Ethics Quiz 2
Adam Smith: Self-Interest vs. Greed: According to Smith, what are the five ingredients of capitalism?
1) Self-interest - Exchange of goods; win/win 2) Competition 3) Efficiency 4) Division of labor 5) pricing
What are the three assumptions that 'market morality' makes, according to Sandel?
1) assumes anything can be put on the market without diminishing its value - Sandel thinks things can be altered when bought -> ex: friends 2) subjective preferences determine what to buy and sell - Sandel thinks this is a compromise to integrity 3) efficiency makes society better off - Sandel thinks that sometimes equality > efficiency -> ex: linestanding business
What are two specific worries that Sandel has about the marketplace putting a monetary value on civic goods or goods that contribute to human dignity?
1) extrinsic motivations (money) can crowd out good, intrinsically motivated behaviors - ex: patriotism, care for others - aligns with Mazar -> intrinsic/self-esteem is more important than external 2) severe inequality can undermine the voluntary character of exchange - ex: situation necessitates kidney sale to make needed money -> is this a free choice?
Self Interest: What is the difference between broad (or enlightened) self-interest and narrow self-interest?
Balance between individual freedom and moral responsibility - self interest does NOT = selfishness = narrow Adam Smith favors market transactions motivated by individual benefits - can benefit others - social harmony depends upon restraining
In what ways is Friedman similar to Adam Smith?
Both like: - transparent information - voluntary exchange
According to stakeholder approaches (pioneered by Ed Freeman) what is the purpose of the firm?
Freeman: - understand stakeholder concerns and then develop objectives that stakeholders will support - their support is necessary for long-term success How does corporate governance serve that purpose? - corporate planning -> integrate the interests of all, not just one group (i.e. shareholders)
Which of these two forms of freedom does Friedman focus on?
Friedman focuses on freedom FROM - maximize freedom from -> maximize freedom sometimes, having freedom FROM limited choices does NOT guarantee more freedom or freedom TO a range of choices
Does Milton Friedman think that markets are places that follow the same moral rules as apply to our relationships with friends, family, etc.? Or are they places that follow the rules of a different 'game'?
Friedman thinks that markets follow the rules of a different 'game' similar to boxing
In what ways is Friedman different from Adam Smith?
Friedman: - as small gov intervention as possible -> enforce property rights social well being driven by FREEDOM (FREIDMAN) vs. SELF-INTEREST (SMITH) Focus: - competition (Friedman) - empathy (Smith)
According to shareholder approaches (pioneered by Milton Friedman) what is the purpose of the firm?
Friedman: - maximize wealth for investors and owners How does corporate governance serve that purpose? - focus on profit maximization
What is the difference between freedom from and freedom to?
From - deception, fraud, regulation, coercion - ex: single mom has a payday loan at 300% because kids will not eat otherwise -> freedom from coercion?; very few options = limited freedom vs. right/freedom TO
What is the key question capitalism asks?
How can we produce most efficiently the stuff that people want? - doing so will best meet human need
Case #2: Wells Fargo: Given that fraud happened at Wells Fargo, should the bank eliminate cross-selling—or quotas for cross-selling? Or should they keep one or both?
How would a utilitarian answer this question?. How would a deontologist answer this question? How would a virtue ethicist answer this question?How would an ethical perfectionist answer this question?
Civil Corporation
build social and environmental objectives into core business - EVEN IF IT PUTS FIRM AT A DISADVANTAGE profit + leave something behind - not profit maximizing - future stakeholders = priority
What makes actions on markets moral/immoral?
Freely produced and traded capital is the most efficient response to the condition of human scarcity. Capitalism = best configuration for meeting human need. Free exchange = greatest overall social utility at lowest cost
Does this approach exemplify a broader or narrower concept of self-interest?
Freeman's line of thinking aligns more with broad - Put thought into the needs of others
Is Adam Smith pro-business? Anti-government? Explain.
focus on domain of RIGHTS not domain of MARKET - national defense - public education - public goods - justice system to enforce contracts and property rights businesses hold social potential
Corporate Governance and Corporate Social Responsibility: What is CG?
formal system of accountability, oversight, and control - A: close alignment of workplace decisions with a firm -> strategic direction - O: system of checks and balances to minimize opportunities of misconduct - C: auditing and improving organizational decisions and actions -> rewards and punishments
clicker: NBB philantrocapitalism most closely reflects which model of responsible business? a. triple bottom line b. traditional CSR c. social enterprise d. civil corp
triple bottom line - doing business as an expression of community, financial, and environmental responsibility.
What would Dan Ariely's experiments say about how fraud could have been prevented?
everyone has a personal fudge factor - willling to do some wrong actions if think it doesn't affect their self-esteem
What is a business practice that exemplifies narrow self-interest?
failure - when you focus strictly on one's own wants and ignore the well-being of others = selfishness
What does the General Economy have to do with philanthropic giving?
All activities depend on a circuit of cosmic energy that cannot be limited and must be used, if not destroyed
How does Friedman's commitment to freedom make him skeptical of traditional Corporate Responsibility efforts (like businesses making charitable donations)?
CSR - believes only government can do this legitimately through free, democratic decision making executives should NOT be able to: - "tax" stockholders for social programming -> unfree, nondemocractic -> stealing the wealth that belongs to others
What is Ed Freeman's reasoning?
CSR activity reinforces separation thesis businesses have a MUCH larger responsibility to society than empowering individual owners
What is the key question that the General Economy poses (in contrast with capitalism's key question)?
Capitalism answering wrong question. SHOULD answer how to express our human desire to expend the abundance of life
Models of Responsible Business: What are three distinctive contemporary models for a socially-responsible business?
Civil Corporation Triple Bottom Line Corporation Social Enterprise
How does Milton Friedman answer the Big Question of this module ('What do businesses owe society?')?
Competitively valued products - produced and delivered legally, transparently and freely Since free-market capitalism leads to the freest -- and thus, best-- society for individuals UTILITARIAN
How does Merck (arguably) exemplify this phenomenon on the corporate level?
Corporate Resp. - Giving back to society by drawing on unique corporate expertise is what being a goof business is all about Corp. Irresponsibility - Companies need to only develop products they think will eventually return value to their shareholders -> that is what being a good for profit corp is all about
Interdependence
Economists give a false pretense of the economy because they treat individual economic actions and the economy as a whole as if they could be isolated from its larger context. - Economic phenomenon not easy to isolate
clicker: according to Friedman, the rules of the marketplace are governed by broadly self-interest empathy for the interest of others a. true b. false
FALSE empathy = smith competition = friedman
clicker: friemdna is opposed to traditional CSR, while freeman is supportive of traditional CSR a. true b. false
FALSE, BOTH OPPOSED Friedman opposed because owners should keep the wealth Freeman opposed because it promotes separation thesis
CG exists to ensure that value is generated through high-integrity interactions with different stakeholder groups. Name at least five of these groups.
Investors Employees Customers Communities Owners Shareholders Suppliers etc.
According to Freidman, what are the three essential conditions for a free market transaction?
L.I.V.E - L: legal -> must comply with the law - I: informed -> materially relevant, no misleading - V.E.: voluntary exchange -> both parties able to opt in or out -> monopolistic behavior prohibited
Which metaphor goes with a self-organizing company view?; Explain the metaphor.
Machine Network Animal ex: Zappos, Morning Star, Buurtzorg
Case #1: Merck, Mectizan, and Moral Licensing: Should Merck have invested millions of dollars of R&D money to create Mectizan?`What would a shareholder theorist say?What would a stakeholder theorist say?
Merck - drug for parasitic disease affecting those living in areas of high poverty - give out tons of doses for free Mectizan - side-effect of heart attack; 5% more chance - did not advertise this Freeman - would be sympathetic -> care about everyone being touched by the company
How does the General Economy challenge capitalism's traditional starting point in scarcity?
Necessity of losing the excess energy that cannot be used for a system's growth. Economic activity governed by rules. Economic activity is conceived in terms of particular operations and limited ends. Does not take into consideration the play of living matter in general. - Energy bound to be lost. Problem is NOT SCARCITY BUT EXCESS
What is moral licensing?
Past moral behavior makes people more likely to do potentially immoral things without worrying about feeling or appearing immoral
What does sacrifice in the General Economy mean?
Sacrifice is NOT about tradeoffs. Sacrifice IS ABOUT OFFERING LIFE
Do people have any responsibility to companies?
Self-organizing theorist (like Frederic Laloux) answer: - companies are living organisms -> not one party simply serving the other -> collaborate with and in them - we discover out inner life's purpose, in part, through dialogue with companies -> and our companies discover their purpose, in part, through conversations with us
Shareholder vs. Stakeholder Approaches to the Purpose of the Firm
Shareholder - simple; shareholders-business - maximize wealth for investors and owners Stakeholder - many players involved - take care of each person who touches your business in a way that fairly reflects their relationship to your business
Different accounts of the purpose of the firm correlate with different images or metaphors for what a firm is.
Shareholder model - business like a car -> drive from point A to point B Stakeholder - like a team that acts together
What is the flow of authority for ensuring ethical practice and values alignment in a typical publicly-traded company?
Shareholders -> Board of Directors -> CEO -> Executives -> Workers
Does Adam Smith think that markets are placed that follow the same moral ruses as apply to our relationships with family, friends, etc.? Or are they places that follow the rules of a different 'game'?
Smith thinks markets are more like a BAR - social well-being driven by self-interest - EMPATHY - social potential inherent in business
George Bataille and the 'General Economy': What is the General Economy?
The dependence of the economy on the circulation of energy on the earth
What is capitalism?
Utilitarian framework - free exchange yields the greatest overall social utility at lowest overall social cost Private capital is organized in an adjusted fashion by the exchange relationships between commodity-seeking consumers and capital-seeking producers, all of whom are seeking to satisfy their desires
How does Ed Freeman answer the Big Question of this module ('What do businesses owe society?')?
Value delivered to everyone who touches a company - stakeholders the value different stakeholders receive should reflect how they interface with the company negotiating who deserves what is an open-ended process - always aims for the win/win creation of value through business relies on many social inputs not fully reflected in the formal contracts established by a company - those inputs deserve reciprocal outputs from the company
What are some ways in which human beings spend their economic excess?
War = poor expenditure. Parties, festivals, Olympics
Wells Fargo Case Overview
Wells Fargo opened customer accounts - want to say about 2 million relates to aridly's personal fudge factor
clicker: which of the following best describes the Zappos' holacracy? a. a top-down, command and control pyramid b. an anarchies free for all c. a flat, self organizing structure d. a small team structure
a flat, self-organizing structure
What is a business practice that exemplifies broad self-interest?
acting in your own self-interest but also considering the needs of others
clicker: chuck recently gave away his fortune of $8 million, leaving $2 million behind for his family. George Bataille would MOST LIKELY see this philanthropy as a. a failure to efficiently deploy scarce resources to generate economic wealth b. a broadly self-interest effort to grow the economic pie c. an attempt to take care of all stakeholders d. an exercise in expending the inevitable excess energy that tends to be produced with economic life
an exercise in expending the inevitable excess energy that tends to be produced with economic life
What makes markets moral spaces?
capitalism: - freely produced and traded capital is the most efficient response to the condition of human scarcity -> therefore, capitalism = the best market configuration for meeting human need
clicker: BP, the oil supermajor, has recently committed to turn itself into a clean energy by 2050. BP stock has underperformed traditional peers in the industry. BP's strategy best reflects which of the following models: a. social enterprise b. civil corp c. triple bottom line d. shareholder-first business
civil corp
Case #3: New Belgium Brewing Overview
company planned to be fully employee-owned by the ends of 2012 - focus on triple bottom line -> carbon footprint -> tech advances considered a BCORP certification - movements to stakeholder capitalism - however, large requirements -> huge legal and documents - process could hinder investment or attract investors? SR = philanthrocapitalism - join causes passionate about
What, according to Smith, is the 'natural price'?
covers rent, wages, and profit minimal sustainable price
clicker: given his emphasis on teamwork, dialogue, etc. tony's management style most closely reflects which normative theory? a. deontology b. emersonian perfectionsim c. utilitarianism d. virtue ethics
emersonian perfectionism
Which value does the domain of the marketplace tend to promote?
he marketplace which places monetary value as a reflection of personal values - efficiency
How does Freeman evaluate whether or not a business is a responsible corporate citizen?
if the individuals and the organizations are members of society, and they benefit, then society benefits, too - thus, since they are receiving benefits, they are responsible to give back
What would Haidt's rider and elephant have to say about how fraud could have been prevented?
if the management had directed the employees and a clear path had been put forth, then the right decisions would have been made
How is Smith's 'invisible hand' related to self-interest?
invisible hand = self interest + competition - unknowingly benefiting society by pursuing own self-interest factors of production should be distributed pursuant to market forces
Clicker: bataille argues that economists give a false picture of the economy because they treat individual economic actions and the economy as a whole as if it could be: a. used to distribute wealth b. used to build wealth c. integrated within its larger context d. isolated form its larger context
isolated from its larger context
Clicker: how would a deontologist like Rawls most likely evaluate Wells Fargo sale goals that were approved by top management prior to the accounts scandal? a. targets were wrong because they did not promote the greatest good b. these targets were problematic because they did not effectively promote habits that lead to human excellence c. its unethical to set targets that you would be unable to responsibly meet if you were to find yourself in the role of a front-line sales rep d. these targets did not help the employees grow into better versions of themselves
its unethical to set targets that you would be unable to responsibly meet if you were to find yourself in the role of a front-line sales rep veil of ignorance guy
Competition: What are some forms of anti-competitive behavior?
laisse-faire capitalism - drives prices down and quality up over long-run - "survival of the fittest" - transparent exchange one of the biggest sins = obstructing competition - MONOPOLIES -> ex: big tech - MONOPSONIES -> ex: NHS; state-sponsored - fixing prices
What would Nina Mazar say about how fraud could have been prevented?
make intrinsic motivations and self-esteem targets of this behavior
What macroeconomic changes were happening in Adam Smith's day that prompted (what was then) his revolutionary new theory of the morality of capitalist markets?
mercantilism -0 global growth capitalism - growing the pie, not necessarily the slice
Milton Friedman: The Economic Ethics of Freedom: For Friedman, what makes the free market free?
minimal government intervention, with as big a domain of market as possible
Is Sandel more worried about the marketplace encroaching on human rights or human rights encroaching on the marketplace?
more worried about the marketplace encroaching on human rights - putting a price on every human activity erodes certain moral and civic goods worth caring about
How might Ed Freeman extend an answer to the question 'What do kids owe their parents?' into an answer to the question 'What do businesses owe society?'
since kids received benefits from their parents they should generate and give back reciprocal value to them
Case #4: Zappos Overview
moving towards a holacracy - self-management CEO Tony gave everyone 3 months and if not for them, they could leave downtown project - revitalize downtown Las Vegas by moving the business there and forcing everyone who works at Zappos to move there - negative media attention freedom at a price - employees research their salaries - growing pains mostly reflects emersonian perfectionism - develop themselves and company to unrealized self through exchanges
For Smith, what is the moral case against anti-competitive behavior?
need to have free exchange between parties - this is limited when competition is limited
Would Friedman consider the case of a parent buying a $500 EpiPen for their allergic child a free market transaction?; Why or why not?
no because this does not promote freedom FROM deception, coercion. etc.
What does Milgram's experiment have to say about the causes of the fraud?
people will obey authority even if it messes with their moral code
What is the risk of going below the 'natural price'?
prices below the natural price are UNSUSTAINABLE
Triple Bottom Line
profit + people + planet strategy to promote environmental, social, and governance objectives
Social Enterprise
profit + reinvest profit into a social mission or cause - NOT A NON-PROFIT applies traditional business approaches towards a social mission/cause
What is the common idea running through Ed Freeman's 10 strategies for managers seeking to implement a stakeholder approach in their companies?
put the stakeholder interests first; integrated approach
clicker: according to the HBM, how is legal reclassification of NBB's corp structure related to BCORP certification? a. recertification redefines the legal purpose of the corp b. reclassification establishes the company as employuee-owned c. reclassification depends on quantitative metrics and boosts employee retention d. reclassification requires the payment of an annual fee to merge social and enviroenmtnal commitments
reclassification redefined the legal purpose of the corp
clicker: which of the following is most likely to be a BAD decision for a democratic government to make ac cording to friedman? a. mandating that food companies label potential allergens b. resolving a legal case brought against a polluting company c. outlawing slavery d. requiring companies to pay a minimum wage e. taxing the wealth to provide a social safety net
requiring companies to pay a minimum wage - this limits negotiations for wage
clicker: Freeman would most likely see Zappos' holacracy as an innovative way of: a. respecting employees and customers, consistent with his deontology b. promoting profits through free, transparent transactions c. developing the virtue of self-sacrifice by firing the bosses d. ensuring the greatest good at the lowest cost
respecting employees and customers, consistent with his deontology
Michael Sandel: The Moral Limits of Markets: Which value does the domain of government tend to promote?
right as a reflection of universal human value - equality
Efficiency: According to Smith, what is the ethical case for efficient markets?
self-interest is necessary for market economy to function well use resources to increase profits and engage in open and free competition market processes are GOOD if they INCREASE individual FREEDOM greater efficiency -> better social well-being
What is the 'separation thesis' according to Ed Freeman?
separation thesis: - that business can be separated from ethics or society Why is he skeptical of this thesis? - this reinforces destructive capitalism; "everything goes" - all businesses should shoulder the responsibility
clicker: which of the following approaches to the purpose of the firm is NOT applied to the NBB case? a. triple bottom line b. shareholder c. stakeholder d. socially responsible sustainability
shareholder
What are the three primary roles and their responsibilities that contribute to CG in a typical business?
shareholders - hire board of directors Board of Directors - define corporate mission/vision - oversee auditor - focus on generating long term value with highest integrity Executive Team - produce financial statements - plan strategy - identify and manage risks
Pricing: what market dynamics, for Smith, should set the prices of goods?
should be set by the market, NOT the government - driven by supply and demand - assumes and communicates information
What do Businesses Owe Society?
should companies be free to do things probably NOT contributing to the long term values of the firm? - Friedman: NO - Freeman: YES -> but he acknowledges good and bad -> but have an ongoing responsibility
Does Ed Freeman think that markets are places that follow the same moral rules as apply to our relationships with friends, family, etc.? Or are they places that follow the rules of a different 'game'?
similar to friends/family - treat everyone who touches your business as a person whose interest matters to your business
clicker: which of the following is NOT one of the claims made by the authors of "smith and friedman" a. smiths core value is just self interest and freedman's is freedom b. smith and freedman's idea of self interest has been widely misunderstood c. smith and Friedman each argue that greed is good d. smith and Friedman each argue that self interest has an other-regarding aspect
smith and Friedman each argue that greed is good
Division of Labor: what is it and what does it do?
specialize in what you're good at - self-interested coordination - collaboration between individuals and teams benefits - efficiency - specialization - increased production
What are the advantages of a market-based price system to the consumer?
sustainable market fluctuations
According to Sandel, should marketplace participants always have the freedom to decide what isn't allowed for sale on the marketplace?
the government plays a crucial role in keeping certain things OFF the market - businesses and individuals cannot be completely free sometimes, positive freedom TO do something is best protected by reducing negative freedom FROM
clicker: many companies give their employees time off to vote. however, many others have resisted calls to give time off to vote. Sandel would MOST LIKELY regard corporate resistance to giving time off as a symptom of: a. the marketplace's tendency to undermine political rights b. the freedom from voting as interfering with the freedom to work c. the gov's tendency to undermine marketplace values d. the freedom from work as interfering with the freedom to vote
the marketplace's tendency to undermine political rights
What is rent-seeking?; Did Smith like it or not?Why?
they sustain high prices - trade secrets/patents -> Rx - monopolies -> digital titans - restraint of trade -> tariffs and the price of scotch Smith does NOT like them because they limit competition
Both Milton Friedman and Ed Freeman are worried about traditional Corporate Social Responsibility (CSR) (e.g., businesses giving money to charities). However, their reasons are different.: What is Milton Friedman's reasoning?
thinks owners should do what they want w/ the money inappropriate to come under pressure to take on social causes the government should promote common good it treats collectives, rather than individuals, as if they were the socially responsible moral agents of business
clicker: how would Adam Smith be likely to regard Walmart's slogan "save money. live better"? a. this represents the moral case for markets in a nutshell; broad self interest in meeting customers needs drives profits b. this is an expression of corporate greed; market to profit at the buyers expense c. exemplifies division of labor d. example of corp. inefficiency; should focus on raising prices
this represents the moral case for markets in a nutshell; broad self interest
In contemporary business culture, which approach to the purpose of the firm is more dominant: shareholder or stakeholder?
traditional approaches it to shareholders
What are some of the human costs (and potential moral drawbacks) of the division of labor?
turns humans into stupefied versions of themselves - sucks to work these jobs -> BUT we still need them -> better goods -> higher profits -> necessary evil in the sense of a greater good exploits laboring underclass - BUT idea is that they are presented an opportunity to work -> and maybe the jobs will progress over time -> BUT do these people belong there
Case #2: Salesforce, 1t.org, and Climate Change: Should Salesforce have committed its CRM platform to support the 1 trillion tree initiative, while also promising to plant 100 million trees itself?
volunteering time and money
Why does Friedman want the domain of the market to be as large as possible and the domain of the government to be as small as possible (assuming that both are still able to function properly)?
want largest freedom to buy and sell to increase competition and freedom of choice gov intervention hinders this freedom
Does Friedman think that democratically-elected governments have the right to redistribute money to those who need it?
yes, enforce private property rights in a democratic manner