In these cases, the business is using ethical behavior as a means to achieve its own goals, rather than acting out of a genuine commitment to ethical values. However, it is important to note that the outcome of these actions can still be positive, as they contribute to social welfare and promote ethical behavior within the organization. The challenge lies in balancing self-interest with ethical considerations, and businesses should strive to act ethically not just as a strategy, but as a fundamental principle guiding their behavior. 9. During the recession of 2008-2009, many reputable companies suffered bankruptcies while others struggled to survive. Of those that did remain, some opted to reduce the size of their work forces significantly. In a business environment during those times, consider a company that has been doing fairly well, posting profits every quarter and showing a sustainable growth expectation for the future. However, the general ill ease in the market has caused the company’s stock price to fall. In response to this problem, the CEO decides to layoff a fraction of his employees, hoping to cut costs and to improve the bottom line. This action raises investor confidence; consequently, the stock price goes up. What is your impression of the CEO’s decision? Was there any kind of ethical lapse in laying off the employees, or was it a practical decision necessary for the survival of the company? Students should list and consider each of the stakeholders impacted by the company’s decision and analyze the business decision in the context of the business’ social responsibilities. The CEO's decision to lay off employees in response to the company's falling stock price raises important ethical considerations. While the decision may have been practical from a financial standpoint, as it aimed to cut costs and improve the bottom line, it also raises questions about the ethical treatment of employees. On one hand, the CEO has a responsibility to ensure the financial health and sustainability of the company. In a challenging economic environment, such as during the recession of 2008-2009, making tough decisions like layoffs may be necessary to ensure the company's survival. From this perspective, the CEO's decision could be seen as a practical measure to protect the interests of the company and its shareholders. On the other hand, laying off employees can have significant negative impacts on the affected individuals and their families. It can lead to financial hardship, loss of job security, and emotional distress. In this case, the ethical lapse lies in the potential disregard for the well-being of the employees affected by the layoffs. The decision to prioritize short-term gains in stock price over the long-term welfare of employees raises questions about the company's commitment to its employees and its values. In evaluating the CEO's decision, it is important to consider whether alternative measures could have been taken to address the company's financial challenges without resorting to layoffs. For example, the company could have explored options such as reducing executive salaries, implementing temporary pay cuts, or finding other cost-saving measures that would have less of an impact on employees. Ultimately, while the CEO's decision may have been driven by practical considerations, it also highlights the importance of balancing financial goals with ethical considerations, particularly when it comes to the treatment of employees. Companies that prioritize both financial performance and ethical conduct are more likely to build trust and loyalty among their employees and stakeholders in the long run. 10. Every year, Ethisphere Magazine publishes a list of the world's most ethical companies. Go to their website; find and evaluate their rating methodology and criteria; and engage in an assessment (i.e. provide suggestions for any modifications you might make or a more or less comprehensive list, and so on). http://ethisphere.com/wme/ To evaluate Ethisphere Magazine's rating methodology and criteria for the world's most ethical companies, I would start by visiting their website and locating the information provided about their methodology. Here are some potential areas I would assess and suggest modifications for improvement: 1. Transparency: Evaluate the transparency of the methodology. Are the criteria and their weighting clearly defined and accessible? Suggestions for improvement could include providing more detailed explanations of how each criterion is assessed and how scores are calculated. 2. Relevance: Assess the relevance of the criteria to ethical business practices. Are the criteria aligned with widely accepted principles of business ethics? Suggestions for improvement could include updating the criteria to reflect emerging ethical challenges in the business world. 3. Scope: Evaluate the comprehensiveness of the criteria. Do they cover a wide range of ethical considerations, or are they too narrow in focus? Suggestions for improvement could include expanding the criteria to include additional aspects of ethical behavior, such as diversity and inclusion practices. 4. Objectivity: Assess the objectivity of the criteria. Are they based on measurable, verifiable information, or are they subjective? Suggestions for improvement could include incorporating more objective metrics and data sources into the assessment process. 5. Consistency: Evaluate the consistency of the criteria application. Are the criteria applied consistently across all companies, or are there inconsistencies in how they are assessed? Suggestions for improvement could include ensuring that the criteria are applied consistently and transparently to all companies. 6. Stakeholder Involvement: Consider the involvement of stakeholders in the development and assessment of the criteria. Are the criteria developed with input from a diverse range of stakeholders, including employees, customers, and communities? Suggestions for improvement could include increasing stakeholder engagement in the development and assessment of the criteria. Overall, the assessment should aim to ensure that the criteria used to evaluate the world's most ethical companies are transparent, relevant, comprehensive, objective, consistent, and developed with input from stakeholders. By continuously reviewing and improving their methodology, Ethisphere Magazine can enhance the credibility and effectiveness of their ethical company ratings. Chapter 1 Readings Summaries and Main Points Reading 1-1 “Value Shift” by Lynn Sharp Paine Main Points • Ethics and values today are viewed by companies throughout the world as important corporate concerns. • Since the 1990’s, ethics guidelines and training have become widespread, corporate boards have become more active in setting their companies’ ethical standards, and membership in the Ethics Officer Association have grown dramatically. • Firms have begun to track and report publicly on their performance in areas such as diversity, quality, customer service, health and safety, legal compliance, the environment, corporate culture, cross-cultural management, sexual harassment, work-family balance, corporate citizenship, and human rights. • A company’s decision to turn to values is affected by their size, their developmental stage, and societal factors, such as the law or media. • Companies that are large and well-established typically turn to values to protect their reputation, while smaller, start-up companies talk about building a reputation or establishing a brand. • Overall, executives explanations for their interest in values fall into five main areas: 1) reasons relating to risk management, 2) reasons relating to organizational functioning, 3) reasons relating to market positioning, 4) reasons relating to civic positioning, and 5) reasons relating to the simple inherent worth of ethical behavior. Executives in the final category believe it is better for companies to be honest, responsible, trustworthy and good citizens. Summary “Value Shift” addresses the change in perception of business ethics over the past few decades. In the early 1980’s, business ethics was practically seen as a joke. For example, bookstores offered volumes with titles like The Complete Book of Wall Street Ethics consisting entirely of blank pages. Today, attitudes have changed dramatically and ethics is viewed as an important corporate concern. Ethics may not be universally practiced or embraced, as evidenced by the scandals of 2001 and 2002, but there is certainly an increased interest in values among corporations, which has manifested itself in various ways throughout the business world. Many firms have introduced ethics programs, values initiatives and cultural change programs, some have created corporate ethics offices or board-level ethics committees, and others have revised their company’s business principles, corporate values, or codes of conduct to reflect the emphasis on ethics and values. Companies have even begun to track and report publicly on their performance in these areas. Throughout the global business world, firms are recognizing that good ethics and strong values can improve companies and it is in their best interest to promote ethical behavior and policies. Some firms use ethics and values as a way to protect their company’s reputation or brand, while others use them to establish and build their brand. Some firms simply want to do what is ethical because it is the right thing to do, and there is inherent value in doing what is good. Reading 1-2 “Review of Debra Satz’s Why Some Things Should Not Be For Sale” by Joseph Heath Main Points • One of the major points of resistance facing proponents of unrestricted markets is repugnance at the thought of certain goods and services being subject to commercial exchange. • Michael Walzer argued that moral repugnance provides a rationale for the welfare state: Certain goods and services are provided by the public sector because it would be unethical for them to be provided by the private sector. • Although she denies it, Debra Satz’s recent book fits within this tradition. • According to Satz, the moral intuitions at play in the domain of prostitution, reproduction, and transplantation are the same intuitions that justify the role of the public sector in the provision of health care, education, and old-age security. • Walzer argued that different goods belong to different socially defined “spheres,” each with its own distributive logic. Trying to distribute votes, health care or love using money constitutes an illegitimate boundary-crossing. However, a free society can be marked by disagreement over the values and principles of distribution in each sphere. • Serious doubts have been raised about whether the exchange of goods is repugnant, or the background inequality that underlies certain exchanges. • There tends not to be a strong reaction to a barter exchange between kidney donors so that each may find a compatible kidney for a loved one. • The difference between this exchange and using cash to purchase a kidney is that cash allows people to take potentially undeserved advantages they have acquired in other domains and transfer them to the domain of kidney acquisition. This looks like an egalitarian intuition. • There is a familiar line of reasoning in welfare economics showing that, if inequality is the problem, then the best way to address it is by making adjustments on the income side, not by interfering with particular markets. • This can lead to a view that Satz refers to as “general egalitarianism,” where a case for restricting a particular market will be due to: o Efficiency concerns arising from market imperfections. o Paternalistic concern that improving the distribution of income will not result in the right sort of improvements in the final outcome. • Satz’s position is to embrace a fully liberal perspective while stopping somewhere short of general egalitarianism. • Starting with a generous interpretation of the egalitarian and efficiency principles, she identifies characteristics that make a market “noxious.” • All of Satz’s characteristics could be construed as problematic from the general egalitarian view as well. Markets should be prohibited on the basis of general principles, which also satisfy a neutrality constraint. • While the general egalitarian view might be able to accommodate Satz’s concerns, she points out that the standard version of that position interprets both the efficiency and equality principle quite narrowly. • The most important difference between Satz’s view and that of the general egalitarian stems from the way she justifies market restrictions on individual choice. She claims that the state must provide for certain needs in-kind because it must achieve a certain outcome, regardless of whether the individuals in question value that outcome. Unfortunately, she says little about where this obligation comes from. • Satz makes the observation that in order to justify prohibition of a particular exchange, it is not adequate simply to come up with a reason why it should be banned. One must also show that this would not result in the prohibition of all sorts of other markets that no one has any particular problem with. • Satz appeals to the “Titanic Problem” where passengers in 3rd class were expected to go down with the ship, because they had paid for less expensive tickets. • This is a fictitious account, because the actual differential in survival rates was among men as opposed to women and children. Satz claims that the selling of tickets with differential access to lifeboats is impermissible. But the fact that we routinely pass over arrangements in which men are exposed to much greater risk than women suggests that there is no general norm requiring equal safety in our society. • A likely explanation is that we find male victims of class discrimination more sympathetic than male victims of sex discrimination. If this is true, then by Satz’s argument the reaction to the fictitious Titanic scenario may just be a type of repugnance that we need to get over. Summary Joseph Heath analyzes Debra Satz’s book, which examines how cultural mores constrain markets, and how to justify moral involvement in the free market. Heath finds that Satz follows Michael Walzer’s justification of the welfare state by the repugnance created by the market in certain goods and services. Walzer believed that society placed these goods and services in spheres separate from the conventional market, so to exchange them for money was illegitimate. Looking at some examples of these spheres shows that it could be concerns with the underlying inequality of the marketplaces that produces the reaction against trades in objectionable areas. Satz refers to another system, general egalitarianism, in which restrictions are based on efficiency principles or paternalistic concerns. While she seeks to avoid embracing these egalitarian principles, many of her concerns could be construed as problematic in terms of those principles as well. Satz wants to expand the traditional understanding of equality. She views this as a concern about what the state is obligated to do, not as a question of what the recipient needs. Another issue is that before prohibiting a certain market, one must be sure that it does not interfere with non-objectionable markets. She uses a fictitious example of 3rd class passengers on the Titanic being denied seats on the lifeboats to illustrate societal outrage at inequality. This is incorrect, because the inequality was due to there being more men in 3rd class, and men in general were denied access to the lifeboats in favor of women and children. The fact that people were outraged by 1st class passengers being given priority, but unconcerned by women and children receiving preference, reveals that Satz’ argument against intervention in certain areas should apply here as well. Reading 1-3 “The MBA Oath” Main Points • MBAs must recognize that while business leaders can work to create value that no single individual can create alone, they can affect the well-being of individuals inside and outside of their enterprise. • The MBA graduate pledges to: o Manage with loyalty and care o Refrain from advancing personal interests at the expense of others o Uphold the law and contracts he/she enters into o Refrain from unethical activities o Protect human rights and oppose discrimination and exploitation o Protect the rights of future generations o Make accurate and honest representations o Develop himself/herself and others and help the management profession to continue to advance. Summary MBA Graduates are asked to recognize that they have the power to affect others’ lives, and they must take positive actions while they pursue their goals as management professionals. Reading 1-4 “The Oath Demands a Commitment to Bad Corporate Governance” by Theo Vermaelen Main Points • The MBA oath is not a good idea because it is inconsistent with fiduciary duties, it expresses a misplaced response to the financial crisis, and pledges should not be an instrument to guide people’s behavior. • Board members and managers often have a duty to maximize shareholders’ wealth. Unless a business case can be made that shareholder value is increased by taking care of externalities, such as environmental consequences, the government should deal with the social consequences of managers’ business decisions. • The oath assumes that the financial crisis was caused by unethical MBAs. New research shows that the largest losses were to banks where the CEO had a large stake, and that bankers owned large amounts of the most mispriced mortgage securities. • Bankers may have made mistakes, but this was because they believed ratings agencies, which made forecasts based on historical data. Forecasting and modeling is a tricky business. The solution is more finance education and better forecasting and risk management models. • The idea that the next crisis will be avoided by an oath seems excessively naïve. • The MBA oath pushes the stakeholder value maximization idea to include the entire world as a stakeholder. This would erode the value of shareholder property rights and prevent the development of capital markets. • MBA students should instead take an oath pledging only to maximize the wealth of the shareholders, unless the shareholders instruct them to do something else. Summary Vermaelen believes that the MBA pledge is misguided. The maximization of shareholder value should be the only goal of a manager, unless the externalities produced by a corporation’s behavior threaten the value of the shareholders’ wealth. Rather than being the villains of the financial crisis, MBAs suffered as much or more than the general public. The crisis was caused by poor forecasting by ratings agencies, so the solution is better forecasting models, along with more finance education. Signing an oath is not a credible commitment; if Bernie Madoff had signed the oath, he would not have acted differently. If anything, MBAs must focus on one thing: shareholder-friendly corporate governance. Reading 1-5 “The MBA Oath Helps Remind Graduates of Their Ethical Obligations” by Chris MacDonald Main Points • The MBA oath has been taken by students at more than 250 schools around the world. While it is neither revolutionary nor perfect, it is a good thing. • There are three kinds of critics of the oath – those who say it is too demanding, those who say it is not demanding enough, and those who say it shouldn’t be necessary. • Those who say it does too much believe it is a radical departure from the tenets of economic theory, but they are being too literal. Nothing in the oath urges MBAs to turn their backs on shareholders. • Those who say that the oath requires too little object to the lack of actual commitment to social and economic justice, as well as the lack of any enforcement. They underestimate the impact of getting ethical concerns onto business executives’ agenda. They also underestimate the depth of debate over the way MBAs ought to put their values into action when at work. • Those who say that the oath should not be necessary don’t feel that people who have graduated from an MBA program need to be told how to be ethical. The point of an oath such as this is not to remind the MBA of his or her ethical obligations, but to keep those ethical obligations firmly in mind. • The oath is not perfect. It says little about how MBAs ought to handle conflicts that will arise, and is painfully vague. • The main problem with the oath is a problem with people’s expectations. No oath will solve the problems that beset the world of business, but it might turn out to play a role in keeping the discussion alive. APPENDIX A Take a “Values Walk” A “values walk” is a classroom exercise that can help students begin to articulate and justify their own ethical decisions. While this exercise works best with smaller groups, it can be demonstrated in a large class by using a subgroup (groups as large as 20 can be used). Begin by attaching an identifying label—Agree, Strongly Agree, Disagree, Strongly Disagree—on the four walls of a room. Then describe a simple ethical decision or statement. For example, “it is never justified to torture prisoners,” or “we should increase taxes on wealthy individuals.” Ask students to walk to the side of the room that represents their own response. Announce that they are free to move to another side at any time if they change their mind. The instructor can then begin the discussion by asking students at opposing sides of the room to explain their stance. Students also can be asked to explain why they are at “strongly” rather than not. Individuals that stand out (and alone) are good places to begin the questioning. After a few students have explained their views, it is common to see several students begin to change their stance and move. These students then become good candidates to call on –Why did you change your opinion? The instructor can then add further information to the original case: “torture in order to obtain information to prevent a terrorist attack,” or “increased taxes to pay for education.” In light of such further information, why, or why not, change your point of view? In larger classes in which not every student walks, observing students can be assigned roles: a recorder to list the different reasons offered or to note which new bit of information changed most minds; a “jury” to evaluate and judge the best rationales. This values walk can be used later in the semester and the decision making model introduced in Chapters 1 and 2 can be used more explicitly in guiding the walk. The values walk is helpful in making clear the relevance of facts in making decisions, especially when it becomes clear that only small change in the description results in many students walking to a new position. The values walk can also highlight the fact that ethical disputes can often hinge on misunderstandings or ambiguous information or wording. (“It depends on what you mean by torture.” Or “How imminent is the terrorist attack?”). Solution Manual for Business Ethics: Decision Making for Personal Integrity and Social Responsibility Laura P. Hartman, Joseph R. Desjardins, Chris MacDonald 9780078029455, 9781259060588, 9781259417856
