CHAPTER 2 - BUSINESS ETHICS AND SOCIAL RESPONSIBILITY

When the savings and loan industry collapsed in the 1980s, all of the big accounting firms, except for Arthur Andersen, experienced heavy losses because of: a. their liability for audit work on the collapsed financial institutions. b. the unsound value of deferred taxes in their earnings. c. their organizational incentive systems and culture shifts. d. the absolute standards on which they relied.

a. their liability for audit work on the collapsed financial institutions.

Which of the following is true of individuals suffering from "the Bathsheba Syndrome"? a. They pursue leadership to help society with their products or services or employees by assisting them advance. b. They become increasingly involved with their employees and have a 360-degree perspective to remedy. c. They have defined themselves by the trappings of their success. d. They have a sense of vulnerability and recognize their liabilities.

c. They have defined themselves by the trappings of their success.

What is another name for the "Do unto others" test for resolving ethical dilemmas? a. Laura Nash's perspective b. The "front-page-of-the-newspaper" test c. Immanuel Kant's categorical imperative d. The Blanchard-Peale model

c. immanuel kant's categorial imperative

Creation of an ethical culture in business * developing an ethics stance*

setting parameters for personal and business behavior, setting tone of tolerance or intolerance for behavior

Importance of ethics in business success and the costs of unethical conduct * tony bennet factor*

the keys to long-term survival

civil law

the system of law concerned with private relations between members of a community rather than criminal, military, or religious affairs.

Pressures with respect to goals and number quotas can cause employees to make ethical lapses. a. True b. False

true

Creation of an ethical culture in business ( continued )

* Sarbanes- oxley has changed corporate governance, reporting, and operations* * tone at the top*

Ethical issues in international business

*businesses must decide whether to operate under one uniform set of standards *cultures, laws, and standards vary* -creates issues of bribed, grease payments, and culture-related gifts -problems of economic development where bribery is common

Importance of ethics in business success and the costs of unethical conduct *ethics resource center study*

*ethics resource center study* - firms with written codes of ethics = better as an investment - executive feel ethical behavior strengthens a firm's competitive edge

private laws

Laws recognized as binding between two parties even though no specific statute or regulation provides for the rights of the parties.

ethical standards

a set of accepted rules of conduct that governs society

Which of the following is a trait of the 100-years-of dividends companies? a. Cost consciousness b. Lack of home-grown management c. Absence of diversification d. Downsizing

a. Cost consciousness

Which of the following is true of ethical choices? a. They give businesses the freedom to choose to avoid costly regulations. b. They give rise to liability issues, which may result in bankruptcy and reorganization of businesses. c. Allowing law and lawyers to control a business's destiny encourages wise and ethical choices. d. Managers need no guidelines for making ethical choices

a. They give businesses the freedom to choose to avoid costly regulations.

According to Milton Friedman, when should executives reduce pollution emitted by the company's factories? a. When shareholders would lose dividends as a result b. When the government requires them to do so c. When protesters begin picketing d. When workers get less return for their labor

a. When shareholders would lose dividends as a result

Which of the following is a factor that reduces sentences and fines under the Federal Sentencing Commission? a. A code of ethics b. Terminations for those reporting company ethics violations c. Diversity in the workplace d. Low-ranking employees responsible for ethics training in a company

a. a code of ethics

Jayshawn Smith is the CEO of International Computer Corporation. Mr. Smith pays 25 cents to the company each time a personal fax comes to him at his office. Mr. Smith's actions: a. are meant to establish an effective tone at the top. b. are unnecessary because there is no ethical breach when you have no control over who sends faxes. c. are inconsequential for the company. d. are indicative of clear, available, and responsive reporting mechanisms.

a. are meant to establish an effective tone at the top.

Richard Martin owns and operates a Dalmatian breeding facility. The state regulations allow him to have up to 50 puppies at any given time for a property of his size. The West family visits the facility to purchase a puppy and sees that the puppies are in cramped cages despite the large property and most of the cages having very little food and water. What type of ethical standards, if any, has Richard Martin violated? a. Natural law b. Moral relativism c. Religious standards d. Statutory law

a. natural law Natural law supports the idea that some ethical standards exist despite conflicting with the law.

Positive Law

codified laws that establish standards for ethical behavior

The Wall Street Journal model for resolving ethical dilemmas is the same as the "front-page-of-the-newspaper" test. a. True b. False

false

Social Responsibility - whose interests are supported

- Inherence - shareholders - Enlightened Self-interest - shareholders bc gives good work force but also the larger society because it takes care of workforce and their families - The Invisible Hand - follows law to benefit shareholders and society will guide itself - Social Responsibility - larger society's need are first priority

Creation of an ethical culture in business *federal sentencing commission*

- code of ethics - training for employees -means for anonymous reporting -following up on employee reports -action by hand the board in monitoring and following up -self reporting by company -enforcement within company -high ranking officer in change * Sarbanes- oxley has changed corporate governance, reporting, and operations*

Creation of an ethical culture in business *being careful about pressures and signals*

- competition is so intense that business survival is threatened - managers make poor judgements -employees have few or no personal values -employees respond only to earnings demands -managers and executives are touting earnings

Importance of ethics in business success and the costs of unethical conduct

- ethics as a strategy -impact on reputation -reputation's impact on market price and capitalization - reputational capital and its importance

Why we Fail to Reach Good Decisions in Ethical Dilemmas - Rationalizations

- everybody else does it - if we don't do it, someone else will - thats the way it has always been done -we'll wait until the lawyers tell us it's wrong - it doesn't really hurt anyone - this system is unfair -i was just following orders -you think this is bad, you should have seen... - its a gray area

Why business ethics?

- personal accountability and comfort: business ethics for personal reasons -standard of personal behavior applied to a group of people working together to make a profit

Ethical standards: Religion

- tenets of faith - even if the law allows you to disclaim liability for selling goods "as is" the standards of religion might require you to do more

Resolution of dilemmas *wall street journal model*

-*compliance*: are you violating any laws? -*contribution*: what does this action contribute to my customers, shareholders, bondholders, employees, community, and suppliers? -*consequences*: how will this action affect me, my company, my fam, our employees, and our shareholders

Resolution of Dilemmas - Other models

-Immanuel Kant"s categorial imperative - the Golden Rule "Do unto others as you would have them do unto you." Treating others or others' money as we would want to be treated is a powerful evaluation technique in ethical dilemmas.

Ethical issues in international business *a possible uniform standard for ethical choices*

-categorial imperative: how would you want to be treated -christian principle: the golden rule -confucius: what you do not want done to youself, do not do to others -aristotle: we should behave to our friends as we wish out friends to behave to us -judaism: what you hate, do not do to anyone -buddhism: hurt not others with that which pains thyself -islam: no one of you is a believer until he loves for his brother what he loves for himself -hinduism: do nothing to thy neighbor which though wouldst not have him do to thee -sikhism: treat others as you would be treated yourself -plato: may I do to others as I would that they should do unto me

Normative Standards - Applying standards of ethical reasoning to business dilemmas

-ethical standard is establish -individual ethical standards differ -debate over sources of ethical standards -evaluate ethical standards and conflicts as new data appear

Resolution of dilemmas *Laura Nash and Perspective*

-how would i view the problem if i sat on the other side of the fence -am i able to discuss my decision with my fam, friends, and those closest to me? - what am i trying to accomplish - will i feel as comfortable over the long term as i do today?

Resolution of Dilemmas * the front page of the newspaper test*

-how would the story be reported? -use an objective and informed reporter's view

Creation of an ethical culture in business *watch for dangers of unethical environment*

-intense competition and issues of survival (pressure) -managers making poor judgements -avoiding the "either/or conundrum" -disparity in time devoted to ethics discussion vs performance discussion

Resolution of Dilemmas *blanchard and peale*

-is it legal -is it balanced -how does it make me feel

Ethical dilemmas

-taking things that don't belong to you -saying things you know are not true -giving or allowing false impressions -buying influence or engaging in conflict of interest -hiding or divulging information -taking unfair advantage -committing acts of personal decadence -perpetrating interpersonal abuse -permitting organizational abuse -violating rules -condoning unethical actions -balancing ethical dilemmas

Analyzing Ethical Dilemmas

1. identify available facts 2. list info you would like to have and assumptions 3. list concerns of people involved 4. develop a resolution - apply the various models for reaching this resolution 5. evaluate the resolutions for costs, legalities, and impact. determine how each of the parties will react and affected 6. make a recommendation for the actions that should be taken

Enlightened Self-Interest School of Responsibility

Advises managers to be responsible to shareholders by being responsive to the larger society - business value is enhanced if it responsive to society needs interest: shareholders only responsive: larger society

Inherence School of Social Responsibility

Advises managers to serve shareholders and to act only with shareholders' interests in mind. -serve shareholders -friedman view interest: shareholders only responsive: shareholders only

normative standards

How we behave, on average How we treat each other Expectations on contracts beyond legal interpretation

Social Responsibility School of Social Responsibility

Role of business is to serve larger society, so it should serve the needs of the larger society -become involved in all type of political and social issues interest: larger society responsive: larger society

Invisible Hand School of Social Responsibility

Role of business is to serve society and it does best when serving shareholders only -best for society to guide itself interest: larger society responsive: shareholders only

Statutory Law

The body of law enacted by legislative bodies (as opposed to constitutional law, administrative law, or case law).

natural law

a system of moral standards that forms the basis for all human conduct Ex: slavery was wrong even though laws allowed it in the US

moral relativism

a system that establishes ethical standards according to the situation in which the dilemma is faced; also known as situational ethics - depending on pressures, you make a decision w/o regard to positive/normative law standards

Maria and Mark are co-workers. Mark takes a long lunch almost every day and tells Maria that it is not a big deal because everyone does it. One day, while Mark is away at lunch, his boss comes looking for him. The boss asks Maria if she has seen Mark. Maria knows that if Mark loses his job, he will not be able to pay his son's hospital bills, but she does not want to lie to the boss as well. Using a standard of *moral relativism*, what would most likely be her response to the boss?Analysis: a. "No, I haven't seen him." b. "He's taking a long lunch and is not back yet." c. "I saw him in another part of the building a few minutes ago." d. "Mark has a right to do whatever he wants to as long as he gets his job done."

a. "No, I haven't seen him." Moral relativism establishes ethical standards according to the situation being faced. Maria would want to protect Mark's job so that he can pay the hospital bills. Technically, this response is not a lie, although it may still be considered unethical by some.

Which of the following questions is part of the Laura Nash perspective on resolving ethical dilemmas? a. "How would I view the issue if I stood on the other side of the fence?" b. "What is in my mind when I make decisions?" c. "To whom should I be responsive to be able to best serve my own interest?" d. "What was I thinking when I decided to engage in such bad behavior?"

a. "how would i view the issue if I stood on the other side of the fence?"

John Seagroves was a bully during his school days, often ridiculing his classmates and teasing them with tricks such as taking their clothes during gym class and hiding them. Years later John ran for public office and the New York Times did a profile of his behavior during his school years, interviewing many of his classmates who were his targets. What test could have helped John evaluate his treatment of others during school? a. "What if my actions were described on the front page of the newspaper, how would I feel?" b. "Is my conduct legal?" c. "Who's to know?" d. "Do I need to discuss my decision with my family, friends, and those closest to me?"

a. "what if my actions were described on the front page of the newspaper how would I feel?"

Which of the following is an inherent value built into the global capitalistic economic system? a. Consumers are given value in exchange for the funds expended. b. Employees are penalized for failing to make significant contributions to production. c. Risk-takers are required to pay a return on their investments. d. Employees are mandated to furnish the capital necessary for production.

a. Consumers are given value in exchange for the funds expended.

You begin a summer job working as an assistant project manager with a residential construction company. The construction of a new home requires a city inspector from the city's development office to inspect and sign off on various phases of the home, such as the foundation, plumbing, framing, electrical, mechanical, etc. One of the final permits needed is the driveway permit, and it has become customary for the project managers in the city to give the city inspector a Starbucks gift card in the amount of $25 to $100 to expedite this permit. Most builders have a petty cash fund that is largely for this purpose. Which of the following is correct? a. The Starbucks gift card is a bribe, which makes it illegal. b. The Starbucks gift card is okay because it is only a nominal amount and would be the same as a project manager buying the inspector a cup of coffee. c. The Starbucks gift card is okay because the amount likely falls below the de minimus gift amount for the city. d. The Starbucks gift card violates the morality of the building industry.

a. The Starbucks gift card is a bribe, which makes it illegal. The intended use of the Starbucks gift card is that of a bribe, which makes it illegal. The amount of the bribe is not an issue. If a project manager gave the city inspector a Starbucks gift card as a birthday gift, and the amount fell below the de minimums amount in the city's ethics code, then this would be an acceptable gift. But such gift cards are being given regularly to expedite a city procedure, and that is what makes the gift card a bribe.

Chao worked as an outside sales representative for a medical supply company, which has a Code of Ethics for employees. One provision of the ethics code states, "We expect you to keep accurate records and reports. . . . We do not permit . . . false or misleading entries in the company's books or records for any reason." The policy also stated that an employee would not be entitled to exercise any stock options if terminated for cause. Many of the outside sales representatives submitted inflated expense reports to make up for the lower commissions their company charged when compared to the commissions their competitors paid. Chao was fired for padding his expense accounts, and the company denied him his termination benefits for an employee in violation of its Code of Ethics. Which of the following statements is correct? a. The company had the right to fire Chao because he violated the company's Code of Ethics. b. Chao was entitled to his termination benefits, even if he violated the company's Code of Ethics. c. The company denied Chao his due process rights prior to terminating him. d. The company should have deducted the amount Chao oversubmitted in expense reports from his last paycheck.

a. The company had the right to fire Chao because he violated the company's Code of Ethics.

Two 12-year-old boys were seriously injured when riding on a go-kart. The boys were riding on public streets, ran a stop sign, and were hit by a car that did not see them. The go-kart had clear warning labels on the sides stating that it was for off-road use only. The manual stated that the go-kart should not be used on public streets. The parents sued the go-kart manufacturer. One basic issue in this case would be: a. whether a manufacturer is liable when children are injured while riding one of its go-karts on a public road in violation of manufacturer and parental warnings. b. whether it is unethical to make products like go-karts that will be used by children when the manufacturer knows that accidents like this will happen. c. whether the parents failed to adequately supervise their children when using a dangerous product. d. whether the children, as 12-year-olds, should have known that riding a go-kart on the street was illegal and could result in injury.

a. whether a manufacturer is liable when children are injured while riding one of its go-karts on a public road in violation of manufacturer and parental warnings.

Which of the following questions is part of the Blanchard/Peale model for resolving ethical dilemma? a. "Will I feel as comfortable about my decision over time as I do today?" b. "How does it make me feel?" c. "Could I discuss it with a family member?" d. "How bad will it get?"

b. "How does that make me feel?"

What is the goal of applying the "front-page-of-the-newspaper" test when trying to resolve an ethical dilemma? a. To determine how to handle an organization's public relations issues b. To determine how an individual's actions would be perceived by others c. To see if an individual is breaking any laws d. To see if an individual's decision is balanced

b. To determine how an individual's actions would be perceived by others

Select all of the following that are companies that paid dividends for 100 consecutive years. a. BP b. Stanley Works c. Corning Glass Works d. Pullman, Inc.

b. d. c.

A law firm in the Phoenix area provides "sick care" for employees' children. Sick care can be used when the child is too ill to go to school or to its regular care facility. The law firm manager claims that the program has cut down on the number of sick days taken by employees to care for sick children. The program is an illustration of which type of social responsibility school? a. Inherence school b. Enlightened self-interest school c. Invisible hand school d. Social responsibility school

b. enlightened self interest school Under the enlightened self-interest school, a business would serve the interest of the shareholders by being responsible to society—in this case, by implementing its sick care policy.

An employer instituted a wellness program for all employees. The wellness program includes an exercise facility and several pay incentives for losing weight, quitting smoking, or beginning an exercise program. The program is not required under any state or national laws. Which of the following schools of social responsibility applies to this employer? a. Inherence school b. Enlightened self-interest school c. Invisible hand school d. Social responsibility school

b. enlightened self-interest school Enlightened self-interest applies to this situation and is based on the view that, in the long run, business value is enhanced if business is responsive to the needs of society and should also be beneficial to shareholders because it enables the business to retain a quality workforce.

Which of the following is a cost to businesses with ethical problems? a. Long-standing profitability b. Loss of customer trust c. Presence of shareholder goodwill d. Reduced federal monitoring

b. loss of customer trust

Jennifer has been waiting in line to purchase her tickets to the opening night of the newest blockbuster at the movie theatre. After 30 minutes, she is almost at the cashier's counter when a teenager cuts in front of her. What rules or laws has the teenager broken? a. Civil law b. Normative standards c. Statutory law d. Private laws

b. normative standards Normative standards are the generally accepted rules of conduct that govern society. It is generally accepted that it is unethical to break in line

The literature in ethical decision making indicates that: a. the decline in ethical standards begins rapidly. b. the decline in ethical standards can consume those with track records of success. c. individual lapses do not affect an individual's reliance on absolute ethical standards. d. certain people are cut from a different ethical fabric altogether and hence more susceptible to the temptations of fraud.

b. the decline in ethical standards can consume those with track records of success.

What does the acronym WBAWI mean? a. We believe and we implement b. What business are we in c. Work, Believe, Attitude, With Integrity d. What's best and what's integrity?

b. what business are we in

Which of the following questions influenced Gil Meche in deciding to walk away from a $12-million contract? a. "Is it legal?" b. "How does it make me feel?" c. "Is it balanced?" d. "How bad will it get?"

b."how does it make me feel?"

three layers of business ethics

basic values notion of fairness issues related to community and the environment

Which of the following is true of individuals to whom everyone turns for problem resolution, outstanding work effort, and results? a. They are able to calmly accept the harsh reality of their human limitations. b. Pride drives them to make good ethical choices in high-pressure situations. c. Hubris consumes them when they find that eventual setback or obstacle they cannot conquer. d. They are willing to admit that there may not always be a legal or ethical fix.

c. Hubris consumes them when they find that eventual setback or obstacle they cannot conquer.

The policy on travel reimbursement at Amco Consulting is that receipts for meals under $25.00 are not required. Internal auditors at Amco have recently discovered that 80 percent of all meal submissions are in a range from $12.50 to $12.99. When one manager is questioned about the manager's submissions and those of the manager's employees, the manager responds, "So, they make a little bit on meals—it helps their miserable salaries." The manager's evaluation: a. demonstrates an ethical commitment to employees. b. is ethical since no one is really harmed. c. demonstrates a lapse in the company's ethical culture. d. is an example of Christian consequentialism.

c. demonstrates a lapse in the company's ethical culture.

According to the constitution of a country, the people have the freedom to express themselves using symbolic speech. During a protest, Liam burns his country's national flag and uses the law of symbolic speech to defend his actions in court. The court, however, rules that desecrating a venerable object conflicts with the constitution's natural law. Therefore, the court deems the action of burning of the country's flag illegal. In the context, the court's decision is an example of: a. natural law. b. moral relativism. c. positive law. d. religious law

c. positive law Positive law states that decisions should be made on the basis of whether or not the action is legal. In this case, burning of the country's flag was legal in the context of the law of symbolic speech.

Identify a true statement about anonymous reporting lines set up in organizations. a. It helps in examining the types of things companies could do that would improve the ethical culture. b. It deters employees from raising issues about their supervisors. c. It receives reports from employees and shares them with management. d. It is a minimum requirement for companies working to achieve and maintain an ethical culture.

d. It is a minimum requirement for companies working to achieve and maintain an ethical culture.

CVS drug stores decided to no longer carry tobacco products in their stores because of the health impact of tobacco on its users. Into which of the following groups does CVS fall? a. The inherence school of thought b. The enlightened self-interest school of thought c. The invisible hand school of thought d. The social responsibility school of thought

d. The social responsibility school of thought

Many news agencies recently shared a report that studies had shown that drinking a certain type of juice drink was shown to have reduced the incidence of cancer in the patients studied. What the reports did not say was that the company producing that juice drink was the company who sponsored the study. Is this study unethical? a. No, because the study was accurate, regardless of who sponsored it. b. Yes, because the company was acting illegally. c. No, because the study did show a reduction in cancer in the patients. d. Yes, because the company has a conflict of interest in the study.

d. Yes, because the company has a conflict of interest in the study. The company has a conflict of interest in seeing the results as positive because it would benefit by selling more of its juice drink.

British companies are considering giving employees "pawternity leave" for employees who adopt or purchase pets. The employees would receive time off to help their pets acclimate to their homes. One company has adopted the motto, "Happy pets. Happy employees." There is no law that requires companies to give such leaves. Why are the companies doing so? a. They are part of the inherence school of thought. b. They are part of the enlightened self-interest school of thought. c. They are part of the invisible hand school of thought. d. They are part of the social responsibility school of thought.

d. they are part of the social responsibility school of thought

Mico Yakamoto works for MedCo, Inc. Mico is a physician-scientist who is responsible for running the pilot tests on MedCo's new oral spray medication for individuals with adult onset diabetes. Mico has discovered that if test participants spray the medicine incorrectly or for a too short period of time, the medicine will not be as effective as it should be and will lead to insulin shock in some of the participants. Mico talks to one of her colleagues who responds, "Look, there's no need to stop the testing or the drug's release. Just inform the test participants and print in the brochures accompanying the spray that users should spray correctly, because if they do not, they may not receive the necessary dose." Mico is unsure if anyone can be a 100 percent accurate in spraying all the time. Who is affected by Mico's decision, regardless of what decision she makes? a. MedCo's competition in the market for the oral spray medication b. MedCo's board members c. The reputation of Mico's colleague, who advised her d. Users of the new oral spray medication

d. users of the new oral spray medication The users of the new oral spray medication will be negatively affected if they cannot spray correctly.

Importance of ethics in business success and the costs of unethical conduct *cost of unethical behavior*

ex: bp and the refinery explosion and pipeline rupture and deepwater horizon -nestle and the infant formula -tylenol and its recall of $100 million in inventory - gm, the malibu design, and the litigation -gm and the engine switch case

"Everybody else does it" is not only a rationalization but also an analysis of the ethical issues involved in conduct. a. True b. False

false. is a rationalization, but is not an analysis of ethical issues involved in conduct.

Arthur Andersen, the accounting firm, met its demise because of its certification of the fraudulent financial statements of Enron. a. True b. False

true

Corruption hampers economic development. a. True b. False

true